The Fruits of a Hundred Years Revolution

7 february 2006

Sergei Dubinin is a Professor and has a Doctoral Degree in Economics.

Resume: Chaos, as a general rule, occurs in the most authoritarian overcentralized states, in which the breakdown of central authority causes the collapse of local authority. This pattern is observed in the early 20th century both in the Russian and Chinese Empires; the juggernaut of state administration weakens and literally falls to pieces.

In the late 1970s-early 1980s, would it have been possible to imagine that by the late 20th century, all multiethnic federal states in Eastern Europe – Yugoslavia, Czechoslovakia, and the Soviet Union – would cease to exist, and that the disintegration of one of those countries would be accompanied by a devastating civil war? Which country? It is probable that practically everyone would have guessed the Soviet Union.
However, the worst-case scenario was avoided: local armed conflicts did not turn into a new Time of Troubles or an all-out war. Nevertheless, ongoing developments in the post-Soviet space do not offer an idyllic picture of a thriving democracy in the independent nation-states.

ASPIRATIONS FOR FREEDOM

Twenty years ago, the prevailing public sentiment was the aspiration for freedom. It was a political slogan and a common goal that united – even if briefly – very diverse groups of people. Their interpretations of freedom, however, were not simply different but oftentimes contradictory.

The ethnic republics – from the Baltic region to the Transcaucasus to Central Asia – gave priority to national independence and the creation (restoration) of nation-states. The harmony of their goals, however, only went as far as breaking away from Russia; after that, divisions opened up between them.
In Russia, the technical and scientific intelligentsia actively promoted a liberation ideology that created many illusions. These included, for example, the dream about yet another “bright future,” and wages “like in the United States.” At the same time, there was a strong public aspiration for genuine, as opposed to formal, democracy. The majority of the Soviet people understood freedom as the end of arbitrariness and injustice, and the lifting of ridiculous restrictions in their everyday lives. For example, why was a person not allowed to sell agricultural produce that he had grown with his own hands? Why could a person not travel abroad if he had saved enough money? Finally, why did Russia still lack foodstuffs 40 years after a terrible and devastating world war, whereas none of the defeated countries had any such problems?

In the ethnic republics, there was also a pronounced aspiration for national self-assertion. It was the national idea of some futuristic free world that ensured moral compensation for the hardships of everyday life. In Russia, however, the breakup of the Soviet Union was seen as the collapse of a nation-state.
The position of the party and state nomenklatura (elite) is more difficult to appraise. Generally speaking, it was divided into a “liberal” social-democratic wing and a “hard-line” wing (traditional Soviet Communists). The latter were rather statists/nationalists as opposed to advocates of Bolshevik internationalism. In the republics of the Soviet Union, the CPSU elite easily shifted from the task of upholding centralized imperial interests to nation-state priorities.

That process eventually accelerated and, following its own logic of development, subsequently grew into the new Russian Revolution of 1991-1993.

THE HUNDRED YEARS REVOLUTION

The observation that Russia’s recent history is a revolution is not new. Actually, this author expressed the same idea both in conversation and in writing at the height of those events. The developments of 1991-1993 are reminiscent of the chain of events triggered by the 1905 Revolution. Today, we mark the centenary anniversary of the beginning of the democratic revolution in the Russian empire; its historical objectives have in large part been achieved. For example, a presidential republic and a Constitution based on the principles of parliamentary government have been established in Russia. Civil and human rights have been proclaimed as the ultimate goal of the welfare state. Ruling authority becomes legitimate only if it is based on direct and universal suffrage with the participation of all citizens. In other words, there has been a complete change in the power paradigm even though authoritarianism and a hierarchical system of social relations had been the accepted pattern of rule throughout Russia’s history up until the early 20th century.

The 100-year history of the Russian Revolution fits neatly into the general logic of European civilization. The revolution begins with the crisis of agrarian society that is making a tortuous transition to industrial capitalism. The old political system (the monarchy) either adapts to the new reality or is destroyed. Dйclassй masses concentrate in urban industrial centers, constituting a base for a political coup. The revolution results in the tragic breakdown of the established order. Today, nations and states across Europe and Asia have either accomplished the transition from the agrarian to industrial stage of development or are still in transition.

History provides two possible scenarios for overcoming a revolutionary crisis: in Russia, they could be conveniently described as the victory of either the February or October Revolutions of 1917. The former sees the establishment of a more or less stable democracy, the rule of law, and a market economy (although this does not rule out a subsequent relapse into dictatorship, as was the case in Italy and Germany). The latter scenario involves general turmoil and confusion, the disintegration of statehood, and the reign of warlords operating under all sorts of colors; the establishment of a dictatorship or totalitarian rule is usually necessary to overcome the chaos.

The disintegration of statehood does not automatically lead either to a country’s seizure (whole or piecemeal) by neighboring aggressor states or its fragmentation into independent state entities. However, amidst the chaos and confusion, opportunities for both seizure and fragmentation are more likely.
It should be stressed that chaos, as a general rule, occurs in the most authoritarian, overcentralized states in which the breakdown of central authority causes the collapse of local authority. This pattern is observed in the early 20th century both in the Russian and Chinese empires; the juggernaut of state administration weakens and literally falls to pieces.

But in 1991, the people of Russia did not want a new Time of Troubles, pogroms or looting. Ditto for Ukraine, Belarus, and Kazakhstan.
Elements of civil society, self-respect and dignity had accumulated in Russia in the Soviet era as well. As a result, coercion and brute force were not essential requirements for maintaining order; a national consensus on the system of governance and social organization had begun to evolve. The Fourth Russian Revolution did not trigger chaos. Instead, it followed the ‘February scenario,’ thus laying the groundwork for democratic society in Russia.
What made the change in the form of governance imminent? How stable is a system built on democratic principles?

Admittedly, a democracy that emerges during the transition from an agrarian to industrial stage of development is a rather fragile thing. The ‘February’ (i.e., democratic) scenario is not a safeguard against a possible relapse into authoritarianism. In the intervening years between the two world wars, dictatorships were imposed in practically all countries of the Eurasian mega-continent. In 1940, only the British Isles preserved a democratic form of governance, but even this was jeopardized by the threat of outside intervention. In the case of Switzerland, Sweden, and Finland, the German Reich deemed their occupation inexpedient – for the time being.

The Great Patriotic War that the Soviet Union fought against Nazi Germany and its allies showed that even the most totalitarian regimes had a reserve of public trust and support if they appealed to the nation’s sense of patriotism. It was a matter of national survival and so the people rallied around their leadership. After all, they had more important things to think about than democracy.

Fifty years after World War II, appeals to national patriotism were used as a weapon against the Soviet Union. Activists from the various liberation movements throughout the Soviet republics strengthened their positions by appealing to national sentiments and vowing to provide high living standards in a separate nation-state. This line was most successful in the Baltic region. In Russia, however, such ideas played a relatively minor role. There were two historical parallels between post-Soviet Russia and imperial Russia: on the one hand, there was a sense of satisfaction from the re-establishment of the historical link and respect for the past; on the other, there was an element of bitterness concerning the loss of status as a world power. In the early 1990s, the former sentiment prevailed, whereas today nostalgia for the Soviet Union as the ‘Red Empire’ is far stronger than the satisfaction that derives from the re-discovery of Russia’s historical roots. This is hardly surprising since the new socio-economic system has failed to live up to public expectations.

GAINS AND SETBACKS

So, what did Russia gain from the 1991-93 Revolution? Let us think back 15 years and ask the question: Were the Russian authorities at that time capable of pursuing a consistent nationwide course of action? In the Soviet Union, almost all levers of government within the Russian Federation belonged to the Union level of administration. Thus, the disintegration of the Soviet Union meant anarchy for Russia. The Union principal security structures were reluctant to recognize the authority of the Russian President.

Neither the Russian President nor the Supreme Soviet had the advantage of real leverage to enforce their decisions. Amid the virtual anarchy, legislation, including presidential decrees, was reduced to calls for action and hollow declarations. This applies to the entire set of privatization laws that continues to stir up controversy to date.

In the early 1990s, industrial plants, factories, newspapers, shipping companies, and a mass of other enterprises ended up under the de facto control of their general directors – or ‘red generals’ as they were called in the Soviet era and as they are sometimes referred to today. One-half of the most high-profile oil magnates today are former Soviet-era general directors – Alekperov (LUKoil), Bogdanov (Surgutneftegaz) and Muravlenko (YUKOS), while the other half are representatives of the “new financiers” – Khodorkovsky ( YUKOS), Fridman, Vekselberg (TNK), and Abramovich (Sibneft). The state nominally owned Gazprom, Rosneft, Transneft, and Unified Energy Systems, which de facto fell into the hands of the Soviet-era generation of managers.

Although they did not have formal property rights to fixed assets (machine tools, buildings, etc.), the ‘red generals’ effectively controlled money flows from sales proceeds or barter deals, while bearing no real responsibility for their actions. They had no incentive to invest in state-owned property.

During my stint at the Finance Ministry, I attended monthly conferences that were held at the Government House or the Energy Ministry; these meetings commenced on the initiative of the oil generals. These individuals were not property owners, or oligarchs, and so they considered it perfectly legitimate to demand aid for the oil industry from Russia’s meager budget by scaring the government with the chilling prospect of production stoppages. Those “civil servants” would fly in to Moscow on company jets, arrive from the airport in posh Mercedes automobiles, and complain that they had no money to pay wages to their employees.

One worker from the Norilsk Nickel company, at that time still a state-controlled enterprise, who came to Moscow to demand that wage arrears be paid at once, told me that their ‘red director’ had yelled at them: “You wanted freedom? All right, here is your freedom – no money to pay your wages!” Meanwhile, the company continued to sell non-ferrous and precious metals on foreign markets at normal levels.

Unfortunately, as a result of privatization, the ‘red generals’ became the principal owners of their enterprises. Today, many people argue that those entities should have been sold at real market prices. But who could have paid $5 billion to $6 billion for Yuganskneftegaz, for example, in 1992? The answer is:  Only a foreign company. That was in fact what happened in the former socialist countries of Eastern Europe; state-owned enterprises were either sold to foreign interests on the cheap or ceded as payment in lieu of state debt. However, how many people were actually ready to buy enterprises in an unstable country with rather corrupt law enforcement? Under such conditions, what was the real price of those enterprises? Factoring in all the attendant risks, the answer would have to be close to zero.

Members of the Soviet nomenklatura considered “financial wizards” little more than upstarts and often disliked them. Most notable amongst this group were TV magnates Boris Berezovsky and Vladimir Gusinsky who had turned television into a crude tool of blackmail. Meanwhile, the ‘Old New Russians,’ who had come to own huge chunks of property, saw their own status as perfectly legitimate. That perception existed not within a narrowly circumscribed group at the top, but within a very large class that came to be known as the ‘New Russians’ – even though most of them were quite old.

At that time, there were no easy, neat solutions for solving Russia’s economic problems. I fought the financial crisis during the eight years that I worked at various government institutions, including the Central Bank. The threat of famine, rising crime, and soaring inflation quickly devalued all savings and destroyed any incentives for accumulation and investment. Inflation came to be a product of a series of crises. There was a severe budget deficit on both the federal and regional level. Taxes were not paid. Financial settlements were made bypassing the state treasury. In 1997, inflation was down to 11 percent a year, but in 1998, the crisis returned with a vengeance in the form of the August financial meltdown.

The ‘Old Russians,’ who, incidentally, had done quite well for themselves in the division of state property, began to see the Yeltsin rule as a hostile, alien force. Their nostalgia for the Soviet era, including downright admiration for the Stalin regime, went hand in hand with a reluctance to observe the existing laws, including, most importantly, to pay taxes. What amounted to robbing their fellow countrymen thus received an “ideological” justification. They took satisfaction that “We have not given a cent to these ruling authorities.” Where the state was supposed to get the money from to pay teachers, doctors, pensioners, and the military was presumably a non-issue.

The new elite, which apparently owed everything to the new era and the new political establishment, wanted to do the same – i.e., not pay taxes. The rationale “according to Berezovsky” was that all decisions in Russia can and should be made by the richest part of society. It assumed not only the burden of running the economy but also a multitude of purely state administrative functions, including the creation and maintenance of security services, paying the journalists, and so forth. Therefore, it is up to the rich to decide how much tax to pay, while all those government officials and Duma deputies should do what major businessmen tell them to.

Nevertheless, the 1998 crisis showed that much had been achieved by that time. Most importantly, Russian banks and companies had learned to operate in a free market environment. Economic incentives for work, consumption and accumulation had kicked in. A free market economy had taken shape, and that was why the crisis was overcome so quickly. Economic growth had truly begun.

There is yet another aspect of the problem, however, and this involves the political angle. There is no need to indulge in guesswork as to how the country would have fared had there been no privatization in the 1990s. It is enough to consider developments in neighboring Belarus, which continued to have basically the same bunch sponging off the state. During that revolutionary situation, Boris Yeltsin used the window of opportunity to an advantage, whereas Stanislav Shushkevich did not. As a result, democracy never took off in Belarus.

A year after the default, in the fall of 1999, I visited many investment bank headquarters in New York as part of a Gazprom delegation. We studied the possibility of placing our debt paper on the U.S. stock market. The results were disappointing, in part because several U.S. experts – former Kremlinologists – had just issued a report predicting the imminent disintegration of the Russian Federation into smaller territorial entities. At that time – in the wake of the Basayev and Khattab-led incursion into Dagestan – that forecast did not look entirely fantastic. Therefore, no one wanted to invest in Russian securities. This case proves that a stable and viable ruling authority is a crucial political as well as economic matter. Without such stability, economic risks are unacceptably high.

Every revolution in Europe, including in Russia, ended in what Antonio Gramsci called a “historical compromise.” People are tired of transformations, the change of political regimes, the flashing of faces at the top, the strain and stress of survival, and, most of all, violence. Everyone feels that a return to normalcy is long overdue. The new ruling authorities may be liked or disliked, but the majority of the people are ready to live with them.

The revolution in Russia began to abate soon after Boris Yeltsin’s victory in the 1996 elections. The new class of property owners who had gained from the change of government and privatization sought the stability and preservation of the status quo. On the one hand, the new elite became more tolerant toward “hangovers from the past;” on the other, those who had been in overt or covert opposition strove to adapt and cooperate with the “new establishment.”

Russia’s fourth revolution initiated a period of revision and stabilization that began in 2000 with the advent of President Putin and a new generation of politicians that rode into the Kremlin on his coattails. Putin advocated the search for “national accord” as Russia’s unifying slogan. It seemed that the new rulers had not expected to receive such overwhelming popular support for their programs.

POST-REVOLUTION REALITIES

The quality of governance. Today, President Putin’s priority is to strengthen the vertical chain of command. This is indeed the essence of the changes, yet there remains the unavoidable question about the general direction of state policy. In their statements and official documents, the Russian authorities have set the course for democracy, but their outward actions arouse serious concern. Once the ruling establishment is confronted with what it perceives as a serious challenge, it begins to look for simple solutions. Occasionally, this means in effect going outside the law. Democratic guidelines are conveniently forgotten “until the crisis has passed.” For example, in the crackdown on the “oligarchs” and their inordinate influence on society and the political establishment itself, the prosecutors and judges in the YUKOS case made no secret that it was politically motivated. Basic principles of justice (such as proof of guilt beyond reasonable doubt) were sacrificed to the “highest goal.” In a revealing statement, one high-ranking official said the idea had been “to teach a show lesson.”

The price of that lesson, however, proved to be too high. Society understands very well that every law has a loophole. Today, trust in the objectivity of the courts has been undermined. Capital flight has resumed with new intensity. There are also those who would like to continue settling scores with their opponents by repressive methods as opposed to political means. Administrative euphoria, or the intoxication with power, deprives such people of an elementary sense of self-preservation. What will have to be sacrificed to the “highest goals” during the next crisis?

Democratic state institutions in Russia are not sufficiently effective, and this is obvious to practically everyone today. They are permeated with corruption, which arouses widespread indignation. How should Russia solve this problem? Implicitly or explicitly, different political forces are offering two possible models; we choose one or the other when we go to the polls. The first model calls for the scaling down of democracy and ceding all powers to the executive. The idea is to reduce the fight against corruption to purely police operations, which ultimately leads to the restoration of an authoritarian regime in Russia. The question is, who is going to enforce law and order in the country? Does anyone really believe that the security structures that are unable to control and purge themselves of corruption will be able to implement such a program on a nationwide scale?

The second model provides a democratic alternative. Today, there is a pressing need for a “clean hands” program in the country. Such a program should start with clean elections on the local level, which will eventually spread to city and regional legislatures all the way up to the national level (parliamentary and presidential elections). Democratic control over the bureaucratic machinery is only possible in strict accordance with the Constitution, and implemented through parliamentarians and democratically elected judiciaries.

It will take a long time for the ruling authorities to regain their trust. First, they will have to abandon the illusion that state intervention in all spheres of economic and public life will help quickly ensure law and order. So far the opposite has been true.

Francis Fukuyama has observed that there are strong and weak states. Strong states, as a rule, faithfully perform a limited range of obligations. Weak governments, on the contrary, assume a vast range of functions but are not in a position to implement them as necessary. The former model is exemplified by the United States, while the latter is characteristic of Brazil and many other less developed states.

Russia in the 1990s, as well as today in the 21st century, conforms to the weak power model with its infinite array of functions. Whereas in the 1990s a de facto transfer of real powers to large oligarchic structures accompanied the declaration of the government’s numerous tasks and functions, today the state seems to be taking its revenge. Both processes are detrimental and counterproductive, doing little to make the Russian economy more competitive. Today, it is all but impossible to start any type of business without a nod from various government officials, which often comes at a price. Private business favors such alliances since they protect its share of the market from competition while the state apparatus, instead of looking after the interests of society at large, sinks to the task of serving private interests.

Corruption also weakens the ruling establishment politically as the state system gradually loses its credibility, authority and legitimacy in the public eye. Any threat of the forcible overthrow of the regime may cause a deep crisis. It should also be borne in mind that the modern Russian elite, the power system, and the country's socio-economic system are not sanctified by tradition; their overall effectiveness and value have not been proven by history. Any new serious crisis in the country’s domestic or foreign policy could provoke a certain part of the elite to set new rules of the game. That was in fact the scenario in Germany in between the two world wars. The crisis of the 1930s caused German society to abandon what seemed to be a stable and effective democratic power structure in favor of dictatorship under revanchist slogans.

To ensure successful development, democracy in Russia should be revived and strengthened within the framework of its Constitution; otherwise it could turn into a weak state, or at best a medium developed state. Russia has not escaped the danger of getting stuck in the “Third World” for many decades.
Nation-building and nationalism. The 1991-1993 Revolution in the Soviet Union resulted in the formation of independent states within the boundaries of the former Soviet republics. This event marked the end of the era of national statehood and the abandonment of monarchic multiethnic and multifaith states of the agrarian period in Europe. The old political systems were built on the monarchs’ “divine rights” to rule nations and the division of society into classes and by estates; new national systems needed legitimization, asserting themselves through the direct expression of the people’s will. Recognition of the nations’ right to self-determination, including secession, was a stage in the development of the world order. In creating the League of Nations, the victorious countries of World War I promised eternal peace if those rights were implemented. In fact, the right to self-determination served as a rationale in the struggle for the redrawing of borders in Europe and Asia in the 19th-20th century. Can these approaches be called “progressive”? Considering that the implementation of nations’ right to self-determination caused two world wars and an infinite number of armed conflicts, this “progress” is dubious at best.
Armed interethnic conflicts in the former Soviet Union countries have not exploded into interstate wars only because the authorities restrict extremist pseudo-patriotic organizations. But within Russia itself, Chechen separatism, violence and terrorism has taken a heavy toll in terms of human life, primarily in the North Caucasus.

It is small comfort that on the ethnic issue Russia follows the same pattern as Europe. This is, in fact, a major source of concern. Nationalism in Europe remains a principal threat to human life and freedom (e.g., inside the former Yugoslavia), which may spark conflicts between neighboring nation-states thereby destroying democratic sovereignty in newly independent countries. The bloodiest dictators in Europe and Asia came to power under nationalist and Nazi slogans, hence the painful reaction both at home and abroad to the nationalist and jingoistic rhetoric of many Russian politicians.

Nationalists advocate revenge for the humiliating disintegration of the Soviet Union, which led to the country’s defeat in the ideological battle with its Western and Eastern opponents; thus, Russia lost, as the argument goes, its unifying national idea. This faction attempts to present Russia’s imperial ambitions and anti-democratic forms of government as a national ambition of the entire Russian people. Nothing could be further from the truth.
At the same time, an appeal to patriotism can also play a constructive role. The Russian people want Russia to be respected in the world. Respect, however, will not come automatically; it cannot be inherited from the Soviet Union together with a permanent seat on the UN Security Council. It is absolutely vital to understand that respect can only be gained through fair competition, above all in the economic sphere. This can be achieved by improving the quality of Russian goods and services, as well as the efficiency of Russian companies. At the same time, it is important to enhance the prestige of Russian education and healthcare, and maintain the stability of democratic governance.

* * *

This past decade has shown that it is possible for society to develop dynamically (consider Russia’s economic growth rates) while still remaining stable. Nonetheless, there are growing indications that the Fourth Russian Revolution is far from complete; it needs finalization. If Russia’s democratic political system is strong enough, this will not prove to be an insurmountable problem. Democracy will continue to strengthen through elections. Meanwhile, the elite will see through its “clean hands” operation without destroying democracy and suppressing freedoms and human rights.

If, however, under pressure from the proponents of nationalism and authoritarianism, the ruling establishment embarks on the path of repression, the “cleansing” slogan will only serve as a cover for the restoration of dictatorship and arbitrary rule.

In this last mentioned scenario, the Fourth Russian Revolution will remain incomplete since the ruling class and society as a whole will end up without political freedoms and guarantees of private ownership, thus setting the stage for a fifth Russian revolution – an extremely undesirable prospect.

Last updated 7 february 2006, 18:55

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