By Renfrey Clarke
MOSCOW, Dec. 4 — As a blast of Siberian air held temperatures in the Russian capital around minus 20, deputies gathered in the Kremlin Palace of Congresses on December 1 for the opening of the Seventh Congress of People's Deputies of the Russian Republic.
By the end of the second day of the session, the public had been left with news that was even more chilling than the weather reports. If Russian President Boris Yeltsin and his ministers have their way, the government's monetarist economic policies, which have now helped bring about a fall of industrial output of at least 35% from the levels of 1989, will be retained and if anything, pushed even harder.
With a membership of more than a thousand, the Congress of People's Deputies is the full Russian parliament, meeting approximately twice a year for sessions of several weeks. As public confidence in the government's policies has crumbled during recent months, the backing for Yeltsin among congress deputies has fallen even more steeply. Solid support for the president in the congress is reckoned at no more than about 20%.
Threat to parliament
Faced with the prospect that the congress would force the sacking of the government or compel big changes in its strategies, Yeltsin during September and October fought to have the sitting postponed until March or April. When this effort failed, he began a campaign to intimidate deputies or placate them with minor concessions. Heavy hints were let drop that the president intended to step outside his constitutional powers, dissolving the parliament and instituting direct presidential rule.
By the last days of November the stage had been set. Selective promises of credits and subsidies had driven big wedges into the Civic Union, the influential political bloc centred on the managers of state-owned industrial enterprises. Yeltsin had demoted two members of his team especially hated by the financially-strapped industrialists. During discussions, government representatives had encouraged Civic Union economists to believe that an "understanding" existed: in return for Civic Union deputies showing an accommodating attitude in the congress, a series of "corrections" would be made to the government's economic line.
On the first day of the congress, however, a speech by Yeltsin showed that the regime was in no mood for major compromises. The president outlined a five-point ultimatum, under which the battle for power between the legislative and executive branches of the Russian state would be settled in favor of the executive. In particular, the president would have the virtually unrestricted right to choose his cabinet.
The implementation of the government's economic policies, Yeltsin conceded, had suffered from omissions and oversights. But these were the policies themselves, the president insisted, were sound.
On December 2 acting Prime Minister Yegor Gaidar took the podium to make an unrepentant defence of the government's economic course. The main problem with the reforms, Gaidar argued, was the difficulty of implementing them as fast as required. The acting premier outlined a number of measures to encourage investment and exports, but his speech contained nothing to indicate that the agreements which the Civic Union economists thought they had reached with the government would be honoured.
Yeltsin and his associates are looking for a fight at the congress, and they evidently expect to win it. Despite the small number of their committed supporters, they are probably correct.
This conclusion was lent weight by the speech delivered to the congress by one of Yeltsin's most prominent opponents, Supreme Soviet Chairman Ruslan Khasbulatov. While bitterly criticising the government's economic measures, the parliamentary leader did not speak out unambiguously against Yeltsin's "five points". The situation in Russia, Khasbulatov remarked, "literally dooms us to unity."
Divided between liberals and neo-Stalinists, workers and enterprise managers, Yeltsin's opponents at the congress lack confidence in their ability to formulate a viable alternative program, or to achieve the organisational unity needed to implement it. Faced with blunt intransigence from Yeltsin and Gaidar, hundreds of these "oppositionists" will very likely cave in, allowing the government and its policies to survive.
Even an unconditional victory at the congress, however, would not begin to solve the government's problems. Those problems arise from strategies so deeply flawed that every "success" in implementing them simply deepens the chaos and decline in the economy.
Neo-liberal policies
The Russian government's basic economic policies — tight limits on credit and government spending, drastic cuts in effective consumer demand, deregulation of prices, privatisation of the great bulk of state-owned industry and trade, and opening the economy to the operations of foreign capital — were borrowed mechanically from a model devised by neo-liberal Western economists to "stabilise" the economies of countries as different from Russia as Bolivia and Chile.
In small countries of the capitalist Third World, neo-liberal policies can have a certain success in cutting inflation and raising growth rates, though at appalling social cost. But there is nothing small about Russia, either in area, population or productive output. Policies based on attracting foreign capital to develop export industries, and on using export markets to take the place of internal markets ravaged by wage cuts, will simply not work here. The amounts of foreign capital needed to modernise the industries of the former USSR do not exist on the world capital markets. The quantities of exports needed to substitute for the Russian domestic market would markets already close to saturation.
More fundamentally, the economic structures which Russia inherited from the Stalinist "command-administer" system are totally unlike those of capitalist Third World countries. Russian industry, particularly heavy industry, is monopolised to an astonishing degree. When price controls on these monopolies are lifted, the enterprises set out to maximise their profits by cutting production and raising prices. Non- monopoly enterprises, meanwhile, are forced by competition to limit their price increases. A dynamic is thus set up through which resources are sucked out of the non-monopoly sector — primarily agriculture, consumer manufacturing, light industry, and trade — and into the monopoly sector.
This is precisely the opposite of what is needed. The consumer goods required to stimulate worker productivity, and to dampen inflation by offsetting increases in the money supply, are not produced. Small businesses, both state-owned and private, are ruined in large numbers. Privatising the monopolies simply adds to the problems, since private monopolies are more difficult to control.
These phenomena are now widely understood by academic economists in Russia, and as a result, it is getting hard to find a respectable economist here with a kind word for the Gaidar government. A series of alarmed articles have now warned Russians of the further catastrophes they face unless Yeltsin's policies are scrapped, and fundamentally different reforms launched.
Collapse in production
In Nezavisimaya Gazeta on November 25 Vladimir Ispravnikov, the head of the government's own Supreme Economic Council, listed the results of a series of computer simulations based on the government's likely options and policy choices. The most favourable of these scenarios suggested that by the end of 1993 productive output in the Russian economy would fall to a level 37% below that at the end of January 1992. The most realistic simulation (far more favourable, incidentally, that a "pure" monetarist model) assumed that emergency credits would be granted to prevent the collapse of industry. This scenario pointed to a fall of 40% in food consumption, and of 70% in the consumption of manufactured goods. Unemployment would be 32%.
In short, if the Yeltsin-Gaidar reforms are persisted with, Russia is likely to turn into a sub-polar Somalia, armed with thousands of nuclear weapons.
It is not that alternative policies are lacking. But they involve various forms of state regulation of prices, and most importantly, the retention of state ownership of large parts of heavy industry as an indispensable lever for redirecting the flow of economic resources out of the monopoly sector, and into the production of food and consumer goods. For reasons which are essentially political, not economic, Yeltsin and his team regard these alternatives as unacceptable.
It is not an exaggeration to state that in Yeltsin, Russia has a leader who is every bit as doctrinaire as Stalin. History may yet just as brutal.