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Reality of Russian Systemic Crisis

When people talk about the crisis in Russia these days, they usually mean the situation that emerged after 17 August 1998. In reality the country has been in permanent crisis since the beginning of capitalist reforms, i.e. 1992. Dozens, hundreds of figures can be quoted to support this banal truth and show the scope of the destruction of Russia; and that process continues. Even an official paper - a project titled "About the measures of the Government and the Central Bank of Russia for stabilizing the social and economic situation in the country" - contains several figures that indicate the critical state of the Russian economy. Take the decline in industrial output - in September 1998 it was 14.5% less than the previous year.  The London Economist forecasts that in 1999 Russia's GDP will decline by 7%, while inflation will be 80% minimum. The downward trend is obvious.

What is less obvious to many is Russia's real place in the world economy. A dozen macro-indicators are used to define it but here the principal one will suffice- Gross Domestic Product (GDP). The Economist indicates that according to the generous forecast data obtained before August 17, Russia will be in 12th place in the world in 1998 and drop to 20th ($240 billion) place in 1999, falling behind not only the G7 countries and China, but also behind Spain, Brazil, Mexico, Australia, South Korea, Taiwan, Sweden and Switzerland. Russia's GDP will be close to that of several countries with population of only 7-8 million people. In GDP per capita Russia is behind most countries of East Asia, Europe, North America and some countries of Latin America and the Middle East.

Over the years of reform, Russia has become more vulnerable strategically in every aspect of national security. In the west, NATO has moved closer to Russia's borders; in the north, Russia will be bordering on NATO after the Baltic nations join that alliance; in the south, Russia is very likely to lose strategic space in the Caspian Sea region and Central Asia. In the Far East the secure perimeter has shrunk to the line Petropavlovsk - Vladivostok. Suffice it to say that in the presidential paper "National Security Strategy for a New Century" (October 1998) and in the Pentagon's strategic programs for the period to 2025, Russia is not even mentioned as a subject of policy in the East Asia region. It has been replaced in these papers by China.

Despite all this, Russia manages to retain the status of a Great Power for several reasons, one of which is strategic nuclear arms. Considering than our GDP is less that such non-great countries as Korea, Sweden or Switzerland, it is natural to ask: at what expense is this status maintained?

Some figures can clarify this matter. The expenditures of Russia's Federal budget of 1996 (actual) show that 18% was spent on "national defense" and 7.5% on "international activities". Thus foreign policy (of which defense is part) consumes 25.5% of the federal budget. Is that a lot or not? Let's compare with the USA.

In the fiscal year 1996 the USA spent 16.9% of the Federal Budget on defense and 0.9% on international activities - under 18% in total. So poor Russia spends over a quarter of her budget on foreign policy, while rich USA spend less than 1/5 on it.

I want to remind you that exorbitant defense spending was one of the causes of the collapse of the Soviet Union. In this connection the question arises: how optimal is the present proportion of foreign policy vs. domestic policy spending? How justified are the efforts to maintain Russia's status as a Great Power during the present systemic crisis? This question can't be answered because the Foreign Affairs Ministry and other external affairs departments don't report their spending on particular foreign policy measures. In the USA, meanwhile, in 1997 Congress passed in 1997 the Foreign Policy Act that requires making public reports about every particular foreign policy expenditure. While we have no such information, we can judge the results by the decline of Russia's place and role in the system of international relations.

To a degree even the current government recognizes this. The above- mentioned government paper calls the current situation in Russia "a deep systemic crisis", though meaning only the economy. In reality the systemic crisis engulfs not only the economy but policy as well, including foreign policy. Even this characterization is too mild. Closer to reality is the conclusion that without exception the systemic crisis has endangered all of Russia's fundamental interests, from its territorial integrity to the ethnic-cultural identity of the Russian people.

The current political, economical and ideological leaders of all stripes realize that something is wrong with Russia. The reasons they present for this wrongness are different, depending on the interests they defend. Leaving out details, we can identify three main power groups: the Right which champions  radical liberal models of capitalism; the Left,  which favors socialism; the Center which advocates a combination "of the better aspects of capitalism and socialism".

They all have three things in common. They all oppose corruption, crime and the decline of output. They are divided on the perceived means and ways of solving these problems.

The Right believes that they can be solved through deepening the market reforms, reducing the state's role in the economy, improving the mechanics of democracy and keeping the Left out of the higher echelons of the executive branch of power.

The Left sees the cause of all ills in the person of the President and his entourage, in the principle and the institution of presidential power, in the imperfections of the Constitution, in the absence of controls over the media. They demand a bigger role for Parliament and a socialization of economic policy.

The Centrists, in whose camp I place the current Primakov government, have this definite prescription: "The Government favors strengthening the role of the state in the process of forming and developing the market and making it social-oriented". In other words, they want to adjust capitalism to suit socialism. Superficially that looks like the Chinese variant.

I want to draw your attention to one symptomatic fact about these discussions regarding of overcoming Russia's crisis: no one gives a clear evaluation of the social-political and economical characteristics of our society. What kind of society do we have? What kind of society are we building and what are we rejecting?

The leaders of all camps strive to avoid using the words capitalism/socialism. The Right prefer to speak of the market economy and democracy - phenomena that existed even in antiquity, in slave-owning ancient Greece and Rome. The Left, even its learned elite, is completely mixed up: some of them maintain that we have capitalism already, others claim that socialism is still in place. The Centrists, representing maximal dialectics, are obliged to say that Russia is in transition from one thing to something else. Analysts in the West, having wrecked their brains over Russian realities, have concluded that we have a "virtual economy" - something unique in world history.

But if we can't describe our society in terms understandable to everyone, or don't know ourselves what kind of society we live in, how can we correct or better it? How can we achieve a "steady stabilization", promised by the government as a necessary condition for the "transition from a market economy to a socially oriented economic growth"? It is precisely the market that turned 85% of the population into paupers, and the government wants these very 85% to help it  achieve a "steady stabilization".

The examples of North America and Western Europe may be quoted in response. On first thought, it's hard to argue against these examples, especially Europe. Yes, they enjoy relative stability. Yes, their economy is socially oriented. But think: firstly, the capitalist type of market economy in Europe took about 400 years to develop into its present forms. Secondly: in order to become a "socially oriented economy", the European states had to conduct many colonial wars over 300 years in order to efficiently extract super-profits from colonial and semi-colonial lands. Even today the socially oriented economy of North America and Western Europe is financed to a large degree at the expense of Third World countries.

No such conditions have been achieved in Russia. We have actually fallen into a Third World situation, where more is taken out of the country, including capital, than brought into the country.

Therefore, it is pointless to talk about stabilization and make anti-crisis plans for Russia as long as we don't know what kind of society we have. The above-mentioned government project I regard as just another piece of idle talk that won't be implemented. Even the castrated budget approved by the Duma won't be executed. The problem, after all, is not in the figures. The problem is the absence of strategy, the lack of understanding of the country's direction.

In reality it is a capitalist society that came into being in Russia in the 1990s, with all its basic attributes: private ownership of the means of production, a free market of labor, democratic institutions (multiparty system, freedom of press, free elections), distinct class division between hired workers/employees and the owners of capital/enterprises, etc. Our capitalism has the form of monopoly-state capitalism, since the state has been merging with financial-monopolistic groups.

On the other hand, our capitalism differs from other types of capitalism, such as American, Japanese, Indian or different versions in Europe. Ours is a Russian type, strongly reminiscent of Russia's capitalism at the turn of the century. The modern version is also strongly dependent on foreign capital, and the lion's share of private property in our country is owned by foreigners. This capitalism, like the one early in the century, is characterized by corruption, high crime rates, sharp division of society into the poor and the rich.

Despite the reforms of Prime Ministers Sergei Vitte and Pyetr Stolypin, who attempted to give it "a civilized European look", the early Russian capitalism was crushed by the October Revolution. This meant that the capitalist form of society could not solve Russia's problems of that time. On the contrary, all capitalism does is destroy Russia - now just as it did then. In other words, capitalism for some reason does not take root in the Russian soil. The question is, why? We have to answer this question in order to find the means to extract Russia from the strategic trap she has fallen in.

I see the main reason for the rejection of capitalism by Russia in the Russian people, their specific culture, mindset, psychology and national character - distinctive traits of Russian civilization, if you will.

The essence of Russian civilization is the communal mindset, which produces, on one hand, an urge toward equality, on the other - the need to defer to authority. This mindset is incompatible with the capitalist mindset, centered on individualism and freedom.

Russia and capitalism are thus incompatible, antagonistically at odds. Their struggle can only have two outcomes: either capitalism will destroy Russia or Russia will destroy capitalism. In the words of one character in Sholokhov's novel "Quiet Flows the Don": "There's no middle way here".  The latter of these outcomes is precisely Russia's historic predestination.

To support this claim, let me quote some figures that not everyone is familiar with. Between 1880 and 1916 - the period of capitalism's rapid growth in Russia - the country has lost 308 million people to starvation, disease, suicide, murder, wars and industrial accidents, or 8.3 million per year. On a lesser scope, the same process is underway in Russia since 1992 - the estimates of the annual population decrease are between 0.5 million and 1 million people. What does this mean? This is what: the Research Institute for Profylactic Medicine estimates that during the black 1930s under Stalin's regime 890 people per 100,000 died annually because of the reprisals, forced collectivization of peasants, organized starvation, banishment to Siberia, etc. In the years 1992-1996 this same indicator - excessive deaths per 100,000 - reached 1,150 people. Judge for yourselves which regime is more harmful: Stalin's one or the present one.

As to the possible objection that Russia's capitalism and democracy are not the real thing, and that causes the trouble: let's look at the example of Russian immigrants in Canada - the land of the world's best capitalism, according to UN data. Among all ethnic groups in Canada, unemployment is highest among Russian immigrants. Canadians of Russian origin (ethnically Russian - not Russian-Jewish, for example) occupy no prominent places in business or politics, with only the rarest of exceptions. That means, even under ideal capitalist conditions a Russian cannot adapt to the rules of capitalism.

Some of our democrats pin their hopes on the future generations of Russians who "will not have had the negative experience of USSR socialism". That's a very dangerous illusion, for the simple reason that our wide open spaces, natural riches and climate will inevitably cause the reproduction of the same genetic type, with the same communal mindset that hasn't changed noticeably in 1000 years of Russia's history. This is only natural, for it is plainly impossible to survive in Russia without this mindset.

Considering all the above, I believe that all the proposed variants of reforms within the framework of the existing capitalist system in Russia are not feasible in principle. Counting on their positive outcome is just another illusion that has negative consequences for the country and the majority of the Russian people. It isn`t the economic system and the direction that need to be changed, but the entire social and political system must be brought to conform to the norms of our Russian civilization. Our civilization is only compatible with the social and political system called socialism - with a Russian uniqueness to it, naturally.

This brand of socialism will understandably be different from those of Lenin, Stalin, Brezhnev and even Zyuganov. The ideology of the new socialism must be formed taking into account the historic experience of the USSR, its negative and positive aspects, as well as the worldwide experience and the new realities in the system of international relations. And, most importantly, it must take into account the civilization traits of the Russian people.

Just how will Russia return to socialism in its renewed form - through evolution or revolution - will depend on many factors and circumstances. Their analysis is a separate topic that is beyond the scope of this article.

Alex Battler

The paper presented at the International Conference in Moscow at Gorbachev Foundation on November 11, 1998. Translated into English from "Russia na poroge politicheskich peremen"  (Russia on the threshold of the political changes). Moscow: Gorbachev-Foundation, 1999,  p.112-120. Republished in Russian Vancouver, July-August 1999 (part 1), September - October 1999 (part 2).