Russia's Roaring Twenties

Bullish about the great bear's future

Martin Morse Wooster from the December 1994 issue

When the Soviet empire was at its zenith, a common joke among Sovietologists was that however mighty and imperial the Soviets seemed, at its heart the USSR's economy was so feeble that it was little more than "Upper Volta with rockets."

Now that the Soviets have disappeared (along with Upper Volta) it seems that Russia isn't just a Third World nation with rockets; it's just the Third World. Consider the following:

• The August Reader's Digest reprints an item from the Financial Times that reports that the Russian air force is now selling joy rides to anyone with hard currency. For $12,000, you can ride a top-of-the-line MiG fighter; for $40,000, you can engage in a mock dogfight with another fighter and receive a souvenir helmet (apparently in English) proclaiming you a "Top Gun."
• A Department of Energy report summarized in the June Atlantic Monthly charges that 3,000 Russian officers have been disciplined for "questionable business practices" and that 46 officers were going to be court-martialed for corruption.
• In the September Post-Soviet Prospects, the Center for Strategic and International Studies's Keith Bush reports that, according to official Russian statistics, industrial output in that nation between January and August 1994 was 24 percent below 1993 levels, and the Russian gross domestic product was predicted to shrink by between 16 percent and 18 percent. Since 1989, Bush says, industrial output and GDP has fallen in Russia by 50 percent, "a steeper drop than was registered during the Great Depression in the United States during the early 1930s."
• Also in the September Post-Soviet Prospects, Robert Ebel reports that in the first half of 1994, Russian crude oil production had fallen by 14 percent compared to the equivalent period in 1993; during the same time, coal production had fallen by 11 percent and electric power production by 7 percent.

When magazines write about Russia, their pages tend to be filled with similarly gloomy reports. Lenin may have been smashed by the iconoclasts, but at first glance it seems far too many Russians are prepared to venerate Al Capone.

Perhaps the most alarming stories about Russia are those dealing with the rise of the "Russian mafia." In a cover story in the June Atlantic Monthly, investigative reporter Seymour Hersh charges that Russia is being taken over by criminals and gangsters. "The exponential growth of organized crime in Russia is not only an issue of personal safety and economics," Hersh writes, "it is becoming an issue of national and international security. The criminal element in Russia is now in the process of hijacking the state, and is threatening to erode the government's control" of nuclear weapons, plutonium, and uranium.

In his very long article, Hersh cites no evidence that any Russian has sold nuclear material (though since Hersh's article appeared, there have been signs that plutonium may be escaping from Russia into the world market). But he reports that in early 1993 Literaturnaya Gazeta writer Kirili Belyaninov, conducting an undercover investigation, was offered what he was told was a warhead from an SS-20 missile for $70,000. Nor does Hersh find any evidence that Russian mobsters have seized control of any major portions of the Russian economy.

What Hersh does discover is that a great many mid-level bureaucrats in Washington are prepared to give up on the Russian economy. Various unnamed sources compare today's Russia to the Wild West, Roaring Twenties Chicago, the American "robber barons," and the Alaskan gold rush. According to Hersh, some unnamed "Clinton Administration experts on Russia" are predicting that Russia is a second Weimar Republic, a tottering, feeble democracy about to succumb to totalitarianism.

Since readers of Hersh's article have no idea to whom Hersh spoke or what their qualifications are to comment about Russia, we don't know how accurate their predictions might be. But Russian observers willing to put their thoughts on paper are more optimistic. Russia may be going through a very hard time, but it is far from certain that the nation is doomed.

Hersh never defines what, exactly, a Russian "mobster" might be. As the Financial Times's John Lloyd notes in the August 27 Spectator, if a Russian mobster is someone who hires bodyguards, routinely pays protection money, and avoids taxes, then, as Lloyd notes, most of the honest entrepreneurs in Russia are mobsters. While the people they are paying protection money to are genuine mobsters, the honest businessmen still outnumber them.

The collapse of communism, Lloyd reports, left the wealth-seeking Russian in a world without rules. Most of the newly rich Russians are not, in fact, ethnic Russians. Many are from Georgia and Armenia, and some are Jewish, and are thus the targets of envious racist anti-capitalists. Many fear that they will meet the fate of parents or grandparents slaughtered by Lenin and Stalin. And Lloyd, summarizing the research of Academy of Sciences sociologist Igor Bunin, reports that most members of this enterprising class would prefer not to live according to the law of the jungle; "they prefer to live in an environment where rational and trustworthy transactions are honored within a stable and secure framework."

Moreover, Alexei Bayer reports in the September 12 Insight, some of the "crimes" these "mobsters" commit are not the result of force or fraud, but simply the consequences of angering an inspector who then chooses to enforce an arbitrary and ill-conceived rule. Foreign exchange accounts can be blocked at any time, and a recent presidential decree limiting corporations to one bank account harms firms whose banks are inefficient and unreliable.

Yet the Russian economy, says the Carnegie Endowment for International Peace's Anders Aslund in the September Foreign Affairs, is not doomed. "The Western caricature of Russia as a destitute country on the verge of either collapse or falling into the hands of fascists could not be more wrong," Aslund writes. "Russia has undergone fundamental changes and appears to be on the right track."

Those changes, Aslund observes, are primarily due to Viktor Chernomyrdin, a secretive man who has been Russian prime minister since November 1992. When Russian voters in their December 1993 election replaced the Supreme Soviet with the State Duma, most news reports focused on the 24 percent of the vote given to Vladimir Zhirinovsky, a fascist thug. But the more important story, says Aslund, is that the Russian system of government was radically revised, with power flowing away from parliament and toward the presidency, in a system of government similar to France's. This shift ensured more stability and enabled Prime Minister Chernomyrdin to fight inflation and battle the deficit. The result: Inflation is now down to about 100 percent a year, and the Russian budget deficit is being slowly reduced. Shops are gradually filling with goods, and arms factories that considered it beneath their dignity to produce goods that consumers actually needed "now scramble to produce whatever they can sell for a profit."

Aslund advises his readers to question scary statistics about falling production. In the era of five-year plans, Soviet plants routinely overstated production to fulfill quotas; now Russian factories understate output to fool the tax collector. A more accurate measure of the health of the Russian economy, Aslund believes, is electricity consumption, which fell by only 6 percent in 1992 and 5 percent in 1993, suggesting that the Russian economy is not in terminal decline. And, while workers in many Russian professions (coal miners, professors of Marxism-Leninism) face diminishing demands for their labor, more enterprising Russians have more money to buy cars, homes, and television sets.

As for crime, Aslund suggests that while Russian big cities have become more dangerous, they're still safer than American cities of similar size. And as Russia slowly adopts the rule of law (jury trials, for example, have been held for the first time since 1917), mobsters who made their fortunes selling goods made artificially scarce by price controls or monopolizing licenses have found their fortunes undercut by deregulation.