Russian Lessons

The Economic Prognosis is Not Good for the Latest Russian Revolution
Listener: 27 January, 1996

Keywords: Political Economy & History;

Recently economist Rufus Dawe described himself, in the National Business Review, as the Trotsky of the rogernomics revolution. Who he had in mind as the Lenin and the Stalin of rogernomics is unclear. Trotsky said of Stalin that his rise to power was evidence of the mediocrity of the system.

Yet perhaps there is a truth in Mr Dawe’s parallel. A small minority (the bolsheviks) captured the power of the state, without a mandate, destroying the possibility of a social democracy (the mensheviks, who were in a majority of the revolutionaries), instituting repression against dissidents, with a mediocrity of management, and not very competent economic policies.

Eight decades later the Russians are still struggling with the consequences of their revolution. Despite the destruction of the Soviet Empire, and the collapse of the Communist Party monopoly, the December 1995 elections gave the Russian CP a fifth of the vote (double that of the previous election) and a third of the seats in parliament, making them the largest single party. Moreover, and unlike the ex-communist parties of Central European states which were part of the Soviet bloc, the Russian one is not reconstructed. This turn around in the Russian CP’s fate is extraordinary. A few years ago the collapse of communism was trumpeted; today there are anxious editorials about its resurgence.

I am not surprised. I visited the Soviet Union and Eastern Europe shortly after the collapse, and was struck by the naivety over the economic transformation required to create a liberal market democracy. The uncritical assumption was the end of “their” economic system (whatever that was), reflected the triumph of “our” system (whatever that was). It does not seem to be turning out that way.

The West did not help the transition. That was partly because the obvious means of assisting the transformation could not happen. Recall the Marshall Plan, that massive transfer of American funds to Western Europe immediately after the war. No such transfer was possible for the far more ruined Soviet bloc.

The Soviet Empire had become economically bankrupt, in major part because of it financing of the arms race against the US. While the US may not be bankrupt, it is teetering on the edge of a major economic catastrophe because their contribution to the arms race was funded by government borrowing which led to accumulating US government debt. (As I write Clinton and Gringrich are locked in a struggle of how to haul back that deficit and debt.) The US simply did not have the where-with-all to repeat its generosity.

Instead the catch cry was “privatization” of the state assets. All shades of investors from the West descended upon the ex-communist states to “assist” them. I met a number, many of whom struck me as shysters, con-men, and frauds. They teamed up with as unsavoury people within the countries (many of whom had only been a little earlier stalwarts of the local Communist Party). Some of the foreign and local investors did well enough out of the transfer of the assets into private (i.e. their) hands, but there is no evidence the economies did as well. Most contracted, increasing the hardship which had led to the collapse of the previous regimes, while revealing unemployment for the first time. Of course there are people better off under the new regime, but as a general rule in most economies the average person is materially poorer than they were at the time of the collapse.

It was not only economic factors which brought about the collapse. The Soviet Union suffered a moral bankruptcy too. We can argue whether it was inevitable that the high ideals of the founders of communism would inevitably crumble in the political regime in which they were implemented. But crumble they did, and in the end there was very little to say positively about the communist party leadership. So what did the West do? It sent shysters, con-men and frauds who linked up with people of as little morality.

No wonder a substantial proportion of the Russian people, and in some of the satellites, are returning to the residual of the Communist Party. Where else are they to go: the fascists, the super-nationalists?

The economic (and therefore, probably, the political) prognosis is not good. Nor should a New Zealander be surprised. Our transition from a lesser level of intervention to a more open market economy has been slow and painful enough. Their required transformation is much greater. When I mentioned our experiences to those in the ex-communist countries, there were too many people making fast – and often dishonest – bucks for such cautions to be given any weight.

Trotskyism rejects the evolutionary parliamentary road of the ballot box as illusory. I am more sanguine. But it is a slow path, with set-backs as well as progress. If we have a role in the Russian path it is to encourage the social democrats of all persuasions, and discourage quick economic fixes, especially those in the advocates’ self-interest.