CPO2001_BonfireOfAYoungDemocracy

CPO2001_BonfireOfAYoungDemocracy - CHAPTER 11 BONFIRE OF A...

Info icon This preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 6
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
Image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 10
Image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 12
Image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: CHAPTER 11 BONFIRE OF A YOUNG DEMOCRACY RUSSIA CHQOSES "THE PINOCHET OPTION" Pieces of a living city cannot be auctioned off without taking into consideration that there are indigenous traditions, even if they seem odd to foreigners. . . . But these are our traditions and our city. For a long time we lived under the dictatorship of the Com- munists. but now we have found out that life under the dictator- ship of business people is no better. They couldn't care less about what country they are in. —Grigory Gorin, Russian writer, 19931 Spread the truth—the laws of economics are like the laws of engi- neering. One set of laws works everywhere. —Lawrence Summers, chief economist of the World Bank, 19912 When Soviet president Mikhail Gorbachev flew to London to attend his first G7 Summit in July 1991, he had every reason to expect a hero’s welcome. For the previous three years, he had seemed not so much to stride across the international stage as to float, charming the media, signing disarmament treaties and picking up peace prizes, including the Nobel in 1990. He had even managed to do the previously unthinkable: win over the American public. The Russian leader so thoroughly challenged Evil Empire caricatures that the U.S. press had taken to calling him by a cuddly nick- name, “Gorby,” and in 1987, Time magazine took the risky decision of mak— ing the Soviet president their Man of the Year. The editors explained that ' unlike his predecessors (“gargoyles in fur hats"), Gorbachev was Russia’s BONFIRE OF A YOUNG DEMOCRACY 219 own Ronald Reagan—“a Kremlin version of the Great Communicator." The ' Nobel Prize committee declared that thanks to his work, "It is our hope that we are now celebrating the end of the Cold War.”3 -, By the beginning of the nineties, with his twin policies of glasnost (open- ness) and perestroika (restructuring), Gorbachev had led the Soviet Union through a remarkable process of democratization: the press had been freed, Russia’s parliament, local councils, president and vice president had been elected, and the constitutional court was independent. As for the economy, ' Hey. Gorbachev was moving toward a mixture of a free market and a strong safety net, with key industries under public control—a process-he predicted would take ten to fifteen years to be completed. His end goal was to build social democracy on the Scandinavian model, “a socialist beacon for all mankind."4 . . At first it seemed that the West also wanted Gorbachev to succeed in loos- ening up the Soviet economy and transforming it into something close to Sweden’s. The Nobel Committee explicitly described the prize as a way of offering support to the transition—"a helping hand in an hour of need." And on a visit to Prague, Gorbachev made it clear that he couldn't do it all alone: "Like mountain climbers on one rope, the world's nations can either climb together to the summit or fall together into the abyss,” he said.5 So what happened at the G7 meeting in 1991 was totally unexpected. The nearly unanimous message that Gorbachev received from his fellow heads of state was that, if he did not embrace radical economic shock therapy immediately, they would sever the rope and let him fall. “Their suggestions as to the tempo and methods of transition were astonishing," Gorbachev wrote of the event.6 Poland had just completed its first round of shock therapy under the IMF’s and Jeffrey Sachs’s tutelage, and the consensus among British prime minister John Major, U.S. president George H. W. Bush, Canadian prime minister Brian Mulroney and Japanese prime minister Toshiki Kaifu was that the Soviet Union had to follow Poland's lead on an even faster timetable. Af- ter the meeting, Gorbachev got the same marching orders from the IMF, the World Bank and every other major lending institution. Later that year, when Russia asked for debt forgiveness to weather a catastrophic economic crisis, the stern answer was that the debts had to be honored.7 Since the time when Sachs had marshaledmid and debt relief for Poland, the political mood had changed—it was meaner. What happened next—the dissolution of the Soviet Union, Gorbachev’s . 220 THE SHOCK DOCTRINE eclipse by Yeltsin, and the tumultuous course of economic shock therapy in Russia—is a well-documented chapter of contemporary history. It is, how- ever, a story too often told in the bland language of “reform,” a narrative so generic that it has hidden one of the greatest crimes committed against a democracy in modern history. Russia, like China, was forced to choose be- tween a Chicago School economic program and an authentic democratic revolution. Faced with that choice, China’s leaders had attacked their own people in order to prevent democracy from disturbing their free-market plans. Russia was different: the democratic revolution was already well under way—in order to push through a Chicago School economic program, that peaceful and hopeful process that Gorbachev began had to be violently interrupted, then radically reversed. Gorbachev knew that the only way to impose the kind of shock therapy be- ing advocated by the G7 and the IMF was with force—as did many in the West pushing for these policies. The Economist magazine, in an influential 1990 piece, urged Gorbachev to adopt “strong-man rule . . . to smash the re— sistance that has blocked serious economic reform."8 Only two weeks after the Nobel Committee had declared an end to the Cold War, The Economist was urging Gorbachev to model himself after one of the Cold War’s most no- torious killers. Under the heading “Mikhail Sergeevich Pinochet?" the arti- cle concluded that even though following its advice could cause "possible blood-letting . . . it might, just might, be the Soviet Union’s turn for what could be called the Pinochet approach to liberal economics." The Washington Post was willing to go further. In August 1991, the paper ran a commentary under the headline “Pinochet’s Chile 3 Pragmatic Model for Soviet Economy." The article supported the idea of a coup for getting rid of the slow-going Gor- bachev, but the author, Michael Schrage, worried that the Soviet president’s opponents “had neither the sawy nor the support to seize the Pinochet op- tion." They should model themselves, Schrage wrote, after “a despot who re- ally knew how to run a coup: retired Chilean general Augusto Pinochet."9 Gorbachev soon found himself facing an adversary who was more than willing to play the role of a Russian Pinochet. Boris Yeltsin, though holding the post of Russian president, had a much lower profile than Gorbachev, who headed all the Soviet Union. That was to change dramatically on August 19, 1991, one month after the G7 Summit. A group from the Communist old guard drove tanks up to the White House, as the Russian parliament building is called. In a bid to halt the democratization process, they threatened to attack BONFIRE OF A YOUNG DEMOCRACY 221 . the country’s first elected parliament. Amid a crowd of Russians determined " to defend their new democracy, Yeltsin stood on one of the tanks and de- nounced the aggression as “a cynical, right—wing coup attempt.“0 The tanks retreated, and Yeltsin emerged as a courageous defender of democracy. One demonstrator who stood in the streets that day described it as “the first time I felt that I could really affect the situation in my country. Our souls soared. It was such a feeling of unity. We felt invincible."11 And so did Yeltsin. As a leader, he had always been a kind of anti- Gorbachev. Where Gorbachev had projected propriety and sobriety (one of his most controversial measures was an aggressive anti—vodka—drinking cam- paign), Yeltsin was a notorious glutton and a heavy drinker. Prior to the coup, many Russians harbored reservations about Yeltsin, but he had helped save democracy from a Communist coup, and that made him, at least for the time being, a people’s hero. Yeltsin immediately parlayed his triumphant showdown into increased political power. As long as the Soviet Union remained intact, he would al- ways have less control than Gorbachev, but in December 1991, four months after the aborted coup, Yeltsin pulled off a political masterstroke. He formed an alliance with two other Soviet republics, a move that had the effect of abruptly dissolving the Soviet Union, thereby forcing Gorbachev’s resigna- tion. The abolition of the Soviet Union, “the only country most Russians had ever known,” was a powerful shock to the Russian psyche—and as the politi- cal scientist Stephen Cohen put it, it was the first of “three traumatic shocks" that Russians would endure over the next three years.12 Ieffrey Sachs was in the room at the Kremlin on the day Yeltsin an- nounced that the Soviet Union was no more. Sachs recalled the Russian president saying, “ ‘Gentlemen, I just want to announce that the Soviet Union has ended. . . .’ And I said, ‘Gee, you know, this is once in a century. This is the most incredible thing you can imagine; this is a true liberation; let's help these people.’ "13 Yeltsin had invited Sachs to come to Russia to serve as an adviser, and Sachs was more than game: “If Poland can do it, so can Russia," he declared.14 ‘ But Yeltsin didn’t just want advice, he wanted the kind of gold-plated fund-raising that Sachs had pulled off for Poland. “The only hope," Yeltsin said, “was the promises of the Group of Seven quickly to grant us large sums of financial aid.”15 Sachs told Yeltsin he was confident that if Moscow was willing to go with the "big bang" approach to establishing a capitalist ,z.‘- 222 THE SHOCK DOCTRINE economy, he could raise something in the area of $15 billion.16 They would need to be ambitious, and they would need to move fast. What Yeltsin did not know was that Sachs’s luck was about to run out. Russia's conversion to capitalism had much in common with the corrupt approach that had sparked the Tiananmen Square protests in China two years earlier. Moscow’s mayor, Cavriil Popov, has claimed that there were re- ally only two options for how to break up the centrally controlled economy: “Property can be divided among all members of society, or the best pieces can be given to the leaders. . . . In a word, there’s the democratic approach, and there’s the nomenklatura, apparatchik approach.”17 Yeltsin took the lat- ter approach—and he was in a hurry. In late 1991, he went to the parliament and made an unorthodox proposal: if they gave him one year of special pow- ers, under which he could issue laws by decree rather than bring them to par— liament for a vote, he would solve the economic crisis and give them back a thriving, healthy system. What Yeltsin was asking for was the kind of execu- tive power enjoyed by dictators, not democrats, but the parliament was still grateful to the president for his role during the attempted coup,,and the country was desperate for foreign aid. The answer was yes: Yeltsin could have one year of absolute power to remake Russia’s economy. He immediately assembled a team of economists, many of whom, in the final years of Communism, had formed a kind of free-market book club, reading the basic texts of the Chicago School thinkers and discussing how the theories could be applied in Russia. Though they had never studied in the US, they were such devoted fans of Milton Friedman that the Russian press took to calling Yeltsin’s team “the Chicago Boys,” a knock—off of the original title, and fitting in the context of Russia’s thriving black market economy. In the West they were dubbed “the young reformers." The group’s figurehead was Yegor Gaidar, whom Yeltsin named as one of his two deputy prime ministers. Pyotr Aven, a Yeltsin minister in 1991—92 who was part of this inner circle, said of his former clique, “Their identification of themselves with God, which flowed naturally from their belief in their all—round superi— ority, was, unfortunately, typical of our reformers."I8 Surveying the group that had suddenly ascended to power in Moscow, the Russian newspaper Nezavisimaya Cazeta observed the rather astonishing development that “for the first time Russia will get in its government a team of liberals who consider themselves followers of Friedrich von Hayek and the ‘Chicago school’ of Milton Friedman." Their policies were "quite clear—‘strict financial stabilization’ according to ‘shock therapy’ recipes." At the same BONFIRE OFAYOUNG DEMOCRACY 223 time as Yeltsin made these appointments, the newspaper noted, he had also put the notorious strongman Yury Skokov “in charge of the defense and re- pressive departments: the Army, the Ministry of Internal Affairs and the State Security Committee.” The decisions were clearly connected: “Probably the ‘strong’ Skokov can ‘ensure’ strict stabilization in politics while the ‘strong’ economists guarantee it in the economy." The article ended with a predic- tion: “It will come as no surprise if they attempt to construct something like a homegrown Pinochet system, in which the role of the ‘Chicago boys’ will be played by Caidar’s team."19 To provide ideological and technical backup for Yeltsin’s Chicago Boys, the US. government funded its own transition experts whose jobs ranged from writing privatization decrees, to launching a New York—style stock ex— change, to designing a Russian mutual fund market. In the fall of 1992, US- AID awarded a $2.1 million contract to the Harvard Institute for International Development, which sent teams of young lawyers and economists to shadow the Caidar team. In May 1995, Harvard named Sachs director of the Har- vard Institute for International Development, which meant that he played two roles in Russia’s reform period: he began as a freelance adviser to Yeltsin, then moved on to overseeing Harvard’s large Russia outpost, funded by the US. government. Once again a group of self—described revolutionaries huddled in secret to write a radical economic program. As Dimitry Vasiliev, one of the key re~ formers, recalled, “At the start, we didn’t have a single employee, not even a secretary. We didn’t have any equipment, not even a fax machine. And in those conditions, in just a month and a half, we had to write a comprehen- sive privatization program, we had to write twenty normative laws. . . . It was a really romantic period.”20 On October 28, 1991, Yeltsin announced the lifting of price controls, pre- dicting that “the liberalization of prices will put everything in its right place.”21 The "reformers" waited only one week after Gorbachev resigned to launch their economic shock therapy program—the second of the three traumatic shocks. The shock therapy program also included free-trade poli— cies and the first phase of the rapid-fire privatization of the country's approx- imately 225,000 state-owned companies.22 “The country was taken by surprise by the ‘Chicago School' program," one of Yeltsin’s original economic advisers recalled.23 That surprise was de— liberate, part of Gaidar’s strategy of unleashing change so suddenly and quickly that resistance would be impossible. The problem his team was up 221. THE SHOCK DOCTRINE against was the usual one: the threat of democracy obstructing their plans. Russians did not want their economy organized by a Communist central committee, but most still believed firmly in wealth redistribution and in an activist role for government. Like the Polish supporters of Solidarity, 67 per- cent of Russians told pollsters in 1992 they believed workers’ cooperatives were the most equitable way to privatize the assets of the Communist state, and 79 percent said they considered maintaining full employment to be a core function of government.24 That meant that if Yeltsin’s team had submit- ted their plans to democratic debate, rather than launching a stealth attack on an already deeply disoriented public, the Chicago School revolution would not have stood a chance. Vladimir Mau, an adviser to Boris Yeltsin in this period, explained that “the most favorable condition for reform" is a “weary public, exhausted by the previous political struggle. . . .That is why the government was confi- dent, on the eve of price liberalization, that a drastic social clash was impos- sible, that the government would not be overthrown by a popular revolt." The vast majority of Russians—JO percent—were opposed to lifting price controls, he explained, but “we could see that the people, then and now, were concentrating on the yields of their private [garden] plots and in gen- eral on their individual economic circumstances."25 Joseph Stiglitz, who at the time was serving as chief economist at the World Bank, summarized the mentality that guided the shock therapists. His metaphors should by now be familiar: “Only a blitzkrieg approach during the ‘window of opportunity’ provided by the ‘fog of transition’ would get the changes made before the population had a chance to organize to protect its previous vested interests.”26 In other words, the shock doctrine. Stiglitz called Russia’s reformers “market Bolsheviks" for their fondness . for cataclysmic revolution.27 However, where the original Bolsheviks fully in- tended to build their centrally planned state in the ashes of the old, the mar- ket Bolsheviks believed in a kind of magic: if the optimal conditions for profit making were created, the country would rebuild itself, no planning re- quired. (It was a faith that would reemerge, a decade later, in Iraq.) Yeltsin made wild promises that “for approximately six months, things will be worse," but then the recovery would begin, and soon enough Russia would be an economic titan, one of the top four economies in the world.28 This logic of so—called creative destruction resulted in scarce creation and spiraling destruction. After only one year, shock therapy had taken a devas— tating toll: millions of middle-class Russians had lost their life savings when BONFIRE OF A YOUNG DEMOCRACY 225 money lost its value, and abrupt cuts to subsidies meant millions of workers had not been paid in months.29 The average Russian consumed 40 percent less in 1992 than in 1991, and a third of the population fell below the poverty line.30 The middle class was forced to sell personal belongings from card tables on the streets—desperate acts that the Chicago School econo- mists praised as “entrepreneurial,” proof that a capitalist renaissance was in- deed under way, one family heirloom and second-hand blazer at a time.31 As in Poland, Russians did, eventually, regain their bearings and began to demand an end to the sadistic economic adventure (“no more experiments" was a popular piece of graffiti in Moscow at the time). Under pressure from voters, the country’s elected parliament—«the same body that had supported Yeltsin’s rise to power—decided it was time to rein in the president and his ersatz Chicago Boys. In December 1992, they voted to unseat Yegor Caidar, and three months later, in March 1993, the parliamentarians voted to repeal the special powers they had given to Yeltsin to impose his economic laws by decree. The grace period had expired, and the results were abysmal; from now on, laws had to go through parliament, a standard measure in any lib- eral democracy and following the procedures set out in Russia's constitution. The deputies were acting within their rights, but Yeltsin had grown ac— customed to his augmented powers and had come to think of himself less as a president and more as a monarch (he had taken to calling himself Boris I). He retaliated against the parliament’s "mutiny" by going on television and declaring a state of emergency, which conveniently restored his imperial powers. Three days later, Russia’s independentConstitutional Court (the creation of which was one of Corbachev’s most significant democratic breakthroughs) ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern