New Rich, New Poor, New Russia

Winners and Losers on the Russian Road to Capitalism

Bertram Silverman,Murray Yanowitch

• Verlag: Routledge
• Jahr: 2016
• ISBN:
  9781315500799
• Auflage: 2
• Thema: Business
• Thema: Business generale

Now expanded to cover the consequences of Russia's 1998 financial collapse, this book focuses on the social consequences of a modern-day great depression. The text examines the unequal distribution of the costs and benefits of Russia's leap into capitalism. The topics covered include: the emergence of the "new poor"; the recruitment of a business elite; the changing social and economic status of women; and the impact of marketization on employment. The study draws on a range of statistics and survey research data to present a portrait of the lives and circumstances of comtemporary Russians.

1

Free Market Ideology and the Specter of Inequality

As its surrounding satellites began to break free in 1989, the Soviet Union, to the surprise of most experts, seemed to implode. The defining conflict of the twentieth century, between communism and capitalism, ended, as T.S. Eliot might have said, “not with a bang but with a whimper.” For the many who had lived under its oppressive yoke, the collapse of communism released a sense of new opportunities. Many of the restrictions on freedom were lifted, and suddenly it was possible to publicly voice grievances and preferences and to move more freely to pursue one’s own interests. The strike movement and the emergence of political opposition groups suggested that a genuine civil society might find its place beyond the kitchen table to which previously it had been confined. To the extent that people were freer to follow their own interests, everyone has benefited from the fall of communism.

But lifting the constraints on liberty, what some have called negative freedom, was only one element in the experience of a newly emancipated population. In fact, there were losers as well as winners on the Russian road to capitalism. And in assessing their fate, positive freedom must command a great deal more attention.¹

The positive aspects of freedom require social and economic conditions that make it possible for people to choose the life they wish to lead. Protecting civil rights is essential to allow individuals to be “free to choose.” But without certain economic rights to protect their ability to choose, individuals are limited in their capacity to use their freedom. As Franklin Roosevelt warned in 1944, “necessitous men are not free men. People who are hungry and out of a job are the stuff of which dictatorships are made.”²

Free market ideology pays little attention to the positive components of liberty. Yet, most actually existing market systems have in varying ways introduced a variety of social democratic rights that have promoted economic as well as political citizenship. They have usually done so in response to social and economic agitation. The history of capitalism is replete with the struggles of the “left-behinds” to gain greater economic and political rights to protect and use their freedom.

Three of the most important elements in achieving positive freedom are living standards, economic security, and equity. Poor people have little clout in either the marketplace or the political arena. And workers faced with limited financial resources and government support when unemployed, and with few prospects of finding new employment, have limited freedom to act in their own interests. How a society distributes income and wealth will also greatly influence the extent of positive freedom. If only a small minority has the economic resources to pursue its interests while the many have limited economic opportunity, the freedom of the majority will be significantly restricted. As Vaclav Havel has eloquently argued,

the true aim of reform is to empower individual citizens.… [I]t comes very directly from better health. It comes from transferable job skills and a well functioning labour market which allow people some measure of power over their work. It comes from a measure of income security. Though some insecurity is inescapable in a market economy, extreme poverty and insecurity sap a person’s identity and destroy his or her freedom.³

These elements of economic citizenship outlined by Vaclav Havel empower people to use both political and economic means to enhance the quality of life. Without a concept of economic rights, the positive aspects of freedom will be seriously undermined. The economist Albert Hirschman, in a pathbreaking book, has demonstrated how individuals use both “exit” and “voice” to improve the quality of their lives.⁴ By exit, Hirschman means the use of one’s “feet” (to expand his metaphor) to leave a job, a place, or product in search of something better. In contrast to exit, using one’s voice is a political act. Rather than leaving a firm or a community, individuals choose to stay and express their discontents in order to improve their conditions. To be successful, voice frequently requires collective action to mobilize individual voices so they are more effectively heard.

But these channels of liberty depend on the flowering of positive freedom. Workers will not leave their jobs or raise their voices in protest if the cost of job loss is too great. The social protections provided by modern social democracies have not only enhanced the right to organize collectively but have reduced the potential costs of exit and voice and consequently have increased overall freedom. In the chapters that follow we seek to explore how the new market system in Russia has promoted or inhibited the development of positive freedom.

The Social Limits of Radical Reform

The ideology of free markets has guided the direction of Russia’s turn to capitalism.⁵ The radical reformers led by Egor Gaidar and his Western advisers engaged in a mission to demolish the bureaucratic command system by rapidly replacing it with the coercive powers of private property guided by the constraints of freely determined prices. They saw themselves as a “kamikaze cabinet” whose main purpose was to implement policies that would destroy the planning system and prevent the old communist nomenklatura from reestablishing their power.⁶ The image of a kamikaze force engaged in a heroic attack mission that would result in its self-destruction tells us a great deal about the individuals and the ideology that guided Russia’s second “revolution,” a subject to which we return shortly.

The destruction has been great indeed. The hope and euphoria associated with the birth of negative freedom have faded. Rather than becoming an engaged and empowered citizenry, most Russians have withdrawn from politics and are increasingly skeptical that a weak state can protect them against the uncertainty of the marketplace and ensure the elementary safety of everyday life. For the majority of Russians the gift of freedom has been overwhelmed by the daily struggle to live. The long and ubiquitous lines that symbolized the wait for consumer goods have disappeared, replaced by high prices that keep the broad range of western products out of reach of the majority of ordinary citizens. In an ironic twist, Russians once again are asked to wait for the consumer bliss that a formerly despised capitalist economy is expected to bestow on them. Once again, radical reformers, now cloaked in free market ideology, place their faith in the heralded patience of the Russian people to postpone gratification and accept present sacrifices for a future that will turn Russia into a “normal” or “civilized” society.

The acceptance of short-run pain to achieve the benefits of future economic growth in both free market and communist ideology should not be surprising. Both belief systems place considerable emphasis on economic growth to achieve the good society. Free market ideology is particularly prone to promote the idea of market spontaneity to quickly push economic agents to respond to the requirements of economic growth. But in real life, adjustments to change take time and are costly. To reduce the pain of change, consideration needs to be given to the relationship between the rate of change and the time it will take to adjust to change. As Karl Polanyi noted in his classic study of the first transition to a market system, common sense should suggest that if the pace of change is too fast, it should be slowed down, if possible, to safeguard the welfare of the community.⁷ He might also have added that the more privileged are always in a much better strategic position to accommodate to changing circumstances than less fortunate and vulnerable groups. Most Russians, regardless of their economic status, when asked about the pace of marketization, have repeatedly expressed the view that reforms should proceed more slowly.⁸

This symmetry of accepting short-run sacrifices for the sake of longer-term benefits reflects another commonality between free market liberalism and communist bolshevism: each is committed to destroying the past and as a consequence each underestimates the force of history in determining the future. The bolsheviks thought they needed to forcefully destroy the past in order to create a socialist future. But their inherited backward agricultural society played a decisive role in limiting economic development and in perpetuating a pseudo-socialist economy.

Efforts to reform the military-style command system have a long history. But unlike earlier attempts to reform the economy that failed to have a significant impact, Mikhail Gorbachev’s perestroika and glasnost led to a severe economic crisis. By encouraging greater political and economic dissent and decentralization of economic decisions, Gorbachev hoped to create a real socialist society. One prominent reformer called it “the second socialist revolution.”⁹

But perestroika weakened the centralized bureaucratic guidance system before workable market institutions were in place. And despite all the benefits of glasnost, greater freedom of expression and organization fatally undermined an already weakened and demoralized central authority. The center lost its effectiveness, not only because its functions were drastically curtailed, but because the authority of the Communist Party and the governing bureaucracy could be more easily defied. This set the stage for the beginning of an enormous growth in black and gray markets, theft, and official corruption.

The economic crisis that ensued pushed the leadership toward more radical economic solutions. Influenced by the collapse of communism in Eastern Europe and the growth of free market ideology in the West, Soviet economic thinking shifted increasingly away from pursuing some variant of democratic market socialism to the immediate construction of a market capitalist system to stem the tide of economic disintegration. When the Soviet Union collapsed in 1991, Boris Yeltsin turned to a youthful and relatively inexperienced group of economists and their Western advisers to resolve the economic crisis by quickly introducing capitalism.

The new radical economic reformers were not revolutionaries in the bolshevik mold. They could not destroy the past by force. Instead, their “shock therapy” was designed to replace the crumbling party and the state administrative command system by inventing a new future. Supporters of their policies were fond of quoting an old Chassidic injunction that “you can’t cross a chasm in two leaps.” By implication, building bridges between the old and the new was rejected, as was the possibility that a single leap might not get you to the other side. In their effort to jump into the future, everything in the past was rejected, and the past and the future were seen as ideological polar opposites: planning and state ownership were bad and needed to be destroyed, free markets and private property were good and needed to be quickly introduced.¹⁰ Such an ideological stance is based on a fundamental fallacy. As the historian Robert Daniels observed, “it was as if the market could be invoked out of nothing as an instrument for the transition to the market itself.”¹¹

The metaphor of leaping a chasm suggests a number of other tenets of radical free market reform. On the other side, where free markets are supposed to reign, economies are guided by generally accepted economic principles that have universal applicability across nations. This leads to a strong belief in the power of economic knowledge to guide Russia down a proven and well-understood path to a market economy.¹² History and social institutions are largely ignored in radical reformers’ economic analysis. In fact, history and society are seen as impediments that will be overcome naturally in the long run after sound economic policies are implemented.

In order to destroy the remnants of the administrative command system, Yeltsin quickly moved to radically transform the economy. Shock therapy rested on three main pillars: rapid liberalization of most prices and deregulation of enterprise activities to get prices right and to encourage increases in production in response to higher prices; restrictive fiscal and monetary policies to bring inflation under control and to impose stricter budgetary constraints on enterprises; and speedy privatization to break the links between firms and government and to encourage enterprise restructuring making it easier to enforce and sustain stabilization policies.¹³

The impact on most Russians was immediate and devastating. Inflation surged, real wages fell, and production declined beyond reformers’ expectations. Overnight, Russians lost their savings and living standards plunged. More goods were visible in shops because higher prices drove ordinary Russians out of the marketplace. At the same time, domestic production collapsed because adequate distribution networks and coordinating mechanisms were not yet in place to replace the now defunct state planning systems. Production also fell because lower real wages reduced effective demand, which induced managers to reduce spending for capital goods and, not infrequently, to use their subsidies and credits to enrich themselves.

Stabilization policies were never systematically applied. Nor could they be. A weak government, parliamentary resistance, the fear of massive unemployment and a “social explosion” politicized monetary and fiscal policies. The loss of government authority and effectiveness and the continued nexus between enterprises and the state helps explain why efforts to stabilize the economy were and remain so erratic. While the rate of inflation began to decline in 1995, for the vast majority budget balancing has meant deteriorating real wages, health care, and education, and increasing economic and social insecurity.

Privatization, the third pillar of reform, also produced unexpected results. The reformers succeeded in moving privatization forward very rapidly, but as we demonstrate more fully in Chapter 6, many of the chief winners were the old managers and nomenklatura. Many of the new private manufacturing and service enterprises have become engulfed in illegal and mafia-style activities. Despite efforts to democratize privatization through the distribution of vouchers and ownership shares to workers, a large proportion of the vouchers have ended up in the hands of speculators, and managers are becoming the effective owners of most former state enterprises. Nevertheless, recent studies suggest that managers of newly privatized firms are not acting like “theoretical capitalists” but still continue to follow older norms and goals.¹⁴ It has become increasingly clear that Russia cannot recreate its economic and social institutions out of whole cloth. Rather, as the historian Moshe Lewin shrewdly suggests, the Russian economy and society can only be reinvented “from the given material, which consists of many past experiences, institutions, and traditions.…”¹⁵

Because the Gaidar team and its foreign economic advisers believed they could leap the chasm that separated Russia from other market systems, they became increasingly removed from the political process that surrounded them. Consequently, like the communists they sought to destroy, their top-down economic reforms increasingly isolated them from popular sentiments.¹⁶ Those who criticized their policies were held to be ignorant of modern economic theory or not to have understood the policy alternatives they faced.¹⁷ Unanticipated setbacks in the economy were attributed not to their policy failures—that is, to too much shock therapy—but rather to too little. They did not learn their lessons until the December 1993 election that routed them.

One lesson they might have learned is that market ideology provides little information about actually existing market systems. As Albert Hirschman has observed, “there is and always has been a large variety of ‘really existing’ market societies. This diversity helps to account for the shifting leadership of advanced industrial countries.… To opt for ‘the market’ thus does not mean to copy some uniform model of institutions and practices.”¹⁸ There is no simple way of determining why some market systems have performed better than others in different historical periods. The effectiveness of a market system is related to the institutional and organizational framework as well as the traditions and cultural values in which markets are embedded. Social norms and perceptions of fairness influence how economic actors and institutions respond to changes in the distribution of economic rewards.

Equality and Economic Performance

Once this premise is granted, one can no longer assume a priori what the relationship is between the performan...

Inhaltsverzeichnis

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of Tables
• Preface
• Introduction to the Second Edition
• 1. Free Market Ideology and the Specter of Inequality
• 2. Critical Responses to Radical Reform
• 3. The Rise of Mass Poverty
• 4. A Question of Difference: Women as Losers
• 5. Wage-Earners: Winners and Losers
• 6. A New Capitalist Class: Entrepreneurs and the Economic Elite
• 7. Why No Social Democracy in Russia?
• Epilogue: The Failure of Market Bolshevism
• Notes
• Index