Eurasia, History, Politics

6/6: the 1990s Russian catastrophe could have been avoided

It is commonly accepted that, after 70 years of Communist dictatorship, Russia’s 1990s transition was inevitably going to be a massive train wreck. This is yet another convenient misconception that western intellectuals like to embrace. The foregoing article seeks to dispel this notion and set the historical record straight. It is an excerpt from Chapter 3 of my book, “Grand Deception: the Truth About Bill Browder, the Magnitsky Act, and Anti-Russia Sanctions”. The book’s previous incarnation was banned last summer.

This is the last in a six-part series on Russia’s 1990s transition from communism to capitalism. Links to previous posts: introduction, part 1, part 2, part 3, part 4 and part 5.

Americans, who thought their money was helping a stricken land, have been dishonored; and the Russian people who trusted us are now in debt twice what they were in 1991 and rightly feel themselves betrayed. – reporter Anne Williamson before the Committee on Banking and Financial Services of the U.S. House of Representatives, 21 September 1999

Was there a better way for Russia to move from communism to capitalism? Was her traumatic experience under Yeltsin regime inevitable, or was the pain intentionally inflicted? To this day many intellectuals in the West maintain that the transition could not have gone otherwise, arguing that Russia had emerged from 70 years of communist rule with a state controlled economy, with private property outlawed and a nonexistent culture of entrepreneurship. The shift between two drastically different economic systems together with the most complex privatization project ever undertaken could never have gone smoothly. The Russians themselves are usually assumed to have been ignorant about the workings of free markets and unprepared for transition’s challenges. However, this is simply not true.

Well before the Soviet Union began to unravel it was clear to most of its thinking citizens that their system would capsize unless it drastically changed.

In the republics of the former Yugoslavia – having a similar system as the USSR – already in the mid-1980s most people understood that our system was unsustainable and that the only viable alternative was a capitalist market economy based on private property. As in Russia, few favoured the Anglo-American monetary neoliberalism; the preferred model was a capitalist economy with the social state, following the Swedish model. We called this, “socialism with the human face,” the very same term that was often invoked in pre-transition Russia.

In Russia, for nearly twenty years numerous economists applied themselves to studying the mechanics of capitalist market economy in anticipation of the coming changes. The school of thought that was particularly popular among them was that of the Swiss economist Wilhelm von Roepke and his disciple Ludwig Erhard, the father of Germany’s post-war economic miracle.[1] Unfortunately, when Harvard’s advisors arrived in Moscow and started recruiting Russians they would work with, they ignored these learned and prepared economists. One of them was Larisa Piasheva whom Moscow mayor Gavril Popov entrusted with the project of designing and implementing the privatization of Moscow’s assets.

In her testimony before the Congressional Committee on Banking and Financial Services, journalist Anne Willamson described Piasheva’s program as, “a fearless and rapid plunge into the market which would have distributed property widely into Russia’s many eager hands.” Willamson added: “When the Administration says it had no choice but to rely upon the bad actors it did select for American largesse, Congress should recall Larisa Piasheva. How different today’s’ Russia might have been had only the Bush Administration and the many Western advisers … chosen to champion Ms. Piasheva’s vision of a rapid disbursement of property to the people rather than to the ‘golden children’ of the Soviet nomenklatura.[2]

Russia’s nascent democratic forces did in fact endeavor to effect a more equitable transfer of state properties to Russian citizens: in 1992, based on privatization programs that Piasheva and others had developed, the Congress of People’s Deputies approved a scheme that was structured to prevent corruption.[3] At that time however, Boris Yeltsin had already secured the privilege to manage privatization by decree and many of his decrees were drafted by the very coterie of cabinet officials, their American advisors and hand-picked oligarchs who were the main beneficiaries of the process. Any action by Russian lawmakers that obstructed the oligarchs’ pillage stood little chance of being realized. But looting the country’s wealth was not their only objective – dismembering Russia, destroying its institutions, and inflicting pain on its people was an integral part of that project. The pattern of reformers’ conduct on numerous important issues consistently favored destructive, damaging measures over those that might have improved conditions in the country.

To begin with, there was the problem of privatization’s timing. If the reformers had any intention of conducting a fair and equitable privatization, they should have completed it before the abolition of price controls. In their book, “The Tragedy of Russia’s Reforms,” Peter Reddaway and Dmitri Glinski point out that, “The Soviet middle class used the relatively prosperous and stable 1960s and 1970s to amass a considerable amount of personal savings in government bank accounts. In the Gorbachev era, when denationalization and deregulation of the economy came on the agenda, these middle-class savings were ripe to be channeled toward productive investment in industry, which in a broader framework of reasonable reform policies could have led to internally generated and sustainable growth along the lines of the postwar Japanese miracle.[4]

However, the Russians were deprived of the opportunity to use their savings: the sudden price liberalization unleashed hyperinflation which rapidly destroyed their purchasing power. This was the reformers’ elegant solution to make sure Russians couldn’t claim their share in the nation’s wealth. IMF’s insistence on the abolition of energy price subsidies while at the same time drastically curtailing the quantity of currency in circulation predictably destroyed Russia’s production of food. Dependency on foreign food aid made Russia and its officials easily compliant with the Western dictate.

Western institutions could have easily alleviated the suffering of Russians in 1993 when a major health care crisis broke out. Jeffrey Sachs reports having met with the head of World Bank’s Health Mission at that time, expressly to address the dismal state of health care and social services in Russia and to urge World Bank to take action. To his dismay, he “discovered that the World Bank planned to take its time to get help to Russia, since there was apparently a need for the bank to study the situation for some years first.[5] Thus, World Bank purposely withheld the help that was well within its means to provide, contributing to needless suffering and deaths of millions of ordinary Russians.

Intellectual musings of Harvard’s historian Richard Pipes showcase the depraved thinking of some of Russia’s Western advisors. He contends that it was “desirable for Russia to keep on disintegrating until nothing remains of her institutional structures.[6] That same Harvard, which kept the likes of Richard Pipes on its payroll, had since 1987 also accepted CIA funding for their program on intelligence and policy at John F. Kennedy School of Government.[7]

The same Harvard that advised the Russian government on shock therapy and privatization also put its employees Andrei Schleifer and Jonathan Hay in charge of HIID to disburse over $300 million of USAID funds among their cronies in Russia.[8] When Schleifer and Hay were found guilty of fraud and gross corruption, Harvard failed to distance itself from these two criminals, backing Schleifer all the way through nine years of legal proceedings and retaining him on its faculty even after his conviction. The same university’s honored alumni Robert Rubin and Lawrence Summers formulated IMF’s cruel “aid” policy for Russia from their perch at the US Treasury department. The same Harvard had little compunction about profiting from the misery it had helped inflict on the people of Russia, seeing its endowment balloon from $4 billion in 1992 to $18 billion in 2000.[9]

Bill Browder was right to decry the “evil foundation,” and “dirty dishonesty of Russia.” He failed to explain however, that these were largely the creation of Western financial interests which he too represented. Tens of millions of Russians endured a decade of poverty and humiliation and up to six million of them needlessly met an early death. It is utterly cynical and deceitful for Browder to ignore those Russians as though they were less worthy than his lawyer accountant Sergei Magnitsky. It is deeply hypocritical of him to pretend to seek justice for Magnitsky while remaining silent about the millions of victims of Western economic assault on Russia.

As for the worthy Harvard audiences of Bill Browder’s business case presentations, which he describes in his book “Red Notice,” these young men and women would do well not let themselves be misled and emotionally manipulated. The proper perspective on such important historical events as the fall of the Soviet Union and Russia’s subsequent transition should be sought through critical thinking rather than misplaced sentimentality. If they tried to acquire such perspective, they might think to demand their professors and alumni to give them full account of their university’s role in the Russian tragedy. But let’s not delude ourselves. The whole point of Browder’s presentations at Harvard and elsewhere is not to give his audiences an honest account about Russia. It is to sell his story and gain allies and supporters in his relentless crusade against Russia and its new leadership.

For sources and footnotes, please scroll below.

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Alex Krainer is a hedge fund manager and author. His book, banned by Amazon in September 2017 is now available in pdf, kindle, and epub formats at the following link “Grand Deception: Truth About Bill Browder, the Magnitsky Act and Anti-Russian Sanctions.Paperback version is now available here. Alex also wrote one book on commodities trading.

 

Notes:

[1] (Likoudis 2011)

[2] (Sailer 2014)

[3] (Wedel 1998)

[4] (Glinski and Reddaway 2001)

[5] (Sachs 2012)

[6] (Klein 2007)

[7] (Lundberg 1995)

[8] This was not a case where the well-meaning Cambridge officials lost control over their Moscow-based operatives and remained ignorant of their misdeeds: by December 1993, less than a year after the project began, Alberto Neri, one of HIID’s Moscow-based financial officers wrote no less than four memos to the institute’s Deputy Director Rosanne Kumins, warning her that Harvard was complicit in financial irregularities and tax evasion and was condoning dissemination of false data, irregularities in employment contracts and misrepresentation of expenditures.

[9] Harvard Endowment was heavily invested in Russia and actively participated in trading of Russian short-term Treasury Bills (Austin Fitts 2002)

 

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2 thoughts on “6/6: the 1990s Russian catastrophe could have been avoided

  1. polistra says:

    Excellent series.

    The preconception that Russians couldn’t adapt to entrepreneurial culture was obviously false. Ordinary Russians had been running ‘side-businesses’ for decades.

    Here in Spokane we received an influx of immigrants from the Soviet zone during the ’90s collapse. They’re now 10% of the city’s population. They stand out from the natives because they immediately started their own businesses, which are now successful. No learning curve was needed.

    Like

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