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Archive for October, 2010

State privatization, anyone?

Posted by democratist on October 23, 2010

October 23rd 2010,

Just over a month ago, (“State liberalism, Anyone?” – 15th September) Democratist noted  the growing trend of “strategic partnerships” between Russian “State Corporations” (“private” company structures, which nonetheless remain majority state-owned) with major Western companies in the form of joint ventures.

We suggested that this new approach did not mark a shift towards liberalism, but rather represented a way of encouraging FDI whilst skirting around the  need for real economic reform; an additional coating to the veneer of “modernization” that looks likely to quickly peel away in the event that prices for  raw materials recover.

With this in mind, we have been casting a rather critical eye at some of the details of Moscow’s much-lauded $59 billion privatization program, as presented last Thursday.

Curiously, for a “privatization” programme, there seems very little emphasis (for the moment at least) on actually making very many of the companies offered for sale especially private.

Instead, in almost all cases, only minority stakes are to be sold, insuring that these businesses remain firmly in state hands. As UralSib chief strategist Chris Weafer told the Wall Street Journal on 22nd October, “I don’t see the government actually giving up control of the most important companies, they’re really just talking about relinquishing excess equity. They’re getting rid of the bits that they don’t want.”

For the moment then, it would appear that these sales have far less to do with privatization, than they do with raising money to balance Russia’s budget, suggesting that talk of “liberalization” remains essentially rhetorical.

However, as we said a few days agoDemocratist suspects that western demand for Russian equity is likely to be muted, given competition from other emerging markets.

It will be interesting to see just how far Moscow will be prepared to go to boost its reformist credentials over the next couple of years, in the event of ongoing low hydrocarbon prices/investor apathy.

Posted in Russian Economy | 1 Comment »

Russian “Re-Sovietization” versus global capitalism: Who’s going to blink first?

Posted by democratist on October 20, 2010

20th October 2010,

Today, Democratist has been listening to a podcast of a lecture given by Professor Niall Ferguson (Philippe Roman Chair in History and International Affairs at the LSE) on “The Political Economy of the Cold War.”

It explores the competition that existed between the US and Soviet economic systems during the Cold War, and how far the outcome of the Cold War was economically pre-determined.

Among other things, Ferguson demonstrated in detail that, from the high hopes of the 1950’s, the Soviet economy stagnated, and from 1975 negative productivity growth was a clear sign it was on the critical list;

  • Growth rates declined dramatically after Khrushchev, and total factor productivity plummeted to the point that Soviet factories eventually became value subtracting.
  • The planned economy did not work, because in the absence of market signals, resources were misallocated.
  • Corruption was endemic to the planned economic system because incentives were completely misaligned.
  • The only thing that kept the Soviet show on the road after 1969 was the subsequent rise of the oil price on international markets.
  • The Chernobyl disaster demonstrated the USSR’s inadequate allowance for depreciation of the capital stock.
  • By the end of the Cold War Soviet GDP was 36% of US GDP. In order to match the US, the Soviets had to spend a significantly larger portion of GNP on the military: 14% by 1991.
  • Life expectancy rates flatlined from the 1960’s (followed by a collapse after 1990).

From Democratist’s perspective, what is most interesting about this analysis is the opportunity it presents to examine the continuities from the Soviet period, and the trend of “partial re-Sovietization” of Russia since 2000;

  • Whereas the command economy is long gone, corruption has had a considerable continuing influence on the misallocation of resources/lack of diversification.
  • But, from the late 1990’s until 2008, high raw materials prices (accounting for 70% of exports) again came to act as a mask to cover deeper structural problems.
  • Inadequate allowance for depreciation of the capital stock has continued, noticeably in relation to Russia’s military (and broader military-industrial complex), and also resulted a number of disasters linked to antiquated infrastructure.
  • National resurgence remains a key aspect of official ideology, and the government is currently planning to embark on a new round of defence spending.
  • Life expectancy crashed in the 1990’s, partly as a result of social dislocation, but also as a result of inheritance of Soviet social trends (alcoholism, smoking). Demographic decline is set to remain a problem.

But, as we have argued repeatedly, despite the fall in hydrocarbon prices over the past three years, there has been little indication the regime has any serious intention of changing course: What we have seen so far remains essentially a superficial invocation of the need for change through the offices of the “liberal” President, designed to drum up additional investment from the West, while the regime waits for a resurgence in commodity prices.

But there is currently little indication that the oil price will revert to 2007 levels any time soon, and foreign investors appear to be getting wise to the Kremlin’s game (why invest in Russia, when there are so many more attractive options?).

It must surely be slowly be dawning on at least some in the nomenklatura that just “going through the motions” isn’t going to be enough.

In the contest between Re-Sovietization and global capitalism then, the question is therefore increasingly, “Who’s going to blink first?”

Posted in Historical Materialism, Historical Sociology of International Relations (HSIR), International Political Economy, Russian Economy | 1 Comment »

We’re all democrats now…

Posted by democratist on October 19, 2010

19th October 2010,

Democratist has been interested to read this article suggesting that Novaya Gazeta, vociferous and undaunted critic of the Putin regime, is threatened with closure.

Even so, we don’t think the paper’s (undoubtedly brave and resourceful) journalists should start to clear their desks and head to the bar just yet; with President Medvedev working overtime to prove his “liberal” credentials, and Vladimir Putin doing his level best to pretend he cares about what foreign investors think about the corruption he has done so much to create over the past 10 years, media reports of any perceived clampdown on such an obvious symbol of Russia’s “limited democracy” (as Medvedev euphemistically termed it in Yaroslavl a few weeks ago) are, we suspect, soon likely to be pleased to report that the state media watchdog that has brought the complain against the paper suddenly decides to change its mind, or the court to throw out the case at the earliest possibility…

As a taxi driver in a third-world country once told a friend of mine, “We’re all democrats now…The President ordered it personally!”

Posted in Democratization, Russian Liberalization | Leave a Comment »

Sympathy for the devil?

Posted by democratist on October 17, 2010

October 17th 2010,

Was the West and the so-called “Washington consensus” responsible for the socio-economic problems that blighted Russia in the 1990’s? This question is rarely discussed in Europe or the US these days, but it reflects a widely held opinion in contemporary Russia, and moreover an intellectual position that for many years has provided one of the Putin regime’s principle ideational mainstays.

Indeed, the fear of a repeat of the chaos of the 1990’s is surely one reason why, as Vladislav Inozemtsev noted in the Moscow Times on October 15th, so few Russians are motivated by Dimitry Medvedev’s calls for modernization, and subsequently why Russia remains, “Deeply mired in the complacency of ‘stability””

But is it really the case that Western advisors, and institutions such as the IMF and the World Bank were responsible for the chaos that engulfed Russia throughout much of its first post-communist decade?

In order to examine the other side of this story, Democratist has recently been re-reading Anders Aslund’s How Capitalism was built: The Transformation of Central And Eastern Europe, Russia and Central Asia. (Cambridge University Press, 2007).

Aslund begins by noting that most countries entered the transition process amid a serious economic crisis inherited as a result of communist mismanagement, “A whole new system had to be built, and knowledge of how to do so was limited.” In such a situation, transition was always likely to be a difficult and lengthy process, even if the advice provided was of good quality.

However, the main reason that economic chaos endured for so long in Russia was not that the government followed “bad” western advice, but rather that it was slow to implement much of it, because it was politically in thrall to a group of people who had a vested interest in dragging out transition for as long as possible; these were “rent-seekers” (prominent members of the old and new elite, the most successful of which would eventually become known as the “oligarchs”) who had a vested interest in making fortunes out of the distortions of the emerging market economies. 

As Aslund notes, “Rent-seekers were cold-blooded, rational businessmen. They had no ideology but convenience. They engaged in politics mainly to secure their rents. Confusingly, they were reformist and progressive as long as communism lasted, because their profits derived from the market, however distorted, and they wanted to escape the old communist control system. As soon as communism was over, however, the threat to rent-seekers came from a truly free market. Logically, they tried to slow down market reforms to preserve market distortions that generated rents while invoking many fine social causes.” 

As such, it was not western advice which was defective, but rather the slow pace of its implementation as a result of political interference.

And indeed in the Russian case Aslund suggests that the market economy was in place to a considerable degree by the late 1990’s; “The Russian financial crash turned out to be the catharsis Russia needed to accomplish a full-fledged market economy, with a critical mass of markets, macroeconomic stability and private enterprises.”

This leads him to make the provocative suggestion (partly based on a historical comparison with the United States’ nineteenth-century “robber barons”) that, with the eventual advent of the free market, the attention of the oligarchs had shifted from rent-seeking (no longer possible under free market conditions) to the securing of their economic position through support for the rule of law. As he says; “Later on, many wealthy businessmen became interested in securing their property rights against capricious rulers, which rendered them more liberal again. Now they stood up for the principles of a free society.”

So, from this perspective,  not only is it questionable to suggest that “westerners” were responsible for Russia’s problems in the 1990’s, but it would also appear that by the end of this period, the oligarchs, who had borne a considerable degree of responsibility for the enduring problems of transition were (by following their evolving self-interest)  slowly emerging as a central support for the consolidation of Russian democracy.

But whereas the financial crisis of 1998 put Russia on a path to economic stability and high growth that might well have eventually resulted in a lasting transition to democracy, it also had the effect of forcing President Yeltsin to appoint a government with Yevgeny Primakov as Prime Minister, followed in 1999 by Vladimir Putin, thereby eventually allowing former members of the secret police to take over both power and some wealth from the oligarchs, while also benefitting for a number of years from a combination of the post-1998 reforms and higher oil prices.

By the time of the arrest of Mikhail Khordokovsky in 2003, it became apparent that the oligarchs were unable to safeguard their property rights, or resist large-scale renationalisation and political suppression by the resurgent Putin-led espiocracy, and they were subsumed into the new system.

Subsequently, the hallmarks of Putin’s second term (2004-2008) were a degree of renationalization, the enrichment of officials, rapidly growing corruption, and the fading of industrial growth; all of which was (superfically and temporarily) masked by high raw materials prices.

However, the global financial crisis has done much to reveal the growing severity of these problems, especially in relation to Russia’s reliance on raw materials. Additionally, the last few years have also demonstrated how Russia’s industrial, technological and scientific capabilities are slowly suffocating in a the predictable resultant morass of corruption, and (of special concern to some elements within the nomenklatura) how this is degrading Russia’s military capabilities. 

And yet for all the talk of political and economic modernization that we have seen over the past two years, the regime’s response to these issues has so far been muted, precisely because of its unwillingness to countenance potentially “destabilizing” political change: For all the President’s talk of reform, there has been little indication that Medvedev would be willing to allow the remaining (and evidently much weakened) oligarchs any increased political leeway, as part of a broader political liberalization.

While it may seem counterintuitive, if Aslund’s thesis is correct, the oligarchs, impediments to reform that they might have been in the 1990’s, may well today be exactly the people Medvedev should be talking to if he genuinely wishes to move beyond the political strictures and economic malaise of “sovereign democracy,” to remove the remaining market distortions, and provide Russia with the kind of innovative economy that most people seem to agree she requires.

Posted in Democratization, Russian Economy, Russian Politics | 1 Comment »

Book Review: “The Global 1989.”

Posted by democratist on October 11, 2010

11th October 2010,

In line with Democratist’s ongoing support for the Historical Sociology approach to International Relations (HSIR), and of the intellectual legacy of the late Fred Halliday, we would like to take this opportunity to draw our readers attention to the recent publication of a new collection of deeply insightful and thought-provoking HSIR essays; “The Global 1989: Continuity and Change in World Politics.” (Ed. George Lawson, Mark Armbruster and Michael Cox, Cambridge University Press, 2010).

The overarching theme of the collection is the question of  how far the end of the Cold War (“1989”) has changed, but also significantly may not have changed the world all that much, over the subsequent 20 years.

Refuting the simplistic misconception that 1989 “transformed everything,”  it addresses the question of the enduring and continuing (although often contradictory and paradoxical) historical social trends that have helped to shape the contemporary world; how these were (or were not) influenced by 1989, and what they suggest for the ongoing trajectory of contemporary societies.

As such, The Global 1989 considers in detail;

  • How the period since the end of the cold war has started to witness an erosion of the trans-atlantic alliance in the absence of the Soviet threat.
  • How, by ushering in an era of liberalism without critique, 1989 has actually served to renew critiques of liberal utopianism which have continued to gain strength both in the West and wider world.
  • The impact of totalitarian legacies on Russian and Chinese development since 1989, and how the restoration of autocratic rule in these countries has produced a class of post-totalitarian nomenklatura, “which seeks to strip the country’s assets rather than engage in contractual politics” (a trend that that has not gone unnoticed here at Democratist).
  • How the neoliberal approach to economics and “casino capitalism” which emerged in the UK and US in the early 1980’s, received a huge international boost after the fall of Communism, only to produce the current financial crisis.
  • The resurgent influence of nineteenth-century Western thought on post-Cold War international relations theorizing and foreign policy-making (not least in relation to the 2003 invasion of Iraq).
  • The way 1989 has brought into question core aspects of European Integration.
  • The crisis of the European left invoked by the loss of Socialism as an “actually existing alternative” to market democracy.
  • The diverse impact of 1989 on the thirty-plus former allies of the Soviet Union in the Third World (and the way in which 1989 had variegated effects in different parts of the world, some with greater and some of lesser import).
  • How the peaceful revolutions of 1989 led differing groups to draw contentious, and sometimes dangerously wrong “lessons” from them: This included (for example) the belief of US hawks that the revolution in military affairs could be used to easily reshape international order.

This is a most impressive and serious work that, regardless of whether you happen to agree with some of its more overt leftist leanings, strikes out against much of the triumphalism, hubris and complacency we have witnessed in the West over the last two decades, and highlights a number of serious and growing problems which will require our urgent attention.

The Global 1989 also demonstrates (to quote from Lawson’s introduction); “…a profound lesson for academic enquiry as well as for policy-makers, reminding us of the need to ask good questions rather than look for easy answers, to use imagination rather than fulfill the requirements of “normal science,” and to work on developing sound judgements rather than on following the latest fad.”

We encourage all our readers to get hold of a copy, and publicize this generally jargon-free and accessible work as much as possible.

Posted in Book Reviews, Historical Sociology of International Relations (HSIR) | Leave a Comment »

Book Review: “The New Nobility.”

Posted by democratist on October 6, 2010

6th October 2010,

Last night Democratist had the pleasure of attending a public lecture at the LSE by Andrei Soldatov, co-author of the recently released “The New Nobility: The Restoration of Russia’s Security State and the Enduring Legacy of the KGB.” (PublicAffairs $26.95). This was followed by brief discussions with Dr Roy Allison from the LSE’s International Relations department (who chaired the meeting) and Irina Borogan, Andrei’s journalistic partner and co-author.

Democratist strongly recommends “The New Nobility”  for its multiple insights into the ways in which the FSB has taken on a more central and powerful role in the politics and economy of the Russian Federation than the KGB was ever able to manage during the Soviet period, and the methods by which it has been able to weave itself ever more deeply back into the fabric of Russian political and economic life after the hiatus of the early 1990’s.

Among the many interesting points that Soldatov raised in his lecture, we were especially intrigued by his suggestion that, even in the late 1970’s and 1980’s many in the KGB (who were, of course far better informed about the real state of the USSR than almost any other group of citizens) began to see themselves not only as the successors and inheritors of Dzerzhinsky’s Cheka, but also of the Tsarist Okhrana, (tasked with insuring internal stability in the pre-revolutionary period). In Democratist’s opinion, this emphasis on the centrality of maintaining internal stability to the FSB’s work has become all the more apparent over the past decade.

Another key point that Soldatov and Borogan make (underscored in the book) is the way in which some former members of the FSB found employment, and were subsequently corrupted by their involvement with Russian oligarchs in the 1990’s, while other officially “retired” officers sought to reassert Russian state power by seeking to infiltrate Russian political and economic circles as members of the FSB’s so-called “attached reserve.”

However, the authors of “The New Nobility” make clear that many of the more senior (and therefore better paid) FSB reservists also soon became more loyal to the businesses which employed them than the security agency itself. Rather they suggest these generals and colonels came to see the FSB as a source of access to intelligence and personnel. This trend of placing former KGB/FSB staff in key positions has become more overt since 2000, and was extended as Putin cleared the way to appoint (presumably somewhat more loyal) former colleagues to man the “commanding heights” of the Russian state and economy.

Readers may also be interested to hear this interview Soldatov gave to BBC Radio 4’s Today programme this morning.

Posted in Book Reviews, Russian Espionage | 1 Comment »

A “Black Revolution”: Is Moscow planning to overthrow Aleksandr Lukashenko?

Posted by democratist on October 4, 2010

4th October 2010,

Things are really starting to heat up in anticipation of the Belarusian elections, due on December 19th.

On Sunday October 3rd, Russian President Medvedev released a new video blog criticizing Belarusian President Aleksandr Lukashenko’s “anti-Russian rhetoric.”

Medvedev stated, “attempts to paint the picture of an outside enemy in the public mind have always distinguished the Belarus leadership. In the past this role was given to America, Europe, and the West in general. Now Russia has been declared one of the key enemies.”

Later he also “tweeted” rather ominously, “The senseless period of tension in relations with Belarus is certain to come to an end.”

This latest salvo in what has been an ongoing Russian media campaign follows claims by Lukashenko on 1st October that the Russian authorities are trying to depose him by supporting his opponents: According to Lukashenko, Belarussian authorities have recently detained a courrier who was trying to smuggle $200,000 for local opposition leaders over the country’s border.

Its is interesting that the Russians have not as yet sought to deny their involvement in this affair, but rather appear to be seeking to justify it.

In Democratist’s opinion, Medvedev’s message demonstrates that the Russians wish to make their position as clear and as public as possible; relations with Belarus will not improve until Lukashenko has gone, and they are actively working towards that goal.

It will be interesting to whether Lukashenko will be able to get the result he needs in December. Traditionally Belarusian elections have been tightly choreographed affairs which have benefitted greatly from Russian rhetorical and media support.  This time things are clearly different, and the forthcoming polls promise to be extraordinarily dirty, with plenty of manipulation, “black-PR”, kompromat and electoral fraud from both sides.

From our perspective, this raises the following initial questions;

1) The extent to which the increasingly isolated Lukashenko will be able to keep things together: How soon will it be before elements from within the administration, including the security forces (overtly or covertly) see the “writing on the wall” and start to defect to the Russian camp? Conversely, which tactics will Lukashenko seek use to shore up his hold on power?

ii) The methods the Russians will use to destabilize him: While the media campaign is already underway, there are also many other techniques that could be brought into play. Will they get behind a specific candidate? If so, who? Will they be looking to bribe Belarussian Election commission staff in order to get the “right” result, as they did in Ukraine during the second round of the Presidential elections in November 2004? Will they seek to use local patronage networks to “get out the vote”? Which of the many well -established techniques of electoral fraud might they be seeking to employ?

iii) If Lukashenko does manage to get re-elected (given that he remains quite popular domestically), will the Russians seek to topple him in a subsequent stage-managed parody of a “colour revolution”?

iv) What position is the west likely to take? Will they seek to benefit, and if so, how?

Posted in Belarus, Russian Foreign Policy | 3 Comments »