Russia. A History полностью

While some decline was inevitable, the magnitude of what happened in the 1990s surpassed even the direst predictions. One factor was the acute dearth of capital investment, which plummeted by 92 per cent between 1989 and 1997. Thus, given the depreciation of existing plants and machinery (increasingly obsolescent and depleted), Russia actually experienced a disinvestment, with fixed capital declining 12 per cent by 1998. The state, given its fiscal woes, was powerless to stop this decline in capital investment. Nor did Russia’s ‘new entrepreneurs’ provide the needed capital. Most lacked the resources; privatization simply conferred property rights, often on insiders who lacked the capital or business acumen to modernize or even sustain these enterprises. One observer offered this apt description of the privatization of large-scale state enterprises: ‘We sold off a herd of elephants at rabbit prices, and now a new class of owners is trying to feed them at the price of a carrot a day.’ Insider privatization did not create a class of innovative entrepreneurs but simply spawned a class of businessmen who openly declared that politics was the fast track to personal enrichment, not innovation and investment. Thus ‘entrepreneurs’ not only corrupted politicians, but politicians corrupted the ‘entrepreneurs’. And once successful, the entrepreneurs hastily spirited their ill-gotten gains abroad, with the capital flight of the 1990s exceeding 200 billion dollars.

This haemorrhage of precious capital far exceeded the paltry influx of foreign investment—a cumulative 29.4 billion dollars, with just 12.8 billion coming as foreign direct investment (FDI). That was far short of the fabulous sums predicted by Western economic advisers and promised by Western political leaders. Apart from loans (intended to promote monetary stabilization, but increasingly used to service Russia’s foreign debt and to line anonymous pockets), international agencies and private investors found the Russian market too corrupt and risky, especially in the case of FDI. The tales of the defrauded, even murdered, deterred all but the most adventurous. As a result, Russia attracted a fraction of global investments (for example, under 1 per cent of global FDI in 1995—less than Peru’s share, a tenth of China’s). Even more striking was the contrast with East European states, where the per capita FDI was twelve times higher. The capital famine (given depreciation, hence net disinvestment) resulted in ‘deindustrialization’ and concentrated the country exports in the volatile market for raw materials, metals, and energy resources.

Bad policy—driven by the neoliberalism of foreign creditors and Western consultants—exacerbated the country’s economic problems. The chief economist of the World Bank later observed that the reformers were ‘overly influenced by excessively simplistic textbook models of the market economy’, which inspired a mystical faith in the ‘market’, gainsaid the role of the state, and ignored the need to construct the institutional foundations of a market economy. As the state failed (its institutions collapsing, its finances withering, its power declining), it could not design and implement a prioritized economic strategy like that successfully employed by the ‘Asian tigers’. Indeed, as Yeltsin traded state property and privileges for political support, Russia devolved from a ‘command economy’ into what the Nobel Laureate Douglas North decried as the ‘anarchy … that we have been observing in Russia’.

The bad advice was not always disinterested: Western countries—particularly the United States—benefited from the economic collapse which marginalized and impoverished the former superpower. Given the close nexus between the West and economic reform (reinforced by propaganda campaigns, like that financed by the United States to sing the praises of privatization), a majority of Russians suspected that the West had deliberately caused economic havoc in order to achieve economic colonization of Russia and to ensure America’s global hegemony. Some Western advisers exploited Russia’s plight for personal gain. In the most notorious case, the US Justice Department charged that the Harvard Institute for International Development (which had received 40 million dollars in government grants and controlled a portfolio of 350 million dollars in aid) had mishandled the aid money and that its principals had engaged in insider trading. Such revelations filled the Russian press, reinforcing popular disenchantment and distrust of the government, market reforms, and their Western sponsors.

Society: Polarization, Degradation, and Deviance