Russia: Statist Quo

In Russia, the pace of reform will slow even more-and the reformers are largely to blame.

Russia's December 12 elections leave free-market reformers with only one piece of good news. After years of linguistic confusion in which Marxists were described as "right-wing" and reformers as "left-wing," we are finally hearing labels that contemporary U.S. political observers can understand. Vladimir Zhirinovsky's party, which has now surged to the forefront of the anti-market opposition, calls itself the Liberal Democrats.

Zhirinovsky is routinely labeled a "fascist" in the Western media, but he does not use that term himself; in fact, he has filed lawsuits against Russians who call him that. The tag preferred by his own chief of staff, as I learned when I visited Zhirinovsky's campaign headquarters in November, is gosudarstvennik—the precise, literal translation of which is statist.

Supporters of the pro-Yeltsin Russia's Choice bloc, led by Deputy Prime Minister Yegor Gaidar, have tried to minimize their December defeat by emphasizing that once all the votes were counted, Russia's Choice had won more seats than the Liberal Democrats in the new parliament. But this is cold comfort.

First, the key barometer of popular opinion was the vote for party slates, not for parliamentary candidates running as individuals. It was precisely for the purpose of improving the reformers' chances that the Yeltsin administration designed the complicated new system of parliamentary elections: Only half of the deputies in the lower house were chosen individually from U.S.-style, single-seat districts, while the other half were allocated among parties according to the vote that each party slate received nationwide.

Several sources in the Russia's Choice bloc told me they had expected that their party slate would do better than pro-Yeltsin candidates running as individuals. But the result was just the opposite, showing a depth and intensity of anti-administration feeling far stronger than anyone predicted. Instead of the 30 percent to 40 percent expected, the Russia's Choice slate received only about 15 percent of the nationwide vote, compared with about 25 percent for the Liberal Democrats.

Second, when the Liberal Democrats' seats are combined with those of other statist parties such as the Communists and the Agrarian Party, it is clear that the opponents of free-market reform are stronger in the new parliament than the supporters. Three pro-reform parties—led by Yeltsin's key adviser for regional affairs, Sergei Shakhrai, St. Petersburg Mayor Anatoly Sobchak, and independent economist Grigor Yavlinsky—all did worse than expected. Sobchak's slate did not even get the 5 percent of the nationwide vote required for it to win any parliamentary seats.

Moreover, many of the new deputies in Gaidar's and Shakhrai's parties, including such centrist Yeltsin team members as Prime Minister Viktor Chernomyrdin, are at best shaky in their support of free-market measures. In essence, these centrists are the Moscow equivalents of Bush Republicans.

So the new parliament will probably be just as anti-reform as the one Yeltsin destroyed last October. But unlike the old parliament, the new one will enjoy unquestioned democratic legitimacy—even more than Yeltsin himself, who has now broken his pledge to hold presidential elections this year.

And if the confrontation between president and parliament should turn violent again, Yeltsin will probably not be able to play the military trump card, as he did last fall. Contrary to pre-election forecasts, military personnel voted for the Liberal Democrats even more heavily than the electorate as a whole. Zhirinovsky even carried the units based near Moscow that stormed the White House in October.

It is now inevitable that the already sluggish pace of free-market reforms will slow even more. This slowing of reforms will cause a further decline in the average Russian's economic well-being, a decline that he will blame not on Zhirinovsky or other opponents of reform but on Yeltsin and Gaidar. All but the most principled politicians will respond by distancing themselves even more from the radical-reform agenda, thus further decelerating the reforms, further accelerating economic decline, and providing still more opportunities for demagogues such as the Liberal Democrats. In the race to succeed Yeltsin as president, the momentum will increasingly be with Zhirinovsky or with other anti-reform leaders such as Sergei Baburin, whose Russian Popular Union party was denied a place on the December ballot by Yeltsin's election officials.

The reformers themselves largely caused this debacle. Gaidar stresses the disunity among the pro-reform parties. But he and his fellow leaders of Russia's Choice made such disunity inevitable by nominating a nationwide party slate dominated by Yeltsin administration officials, leaving such grass-roots reform leaders as Lev Ponomorev of the Democratic Russia movement out in the cold. (See "Scattered Opposition," March 1993.)

And in a bitter irony, the Yeltsin team shares the responsibility for the swift rise of the Liberal Democrats. Apparently calculating that Zhirinovsky would draw votes away from the other communist and ultra-nationalist opposition parties, the administration saw to it that his was the only one of the red/brown parties not to be suspended temporarily in October; he thus gained a head start in organizing and in collecting signatures on his nominating petitions. And those petitions were accepted without question by the Central Electoral Commission, unlike those of Baburin's Russian Popular Union.

Another misjudgment was the bland, content-free campaign waged by Russia's Choice—heavy on slick, Western-style TV spots and light on concrete issues. A campaign theme like Ronald Reagan's 1984 "It's morning in America" works only if you have Reagan's economic success in the background, which Gaidar didn't. Zhirinovsky, by contrast, focused his hard-hitting campaign on issues that Russians care about, including the rising crime rate.

The reformers have failed to rebut a myth promoted both by the Liberal Democrats in Russia and the statist-oriented Western press. The conventional wisdom is that free-market reforms have caused the average Russian's economic misery. The truth is precisely the opposite: Russians' economic well-being has been deteriorating because reforms are proceeding too slowly.

The most immediate hardship now facing ordinary Russians is inflation, which exceeded 20 percent per month during most of 1993. As in Germany in the 1920s or America in the 1970s, statist demagogues blame inflation on evil businessmen who capriciously raise prices. But as any literate economist knows, what causes inflation is excess money creation—too many rubles chasing too few goods—which is precisely what Moscow's free-market reformers have tried, but failed, to stop.

Thanks to Prime Minister Chernomyrdin's firm support of Viktor Gerashchenko, the socialist chairman of the Russian Central Bank, the government has provided an unending supply of credit to obsolete state-owned firms. Many of these operations are "value subtractors," manufacturing unsalable products out of valuable raw materials and labor that in a free economy would be liberated for truly productive uses. These loans, of course, will never be repaid.

Though he enjoys a reputation as a reformer, Finance Minister Boris Fedorov has also fed inflation through excessive government spending. In 1993 spending probably exceeded 150 percent of revenues; at the end of the year, the government announced that spending on social programs alone would climb by more than one-third.

Supporters of the Yeltsin administration claim that such measures were forced on the president's team by the need to work with the socialist parliament. They argue that the new constitution approved by popular referendum on December 12 will make it easier to push through reforms even without the parliament's consent. The first of these claims is false, the second misguided.

During the 10 weeks between the storming of the White House and the December elections, Yeltsin's executive branch had a monopoly of power—total freedom to decree whatever reforms it chose. This period offered Yeltsin his best chance ever for the much talked-about "Pinochet option" of combining political authoritarianism with economic freedom. But this unique opportunity was almost entirely wasted. The executive orders issued during these weeks—for instance, strengthening state control over the press—did more to buttress authoritarianism than to advance economic freedom.

The one decree of this period that touched the foundations of the economy, Yeltsin's November edict on land ownership, fell far short of dismantling socialist control of real estate. For example, it left intact the ban on converting farmland to other uses. Russia's chronic housing shortage will thus continue indefinitely: At the edge of Moscow one can still see overcrowded, high-rise apartments standing next to empty fields.

As for the constitution, again the Yeltsin team sacrificed long-term reform to their own immediate needs. In creating a super-presidential, super-centralized republic, they seemed to assume that Russia's president will always be more enlightened than its parliament, and the central government more so than the provinces. Sooner or later that assumption is bound to fail, and statists such as the Liberal Democrats will gleefully seize the unchecked, unbalanced power structures that the Yeltsinites have created.

Russia's political tides are notoriously unpredictable. It would be a mistake to think a Zhirinovsky presidency is now inevitable, just as it was a mistake for the Yeltsin team to think the December elections would automatically repeat last April's referendum, in which the reformists triumphed. Nevertheless, when I arrived in Russia in the middle of 1992, comparisons to Weimar Germany seemed grossly alarmist to me. Today, they don't.

Lawrence A. Uzzell is vice president and director of the Moscow office of the Jamestown Foundation, a foreign-policy research institute based in Washington, D.C.