Under this program of fire sales, the price of state-owned assets was fixed (amid hyperinflation) at their book value of July 1992.
Then managers and workers of an enterprise were given preferential options to buy 51 percent of the firm’s stock (with the price of firm equity set at 170% of the total book value). Twenty-nine percent of the remaining stock was available for purchase by the general public through vouchers distributed to them at a nominal price (25 rubles or about 10 US cents).
Predictably, amid the social misery caused by withdrawal of state services, rising food prices and unemployment (millions of employees were laid off by privatized firms), these tradeable vouchers were sold off, quickly and cheaply, by members of a population hungry for cash.
The buyers were enterprise managers and, from outside, Komsomol leaders and wealthy institutional investors. Thanks to their liquidity, political connections and privileged social status, these parties accumulated large blocks of vouchers and converted them into ownership of newly private firms.
Thus the so-called ‘Red Directors’, the former managers of state-owned firms who during the 1980s under Gorbachev had acquired enterprise autonomy and limited ‘control rights’, now acquired full property rights.
By June 1994 two-thirds of Russian industrial employment was in privately-owned firms.
Writing later, Harvard’s Andrei Shleifer and Chicago’s Robert Vishny, who together with Harvard economist Jeffrey Sachs were policy advisors to Chubais, noted with professional ingenuousness:
One of the most interesting aspects of voucher auctions is the prices at which assets sell… [Results of privatization up to June 1993 put] the total value of the Russian industry at about $5 billion. It is possible to make these calculations differently and to come up with numbers as high as $10 billion. The point, however, is inescapable: the entire Russian industrial complex is valued in voucher auctions at something like the value of a large Fortune 500 company…
One way to calibrate how low the prices of manufacturing companies are is to note that U.S. manufacturing companies have market value of about $100,000 per employee. Russian manufacturing companies, in contrast, have market value of about $100 per employee — a 1,000-fold difference!
Throughout the 1990s, observers from the World Bank, Harvard University, RAND Corporation, the US Council on Foreign Relations and the Brookings Institute attributed the ‘challenges’ faced by post-Soviet Russia to the country’s lack of ‘social capital’ and ‘good governance’.
Russia, it was said, was an ‘anti-modern society.’ Its people had unfortunate behavioural proclivities that made them unlike the populations of advanced capitalist countries: they trafficked their women for sex, abused alcohol and other drugs, refused to procreate, lacked ‘trust networks’, didn’t value hard work, were prone to interpersonal violence, were corrupt and criminal.
This is the familiar métier of the ‘development’ report. The calamity of post-Soviet Russia is registered more vividly (and without the State Department songsheet) in its chilling headline figures.
Since 1991, and following the Stalinist bureaucracy’s restoration of capitalist property relations, there have been several million excess deaths. The life expectancy of Russia’s population fell by three years in the course of three years, and by five years in five, from 1992; it dived sharply again from 1998. Premature mortality disproportionately struck working-age men (aged 15-64). Among women, the total fertility rate in 1999 was slightly more than half its level in 1987; Russia’s rate of induced abortion remains by far the world’s highest.
Altogether, since 1991 the country’s resident population has contracted by seven million.
Far more than in other developed countries, death in Russia has arrived from medically treatable conditions developed by young adults and middle-aged people (e.g. stroke, and heart disease caused by hypertension). Tuberculosis and pneumonia rates more than doubled in the course of five years from 1991; death from diabetes rose steeply due to a fall-off in affordable insulin supplies and difficulty in receiving dialysis.
External causes of death rose dramatically (mostly for males aged 20-50), due seemingly to chronic stress and alcohol consumption. The death rate from suicide increased by 50% in the two years from 1991; death by homicide and accidental poisoning more than doubled over the same period; trauma from traffic accidents and violence showed a substantial rise.
Mortality and indices of morbidity spiked again from the crisis year of 1998.
The scale of post-Soviet Russia’s social, economic and demographic collapse has no precedent in the peacetime history of any industrialized country. But over the past half-millennium, as I described in a previous post, devastation of this sort has been seen in many noncapitalist societies following conquest or settlement by states bringing with them the novel institutions of capitalism.
The sharp fall in the birth rate, the rise in alcoholism, prostitution and interpersonal violence are behavioural features exhibited time and again by populations defeated by imperialism, and constrained (by the coercive power of the victors) to adopt new cultures, property rights and other forms of economic governance, child-rearing practices, schooling and constitutions.
So the diagnosis made of the former Soviet Union’s defeated people — shiftless, criminal, sterile, with addictive tendencies — has been heard before. Familiar too are the contemptuous depictions of Russians by filmmakers and novelists, the exasperated reports by social scientists returned from ‘capacity-building’ missions, the condescending journalistic well-wishing and subsequent expressions of disappointment at being ‘let down’, the racist dinner-party humour indulged in even by liberal sophisticates, the excursions of charitable organizations, development agencies and missionaries, and the solemn prophecies of demographic involution.
Notoriously, the pastoralist Herero of South-West Africa were said to be committing ‘race suicide’ under Wilhelmine rule. And in the first 30 years of the twentieth century, across equatorial middle Africa from Leopold’s Congo through British Uganda to Tanganyika, fertility rates were chronically below reproduction level. This prompted European colonists to fret about ‘dying races’, since they sought a guaranteed workforce for rubber and cotton plantations while maintaining a taxable population of subsistence farmers.
Examples from Australia, North America, Mesoamerica and South America need no description.
There are other less familiar cases. The Hawaiian population declined catastrophically throughout the 1800s: successive epidemics lowered fertility and killed thousands of people, as the monarch established alienable title to land and assigned it to prominent locals. Meanwhile norms governing religion, sex and the education of children were displaced, with conversion encouraged by Christian missionaries.
Less familiar still is the terrible fate of nomadic pastoralists from the grasslands and deserts of central Eurasia — crushed, during the seventeenth and eighteenth centuries, beneath the onrushing wheels of the Qing and Muscovite agrarian empires. Local herding societies (above all the Zunghar of Mongolia and Xinjiang) were eliminated by smallpox and military defeat. The depopulated pastures were soon filled by immigrant cultivators assigned private title to land, protected by military garrisons and provided with irrigation and other infrastructure for tilling.
These examples vary in the type of societies that were supplanted and in the type later constructed. But in each case a similar genocidal logic applied.
The introduction of exclusive, possession-based property rights meant that, suddenly, personal entitlements with regard to worldly things (e.g. natural resources) — including the power to use such material resources or facilities to satisfy basic needs, undertake sustenance-drawing activities or secure personal livelihood — were conferred only by virtue of owning the resource, or from the consent or authority granted by owners. Unless an individual held personal property rights, was a joint owner through membership of a group or entity that held communal property rights, or received permission from such an owner, he had no claim at all over the owned resources: they were unavailable to him.
Abruptly deprived (usually through violence or its threat) of familiar sources of livelihoods, the vast majority of people were thus compelled on pain of starvation to hire out their capacity to work in ramshackle new labour markets. Meanwhile authorities attempted, in the manner of war victors, to eradicate the behavioural patterns, basic social units, forms of cultural transmission and child-rearing practices of the defeated societies, and to replace them with norms and preferences more suited to the new market-based economy. As even small perturbations may do, these vast social experiments tended to produce imbalanced sex ratios: changed sexual practices then encouraged the spread of venereal diseases, which led to a sharp and prolonged fall in fertility. Such catastrophic social disruption then produced the sort of demoralization and dysfunctional behaviour that nowadays is attributed to poor ‘trust networks’: alcoholism, prostitution and high rates of interpersonal violence.
In the case of post-Soviet Russia, some clear causes of the high death rates stand out:
- Withdrawal of timely, effective, free public healthcare with universal population coverage (in today’s Russia, patients’ private out-of-pocket payments at the point of delivery now account for 25% of service-provider funding);
- Labour turnover (i.e. unemployment following rapid privatization) leading to unavailability of basic sources of livelihood, with material deprivation causing psychosocial stress (‘labour market shock’); and
- Worsened nutritional delivery (more expensive and less fruit, vegetables, meat) and poor dietary habits due likely to removal of food subsidies and failed retirement provision.
The reinstatement of capitalism also brought a collapse of Russian agriculture, with an end to state provision of credit, seed, fertilizer and machinery. Tractors, combine harvesters and irrigation equipment depreciated beyond repair. Livestock inventories fell by a half within ten years; land devoted to grain production fell by one quarter over the same period; and the application of fertilizer per hectare fell by nearly half in the three years from 1990, and by 80 per cent by 1998. Yields (particular during winter) dropped accordingly.
The magnitude of this collapse can be seen in the following time series of global consumption of synthetic fertilizer, the basis of agriculture since the Second World War and Green Revolution. The Soviet Union was the world’s largest single user of this product.
The Volga watershed was one of the largest grain production regions in the world.
Societies whose continued existence impedes the outward growth of capitalism have, naturally enough, historically evoked an implacable hostility among the agents of imperialism. The more stubborn the resistance, the more hysterical such (entirely functional) attitudes grow. Eventually they may provoke the urge to exact vengeance through annihilation, to watch whole populations roast, in agony, on the pyre, as a way to teach holdouts a collective lesson.
In Russia’s case, racist contempt had been mixed, during 80 years in the combustion chamber of anti-communist ideology, with glowering elite hostility towards the property relations that had been established by the Bolshevik revolution and that later were maintained precariously under the rule of the bureaucratic caste.
George Kennan, the US author of anti-Soviet ‘containment’, had complained of ‘the little group of spiteful Jewish parasites in Moscow’, who had ‘abandoned the ship of Western European civilization like a swarm of rats.’
This was a prevailing theme among twentieth-century rulers and intellectuals: Churchill’s claim that the contest between Bolshevism and Zionism was a ‘struggle for the soul of the Jewish people’ (and his earlier promise to ‘strangle the Bolshevik baby in its cradle’), Hitler’s Vernichtungskrieg against ‘Judeobolshevism’, and Wittfogel’s dismissal of the bureaucratic regime as another ‘Asiatic’ hydraulic civilization.
Broadly comparable historical circumstances had earlier produced similar features. In the cases described above (South-West Africa, etc.), imperialist rapine was helped along by a supercilious disdain for low-yield ‘garden’ cultivators (horticulturalists), livestock herders and foraging peoples.
These societies usually kept their hunting, pastoral or cultivated land, waters, etc. as open-access resources, common property or small family plots. The absence in these benighted realms of exclusive property rights, and the low productivity of agrarian activities, allowed them to be categorized anthropologically as ‘savage’ or ‘barbaric.’ (Compare this contempt to the fraternal recognition with which the likes of Cortés greeted the high-yield agrarian empires of Aztec Mesoamerica and Andean South America).