The past few years have been relatively favourable for the Russian
economy. Production increased visibly after seven years of recession
from 1991 to 1998. In 2000 and 2001 real GDP increased by about
14% and, in view of the anticipated 4% rise in 2002, GDP growth
will amount to 19% over three years. People's real incomes and
consumer demand increased after a nosedive during the 1998 crisis.
The past two years have also been marked by greater investor optimism
regarding the export sector and some of the processing industries
that compete with imports on the domestic market. For the second
year running exports exceeded USD100 billion, yielding a significant
trade and balance of payments surplus, which normalized repayment
of the foreign debt and ensured a relatively stable national exchange
Economists and politicians usually ascribe the substantial improvement
in the economy to the devaluation of the rouble and the high oil
prices. In principle, this is true: the impact of events at the
time may be described as extraordinary - a rapid devaluation of
the rouble at the end of 1998 and in early 1999 (three- to four-fold
within a few months) and a nearly three-fold leap in world oil
prices in 1999 and 2000. Not to mention the undeniably positive
changes in the Russian economy over the past few years.
Increasing investments in the export-oriented raw materials
sector, which were stimulated by a rise in revenues resulting
from rocketing raw materials prices internationally, have gradually
been transferred to a number of sectors primarily in the domestic
market. An increasingly important role is being played by expansion
of domestic demand, buttressed by people's growing incomes and
investments in the real sector. Furthermore, the growth in personal
consumption has today become a chief factor in increasing production.
The banking infrastructure that was almost totally crippled
by the "August" crisis has partly recovered over the
past three years. The principal cost indices, namely, shareholder
capital, debt volumes, including those of the population, and
crediting of the real sector of the economy, are growing steadily.
The dependence of the banking sector on state finances has decreased,
while its role in servicing financial flows in the private sector
has been growing. Various forms of non-cash settlements, above
all barter, have contracted in volume. Meanwhile legal financial
transactions have expanded.
At the same time, we are witnessing the emergence of new market
players that comply more with the meet the requirements of today's
market economy. The largest Russian companies are not only rapidly
increasing sales and profits: they are also starting to transform
themselves into international companies through the nature of
their operations and variety of their partners. Firms that today
claim to be "the face of Russian capitalism," are beginning
to devote more and more attention to their public image. They
not only engage in primitive forms of company advertising and
the establishment of contacts with the mass media. They also strive
to circumvent the more odious forms of relations that were typical
of so-called "wild capitalism" and participate in charitable
activities. They seek to create a positive image with their foreign
partners and local public. In this drive to establish a positive
image for "new Russian capital" and in their attempts
to build a democratic market economy, these companies are, whether
consciously or not, imposing certain restraints on their practices,
and are thereby beginning to work in accordance with the norms
and methods that are common in advanced countries.
As I see it, however, these successes and positive changes simultaneously
demonstrated and still do demonstrate the fundamental limitations
of the economic system created in Yeltsin's time that has become
even more engrained over the past few years. (Naturally, the President's
criticism of the government we heard a while ago regarding the
relatively low rate of economic growth amounts in essence to a
political admission - conscious or not - that the system has exhausted
its potential.) To all intents and appearances, this growth does
not within the framework of the prevailing economic system and
probably cannot enable the country to resolve fundamental problems
without qualitative changes in the overall picture. I am referring
above all to the gap between Russia and countries with highly
and relatively developed economies and also to the increasing
problems in our country.
Rates and nature of growth
This concerns first and foremost the numeric growth indices.
The rate of growth of production and incomes, considering the
low initial level and extremely favourable foreign situation,
may at best be described as moderate, but in no way as high .
As this favourable situation deteriorates, as may well happen,
annual GDP growth will contract to 3 or 4 per cent, which is wholly
insufficient to secure any long-term qualitative gains in the
economy and society. Even if we take the optimistic scenarios
of the Ministry of Economic Development and Trade and forecast
medium-term economic trends (up to 6% annual growth), this means,
in effect, that the gap separating Russia from advanced countries
will not shrink to any substantial degree, at least not for the
foreseeable future. Consequently, we cannot expect a radical improvement
in the situation at the present growth rates in such vitally important
fields for our country as a high standard of full employment consistent
with the level of accumulated human capital, comfortable living
standards for most citizens, stabilization of the demographic
situation, the requisite security of our borders, and so on.
Even this modest rate of growth is fragile and unstable owing
to the underlying mechanism, which is not attributable to the
exceedingly high level of dependence of the Russian economy on
oil and gas exports, and consequently on their price on world
markets. This dependence definitely exists and constitutes a serious
problem; however, another factor is far more serious for a number
of reasons, some of which are referred to below. The Russian market
is in prevailing conditions highly segmented, and an individual
economic player has a very limited opportunity to gain a niche
in new segments, as they are already divided and rigidly protected.
As a result, the country lacks the requisite conditions to organize
a really modern industry required to gain access to the big markets.
This is the reason why the boost in raw materials exports failed,
despite the expectations of optimists, to generate any mechanism
to mutually stimulate rapid growth in the main industries. Growth
in export incomes has had an insignificant impact on incomes in
other sectors, and the growth in domestic demand is not becoming
a truly powerful engine for a self-perpetuating spiral of growth.
Investments and reproduction
The rate of accumulation in the Russian economy has dropped
several-fold against the 1980s: even compared to 2000 and 2001
this rise amounted to something like 20%, which in no way meets
the modernization requirements of production assets in the real
sector of the economy.
In view of the decline in real GDP, it may be estimated that
capital input decreased in absolute terms four-fold. The financing
of over two-thirds of investments in industry by companies' internal
resources by the end of the decade and their failure to attract
external resources speaks less of their financial power and rather
of the modest size of their investment programmes.
The decline in the volume and change in the structure of investments
in fixed assets is no compensating factor: over half the capital
input in the relatively favourable period of 2000-2001 was produced
by the mineral industry, primarily companies with an export focus
that aimed solely to meet their own needs. No institution of financial
intermediaries appeared, that could have transferred capital from
industries with surplus current incomes (for their own needs in
production investments) into objectively promising sectors. The
forms resulting from the dearth of such an institution (similar
to the Korean "chaebols") - where companies specializing
in one industry buy companies in other industries, i.e., purchase
of enterprises in other sectors by companies related to raw materials
- offer a highly dubious road in terms of efficiency and stability.
Structural distortions in the economy
It is becoming more and more evident that the growth over the
past few years offers no panacea to the obvious (and in a certain
sense threatening) structural distortions in the economy towards
the raw materials industries. Although raw materials account for
a relatively moderate proportion of Russian GDP , this sector,
which is heavily dependent for objective reasons on global fluctuations,
accounts for the bulk of the financial resources available to
Russian companies, cash flows and investments in production.
This sector has accounted and still accounts for a visibly larger
proportion of cumulative production investments all these years
than the manufacturing industry. In industry electricity companies
and companies in the export-oriented fuels and raw materials sector
account for almost 80% of all capital investments , while the
share of investments in the processing industries - mechanical
engineering, and the light and food industries - amounted to no
more than 15%. In other words over the past three years the raw
materials industries could be described as the engine of industrial
growth, creating the lion's share of investment demand for Russia's
machine-building and metalworking.
This sector of the Russian economy is tied most to the world
economy. Output of fuels and raw materials (in the broad sense,
including lightly processed industrial goods) accounts for 70%
of total exports and may increase. Crude oil and natural gas account
for over 50% of all exports . These industries guarantee the balance
of foreign trade surplus: without this surplus it would have been
impossible to service the large foreign debt accumulated over
the past few decades.
The raw materials sector is the main generator of people's cash
incomes. In addition to the considerable number of people directly
employed in the extraction, transportation, and processing of
raw materials, the sector is also a source of livelihood for the
workforce of a fairly far-flung infrastructure - a large number
of labour-intensive fields, where the raw materials export sector
is the main or critically important consumer. The decline of incomes
in the fuel and raw materials sector is increasingly resulting
in a sales cut in a large number of sectors that could cumulatively
have a decisive impact on the state of the domestic economy.
A relatively small number of key companies that are mainly active
in the raw materials industry have begun to directly or indirectly
control an even greater share of the servicing sectors, even those
fields with enhanced profitability that are in no way technologically
connected with the main line of business of these companies .
The sphere controlled by these companies absorbs in one way or
another not only the cash flows directly related to the extraction
and export of natural resources, but also those of contiguous
or aggregate financial flows.
Lastly, this sector is critically important for the state of
the government's finances, as it accounts for over 50% of indirect
taxes (including payments for use of the sub-soil). These taxes
account for more than half the cumulative budget revenues and
constitute an extremely important source of federal revenues.
Moreover, as mentioned earlier, this sector of the economy helps
maintain the foreign exchange flows into the country required
to service foreign debts.
Naturally the conspicuous role of the raw materials sector has
no less conspicuous negative implications for the country's economy.
The sustained predominant role played by the fuel and raw materials
complex in aggregate production investments means that it will
consume for the foreseeable future the bulk of resources invested
in expanding and retooling the production sector. In addition,
the efficiency of investments in the extractive industries will
for objective reasons (higher prospecting and extraction costs)
inevitably decline. As these industries account for a significant
share of total output, this development will lead to a drop of
the effectiveness in the efficiency of production investments
and the Russian economy as a whole.
The high percentage of fuel and raw materials in exports imposes
stringent constraints on possible growth and also engenders instability
owing to sharp price fluctuations for these products. Not to mention
the impact of such a form of exchange with the outside world:
the country's human and intellectual potential will not be fully
mobilised and the national resources will not be fully exploited.
Lastly, economic growth and efficiency faces an even greater
threat owing to the domination of the economy by large raw materials
corporations. As a result the country's economic health is excessively
dependent on the decisions and sentiments of a close-knit group
of top managers at these companies. As soon as Gazprom, the oil
companies and United Energy Systems curtail investment projects
owing to doubts over the prospects on world energy markets or
even internal personnel problems, recession strikes the economy
and production activity in most industries, above all machine-building
and petrochemicals, metallurgy, and building materials. This is
followed by a noticeable decline in consumer demand. As a result
the mechanism of economic growth is out of sync for a long period.
At the same time, excessive capital accumulates in energy and
above all oil sectors, finds no outlet in other sectors, and more
often than not flows out of Russia, either legally or illegally,
asthe raw materials companies prefer to do business in an area
they know abroad, instead of trying to engage in new and unfamiliar
spheres of activity inside the country.
This also holds true for state finances - budget revenues are
severely destabilized owing to price fluctuations, primarily crude
oil prices and the prices of its derivatives, both indirectly
(through the decline in revenue from corresponding export duties
and the profits tax of the producers), and, to a still greater
extent, indirectly - through a general deterioration in the economic
situation and slower growth in investments and consumption.
Employment, income and the social structure of society
The economic growth we observed over the past two years did
not resolve, nor could it have resolved, the problem of unemployment.
We should not be deceived by the relatively low indicators for
unemployment in the country: the bulk of the active labour force
have neither normal or properly paid jobs, and have no chance
to find such employment before the end of their working lives.
The raw materials industry requires only a small fraction of the
human resources available, while demand for skilled labour is
generally insignificant for a country with a population like Russia.
Consequently the system abandons at least half of Russians today
to an existence akin to poverty in conditions of stagnant unemployment
and medieval subsistence farming on small plots allotted to every
citizen, while the other half predominantly eke out an existence
as employees with no need for special training and are consequently
low paid and bereft of any social benefits.
As a result, after nearly four years of economic growth, the
indicators for social prosperity have remained at a very low level.
Russia's per capita GDP is about the same as that of average developing
countries, and is, to put it bluntly, below average compared to
the group of developed countries. Official statistics indicate
that the ratio of average earnings and pensions to the subsistence
minimum has not changed perceptibly, and the average pension is
approximately 25% lower than the corresponding subsistence minimum.
Meanwhile, incomes differentiate significantly. The income gap
between the top and bottom 10% of the population is fourteen-fold
and has remained virtually unchanged throughout the past ten years.
At least 30% of the population live in absolute poverty, in other
words people who find it hard to meet their basic needs.
Russia's socio-economic structure has evolved accordingly. The
five per cent of the population who seized control of the country's
raw materials and financial flows, have incomes that enable them
to feel, if not omnipotent, then in any case like people who have
forgotten entirely what material needs mean. Another 15-20% of
the population represent our middle class who owe their relative
prosperity to the present system and who are, accordingly, their
chief social buttress and defender. However, the middle class
in this system does not consist of engineers, officers, physicians,
teachers, researchers and middle-range entrepreneurs, highly-skilled
workers or farmers, but instead people from the service sector,
entertainers, officials, and individuals living on dividends from
their property holdings or investments. The remaining 70-75% of
the population are "old" and "new" poor people
who, in keeping with the Marxist theory of capitalism, live at
the level of simple reproduction of working power or even lower.
This is demonstrated most clearly by the low birth rate and high
mortality rate in most Russian regions.
The biggest problem here is that the existing system does not
have any in-built-mechanisms to redistribute income on a national
scale. Domestically produced goods and services account at best
for 25% of consumption by the well-off: moreover, these are mainly
food products and the triple "restaurant-taxi-girls"
formula. In these circumstances, hopes that a large domestic market
will be the chief mechanism ensuring the development of extensive
economic growth are wholly unfounded under the prevailing system.
Reduction in state expenditures and mini-budget
In our opinion, the optimism expressed over the improvement
in state finances is unfounded. Despite all the talk about a deficit-free
budget, regulation of the state debt problem, and the state's
improved financial health, we must not disregard the fact that
this "recovery" was secured by foregoing vital expenditure
on a civilized level of education, the financing of R&D, social
security, and public health. Indeed, expenditure on the wages
of public servants, maintenance of the army and the law and enforcement
agencies are nothing short is humiliatingly low. Moreover, in
view of the existing system, the country is doomed to the same
balanced out "mini-budget", where revenues will always
fall dismally short of offering even a reasonable wage to workers
and decent salary for civil servants, to say nothing of the investments
required to ensure future economic growth, namely, expenditures
on infrastructure, general and vocational education, R&D financing,
etc. With such a budget, the country will have neither modern
armed forces nor an independent judiciary system, nor honest and
professional law and enforcement agencies, while the arbitrary
application of a depraved system of "informal" justice
will never be curtailed, even with the most sincere political
Science and education represent other key areas sacrificed to
financial "recovery". Our estimates, which are based
on official Russian statistics, indicate that over the past eight
or nine years social outlays on education in factual terms fell
on average by 55%, while the increase in private expenses have
only slightly compensated for the reduction in federal and local
budget expenditures. State outlays on science have been reduced
even more. The prestige of professional scientific and science-intensive
production has dropped sharply. As a result, the quality of education
and standard of training of school-leavers and university graduates
have plummeted. The lack of unofficial contributions to schooling
is hindering school access for needy segments of the population.
As a result almost 10% of school-age children have stopped going
This inflicts enormous damage on the country's human (labour
and intellectual) resources. The workforce has visibly decreased
in number and, more importantly, in quality. A drop in employment
in production and the few high technology sectors of the former
Soviet economy, coupled with degradation of the system of state
research institutions (and the almost complete absence of private
research centres) have compelled a large number of highly skilled
specialists to change their jobs. According to some polls, no
more than 10% of those who were dismissed or were compelled to
stop working in Russia's scientific institutions have found a
niche in large private companies or credit institutions. The remaining
90% work for small and very small businesses, or official structures
where their intellectual capacity is not needed, and their accumulated
knowledge and experience are gradually going to waste. At least
a million people have emigrated from Russia (Russian companies
professionally involved in migration estimate that the exodus
from Russia amounts on average to 100,000 people annually), A
considerable number of emigrants are educated people who had until
departure performed intellectual work or were about to obtain
a higher education degree.
Lastly, the chronic under-financing of the maintenance and development
of the social infrastructure during this period has visibly affected
the functioning of public works, decreased their safety, and increased
the risk of technogenous and environmental disasters.
Russia does not have a democratic market economy. The economy
in Russia today is a mixed economy, not in the sense used in economic
theory, but in a different, specific sense: it is an economy with
a mixed logic of economic behaviour. It is quasi capitalism, but
not quite capitalism, and in a way not capitalism at all. It is
in no sense a rule-of-law democracy, but neither is it anarchy
or rule of the criminal mafia as it may sometimes appear. It is
a society in which there is a little of everything: rule of law,
rule of custom, political abuse, and crime. Society abides by
"understandings", that is, rules which cannot be aligned
into a clear logical system, and which are still in a state of
Many relations and institutions incompatible with present-day
notions of an efficient market economy, relations and institutions
that have existed in Russia since
Soviet and in some cases since pre-Soviet times, are less relics
of the past and more full-scale components of a functioning economic
system. In fact, the symbiosis of corrupt officialdom and opaque
business practices is to this day a factor governing usage of
a very considerable share of national resources. The country's
budget, even though it has an incomparably more reliable foundation
than in the period preceding the 1998 financial crisis, is still
dangerously dependent on the financial standing and negotiating
positions of a dozen or so large raw-material and infrastructure
companies that have virtually shaken loose from public control
and are exploiting national resources. The apparent prosperity
in banking is attributable in many ways to the devious methods
and criteria underlying financial accounting and control. At micro-economic
level, economic activity in Russia does not demonstrate a consistent
transition from the administrative economy of the totalitarian
Soviet state to a modern (normal) Western society, but rather
an odd mish-mash of different types and levels of institutions
and relations: modern and traditional, market and pre-market,
legal and illegal, civilized civic, outright violence, etc.
Ask any Russian businessman about the rules he follows, lives
and works by. If he is frank, he will be unable to give a clear
answer, first of all, as there are no unified rules whereby a
businessman (and, for that matter, any socially active citizen)
in Russia can guarantee his chances of success and relative security.
In some matters he acts in accordance with official law, in others
he relies on the strength of the authorities, on the inertia of
relations, and now and then simply instinctively gropes for a
form of behaviour that is liable to yield success.
In other words, if Russia has managed to escape economic collapse
and achieve a degree of social and economic stabilization, this
does not mean that the long-term development of the Russian economy
and society is merely a question of resources and time. A stagnant
social corporate-criminal system with an extremely ineffective
segmented market and without any mechanism for long-term reproduction
and increase in economic resources is, unfortunately, the most
realistic outlook for Russia today. We will not have a law-based
state with an open dynamic economy and a responsible political
and economic elite.
Despite its eclectic nature and apparent lack of logic, the
system has intrinsic stability, is capable reproducing itself
and achieving moderate progress. This is evidenced in the successes
of the past three years. The system has consolidated with the
emergence of a considerable segment of influential people and
groups that are extracting no small personal profit in one way
or another. Moreover, it is not much of an exaggeration to state
that virtually the entire Russian elite today is intimately tied
to the exiting state of affairs and cannot tear it down without
sustaining direct or indirect crippling damage.
This concerns both the upper layer of state officials or the
notorious old and new "oligarchs." The interest groups,
whose collaboration shapes the real conditions in the economy,
are only partly connected to official governmental structures
at various levels. Real control over economic resources is the
main criterion that allows various groups to participate in organizing
economic affairs, irrespective of whether they are economic territories,
infrastructure, manpower or money. The groups may be organized
along different lines, particularly on territorial, industrial,
corporal and clan principles, and may have different degrees of
intrinsic integration. The specific forms of organization of the
groups also differ - they may be official administrative authorities,
semi-official structures, including public monopolies at different
levels, large private enterprises, and diverse financial structures
with or without a varying degree of state participation.
Despite the diversity of forms, all these structures are united
by two main factors - first, real control over the main economic
resources and, second, a predominantly supra-economic administrative
nature of this control. Control over resources is reflected in
their physical ability to promote or hinder use of the resources
for profit. The right of control is not so much a legal right
of ownership and much more an opportunity for constraint regarding
other parties that do not recognize the rights of the respective
group to exercise control. Compulsion may be direct or indirect,
legal or illegal, but in the end amounts to use of economic pressure
or downright violence.
Another specific feature of these structures is that their members
rarely derive profit by immediately exploiting economic resources.
In most cases they transfer the right to use these resources to
other organizations and receive rental income (in the shape of
various royalties, bribes, dues, regular and irregular extortion,
etc.). This does not mean, of course, that all high-ranking officials
take bribes, simply embezzle or steal funds. The system is so
constructed that it also enables them to use the administrative
resource in more subtle, non-criminal ways. Naturally, this does
not alter the substance of the matter: profit is not extracted
on the basis of productive activity, but rather by belonging to
various corporate communities.
During the final years of the Yeltsin period, the economic system
gained some muscle and even stability, which made it possible
to define its basic sociopolitical features.
1. The large if not predominant role of informal, officially
unregistered relations: a colossal gap between existing legislation
and economic reality.
The game followed rules that had evolved over the previous
ten years - rules that were more or less adhered to by all players
of the economy under threat of "spontaneous sanctions".
The norms of officially existing economic law operated within
the limits and to a degree in which they did not obstruct the
spontaneously impregnated rules of economic behaviour. The aggregate
of these rules, and the economic activity they govern, accounting
for about half the GNP in Russia, are quite precisely reflected
by the term, "informal economy" (the more widespread
term, "shadow economy", is somewhat more narrow, as
it mainly implies accounting fraud and tax evasion).
2. Unofficial coercion plays a special role.
The informal economy inevitably requires an "informal"
system of power to function. Both the economy, society and the
state begin to live in accordance with unwritten rules, where
citizens (especially the socially active) and even official
authorities breach the law or other legal acts and proceed on
the basis of personal relations, precedents, the ability to
enforce their will, etc. However, when this issue concerns major
economic interests, the individual's or group's ability to enforce
his or their decision in confrontation with conflicting interests
is often the only effective factor. (They may or not appear
to comply with legislation.) The means of coercion may involve
recourse to administrative methods, control over the market
or its members, or outright violence (crime), but in all these
cases it is based on informal "rights" (the "right
of the strong").
3. The state does not and moreover cannot act as impartial
arbiter in economic disputes or be a guarantor of contracts.
The business parties are compelled to assume this function,
relying exclusively on their own resources and those of their
4. Trust between economic parties is at an extremely low level.
As the state machine is not the guarantor of obligations,
and the economic agents have to rely on their own power and
ability, we face a systemic dearth of trust. Owners and entrepreneurs
do not trust the state, while the state authorities do not trust
business. The banks do not trust their clients, the clients
do not trust the banks, and enterprises do not trust their creditors
and partners. The public trusts no one at all and is deeply
convinced that if someone failed to cheat them today, this is
because they were deceived the day before and are about to be
5. The need to independently ensure fulfillment of obligations
and reliance on informal "rights" are bound to generate
an oligarchic economic structure, when at least 70% of the gross
product is controlled one way or another by two or three dozen
business structures, where decisions are taken by a few hundred
people consisting of Russia's business and administrative elite.
6. In such a system the rights of ownership and private property
are not unconditional. Neither compliance with the law, any
relatively conscientious behaviour in business, or even observance
of the unwritten "rules of the game," can guarantee
property against a "redistribution" or appropriation
by an economically, politically or administratively stronger
player. Controlling a territory, industry, infrastructure and
the like, interest groups seize possession of the rights of
another owner with relative ease, using the authority of bought
or controlled arbitration courts, false bankruptcies, sabotage
by the administrative authorities or the "workforce",
etc. The noisy conflicts that are covered extensively in the
press from time to time on particular enterprises are no more
than the tip of the iceberg of a permanent process of property
redistribution for reasons unrelated to economic management
of the property in question.
Any student knows that a situation can only be improved, if
you have a system of purposeful legal and law and enforcement
agencies, control over compliance with economic legislation, and
rigid prosecution of any violations. You also need control over
distribution and proper use of public resources, and a transparent
system of taxation and financial control, and many other levers.
From this standpoint, no necessary measures were taken during
the Yeltsin period to construct and ensure efficient functioning
of these basic institutions; on the contrary, we have witnessed
their obvious degradation. The law enforcement and judicial systems
were partly privatized or corrupt, and partly simply not up to
the mark. The financial control agencies were transformed into
an instrument of pressure on business and citizens or semi-feudal
extortion of official and unofficial duties, with the amount fixed
less by law and rather by arbitrary decisions and bargaining.
The state structures were not subject to public control, and their
officials were, in effect, permitted to use their position above
all to line their own pockets.
The new President was brought to power by a specific political
and corporate economic group on condition of his responsibility
to them and solidarity.
The active political and law-abiding rhetoric changed nothing.
The main concern of the new-old administration, as before, is
to combat its opponents, and to devise and implement various political
scenarios to appease the population, the central and regional
executive authorities, with the sole purpose of preserving and
perpetuating their economic predominance.
The most important achievement of the past two years was to
put an end to public politics and political pluralism on the pretext
of "ensuring a second term" and, in actual fact, to
protect its absolutely exclusive economic position.
The years since the autumn 1998 financial crisis, and especially
since the transfer of leadership in the Kremlin, demonstrated
that the aforementioned system was stable and no personality who
had been its public embodiment in the preceding period could manipulate
this system. Similarly the physical liquidation of key members
of the Bolshevik nomenclature did not change the substance of
nomenclature power as a corporation in the 1930s and led to its
degradation and wastage. The financial and banking crisis has
substantially undermined those major businesses, whose influence
was based exclusively on diverting financial flows through banks
under their control. The change of guards in the Kremlin pushed
out the "oligarchs", whose prosperity was too closely
dependent on the favourable and interested actions by figures
in the government and presidential administration, who were compelled
owing to reshuffles compelled to take a back seat. New forms of
" organization" of major business sprang up. At the
same time the system itself, where crucial decisions are taken
on the basis of political power and various pressure mechanisms
(or, as they say in the milieu, "on the basis of notions
and understandings") has not only survived but, on the whole,
gathered muscle. The uneven conditions for companies and groups
operating in one and the same business remain the same in terms
of taxation and access to various attractive resources, despite
the proclaimed principle of "equidistance" in their
relation to the authorities, so that the larger and more influential
a group happens to be, the greater its opportunities to deviate
from the principle of universality in the business climate and
In this context it is not in the least surprising that the phrase
"dictatorship of law" slogan was stillborn: it was not
demanded by any influential group. Moreover, they are not interested
in such a situation, as they could lose a considerable amount.
Regarding any backing from the "firm and tough power"
as supreme arbiter in private disputes, such backing is highly
conditional and, moreover, leaves room for influencing this "firm
and tough power." In addition to other factors, it is based
on an understanding that official power is unlikely to have for
the foreseeable future the requisite resources to play the role
of individual and independent arbiter. During the last few years
of Yeltsin's rule, the official power under the new President
relies less on its own strength and much more on using one set
of groups in the struggle against another, which cannot be achieved
without mutual concessions and compromises. The declared intention,
voiced two years ago, to eliminate the control of narrow corporate
groups over the main financial flows and other resources in the
country and place them under the control of society was not implemented,
while the so-called anti-oligarchic campaign was reduced to persecution
of politically disloyal leaders of the media business. Moreover,
signs appeared that a new stage of struggle was building up between
corporate clans for a redistribution of spheres of influence,
above all in export fields.
In these circumstances, political will is hardly able to approve
a radical tax reform that would officially align taxation with
the sums really paid into the budget, and a radical revision of
the system of currency controls that would at least help by partially
legalizing the export of capital and thereby establishing a more
rigid control over exporter finances and put an end to the concealment
and laundrying of illegally accumulated and criminal income.
Power for the sake of power is one thing, and power for the
economy is another. In the first case it is above all a matter
of one's own security, that is, survival and succession, outward
legitimacy and indisputability, an ability to cut short any demonstrative
disloyalty and insubordination. The content of power (i.e. politics
as such and the ability to pursue this goal) is also, of course,
important, but in conditions where time, strength, and the means
of power are limited, pride of place is accorded to resolving
one's own problems and distributing what is left over.
The opposite is true for the economy, however: the personal
stability of power, the solid nature of its external attributes,
is a secondary matter. The main issue concerns the substance of
the law established by the authorities and the relation between
this law and real life, existing economic and judicial relations.
However, this is where the authorities today are weak and impotent
- they cannot control the aforementioned relations and their own
apparatus, which follows its own laws and ideas that are often
independent of the will of the people at the top of the administrative
In my opinion the spring polemic between the President and the
government concerning rates of economic growth was highly revealing.
The prime minister was right and wrong in his impertinent rebuttal
of the President who demanded more ambition in competition with
Portugal. He was right, as in the existing economic system any
attempt to abruptly raise the rates of growth would lead to nothing
but eye-wash at best, and would at worst undermine relative stability.
He was wrong, as his government personifies all the fundamental
faults of the system which doom Russia to lag behind other countries.
Russia does not need figures. In the final analysis, we are
interested in creating economic opportunities to overcome this
backwardness, in other words, to ensure the country's survival
and the survival of Russian statehood and sovereignty. To understand
this, we need only glance at the map and see that Russia has the
longest borders with the most dangerous and unpredictable regions
in the world, and must urgently estimate the expenditures that
need to be made over the next ten to twelve years on the armed
forces, on the housing and public utilities infrastructure, health,
education, on rectifying the demographic crisis, modern development
of Siberia, and consolidating our economic sovereignty in the
Russian Far East.
Analyzing the results of our economic development from this
angle, we must accept that the gap between Russia and developed
countries is increasing, and the state of the aforementioned sectors
is becoming more and more critical, and irreversibly so for some
We should also note that the economy in the West has for a number
of years been in a serious recession. Sooner or later the situation
will change and it will start growing again. Then our comparative
backwardness will be simply staggering.
In Russia we have created a variant of a market economy which
will in principle be incapable now and forever (unless it is radically
altered) to reduce the scale of our backwardness, compared to
advanced countries. The gap will increase, owing to the economic
system we have created.
Asking our government to reduce this gap by raising growth rates
is akin to expecting an old dilapidated car to run at the same
speed as a Mercedes (even if the latter's engine snarls up from
time to time).
This old car has structural features, which means that it cannot
run at a faster speed than 100 m.p.h., however hard you step on
the gas, change the petrol or driver or confer with experts -
but nothing will change and the top speed will remain unchanged.
We face the same situation with our economy. It is constructed
to provide an acceptable standard of living for approximately
25% of Russia's population. Moscow and another one or two large
Russian cities can possibly resemble big up-to-date European cities.
The material for the system's sociopolitical stability will
amount to 25% of the population; they will provide its reproduction,
provided that world oil and gas prices remain at the peak.
The "market economy" built in Russia can do nothing
for the majority of people.
The economic potential of Russia's market system is in principle
incapable of preserving the existing national educational system,
science, health, armed forces, and the house and public utility
infrastructures, let alone create a new and better one.
Dangerous processes are beginning to occur in society, leading
to its profound demodernization.
Conclusion: Can Anything Be Changed?
The aforementioned is in substance a wide-ranging attempt to
define the current Russian socio-economic system. The definition
is hindered by the poverty of the traditional political economy
lexicon, based on notions such as capitalism and socialism. Contemporary
Russian, Chinese and Japanese society, Stalin's Soviet system,
and the Korean Chaebol system until the 1997 crisis, is a far
from complete list of different structures, which each had or
have their own intrinsic logic and something we might call local
stability. These structures have appeared in various traditional
societies as a response to the challenges of modernization, in
other words, the spiralling technical and information overload
created by mankind. As a rule, at some stages they manage (although
the price they pay is another question) to resolve some aspects
of modernization. (Even Stalin's system resolved, by applying
its tried and tested method of heinous crimes, the task of Russia's
protracted transition from agrarian to industrial society).
Korean corporate capitalism resolved the same challenge in the
1970s to 1990s by establishing a system referred to as Chaebol.
However, all these systems proved impotent when the countries
in question faced the challenge of switching to a post-industrial
society. Their contradictions, and certainly not the "plotting
by that bad man" Soros, were the fundamental causes of the
crisis in Southeast Asia in 1997.
That is why the on-going process of "chaebolization"
under way in the Russian economy appears a strange anachronism.
The current Russian system resulted from the crisis in the Soviet
model, which was unable to make the leap to the post-industrial
stage. I think that certain historical circumstances of the crisis
(the aggressive embezzlements by the communist party and KGB bosses,
who converted their absolute collective political power into enormous
power for individual members, and the unscrupulousness of the
new "democratic" bosses) fostered a locally stable freak
socio-economic system objectively aimed at "demodernizing"
This evolution creates a terrible risk of society's irreversible
degradation. First of all demodernization tends to wipe out the
creatively active segment of the nation capable of considering
the country's direction and opposing such a direction. Secondly,
irrespective of subjective wishes, this structure of power and
society leads inevitably to the evolution of a police state, combined
with a political superstructure, with a monopoly on information,
that is, a system where any dispute about the chosen path of the
country's development will in be principle ruled out. Both these
processes are making headway before our very eyes.
I noted earlier that the entire Russian elite is involved somehow
or other in the existing order and cannot destroy this system
without sustaining serious damage. Owing to the surviving democratic
exterior is maintained for a number of considerations (including
foreign-political factors), the system has it to appoint a chief
executive for the regime every four years capable of ensuring
the preservation of the existing structure.
Despite the painstaking and regulated process of selecting and
appointing a "successor", he still poses a potential
threat tothe elite and its regime.
The President of the Russian Federation with his seat in the
Kremlin is bound to begin understanding what is happening in the
country, and start understanding his role as a statesman - that
is the specific feature of the Kremlin walls and this position.
As a result, a bearer of all state interests and values may emerge,
who may the first such case in the entire governing elite. However,
he will understand that he is being controlled by the people who
brought him to power, and realize that he was not expected to
become a statesman. If he is courageous, he may act with resolution:
revive freedom of speech, ensure the independence of the judiciaries,
organize a round-table mechanism, involving the public forces
who stand "outside the corporation", and enlist their
aid in stopping the country's slide to the backyard of world civilization.
This is possibly one of the last chances for something still
to be done.
Is this hope for a "kind tsar" another attempt to
"obtain a good president with bad boyars and generals?"
To a certain extent, it is. This is due to the specific kind
of power in Russia.
What is this hope?
Hope that "the tsar will not abide by a tsar's discipline
and, furthermore, will turn out to be clever."
Are there grounds for such hopes?
I do not know. I am not sure. However, about 15 years ago something
similar happened and had unexpected consequences: the totalitarian
Are there other variants?
Judge for yourself. Only citizens, who do not behave like Soviets
(I do mean behave, and not simply speak), can be a positive alternative
to a "kind tsar."
What does that mean?
This implies loyalty to our morality, responsibility, and, lastly,
faith in human values.
If we as a people believe that everything today is right or
that we cannot change anything and if we are still prepared to
vote at referendums to immortalize the memory of executioners
like Dzerzhinsky; to keep silent or, what is worse, approve the
extermination of towns and villages in the Northern Caucasus,
hold auctions for shares and voucher privatizations, reconcile
ourselves with explicit corruption, daily lies at state level,
accept the incipient fascism and seeds of a personality cult,
the lack of justice, and progressive poverty...
Then there can be no real alternative to a "kind tsar",
and a few hundred of the most influential people in the country
can always be convinced that they have "popular support"
and that all of us, all the millions of us, are no different and
would simply like to change places with them.
This means that society is asleep and everything will remain
as it is.
However, I am convinced that it will awaken.
Hopefully, not too late.
April - November, 2002