Chapter One: 1992-1993
Communist rule had only just ended when I set out on my travels. For the next few years, the overriding goal of President Yeltsin’s government would be the dismantling of the massive planned economy. Yeltsin had banned the Communist Party and implemented a program of “shock therapy”: price controls were relaxed, the currency was floated, and a mass program of privatization had begun.
Prices shot up twenty-six-fold in a single year. Russia’s colonies taking their independence had already served to dismember the old economy. Economic activity had halved and inflation was taking off. Since the Central Bank kept printing money and offering cheap credits to industry, it quickly rose to 2,000 percent, leaving the ruble worthless. By mid-1993 over 40 percent of Russians were living in poverty—as opposed to 1.5 percent in the late Soviet period.
Almost at once, the old party elite and the factory bosses started privatizing the institutions they managed. Within three to four years, 60–70 percent of state enterprises were privatized. The bosses siphoned off money and raw materials from state enterprises into co-ops, private banks, and out of Russia, into off-shore companies. This was not illegal, for there was no procedure in place for transferring assets into private hands. Between 1991 and 2000 it is reckoned that $1 billion was secreted out of Russia every month.
The public were issued with vouchers worth 10,000 rubles (around $20) with which to buy a stake in this giant sell-off of state assets. But there was no framework of laws or financial institutions to regulate financial activity; so companies appeared out of nowhere, promising fairy-tale dividends to those who invested their vouchers, then disappeared with the money.
Could radically different intervention by the West have changed things? Certainly, the architect of the reforms, Prime Minister Yegor Gaidar, and their implementer, Anatoly Chubais, were heavily reliant on Western advice. This came from two quarters. There were the free marketeers (the International Monetary Fund, Jeffrey Sachs, and his Harvard clan) who believed that economic man behaved the same in any circumstances: as soon as the centrally planned economy was dismantled, a free market would spring up in the space, like willow herb in a bombsite. Others argued that nothing in Russia’s culture and history had prepared its people for the marketplace. It was not just that Russia was emerging from seventy years of communism, they protested, but there was no prerevolutionary tradition to graft onto either. For under tsarism the culture of private ownership and the independent business sector were both weak. Besides, they pointed out, Russia had no institutional infrastructure to handle these changes—no legal framework, stable banking system, checks and balances. Reforms had to be introduced gradually, as in Poland, and they had to be backed by massive long-term aid and assistance from the West.
However, free market fundamentalism was at its height. Besides, Yeltsin’s economic team was driven by the need to prevent the return of communism. Any strategy of gradual reform would be subverted by the old Soviet bosses, who were still in charge. Yeltsin’s colleagues saw themselves as kamikaze pilots, whose mission it was to break the tradition of Russian autocracy and introduce Russia to the marketplace and democracy. They were indeed attacking the vested interests of everyone with power, from the old Party bosses and officials to the army and security services. By December 1992 opposition to the reforms was already so fierce that Gaidar had to resign as prime minister.
Three features of this period would throw long shadows over the future. The failure to establish the institutions of an open society would discredit the notion of liberal democracy before anyone in Russia had experienced it. The presence of Western advisers laid the seeds of bitter resentment. Finally, a collective fear of anarchy rooted in living memory generated such intense anxiety that order and stability became precious above all else.
On the political front, Yeltsin had missed the opportunity to call fresh elections after the Communist Party’s coup attempt in August 1991, when he was viewed as a national hero. So he was saddled with a parliament dominated by former Party officials and powerful Soviet-era factory managers. A coalition of communists and nationalists had united to oppose all change aimed at introducing market reforms and a liberal democracy. With every month, rumors of another communist coup grew stronger. When the courts lifted Yeltsin’s ban on the Communist Party, it made a strong comeback under its effective new leader, Gennady Zyuganov.
By the autumn of 1993 Russia appeared to be on the brink of civil war. Yeltsin and his parliament had reached an impasse. The president decided on drastic action to save his reform program. In September he banned parliament and called fresh elections. That speech triggered a bloody showdown. Armed crowds marched on Moscow’s Ostankino television center. While the “democrats” manned the barricades, nationalist and communist deputies holed up in the parliament building with their private militias. Yeltsin ordered the army to intervene. Reluctantly, it obeyed. Tanks surrounded the Russian White House and opened fire. They bombarded the deputies and their gunmen into submission, at the cost of 187 lives.
Yeltsin then implemented his plans to win a mandate for a new legislature, as well as a constitution giving him broader powers. In the elections for the new, weaker parliament (now called the Duma) voters endorsed Yeltsin’s new constitution, while punishing the more democratic candidates.
When the White House bombardment was over, a mood of suppurating resentment set in. “Freedom” had brought nothing but poverty, corruption, confiscatory privatization, and criminality.