Memorializing Market Bolshevism
By Sean at 18 January, 2009, 11:07 am
David Woodruff gives a brutal assessment of Anders Aslund’s How Capitalism Was Built in the Jan/Feb 2009 issue of the New Left Review. It’s unfortunate that the review is only accessible to subscribers.
Readers should know Aslund’s own personal contribution to the building of Russian capitalism well. In the 1990s, he was part of the Jeffrey Sachs’ team of Western economists that “advised” the Yeltsin government on “shock therapy.” Despite the disastrous social costs of his “market bolshevism,” Aslund remains a frequent commentator on Russian affairs by providing a well rehearsed and repeated denunciatory performance. Aslund’s trick is to emphasize the standard narrative about Russia with all the appropriate mentions of Khodorkovsky, liberal oppositionists like Nemtsov and Milov, “transparency,” and the impending doom of “Putinomics.” Most of all, Aslund’s move is to give a uncompromising defense of his contribution to the “reforms” of the 1990s.
It is Aslund’s continued championing of the rapid implementation of neoliberal reforms regardless of their social, political, and human cost that irks Woodruff the most. Woodruff writes,
Opening with a brief triumphalist survey of the downfall of Communism, the book then turns to making the case that shock therapy is preferable to any and all forms of gradualism. A third chapter seeks to downplay the colossal slump in output after 1989—claiming that ‘a substantial part of the big recorded decline, probably about half, was not real’, and should instead be put down to ‘mismeasurement, an expansion of the unregistered economy, and the elimination of value detraction’. Separate chapters then deal, respectively, with liberalization, stabilization and privatization, recording satisfaction with governments that have deregulated their economies, curbed inflation and established private property rights—though Åslund does display some concern about the security of the latter, and consequently about the ‘political legitimacy of privatization’.
The rest of the book records Åslund’s views on a variety of areas where the implementation and outcomes of market reforms have been criticized. With regard to social welfare, he blithely asserts that ‘there was certainly trauma, but the initial perception of social disaster was exaggerated’, and that ‘the course of reforms did not have much impact’ on levels of inequality. On law and order, he notes the explosion of crime, but describes it as ‘a natural consequence of the breaking down of the old order’, bemoaning the fact that lawyers both in the region and abroad have not sought to mould a post-Soviet legal system ‘with the single-mindedness of the IMF in its pursuit of macroeconomic stability’. Further topics covered include the compatibility of democracy with reform (total, according to Åslund), the ‘oligarchs’ (whom he lionizes), and the role of the international community (whose stinginess he bemoans).
Although published by an academic press, How Capitalism Was Built is not a scientific endeavour. Those with a true calling for science, as Max Weber remarked, are tormented with doubt over the accuracy of their conclusions. All doubt is banished here. Even when contradicting himself, Åslund displays absolute assurance. Countervailing evidence is ignored or dismissed.
Interestingly, Woodruff locates Aslund’s chest pumping self-assurance and quick dismissal of contrary evidence to an anxiety that his economic faith might just be the work of false gods.
The source of Åslund’s hypertrophied self-assurance is perhaps a deeply buried anxiety that he might be wrong—and that being wrong, after making such categorical statements in an effort to shift the terms of public debate, would be a moral failing. Whatever the reasons, he evidently feels a duty to provide a moral exculpation of radical reform. He offers a kind of theodicy of the ills of post-communism, absolving the shock therapists of blame for each and every ill, and identifying the guilty parties. Conversely, Åslund avidly ascribes all positive developments to radical market reform. As befits a moral fable, there are no impersonal forces, only the wise and the wicked. The latter are the ‘rent-seekers’, who try to manipulate state policy away from the reformist path to ensure above-market rates of return, and bear heavy responsibility for all the disappointments of post-Communism. Fortunately, they are opposed by the wise—heroic free-marketeers such as Gaidar and Poland’s Leszek Balcerowicz, both of whom provide back-cover endorsements—who may be credited with all that is good in the former Eastern Bloc. The struggle between the wise and the wicked, Åslund would have us believe, is the central story of the period since the fall of the Wall: ‘post-Communist transformation is the history of the war for and against rent-seeking’.
After statements like this, it isn’t at all surprising that Woodruff finds little to praise in the core of Aslund’s book. According to Woodruff, How Capitalism Was Built positions free-market orthodoxy and the individuals who apply it floating above society, perched on hovering clouds where they damn lesser, terrestrial beings for screwing up their well formulated theories and calculations. Blame for all the screw ups in the 1990s are not found in economic theory but in those pesky opponents and incompetents who ignored the march of History itself. What Aslund and others refuse to recognize, Woodruff asserts, is the anti-democratic nuclei in the atomic structure of their market Leninism:
In Åslund’s case, imperfections are the reason why radical market reform in Russia cannot be blamed for democratic reversals there. What this defence ignores is that an executive authority convinced that it has the single right answer to economic problems, and which demands of parliament and the legal system a rubber stamp for its every decision, has a corrosive effect on democracy. From the beginning of Russia’s shock-therapy programme it was clear that, faced with a choice between what law or parliament demanded of it and what it desired to do, the Yeltsin government would always choose the latter.
Given all this, it shouldn’t come as a surprise that Woodruff’s final conclusions are pointed and harsh:
In its fervour to celebrate radical market reform, its cavalier attitude toward the historical record—inaccuracies and contradictions alone could have filled an entire review—and its resolute refusal to consider whether there might be lessons to learn from fifteen years of post-Communism, How Capitalism Was Built is a profoundly frustrating book. One is hungrier for knowledge after reading it than before. Ultimately, the book’s significance should be sought beyond the text itself. What are the broader conditions that enable such a tendentious and unscholarly analyst to acquire such a prominent role? One factor is clearly the legacy of the Cold War. Western journalism, constrained both by Communist censorship and its own lack of imagination, found itself unable for decades to narrate a story about the Communist countries that went beyond the dualism of ‘regime versus dissidents’. In the 1980s, this mutated into Gorbachev and reforms versus Ligachev and reaction; in the 1990s, the new permutation was Yeltsin versus the rent-seekers; today it has become the siloviki versus all comers—technocrats, oligarchs or democrats.
This is an easy story to tell, and Åslund makes up in vigour and vividness what he lacks in accuracy. It may also be that such facile analysis, devoid of shades of grey, fits in easily with an age of financial booms and busts driven by vast international capital flows. Speculators do not need nuance: they need to know whether to buy, sell or hold. What is important to them is not the truth about an economy, but what everyone else is going to think is the truth. Åslund’s unabashed claims of oracular status supply what the market demands. These days, as speculative capital flees every market in the world, Åslund blames the latest Russian collapse squarely on Putin, whose attacks on business and Georgia allegedly spooked investors. Someone is always to blame; just not the free-market liberals.
It is this last sentence continues on heavy rotation even as current events point to the contrary.
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Wow!
I didn’t understand a thing!
But I hope other братишки-комсомолки will explain to me (aka dummies).
I am always a bit puzzled when I read such descriptions of how the economy of the USSR changed into the economy of Russia. It seems that the changes took place in Moscow by various ideological opponents, advised by Western advisers. Perhaps that is true.
However, that is not my experience. I was in Russia from early 1992 onwards working on building the infrastructure needed to trade Russian primary commodities; especially aluminium. What happened in Moscow was almost totally irrelevant to what was happening east of the Urals (where Russia’s wealth lies).
I never met anyone East of the Urals who cared a damn for what was going on in Moscow; what they said there; or what they advised there. The reconstruction of the Soviet economy into an economy engaged in international trade was done by three groups, none of whom had any strong relationship to Moscow or the politicians there.
The first was the group of international commodity traders (Marc Rich, David Reuben, Alan Cligman, Gerry Leonard, etc.) who went to Siberia and the Far East to engage in ‘tolling’. That is we would pay for all the inputs into the production of the metals (ores, benefication, raw materials, energy, transport and marketing) and would pay a fee to the smelters for their work. Out of that would be paid wages and social benefits.
The second group was the Mafia who provided us with liquidity. They had the cash which would allow us to pay, in rubles, for local supplies and services. The government and politicians in Moscow added nothing but barriers.
For example,I had a 26,000 ton vessel full of alumina arriving in the port of Vanino. I had deposited US$150,000 to the account of the port in Moscow. When I arrived at the port I was told that there might be a strike. I asked why. I was told that the port workers were upset that they had not been paid. I asked why they had not been paid; I was told that there was no money to pay them. This surprised me because I had put the money in the port’s account, in cash, myself. The port director laughed and said that the port had plenty of money in its account but that there was no facility to access cash. He could go to the bank and arrange to transfer funds to another account but that all cash was held in Moscow and it would take over a month to get the cash released for the port to use. I asked my colleagues what I should do to solve this problem. I flew to Khabarovsk and went to see a man who operated outside the normal system. I negotiated a conversion rate with him. The port transferred the dollars to his account and I took two big black plastic bags of rubles to the port and work commenced. On many occasions the presence of the Mafia was the saviour of the business. They had the liquidity (from selling cigarettes, vodka, etc.) and were able to allow us to do our business. Without the Mafia the Russian system would not have worked. The Governments were useless because of their rules. Only the freewheelers could make the system work. Whatever else they may be accused of, Russia owes them a debt of gratitude.
The third group was the group of Russian officials (now thrust into the world of commerce as businessmen) who had to carry on in their jobs as port officials, railroad directors, smelter operators and customs officers. These Russians knew that their future depended on getting money to buy the food and to provide the social services the Soviet state used to supply. The endeavoured to find a way to make it work by trial and error. Most of those who thrived while I was there were former Zeks who had no use for the people in Moscow. They were loyal to their circle of friends. It was they whom they looked after.
In addition there was another layer of ‘facilitators’; people who knew the parallel system. They set up the deals. They traded the hard earned cash from aluminium into cigarettes and vodka which could be brought back into Russia and sold for cash, providing liquidity to the system. These facilitators were among the first private businessmen in Russia. They had ties to the very independent private sector who had access to the raw materials and the internal organizations which could deliver on the agreements made; the Izmailova (the late Anton Malevksy), Soltsnevo, Long Pond groups to name but a few. The facilitators included the Chernoy brothers (Mischa and Lev), Sam Kislin, and the \’institutionals\’ Gregory Luchansky, Semyon Mogilevich (Lyubarsky and Long Pond) or Vadim Rabinovich in the Ukraine. Without these men the Russification of Russia couldn\’t have taken place. They provided the only working system in Russia. Even in the far reaches of Siberia or the outposts of the Far East one could always find someone who could provide what was needed
As this worked and metals or oil were produced and sold, these companies retained a part of the hard currency earnings and the foundations of Russian capitalism were laid.
As these banks and investment trusts prospered, Russia became less and less dependent on the Mafia for its business. They also became less and less dependent on Western capitalists to introduce them to commodity trading. They brought the rubles home and, in the various stages of privatization, they invested these in Russian businesses. Quite often this privatization was a sham but that wasn’t the point. The point was to bring the money home and take over the shares and the businesses.
All these, together built the new Russian economy, despite the Russian Government.
It was at that point that power began to be returned to Moscow. That is not to say that in the process of tolling we didn\’t have to pay a share of the profits to the Chekists operating as democrats in Moscow the new Russia (largely through Menatep and Khordokovsky); but only that their inputs were minimal and often obstructive.
It is thus very puzzling to see that great essays and studies are made of a system of reform and reaction based in Moscow during this period as it belies the reality of what was happening. Reality was a series of trial and error experiments in capitalism which was outside the purview of the Russian Government; reformers, ideologues and conservatives (and six or seven times zones away from Moscow).
Perhaps such analyses are useful. However, they aren\’t practical or realistic.
Very interesting account from Gary. Sounds like first-hand experience
Bloody bastards. I confirm.
Don’t agree. At least I couldn’t draw the line
between “mafia” and “government”. They were just playing hand by hand, side by side. Government were placing barriers, Mafia were “helping” to pass them. Then “mafia” (keep in mind – this is very general term) shared the “profit” with “government”. But without each other they were useless.
Com’n. I’ve never run over chekists. All “dermocrats” I met were former comparty executives. And this was easy to explain. If the Instructor of City Party Committee (gorkom) was in charge of heavy industry (as Party was nothing more but huge national corporation) – then such Instructor was able to grab best chunks of that heavy industry.
In many cases “error” meant dead body (or two). So I quit the trail and moved my body to a quiet place.
Otherwise – Gary gave rather realistic picture …
PS. Majority of that “first capitalists” I knew were long time dead. Errors rate was very high indeed.
Interesting post and comments. I would just note that the narrative (as always) is even more complex than suggested above. Aslund was writing staunchly pro-Putin pieces based on the first-term economic team and program at least up until early 2002 (see my rebuttal to one such piece here).
Furthermore, the connections (alluded to by Gary Busch above) between Khodor and the “Chekists” (if indeed it is possible to refer to such a monolithic group, and I doubt it really is), or to perhaps put it in other terms, between the ’90s-era elite and the elite under Putin, are quite interesting indeed – just one example is Kremlin PR guy Vladislav Surkov’s past as Menatep’s head of PR and his subsequent work for Fridman and Berezovsky. To some extent I guess it’s just an issue of talent following the money/power, but it’s interesting nonetheless.
Considering Aslund’s track record, it’s strange some folks still think he’s worth reading. Also, very interesting comment by Gary and as Ivanov noted, it seems to contain plenty of first-hand knowledge. Is Gary for real, though? I’m asking because I did a quick google and saw that the Robert Amsterdam Blog quoted him about a week ago and the next day issued a retraction and “plagiarism alert” (http://www.robertamsterdam.com/2009/01/plagiarist_alert.htm).
Despite their small difference of opinion what both Gary and Ivanov wrote resonates with me. The atmosphere they recount rings very familiar to my own (very small fry) experience in the Russia of the 90s. I was not a total naif, but for better or for worse, I did care about how business is accomplished. After a while I reached a certain saturation point of disillusionment and for several years did not follow Russian affairs that closely.
Menatep (Khodorkovsky’s bank) was the vehicle through which almost all the transfers of serious money in and out of Russia took place from 1992 to 1998. When we started ‘tolling’ aluminium and others started tolling copper and nickel we did not send the proceeds of our sales back to Russia. On the advice of Russian Prime Minister Silayev, Deputy Prime Minister Oleg Soskovets, presidential aide Aleksandr Korzhakov and Speaker Ruslan Kasbulatov we were told to make all our payments to Menatep Bank.
Sometimes it might be Menatep Cyprus, sometimes Menatep Gibraltar, Menatep Finance Geneva, Menatep Inc. New York, etc. When we sold the metals we had tolled a small fee was paid to the smelters. A payment was sent them through their designated bank, often Citibank in NY. The bulk of the money was sent to Menatep marked “for onward transfer to -Company or – Account at – Bank”. We did not know the recipient at the end of the chain. It wasn’t our business. We paid what we had agreed and that was all. Only Menatep know exactly to whom these payments were going after we deposited the funds. These were not trivial sums; our payments alone often amounted to US$60 million a month. Menatep monitored the cash flow and directed the funds to the accounts of the highest powers in the land, the Presidency, the Government and the Chekists who staffed the parallel infrastructure. Menatep had been set up by these people and Khodorkovsky chosen to be at its head; not the other way round.
There was virtually no aspect of what Menatep was doing which wasn’t controlled by, monitored by and directed by these same leaders.
In addition to its foreign currency and money laundering business Menatep also provided investment services. In the submissions before a U.S. judge in the “Avisma Case” Menatep was the perpetrator of a gigantic con in which tens of millions of dollars were diverted from the company. Khodorkovsky and fugitive banker Alexander Konenyikin started the Antigua-registered European Union Bank which was described in a House Banking and Financial Services Committee as a “KGB money-laundering operation with stolen funds that were passed through Khodorkovsky of Menatep Bank as a KGB-controlled front firm”
According to the investigators the entire operation was coordinated at SVR headquarters and was personally supervised by Aleksandr Korzakov. Through Korzakhov and his friendships with Mikhail Stepashin and Yuri Primakov, Khodorkovsky was given access to the Bulgarian and the Hungarian services to replicate his work for them. The main person in charge of security operations in Khodorkovsky’s companies has been Mikhail Yosifovich Shestopalov former head of the Division for Combatting Thefts of Socialist Property and Speculation of the Ministry of Internal Affairs. The head of Menatep’s and Yuko’s information and analysis section was Karabinov, former head of the KGB Centre for Public Relations (the man who ran the “Miss KGB” contest).
The point of this is not to attack Khodorkovsky. It is to make clear that virtually everything he did was directed, supervised and monitored by the very people who have now attacked him. There were Chekists at every level of Menatep and Yukos. There were no mysteries. The politruks and the pakhans supervised everything. He was a predurok in a controlled system. Everyone knew what was happening. When we made our payments we had a good idea who was being looked after; if only to avoid mistakes.
Because of Menatep we had no direct ties, except when we had to provide credit cards top key individuals. One might reflect that Vladimir Putin’s first job when he left the KGB was to supervise metals sales for Sobchak.
“The politruks and the pakhans supervised everything.”
Gary.
Your firsthand experience sounds much more interesting that your assumptions.
“often Citibank in NY”
Oh, really? How did they dare to deal with chekists?
Every month we sent payments to the aluminium smelters (Bratsk, Krasnoyarsk, Sayansk, Novokusnets, Navoitsky, etc.) at their accounts in Citibank NY. These were real smelters. There was no problem with this. They weren’t Chekists; they were corporations which were independent. We were legitimately pay them the ‘toll’ for producing the metal.
Gary,
You start by asserting that Kremlin was out of the loop, but the more you let on the more it looks like Kremlin was controlling ‘the loop’, clever enough to skim off the top and never get implicated for any serious crimes.
It’s not that simple. This was primarily
during Yeltsin’s reign. The efforts to prepare for a major change was anticipated by the KGB and the GRU during the Gorbachev period.They saw the chaos which was about to overwhelm Russia in the wake of the political crises would leave Russia without an economic structure which could perform the tasks needed by the Russian State.
The the First Directorate of the KGB (INU – Innostrannoye Upravleniey, First Chief Directorate – Foreign) which was responsible for foreign intelligence collection, analysis, offensive counterintelligence, and active measures had been assembling a large cache of hard currency in banks outside Russia through the state trading companies in anticipation of this along with the Sixth Department (which deals with international economic programs). Preparing KGB officers to run for political office was handled by the Fifth Department.
This system was interrupted by the attempted coup against Yeltsin and these KGB leaders had to take a less public role. They continued to dominate the schemes to export Russian gold and to create a viable system through tolling. They operated in parallel to the Yeltsin Kremlin although some had very high offices.
They, as you say, were happy with skimming the initial business but took no operational role in the actual operation of the businesses as they grew. So it would not be fair to say that the Kremlin was involved. Certain people in the Kremlin were the beneficiaries of the profits of the system and accumulated a large amount of money overseas from thee businesses.
Not all of this money was accumulated for purely personal use. When the operations of the businesses became strong and trading patterns put in place, much of this overseas money was redirected back into Russia to pay for the rigged privatisation schemes which put these companies firmly back in Russian hands and created a number of oligarchs in the process; under the growing influence of the State.
Wit the accession of Putin and the introduction of the St. Petersburg Chekists, the transfer of power to Moscow was completed.
So, it is too vague to say that the Kremlin took the money and exercised control. They didn’t. Certain important people controlled the money and exercised very little control over the foreign companies. Control arrived with privatisation and the growth of the oligarchs.
The system worked. Much of Russia’s wealth had returned (via a crooked path). Russian industry was able to produce and sell to the world markets successfully. Most foreign operators were forced out of Russia and companies like Rusal, Sual, Renova were formed under Russian ownership. All in all, it was a success story.
The government and politicians in Moscow added nothing but barriers.
Ha! Nothing has changed!
Excellent account, Gary. I’m sure Vanino is still a witness to shady deals. We’ve had to send equipment through there from Sakhalin to De Kastri, which required a “facilitator” to ensure there were no hiccups.
“Considering Aslund’s track record, it’s strange some folks still think he’s worth reading.”
He’s sort of like a Swedish Averko.
Acronyms only, Chris, please. We would call him an “SA”.
A not so Russia friendly SA, at that.