07.02.2006
The Fruits of a Hundred Years Revolution
№1 2006 January/March
Sergei Dubinin

Professor and has a Doctoral Degree in Economics.

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.