Chris Harman

Thinking it through

From fire to frying pan

(August 1998)

From Socialist Review, No.222, August/September 1998.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive at
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

‘It was not long before Chernomyrdin was as unpopular as the governments that had gone before him.’

Russia’s rulers are in a sudden panic over fears of economic catastrophe. The Kiriyenko government was forced to devalue the rouble and to threaten to default on its foreign debts. Yeltsin dumped Kiriyenko and replaced him with Chernomyrdin, who himself had been dumped over five months before. Western bankers are now terrified the whole country could explode in their faces.

The talk in the western press is of a ‘new’ economic crisis in the country that could even lead to Yeltsin’s own demise. But crisis, in terms of continuing economic recession, never went away. It began under Gorbachev ten years ago, and played a key part in bringing about the collapse of his government – and of the old USSR-seven years ago. The devotees of ‘free market’ economics who then took over claimed that a short spell of ‘shock treatment’ would rapidly rectify the situation. All the talk in the western media at the time was of miraculous ‘300 day’ or ‘400 day’ recovery programmes.

It was all ballyhoo. Today economic output is still about half the 1988 figure. Tens of millions of people would be living below starvation levels were it not for the vegetables they grow. Average life expectancy continues to fall.

If the rouble stabilised for a time, it was because successive governments followed a policy of simply not paying vast numbers of workers for months at a time, while borrowing from western banks was recycled as the profits of the handful of giant monopoly concerns. If there are signs of prosperity in parts of central Moscow, that is only because the exorbitantly luxurious lifestyles that used to be enjoyed in carefully guarded privacy by the Stalinist nomenklatura are now paraded in public by a yuppie class of market whizz-kids, half-laundered mafiosi and nomenklatura retreads.

How is the failure of ‘reform’ to be explained? The market reformers themselves have no explanation. All they can do is repeat ad nauseam the call to deal with the failure of the market by ... turning to the market. If one lot of shock treatment does not work, then try, try, try again-even if the end result is that there is no economy left on which to use more shock treatment.

The one tune apologists for Stalinism do not have an answer either. After all, the crisis did not begin in August 1991 when Yeltsin took over or even in 1987 when Gorbachev began talking seriously about perestroika. The first signs were there in the last Brezhnev years. Yet the crisis of the old Stalinism and the crisis of the market system are intimately connected.

The Stalinist system entered into crisis because it was constructed, from top to bottom, on the basis of competition with the western powers-mainly military competition, which ate up between 20 and 40 percent of output and led much of the rest of the economy to be devoted to heavy industry. The attempt to compete with a US economy twice the size of the USSR led to massive levels of accumulation-leaving few resources to meet the needs of the mass of people. While Russian arms were as good as anywhere in the world-until at least the late 1970s-most consumer goods were of notoriously low quality.

Under Gorbachev quantitative deterioration became open crisis. Whole sections of industry were suddenly incapable of operating at the levels they were expected to. Meanwhile other sections found themselves with enormous, unwanted stockpiles of components and half finished goods. Shortages and queues existed alongside such ‘overproduction’.

It was this which led Gorbachev, a lifelong apparatchik, to try to introduce reform. But the spreading political, ideological and social crisis engulfed him. Through his years devotees of magic ‘free market’ cures had received an increasingly enthusiastic hearing from the democratic opposition and the old nomenklatura alike. Under Yeltsin they were given a free hand. Yet for those not too blind to see, it was obvious from the first that their approach could not work.

Most sectors of the economy were dominated by a few near monopolies. once state controls were removed their managers would maximise profits by cutting back output and pushing up prices, so you got price rises and shortages on an even greater scale than before.

Opening the economy to foreign competition would inevitably lead to devastation of wide sections of industry, particularly in consumer goods sections which had been deprived of investment for decades. But breaking up the monopolies was not an answer either-since, If Russian firms were ever to compete internationally they had to be of a similar size to the great western multinationals.

The programme of the reformers, in whatever guise, was going to lead to further economic contraction and to hyperinflation, and reliance on market mechanisms alone could never solve the problem. Such prophesies were borne out by the performance of the first ‘democratic’ reforming governments. The parties which supported them were, not surprisingly, virtually destroyed in subsequent parliamentary elections.

It was then that Yeltsin turned to Chernomyrdin, until then head of Russia’s giant gas monopoly and a key player among the handful of ex-nomenklatura industrialists who control most of the country’s giant privatised firms and exercise a tight grip on its media.

Such allies enabled Yeltsin to secure his own re-election as president. But it was not long before Chernomyrdin was as unpopular as the governments that had gone before him. Meanwhile, disputes among Yeltsin’s own entourage had come to resemble nothing so much as wars between mafia families.

It was against this background that Yeltsin appointed Kiriyenko in the spring – and received so much praise in the west for turning to a ‘young and courageous reformer’. The whole sorry and sordid story is living proof that market ‘reforms’ are not the answer in Russia.

Those who enthuse over them are simply unable or unwilling to understand that resurgent and deepening crises are a recurrent feature of ‘free market’ capitalism. That is precisely why capitalisms right across the globe embraced state intervention in the economy – state capitalism – after the great crisis of the early 1930s.

Today state capitalism can no longer ward off crises either. Jumping from the ‘state capitalist’ to ‘free market’ model is jumping from the frying pan into the fire – and so is trying to jump back the other way. A whole new system is needed, not some rearrangement at the top of the existing system.

Last updated on 21 December 2009