Russia living on borrowed time

An eyewitness report by Alan Woods which explains the effects of the Kosovo crisis in Russia and outlines the utter collapse of the"market reforms" in this country.

The general situation

After the crisis last September, I expected the movement develop more quickly than has been the case. This was also the view of most commentators. However, things have moved more slowly than anticipated. In 1998, Russia's GDP fell by five per cent - with a frighteningly large 7.8 per cent contraction in the last quarter of can the year. Most economists expected the collapse to continue and increase during 1999. However, this has not taken place for a number of reasons. Although, as we shall see, the economy still remains in deep crisis. the government of Evgenii Primakov succeeded in establishing a relative stability. This will be temporary, but has a given the regime a certain breathing space.

Certain external factors have helped the Russian economy. The price of oil, which had collapsed, has recovered by 80 percent in the last few months, as a result of the cut-back in production of a number of major producers like Saudi Arabia and Venezuela and hopes of a recovery in Asia. How long this trend will last is another matter. The "recovery" in Asia is extremely feeble, and does not include the two main countries, Japan and China. On the other hand, it is not likely that the agreement of OPEC countries to restrict production will last long, since they all need large amounts of cash. In the short run the increased price of oil is a windfall that gives Russia a breathing-space. But a new fall in price will have an even more serious effect than before.

Secondly, the collapse of the ruble This has provided a temporary alleviation, by making imports dear and Russian exports cheaper. This has led to a sharp drop in imports. Whereas two years ago everybody drank Coca-Cola, now this has been replaced by local beverages. By all the laws, this should lead to an increase in production of a Russian goods. However, this has not happened, or, rather, has only occurred on a limited scale. The effect on heavy industry - the decisive sector of production - has been extremely limited, as the figures reveal.

According to the latest figures, Russia's gross domestic product contracted by a further three per cent in the first quarter of 1999. As the Moscow Times put it, "in many countries, that kind of news would topple governments, or at least will launch a serious discussion of the nation's economic policies. But for Russia - which had been expecting the news to be far worse - the latest figures from the state statistics committee are something of a relief. Many economists had been predicting a further contraction of eight per cent - the figure put forward by the International Monetary Fund in its World economic out look - to 15 per cent over the first three months of this year."

The fundamental problems of the Russian economy are in no sense solved. Ronald Nash, chief economist at M F K Renaissance, was quoted as saying; "I think that GDP will shrink by one to two percent over the course of 1999," adding that the first quarter figures represented a return to trend after the drop in the last quarter of 1998. "I see GDP flattening out for the rest of the year."

But the real position is shown by the figures for the flight of capital, which underlines the parasitic nature of the nascent Russian capitalist class and its complete lack of confidence in the future. Recent studies have put capital flight from Russia at almost £125 billion since 1992, or around £1.25 billion per month. Foreign capital, too, has voted with its feet. Foreign investment plummeted last year to a mere $2.2 billion, compared to $6.2 billion in 1997. The dependence of Russia on IMF credits is greater than ever.

The decline in trade with the West runs parallel to the loss of trade with Russia's old trading partners in the former USSR, now more loosely grouped in the so-called CIS. Internal trade between the CIS states has fallen by two-thirds since 1991. The percentage of foreign trade has fallen from 78 percent in 1991 to 24 percent now. Russia's trade with Belarus, the Ukraine and Kazakhstan has fallen by between 40 and 60 percent; trade with the Caucuses (Armenia, Georgia, Azerbaijan) by 32 percent; with Central Asia (Uzbekistan, Tadjikistan, Turkmenistan and Kirgyzstan) by 13 percent.

This collapse of trade and the disruption of the economic links that formerly united the Soviet Union, has been to the disadvantage of all the old republics. This partly explains the emergence of a mood for the re-constitution of the USSR, even in the Ukraine, where a strong mood for independence existed ten years ago. This has now evaporated as the population of the Ukraine contemplate the wreckage of their economy. A recent article in the Economist pointed out that: "Nearly eight years after independence from the Soviet union, many of the candidates in Ukraine's presidential election, due in October, say they want to go back, more or less, to the old days. And at least three out of the seven say they want to recreate the Soviet Union in one guise or another--with Ukraine inside it." (The Economist, 10/7/99)

Western analysts, despite the stabilisation, are pessimistic. "Barring unexpected shocks", a recent report reads, "no economic crisis looms, but the economy--already on life support--seems doomed to continue its gradual decline. Worse, there is no sign that anyone in a position to do so seems to be willing, much else able, to do anything to reverse the slow but unmistakable downward spiral."

Relations with the West

At the same time, US.-Russian relations are probably in even worse shape than at any time for the past ten years. Washington is forced to cling to Yeltsin, but this is like a man trying to support his weight on a broken reed. Public trust in the political system in Russia has sunk even lower since our last on-scene assessment in November. Yeltsin--who stands at about 3 percent in the polls and is the object of widespread public ridicule--has lost the public's confidence as well as respect.

The naked aggression of US imperialism against Yugoslavia started the alarm bells ringing in the Russian military establishment. The war in Kosovo has had a profound effect in Russia. It is clear to everyone that Yeltsin sold out. This has underlined Russia's weakness and heightened the sense of betrayal in the officer caste. Russian generals looked on horrified as Nato's aviation pulverised the air defences of their old Balkan ally. There is a mood of frustration, anger and resentment. The realisation has dawned on them that Russia's defence system, starved of investment for years like the rest of the economy, is being rapidly outstripped and rendered obsolete. This thought--like a good hanging--concentrates the mind wonderfully. The military is beginning to doubt, not only in the ability of Yeltsin, but of the market economy, to deliver the goods they require.

Russians fear that the next step of the US will be to interfere, if not in Russia proper, then at least in her old Soviet backyard. The Caucuses is seen as a likely target. These fears are not imaginary. The Caucuses is a vital area, not only strategically, but also economically. It has fabulous mineral and oil wealth. It has probably the world's largest untapped reserves of oil and gas. This is not a secondary matter. Let us recall that on at least two occasions Churchill attempted to seize Baku from the Soviet Union. Now the USA--together with its ally Turkey--has its sights firmly fixed on Azerbaijan. American companies are already responsible for more than 50 percent of oil investment there. In the war between Azerbaijan and Armenia, Russia and Iran are backing Armenia, and America and Turkey are backing Azerbaijan.

This is part of a wider regional conflict, in which the West is attempting to construct an oil and gas pipeline through the Caspian Sea, connecting Turkmenistan, Azerbaijan, Georgia and Turkey. The Ukraine and Moldova are already making their pipeline available to the Czech republic and Slovakia, and hence to Western Europe. In this way, they hope to free themselves from dependence on Russia for supplies of gas and oil altogether. While publicly proclaiming its friendly intentions towards Russia, Washington has been quietly encouraging regional blocs and alliances clearly aimed at breaking Russia's influence in this area. The regional organisation known as GUAM, set up in 1998 by Georgia, the Ukraine, Azerbaijan and Moldova, has been backed by the USA. Later it was joined by Uzbekistan and the name changed to GUUAM. This is a mortal threat to Russian interests.

Yet despite the clear clash of interests betwen Russia and the USA, the degenerate clique in the Kremlin continues to kow-tow to Washington. The reason for this revolting subserviance is not hard to find. Yeltsin was desperate to persuade the IMF to approve the release of $4.4 billion in aid over the next 18 month to deal with the effects of the August crisis and the debt burden of $140 billion. This was clearly the main determining feature of Yeltsin's handling of the Kosovo crisis. He was quite prepared to sell out Belgrade for 30 pieces of silver (or, more accurately, 4.4 billion).

Crisis of government

Meanwhile in the Duma, the "Communist" deputies were, as usual, making a lot of noise, but essentially caving in to the demands of the IMF. One by one the IMF's conditions for tougher tax laws were voted through. Only the introduction of a tax on vodka was postponed till Autumn. The absence of serious opposition in the Duma has created a general mood of disillusionment with politics, scepticism, even cynicism. The West has provided the promised cash. But IMF loans will not solve the fundamental problems of the Russian economy. A recent report by a risk consultancy (The Merchant International Group) put Russia top of the list (together with Algeria and Pakistan) of countries with the biggest risks outside normal business criteria. Once again, the problem has not been solved, only postponed. Russia is living on borrowed time.

The permanent crisis of government is a faithful reflection of the impasse of society. Although he was a relatively effective and popular prime minister Yevgenii Primakov was dismissed by Yeltsin. The new PM Stepashin is no more than a puppet of the corrupt clique that rules the Kremlin. His relations with the Duma are infinitely worse than Primakov's. This is a new recipe for political, economic and political instability. Yeltsin himself seems to be completely senile, out of touch and prone to irrational behaviour. The real power that rules Russia is the camarilla composed of members of Yeltsin's family (particularly his daughter Tatyana Dyachenko), oligarchs like Boris Berezkovsky, presidential confidant and former Kremlin chief of staff, Valentin Yumashev, the current chief of staff, Alexander Voloshin, and the reputed head of the Siberian oil monopoly (Sibneft), Roman Abramovich. Yeltsin, now widely discredited and a figure of ridicule, has been given a new nickname, "the Pen", for blindly signing decrees drawn up by this clique, generally referred to as "the Family". One newspaper, writing about Stepashin's efforts to form a government, carried the comment: "Yeltsin is not the President, and Stepashin is not the Prime minister".

America is compelled to stick to Yeltsin, for fear of worse to come. The Kosovo crisis forced Washington to resort to open bribery to keep Russia out of the conflict. For a modest price, Yeltsin was induced to betray Milosevic. But this fact will have the most serious long-term consequences in Russia. The government of Russia is reduced to a series of convulsions, as Yeltsin lashes out against anyone who seems to be a rival. Hence the dismissal of Primakov, despite his apparent success in stabilising the situation and his popularity (or rather, because of it).

"A well-informed--though hardly unbiased--observer describes Yeltsin as both aggressive and depressed, claiming that his private utterances are even more outrageous and bizarre than his public comments."

Like the degenerate Rasputin clique before the February revolution, the court of Boris Yeltsin is the scene of constant in-fighting, intrigues and plots. Yeltsin has serious personal reasons for clinging to power. Not just to safeguard the ill-gotten gains of his family, but also to avoid being put on trial. In order to hold onto power, the ruling clique seems ready to contemplate the most desperate measures. Moscow is awash with rumours: that Yeltsin will cancel the elections, illegalise the Communist aprty (KPRF), etc., etc. It is said that Yeltsin has a draft decree banning the KPRF on his desk waiting to be signed. The KPRF has said that the party would go underground in that case. Either way, it would not usher in a period of stability for Russia. Yeltsin is so unstable that he might do this, but the biggest loser would be Yeltsin himself. The deep crisis in Russia means that there is a general mood against the government. Yeltsin and his market reform is blamed for the collapse. He is widely seen as being controlled by a corrupt clique. If Yeltsin bans it, the CP would gain, not lose.

The biggest joke is that the KPRF has done nothing to merit these attacks. It has completely capitulated to capitalism and presents no real threat. It is more afraid of the movement of the masses than Yeltsin himself. Even Western observes comment: "This apparent obsession with Zyuganov and Co. is little curious in view of all the damage they have done to themselves lately, culminating in their conspicuous failure to impeach Yeltsin. In fact, the current odds are that they will lose Duma seats in the next election."

Despite all attempts to find some breach of the Constitution that might justify banning the Party, none have been found. Therefore, if Yeltsin bans it by presidential decree, such a step would be unconstitutional. Not that this would bother Yeltsin, but a) it would not prevent individual KPRF candidates from standing in the election, and b) would be grounds for prosecuting Yeltsin if he leaves power after 2000. The KPRF has a host of front organisations and satellite parties under whose banner they could stand: the Agrarians, the Movement to Support the Army, the Spiritual Heritage Movement, etc. There would be a wave of anger that would benefit them and undermine Yeltsin: "I'm not inclined to think that banning the Communist Party would call forth social protests," writes Andrei Ryabkov in Nezavisimaya Gazeta, "But there is no doubt that the protest mood would come out in voting for leftist parties that take up the banner of the leftist idea." This would tilt the balance in favour of more radical parties like the RKRP (Russian Communist Workers Party) which nearly got 5% in the last elections.

The workers movement

The mobilisation of the Russian workers frightened the government into making concessions. Primakov took measures to pay the wages. Consequently, the situation of the workers has partially improved, or at least stabilised in recent months. Given the absence of any serious leadership or perspective of struggle, the attitude of most workers is a sullen "wait and see." In April and May there was some movement, but nowhere like the movement of last year. In particular, the activists were passive. In effect, after the tremendous exertions of the previous year, the masses were taking stock or of the position.

Despite the temporary lull, there is still a powerful undercurrent of mass discontent. More than 300,000 angry teachers staged strikes in January. In some places they blocked railway lines and besieged local administrative buildings demanding payment of wage arrears that added up to six months or more. There have been local movements, some of which have a semi-insurrectionary character. One such case was in the town of Yasnogorsk, in the province of Tula, just a few hours away from Moscow. This is a small town of 20,000 inhabitants, dominated by a machine-building plant of 4,200 workers, which mainly produces mining equipment.

The situation of this factory is all too familiar. There was already a strike there in 1997 over non-payment of wages, but then the factory director persuaded the workers to go back to work, promising that the matter would be resolved. But nothing was done. Then in June 1998 the management sent the workforce on indefinite leave, with the idea of taking from the factory everything that could be sold and enriching themselves with the proceeds. Returning after their enforced break over the Summer, the workers discovered that a lot of money was missing. The cry went up: "Where's the money?" To which one of the directors cynically responded: "There is no money, and there won't be any." "He looked at us like a boa constrictor looking at a bunch of rabbits," said one woman worker.

In early December, wage arrears at the plant stood at ten months. The workers had not seen any money for a year, while the boss built himself a nice house with a swimming pool and a lift from the cellar to the first floor. Finally the workers' patience was exhausted. One of the many peculiarities of the present situation in Russia is that many supposedly privatised firms were bought out by the workers and directors. The workers of this factory decided to turn this to their advantage. On 28 September they called an extraordinary shareholders' meeting, kicked out the old director and installed their own candidates, D.K. Roshchenya and V.D. Dronov, who had been the plant director in Soviet times and enjoyed the confidence of the workers.

The owners went to the courts to get the decision overruled, and the latter ruled that the workers' action was illegal. But the workers just ignored the court's decision and forcibly ejected the hated management from the plant. From this moment all power in the factory was in the hands of the workers' representatives and the trade union committee (the workers had already succeeded in kicking out the old corrupt trade union leaders). Nothing could be moved in or out of the plant without the written consent of the workers' representatives. Workers' stewards kept a close eye on anyone coming into the factory, so that one of the former "white coats' had to climb over a fence to get in.

The authorities reacted in the usual way. The local paper attacked the workers as "terrorists", and called on the police to "do their duty". On the 5 December the workers' leaders Roshenya and Dronov were arrested. But in spite of all the pressure, the old bosses could not get back into their factory and the workers remained in control.

After the arrest of their comrades, seeking help for their struggle, the workers sent a delegation to Moscow, to appeal to the "progressive" bourgeois Yavlinsky. the head of Yabloko. They did not approach Zyuganov, because the regional governor, Starodubtsev, is a member of the KPRF and the local party apparatchiks have unanimously sided with the "patriotic" bosses! But, needless to say, their approaches to Yavlinsky got nowhere.

On 10 December the workers resorted to direct action. They stormed a meeting of the former directors and took them prisoner (the managing director avoided "arrest" by locking himself in the toilet). Late in the evening, the workers decided to release the "hostages", having given them a taste of their own medicine. The workers then issued an ultimatum to the local authorities: if the arrested workers were not released by 11 December, they would cut the railway line. This threat was not carried out because the line was occupied by a strong group of riot police.

In practice the workers have taken over the town. The local council is powerless and has to ask the permission of the workers' committee. The struggle continues.

The importance of the events in Yasnogorsk is that they are symptomatic of the processes which are quietly maturing within the Russian working class. The fact that the process is so drawn out (with ups and downs) is not a bad thing from our point of view. We need time to build the forces of genuine Marxism in Russia. But the process may well speed up in the next few months. We must not be taken by surprise.

Lack of Subjective factor

The delay in the process is entirely due to the lack of the subjective factor. The betrayal of Zyuganov and the KPRF leaders plays a fundamental role. The workers are looking for leadership and find none. This has a disorienting effect, at least in the short term. There is widespread cynicism about politicians and political parties: "Every single politician is dirty, every good slogan is just a lie. Everything that pretends to be a political process in Russia is just arrangements between gangster clans, the better to rob the rest of us." These words were spoken by a 42-year old unemployed financial analyst. It is typical of the mood of disenchantment of a large layer of the Russian middle class since August 1998.

Fred Weir comments: "Last summer's financial implosion was so sweeping, and its effects so dire, that most experts are now willing to pronounce the death of Russia's seven years of heroic--if largely fictitious--transition to democracy and market economics."

Andrei Piontkovsky, director of the independent Institute for Strategic Studies in Moscow says: "The country has been changed irrevocably, but the results of reforms are viewed as a failure clear across the spectrum. Even the people who led the market reforms are saying today that we built bandit capitalism in Russia. No-one has any idea where we go from here."

There is a mood of despair. In the absence of leadership, people resort to all kinds of tricks to survive--growing potatoes on small plots, bartering goods for food and getting help from relatives. But there is a limit to how far this can go on. The lives of millions of families are hanging by a thread. This can easily be snapped. The main thing that allows people to survive is free or very cheap housing--a hangover from Soviet times which the nascent bourgeoisie has not been able to dismantle. But lack of investment in basic infrastructure means that at any time large numbers of people can be faced with the collapse of electricity and gas supplies.

Primakov succeeded in temporarily papering over the cracks, but essentially nothing has been solved. The acute instability at a political level, in the form of a more or less permanent crisis of government, reflects this fact.

Vladimir Petukhov, analyst of the conservative Institute for Social and National Problems warns: "But here we are skirting the abyss of social explosion and the political elite is moving into an all-out struggle for power.

"The odds are that our leaders will find a way out by imposing a dictatorship."