Capitalism hits a brick wall in Russia

First published: October 1998

In one of the most spectacular financial explosions in history, on 17 August, in the space of one day, Russia’s entire financial system collapsed. Stock markets around the world were sent reeling, not because of Russia’s weight in the world economy, nor the big losses incurred by Western banks speculating on the Russian bond market, but because Russian capitalism had run into a dead-end from which there appeared to be no way out. What really rattled the markets was the possibility that, faced with destitution this winter, the Russian people might call a halt to the re-introduction of capitalism, which having already resulted in the greatest peacetime industrial collapse in history, now promises worse. As one commentator said, it began to dawn on the markets that capitalism’s victory over socialism might turn out to be only a short episode at the end of the 20th century. Even the financial press, and people like George Soros, echoed this sentiment.

In the course of seven years Russia’s economic output had been halved, its manufacturing industry and agriculture decimated, its welfare state destroyed, its population reduced by rising death rates and falling birth rates and its assets stolen by a gang of oligarchs backed to the hilt by the West. Many people in Russia and elsewhere in the former Soviet Union thought that, with wages and pensions going unpaid for months and having lost their life savings, things could not get worse. They were wrong.

The financial melt-down in August triggered a vast, new spiral downward of the Russian economy – tens of millions of Russians, and entire regions of the country, simply can’t afford the food, fuel and clothing necessary to get them through the winter.

The financial collapse was the inevitable, and predicted, result of the capitalist economic course imposed upon the country after 1991. Yeltsin promised three months of pain followed by rising living standards in a consumer society. In reality the consumer goods and food producing sectors of the domestic economy have been all but eliminated. As the IMF and World Bank envisaged in their three-volume study of the Soviet economy published in 1990, capitalism has reduced the country to an exporter of raw materials. It now depends on western imports for 60 per cent of its cities’ food and consumer goods.

The resulting collapse of output is the underlying cause of the financial crisis. With output halved, companies cannot pay wages and taxes and the government can’t pay pensions, the army or public sector workers. For a time the inevitable financial collapse was staved off by a combination of high energy prices during the upswing of the world economy, Western loans and the growing pyramid of government debt at astronomical interest rates.

But the impact of the economic crisis in Asia brought the entire edifice crashing down. What had always been an historical dead-end – regression from a manufacturing economy to a supplier of raw materials – became immediately unsustainable as commodity prices plummeted. The balance of payments surplus disappeared and, with a flight of capital from emerging markets, devaluation of the rouble became unavoidable. The last act of the Kiryenko government was, by devaluing and effectively defaulting on domestic banks’ foreign debt, to rob both the Russian population and foreign creditors, to try to save the criminal network of Russian banks which stands behind Yeltsin’s regime.

But the result of the devaluation was the complete collapse of the banking system – with all banks technically bankrupt, deposits frozen and prices of imported food and consumer goods trebling in the space of days. People already on the edge of hunger were tipped over the abyss. Whole regions faced running out of food and fuel. Hospitals ran out of blood.

The back of the Yeltsin regime was broken. As regions moved to introduce state control of prices and set up commissions to monitor their implementation, it became clear that having dissolved the Soviet Union, Yeltsin had now taken Russia to the point of break-up. This is indeed what capitalism will mean for Russia – an unending spiral downwards until it literally ceases to exist. Western strategists are already discussing this. Former US National Security Advisor Zbigniew Brzezinski, spelled out this perspective in an interview with US-funded Radio Free Europe on 15 September. He said: ‘Russia’s chances of development would be greater if Russia were organised as a confederation of three main units: European Russia, Central Russia and Siberia; and Far-Eastern Russia. Under this confederate arrangement each region would be far better placed to develop regional trade alliances with neighbouring trading zones than the present system.’ In other words the country would be divided into German, US and Japanese spheres of influence.

It is the fact that capitalism will mean still greater catastrophes for the Russian people up to and including the disappearance of their country which calls forth such reservoirs of resistance. The working class came to power in Russia in 1917 because there was no capitalist way forward for the country. Without the October Revolution, Russia would have been broken up into a series of semi-colonies like the Middle East. Hitler’s 1941 invasion confronted the Russian working class with similar choices, resolved with still greater sacrifices than in 1918–21. Today the same alternatives are posed – with the peculiarity that, on the one hand, the Kremlin itself has fallen to capital, but, on the other, unlike in 1918 or 1941, the possession of nuclear weapons precludes the direct military invasions from the West.

It is because the choices are on such an immense historical scale for the Russian people – combining the eradication of virtually everything they have built up in the twentieth century in terms of social infrastructure with the very existence of their country – that the current battle (since the end of 1991) between the Russian working class and international imperialism has been so protracted.

The situation after 17 August this year is that the credibility of President Yeltsin’s regime has been shattered. Two thirds of Russian voters say he should resign. In these circumstances, when the Communist-led parliament rejected his nomination of Victor Chernomyrdin as Prime Minister, Yeltsin had just three options. One, to dissolve parliament and call elections – but all polls showed these would result in the electoral slaughter of his supporters and a more hostile parliament. Two, to organise a coup as in October 1993 – but polling in the army indicated that 97 per cent of soldiers and officers would disobey orders to fire upon the population. Or, three, to give in, which Yeltsin did, but with the result that the balance of power swung massively towards the Communist Party-dominated parliament which had stood up to the President and won.

An indication of the balance of forces was given shortly after parliament had endorsed the new Prime Minister Yevgeny Primakov, when Yeltsin’s first prime minister and initiator of the capitalist economic reforms, Yegor Gaidar, called a ‘mass’ demonstration in Moscow against what he called ‘the creeping communist coup’ – 200 supporters turned up! Miners’ leaders who helped Yeltsin to power in 1989 and who, along with other trade unionists and the Communists, are planning mass demonstrations on 7 October under the slogan that Yeltsin must resign, told the Financial Times in reference to the 1989 strikes: ‘if we had known what would happen we might have thought twice about it. The 1989 protest was to correct one or two things, not bring down the whole system’ (7 Sept 1998).

As we go to press the economic programme of the new government has not been announced, but the re-appointment of Victor Gerashenko, who as chair of the Central Bank protected industry from the first onslaught of capitalist economic reform after 1991, has spooked Western governments. His description as ‘the worst central banker in the world’ is high praise indeed, coming as it does from Jeffrey Sachs, one of the Harvard professors who advised on the destruction of the Russian economy.

The reality is that, if a government in Russia wished to overturn capitalism, there is no capitalist force within the country capable of stopping it and no state outside could militarily intervene. If capitalism is not overturned the country will continue to spiral downwards because it is impossible to reverse the economic decline without decisive action by the state.

The consumer goods and agricultural sectors of the economy, which must be massively expanded to feed and clothe the cities and secure popular support, can only be developed if the prices of energy and raw materials fall relative to the products of light industry. The only way such a shift can be enforced is by re-nationalising the giant energy monopolies.

Secondly, the country’s investment resources have to be channelled into the consumer goods sector and that is impossible if the banking system remains in the hands of the mafiocracy. So to rebuild the economy, stop the flight of capital, and allow society to direct where its resources are invested, the banking system must also be taken into public ownership. On the other hand, the small businesses in agriculture, consumer production, services and the retail sector, and the markets for their goods, which have been crushed for the last seven years, must be stimulated as in China, to create the network of hundreds of thousands of small enterprises necessary to supply high quality consumer goods.

No capitalist party in Russia is capable of winning even 10 per cent of the vote without massive state backing and even then no capitalist party can equal the Communist Party’s support. That party has been enormously strengthened by recent events. The decisions it takes over the next period of time will decide the fate of the country. The majority of its members stand for workers’ power and a planned economy. A minority of its MPs, on the other hand, are pro-capitalist social democrats. The party chair, Gennady Zyuganov, has occupied a centrist position, constructing the patriotic alliance which established the Communists as the leading party in the country, but seeking compromises with what is, in reality, a virtually non-existent ‘patriotic national bourgeoisie’. Under the last Chernomydin government that policy allowed bourgeois demagogues like the mayor of Moscow Yuri Lushkov and the pro-American General Alexander Lebed to gain support at the expense of the Communists. Learning from this, the left wing of the Communist Party has strengthened itself – and, aided by the mood in the population, is pushing the whole party to the left.

The Communists have refused to back the Primakov government before seeing its programme. They are right. Russia faces mutually exclusive alternatives – return to the policies of the IMF or nationalisation of the banks and energy industry to regain social control of the economy. There is no third way.

In its battle with international capitalism and its criminalised domestic representatives, the Russian working class has taken a giant step forward since the middle of August. Its victory is entirely possible and that would change the entire balance of forces between capital and labour, between imperialism and the oppressed majority of the world, for the better. The working class of the entire world has a direct interest in doing everything it can to assist it in that struggle.