By Renfrey Clarke
MOSCOW — Picture the situation. An important economic bill drafted by presidential aides meets with strong opposition in the parliament. Efforts to find a compromise fail, and the bill is rejected by the lawmakers.
Then the president decides that the parliament has got it wrong. On highly questionable constitutional authority, he signs an order declaring that the program will go ahead anyway, and begins putting it into practice.
Such a situation would be almost unthinkable in a democratic, law-governed state. Or if something like it did occur, the result would be an immense scandal and political crisis.
But such a situation has just arisen in Russia, and there has scarcely been a whisper of dissent in the government-dominated media. Where the Western press has been able to avoid commenting on these developments, it has done so. Where comment has been unavoidable, the verdict has been emphatically in favour of Russian President Boris Yeltsin.
A program for the "second phase" of privatisation in Russia was approved by the cabinet on July 1. This is to succeed the earlier stage in which the bulk of Russia's state-owned commercial and industrial enterprises were auctioned in exchange for "vouchers" — securities issued to the whole population.
In this second phase, the sale of state assets will proceed almost entirely for cash, with Yeltsin and his team making no secret of their wish to create a class of large corporate investors. The shareholdings to be sold are in firms that resisted voucher privatisation, or in which privatisation was delayed because the industries concerned were considered to be of vital national interest.
Parliamentary debate on the program was heated, focusing on the issue of sales of commercial land. The bill before the parliament provided for the land on which enterprises are located to be transferred to the ownership to those who owned these enterprises, and for them to have the right to sell it on the open market. Because the allotments on which Russian industries are situated tend to be many times larger than in the West, this amounted to an enormous gift to the enterprises — or in practice, to the enterprise directors who would decide how to dispose of the property.
Efforts by a conciliation commission led the government team to make a number of concessions. But the essential points of the program remained, and in repeated votes on July 21 the bill failed to win the support needed for adoption. The parliament then adjourned for a recess that is to last until October.
On July 22 Yeltsin issued his decree. Of the concessions that privatisation chief Anatoly Chubais had made during the attempt at conciliation, almost all were revoked. The only significant survivor was a provision under which educational institutions and hospitals would not be privatised until special laws were adopted by the parliament.
Whether the president exceeded his powers in issuing the decree is a moot point. Under the constitution which Yeltsin imposed last year after suspending the former charter in his September coup, he has the right to issue decrees which have the force of law unless overruled by the parliament within a set period. In the present case, the judges of the Constitutional Court would in theory seem bound to decide that the parliament has voted to reject the essence of the president's decree, and that the decree is therefore invalid.
Russia, however, does not have a functioning Constitutional Court. The country's highest judicial body has been suspended since it ruled against Yeltsin's coup last autumn. A new law on the Constitutional Court has been adopted, but sittings will not begin until after Yeltsin has finished selecting six sympathetic new judges from a list proposed by the upper house of parliament. The expanded court is not expected to resume work at least until mid-September — and then, to have a quite different political complexion.
Communist Party leader Gennady Zyuganov has pledged to seek to overturn Yeltsin's decree when the parliament reconvenes in October. But the presidential camp is insisting that any factory and land sales that take place in the meantime are irreversible. Deputies fear that allowing the sale of commercial land will open the way for wild speculation, and will damage the economy by drawing capital away from productive investment.
The economic cost of Yeltsin's decision, however, will only be felt in months to come. The immediate threat is political. In issuing a decree openly contradicting a decision of the parliament, the president has made clear that he considers adopting important pieces of legislation to be the business of the executive branch, not the legislature.
The implications of this for the development of democracy in Russia are horrifying. If Yeltsin succeeds in having his innovation accepted as normal practice — and a Constitutional Court stacked with his supporters could well allow this — then the very existence of the parliament will become pointless. In literal fact, Russia will be an elective dictatorship.
It is curious to recall how recently Yeltsin and his camp — the people now well into subverting their second parliament — were presenting themselves as democrats, defending representative government and the rule of law against Communist Party arbitrariness. However, the "democratism" of most of these individuals was never more than a flag of convenience, which they flew briefly as they positioned themselves to raid the wealth of the state.
The real attitude to democracy of the people in Yeltsin's team was shown with chilling candour on July 18 when the president's administrative chief, Sergei Filatov, told journalists that a decree ordering the implementation of the second phase of privatisation had been prepared even before the parliamentary vote was taken. "The privatisation process is already irreversible and will continue whatever happens," Filatov is reported to have said.
When the Russian elite sets out to seize the country's wealth, citizens were given to understand, mere voters should not risk standing in its way.
In Russia, one might object, a degree of rawness in the exercise of power is inevitable. But surely leading circles in the West, where the importance of democratic values is better understood, would be putting pressure on Yeltsin for a more refined approach?
A clue to the response in Western capitals was provided on July 26 when the Moscow Times — Russia's main English-language newspaper, regarded as close to the US embassy — carried an editorial regretting that Yeltsin in issuing his decree "overrode the constitutionally expressed wishes of Russia's democratically elected parliament".
However, the paper argued, the parliament "through its general legislative delinquency" had left Yeltsin with little choice. "Either he issues the laws needed to breathe life into Russia's economy by decree, or waits for an irresponsible parliament to act and allows the country to drift aimlessly."
For the Moscow Times and those for whom it speaks, subverting constitutions and parliaments becomes a sacred mission if the cause is privatisation. As for the ability of privatisation to "breathe life into Russia's economy" — we should all be so free of self-doubt.
The opposition to privatisation in the Russian parliament is not just a perverse and wilful reaction to pressures from Yeltsin and the West. In however tortured a fashion, this sentiment reflects the actual results of privatisation so far, and debate among academic economists on the consequences if the program is continued.
Late in June readers of the Russian press were sobered when highly regarded liberal economist Stanislav Shatalin presented the findings of a study of privatisation by his "Reforma" research group. The group found that efficiency and profitability had risen at small firms after privatisation, but not at medium-sized or large ones. Among large enterprises, the researchers concluded, prices and wages in the second half of 1993 had risen faster, and production fallen more steeply, in privatised firms than in state ones.
Shatalin observed that "the primary goal of privatisation, an increase in economic efficiency, is working very, very badly".
These findings are readily explained by conventional economic theory. The point is that most large enterprises in Russia, and many medium-sized ones, enjoy effective monopolies at least on a regional level. The monopolies are not simply of ownership, but are embedded in the physical structure of production. When price controls are dropped and market relations introduced, such firms seek to take advantage of the situation by raising prices and cutting output. Privatising such enterprises simply makes the problem worse, since imposing controls on monopoly practices becomes more difficult.
Meanwhile, the central economic challenge before the Russian government is to reverse a catastrophic decline in productive investment. Early in July privatisation chief Chubais was promising an "investment explosion" once the second phase of his program was launched. But late in July, after Yeltsin's decree was issued, the authorities were trying to dampen these hopes. Deputy privatisation minister Pyotr Mostovoi admitted that after the demise of the voucher, demand for shares in industrial enterprises would drop to a fraction of its earlier levels; potential investors would prefer the far higher returns to be had from speculating in high-risk securities and real estate.
The truth is that Russia's heavily criminalised proto-bourgeoisie is almost totally uninterested in investing in industry, except for certain high-profit raw materials sectors. Auctioning the remaining state-owned enterprises in these circumstances is to guarantee that many of them will be handed over for derisory sums to people whose basic aim is to strip them of anything worth selling, and to send the profits abroad.
Privatising large and medium enterprises, especially those that possess monopolies, is among the worst possible strategies that could be adopted in Russia in the 1990s. The results so far have been bad; in future they are likely to be catastrophic. The only way to halt the collapse of industry is to retain and expand state ownership in important areas, while introducing a centrally coordinated program of reorganisation and investment, and placing price controls on basic products where no effective competition exists.
These views are gaining increased acceptance among academic economists, and they have obvious potential to serve as the basis for a broad opposition movement. It is therefore hardly surprising that in launching the next phase of privatisation, Yeltsin has combined it with taking an ugly step toward one-person rule.