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IS RUSSIA REALLY LOST? by Leon Aron.


Aron is a resident scholar at the American Enterprise Institute and author of the biography Yeltsin--A Revolutionary Life.

This article reprinted here with the permission of The Weekly Standard. Copyright 1999, The Weekly Standard.

Suddenly everyone is asking: who lost Russia? The New York Times Magazine posed the question in a cover story last August, and it has since been the subject of long articles in the Times and the Washington Post, as well as of innumerable columns in major newspapers. The op-ed pieces in the New York Times and Wall Street Journal have been virtually indistinguishable in their anti-Russian animus (a coincidence that ought to give pause to the editors of both papers). With the Republicans in the House of Representatives holding hearings on the matter and Governor Bush's presidential campaign turning the issue into a major avenue of attack on the Clinton-Gore record, an irredeemable Russia is likely to remain a fixture of political discussion in the coming months.

Unfortunately, this important debate is being conducted like a kangaroo court. Not only have the accused -- both Americans and, especially, Russians -- been tried and found guilty in absentia, but, contrary to the Anglo-Saxon legal tradition, the discovery stage, when the underlying facts are established and each side presents its version of events, has been skipped entirely. Before the sentence is handed down, ought we not at least try to find out whether, in fact, a crime has taken place: Has Russia, indeed, been "lost" to the cause of the free market and democracy?

A hodgepodge of facts, half-truths, clichs and distortions, the case for the prosecution comes down to a few simple postulates. First, free-market reforms have failed to make Russia a prosperous country with a growing GDP. "Reform" (a word rarely used without quotes these days) was nothing but the "entrenchment of a kleptocracy in which corrupt officials ally with a few business magnates to send wealth out of the country," according to Fritz Ermarth in the New York Times of Sept. 12. "Reform" never enjoyed even a modicum of popular support but was forced on a defenseless country by "reformers around Yeltsin" and their Western, especially International Monetary Fund, advisers with the connivance of the White House. After eight years, goes the indictment, Russia still does not have even an approximation of a market economy. Instead, "reform" resulted in universal impoverishment. Today's Russia is a handful of thieving "oligarchs" feasting amidst the general penury.

In the political sphere, democratic institutions have not taken root. This "Weimar Russia" is an unstable, "failing state," in the words of Condoleezza Rice, George W. Bush's top foreign policy adviser, who has mentioned Russia in the same breath as the "failed states" of North Korea and Iraq. As House majority leader Dick Armey so elegantly put it, "Russia has become a looted and bankrupt zone of nuclearized anarchy."

In foreign policy, asserts the prosecution, Boris Yeltsin has not delivered where America's core national interests are concerned, and the "investment" in him by the Clinton administration was wrong and a waste. All these failures have soured the Russians on capitalism, democracy, the West in general and the United States in particular and made them ripe for Communist revanche, anti-Western nationalist dictatorship or an even scarier combination of the two.

One of the most puzzling features of the argument that Russia has been "lost" is its ahistoricism. Post-Communist Russia is discussed as if it had no past. There seems to be total amnesia about the conditions that were so memorably exposed by glasnost in the waning years of the Soviet Union. For instance, in 1989, the last year of relative stability before the crisis became uncontrollable, the average salary in the Soviet Union was 200 rubles a month: $ 33 at the official exchange rate, $ 13 on the -- still illegal then -- free currency market. (The average salary in Russia today is $ 75.) The Soviet Union was in 77th place in the world in personal consumption. Of 211 essential food products, only 23 were regularly available in state stores. Russians spent between 40 and 68 hours a month in queues.

When Kuzbass miners walked off the job in July 1989, precipitating Russia's first national strike since 1918, their demands included a towel and 800 grams of soap a month for after-shift washing, and padded cotton jackets. As part of the settlement, the government agreed to deliver to Kuzbass 10,000 tons of sugar, 3,000 tons of washing powder, 3,000 tons of soap, over 6,000 tons of meat, 5 million cans of dairy products and 1,000 tons of tea.

According to the minister of health, a total of 1,200,000 hospital beds (35 percent of the total) were in facilities with no hot water; every sixth hospital bed was in a facility with no running water at all; 30 percent of Soviet hospitals did not have indoor toilets. The Soviet Union had a higher rate of infant mortality than 49 nations, behind Barbados and the United Arab Emirates. Half of Soviet schools had no central heating, running water or indoor toilets.

By the time Boris Yeltsin took over Russia in the fall of 1991, the country's economy was collapsing. Domestic production declined by 13 percent that year, the budget deficit soared to 30 percent of GDP, the annual inflation rate was 93 percent, hard currency and gold reserves were nearly exhausted, and the U.S.S.R. defaulted on its international loans. No one who was in Moscow in the fall of 1991 will ever forget the absolutely bare shelves of the stores, the ration coupons for sugar, tobacco and soap, and the sacks of potatoes stored on the balconies of apartment buildings in the center of Moscow, as their inhabitants prepared for famine.

Brief as it is, this sketch belies the postulate of a Russia "ruined" by reform. The picture we are offered of a handful of oligarchs presiding over a sea of starving millions is an equally crude caricature. Today the queues in stores -- bane of four generations of Russians -- have disappeared, and Russian shops, for the first time since the mid-1920s, offer a cornucopia of quality food and goods. In 1997, for the first time in 40 years, Russia was self-sufficient in grain. In fact, it exported millions of tons of grain in 1998, even as agro-bureaucrats in the Kremlin and the U.S. Department of Agriculture were arranging shipments from the United States to meet a nonexistent emergency.

While it is true that millions of people -- especially retirees, collective farmers and workers in the mammoth military-industrial complex -- were impoverished by galloping inflation and cuts in state spending, millions more -- urban, younger and better educated (who voted for Yeltsin in overwhelming numbers in the 1996 presidential election) -- saw a dramatic improvement in their professional and personal lives. For the first time in Russian history, there is a sizable middle class and intelligentsia outside state employ. Before the crisis of August 1998, almost one-fifth (18 percent) of Russians surveyed stated that the economic situation of their own family was improving.

Between 1990 and 1997, car ownership increased by 72 percent from 18 per 100 families to 31. Of the total population of 150 million, 20 million Russians were estimated by tax agencies to have traveled abroad in 1997. According to the World Tourism Organization, in a country by country ranking of top-spending tourists in 1996, Russians came 10th, behind Americans, Germans and Japanese, but ahead of South Koreans, Brazilians, Spaniards, and Chinese.

The new Russian middle class suffered greatly in the crisis of 1998, and it may take a few years for the standard of living to return to pre-crash levels.

Yet there is no reason to doubt that this will happen. It may currently be all the rage in Washington to speak of Russia's "virtual economy," but we are suddenly discovering that a Russian market economy does exist after all and, despite its deep distortions, responds to economic stimuli much as any market economy would. In full accordance with supply-side theory, the continuing absence of price controls, a cheaper but stable national currency and a drastic reduction of imports have unleashed domestic production. Russian-made food and goods fill the stores. Industrial production (or rather its registered and taxable part) was 4.5 percent higher in the first six months of 1999 than in the first six months of 1998, and it grew even faster after that. Contrary to many a forecast, there is no starvation.

With the demise of astronomic interest rates and of the fantastically lucrative domestic bond market, money that used to flow into treasury bills is becoming available to industry. There is less and less barter. The RTS index of top Russian companies has grown 300 percent since October 1998. Exports declined by 5 percent in the first eight months of this year, and imports fell by 45 percent, leaving the country with a large trade surplus that is likely to stabilize the ruble. The cheaper ruble and a sharp increase in oil prices have greatly helped to reduce the budget deficit. In August, Russia collected more tax revenues than in any month in its eight-year post-Communist history (30.8 billion rubles, or $ 1.25 billion) and paid off all the state pension arrears, which had amounted to 26 billion rubles ($ 1 billion) in January 1999. Contrary to many a confident prediction of hyperinflation, the 1999 inflation rate is not likely to exceed 40 percent or the exchange rate to dip below 32 rubles to the dollar.

Breaking with the "state capitalism" of the "oligarchs," thousands of young entrepreneurs, many of whom got their start in the oligarchs' financial empires and made fortunes in Treasury-bill trading, currency speculation and arbitrage, are starting new businesses and investing their own money in pharmaceuticals, paper, dozens of new brands of beer, packaged snacks and clothing. Bypassing the largely insolvent Moscow banks, which have been little more than currency-trading and bond-recycling stations, successful Russian firms are acting as small banks, investing their profits often outside their immediate sectors and making loans to other businesses.

Another mainstay of the thesis that Russia has been "lost" is the claim that the Russians have rejected capitalism. In fact, after three generations entirely in state employ, Russians remain sharply divided on the issue of private vs. state ownership of the economy. In a national poll commissioned by the United States Information Agency at the beginning of this year, 41 percent favored a "mostly" or "completely" state-owned economy, while 50 percent felt either that the economy should be " mostly" or " completely" privately owned (16 percent) or that it should be a " mix" of private and state ownership (34 percent).

Then there is the myth that Yeltsin won the 1996 presidential election by buying 40 million votes with the oligarchs' money. In reality, Russian voters that year made a monumental and informed choice worthy of a great people -- a choice between two fundamentally different visions of Russia.

Yeltsin ran on a platform of continuing but " modified" and " socially oriented" reforms, while Gennady Zyuganov, the Communist candidate, called for a return to state control (if not outright ownership) of the economy. Zyuganov presented his case to the public in a vigorous national campaign. Between January and July, the Communist alternative was expounded by over 150 pro-Communist local and national newspapers and magazines, the national dailies alone with a combined circulation of over 10 million. Tens of thousands of Communist organizers campaigned door to door. Millions of leaflets were distributed. And the Communists enjoyed three and a half hours of free prime time on national television and held hundreds of campaign rallies.

Although most Russians tell pollsters they are dissatisfied with the " way democracy works" in their country, solid majorities reject a restoration of " order" if the price is forgoing key civil and political liberties -- habeas corpus limits on police, the freedom to hold political meetings and demonstrations, free elections, the right to travel abroad, and an uncensored press. In 1994 virtually equal proportions of respondents supported and opposed a dictatorship to " restore order in Russia" (35 percent and 33 percent respectively). In 1997, the opposition to a dictatorship grew to 55 percent, while support stagnated at 35 percent.

Allegedly a " failing" state and " zone of nuclearized anarchy," Russia in the past six years has held three free national elections (two parliamentary and one presidential), two national referenda, and in each of its 89 provinces at least one (sometimes two) election for a legislature and governor. On only one occasion -- the Duma elections and simultaneous constitutional referendum in December 1993, three months after the bloodshed at Russia's parliament building -- did turnout fall below 64 percent of eligible voters. Nearly 70 million Russians (just under 70 percent of all eligible adults) voted in the presidential election in 1996. There were 50 human rights groups in Russia in 1996. Today, there are 1,200.

This is a regime that -- even with its many very real, even gross flaws -- is the most open and liberal in the country's history. The press is free from government censorship. The opposition, no matter how radical, can publish and campaign for office. Free and fiercely competitive multi-candidate elections are the norm at both the local and national levels. After 1,000 years of authoritarianism and totalitarianism, Russia is radically decentralized, yet whole, with political power dispersed both geographically among the regions and among diverse centers of power on the national level. No party (much less person, even the president) can dominate and mold Russian national politics at will.

Following the Constitutional Court's lead, local judges routinely rule against local government agencies (as when the latter tried to restrict the activities of " foreign" religious denominations), the Kremlin, the army (when it sought to punish conscientious objectors), and the secret police. In a typical instance of citizens' taking on the government in court, last July an Internet provider in the southern city of Volgograd rejected the demand of the Federal Security Service that the company monitor its customers' use of the Web. The security agency retaliated by blocking the firm's use of the satellite channel that gave it access to the Web. The firm brought suit against the FSB, and a decision is pending.

Although woefully inadequate by the standards of older democracies, Russia is by far the freest, most democratic nation of all the post-Soviet states save the three Baltic countries. Even as severe a test as the past year's financial crisis, with the devaluation of the ruble and the government's default on its domestic debt, did not result in riots and the disintegration of authority, as in Indonesia, or in show trials of high-level scapegoats and the jailing of journalists, as in Malaysia. There was not the slightest infringement of human rights or political liberties, curtailment of the press or harassment of the opposition. The Communists' attempt to capitalize on the crisis failed miserably when the much ballyhooed " Red October" turned out at best 200,000 people on the streets -- in a country of 150 million.

Of all the grounds for arguing that Russia has been " lost," Yeltsin's alleged failure to deliver in foreign and security policies is the most astonishing, because the evidence to the contrary is unambiguous. Never before has there been a Russian regime whose foreign and security policies were so beneficial for the United States and its allies.

First, of course, there was the demilitarization of the state and society, the scope of which is likely without precedent in modern history for an undeed country.

In 1992, acting prime minister Yegor Gaidar cut defense spending by 80 percent. By 1996, expenditures for procurement and military construction were nine times lower than in 1990 and for research and development 10 times lower.

This year, Russia is spending 2.3 percent of GDP on defense. In the days of the Soviet Union, military spending was estimated to be as high as 70 percent of GDP. Between January 1992 and January 1998, the Russian armed forces shrank in manpower from 4 million to 1.2 million. But by far the most important development for U.S. national security is Russian nuclear disarmament. In 1991, Russia had 10,000 deployable strategic nuclear weapons. That number was reduced to 6,000 after START I went into effect in December 1994. Even though the Duma never ratified START II, Russia unilaterally cut its arsenal by 25 percent below the START I limit to 4,500 warheads today. Instead of adhering to the START II schedule of 3,000 to 3,500 warheads by the year 2007, Moscow proposed to the United States this past August to bring the totals to 1,500 weapons or fewer.

Another boon to the West -- the peaceful dissolution of the Soviet domestic empire -- exceeded virtually everyone's expectations and defied myriad gloomy scenarios. One need only recall the bloody divorces between India and Pakistan, Britain and Ireland, and, of course, Serbia and other republics of the former Yugoslavia to appreciate the immensity of Yeltsin's achievement. Signed by Yeltsin in Kiev on May 31, 1997, after painful territorial concessions to Ukraine made in the face of almost unanimous opposition from the leading politicians, the Treaty of Friendship, Cooperation and Partnership between Russia and Ukraine is as critical to the stability of post-Cold War Europe as the French-German rapprochement engineered by Charles de Gaulle and Konrad Adenauer in 1958 was to the post-World War II order.

Time and again, Yeltsin took foreign policy positions distasteful not just to the " popular patriotic" left but to most of the Russian political class. Repeatedly the president was offered on a silver platter opportunities to bolster his popularity by whipping up nationalism and anti-American hysteria -- and every time he declined, patching up frayed relations with Washington by accommodation and cooperation. Such was the case with NATO expansion; with sanctions against Iraq; with Bosnia and, despite hollers of protest from the Left and his own foreign ministry, with Kosovo. (Last spring, he fired the darling of the Moscow political class, Primakov, in large measure because of his stubborn opposition to Russia's cooperation with NATO over Kosovo.)

By far the most solid charge brought against Russia by the doomsayers is corruption. This scourge saps the legitimacy of the state, distorts the market, impedes foreign investment and ultimately costs Russian consumers and taxpayers trillions of rubles every year. Before it was suddenly discovered by the " Who lost Russia?" crew, the subject had been discussed by scholars for years. The problem here is not that the critics have the facts wrong (although they indulge in hyperbole), but that they fail to locate this evil in its historic and geographic context.

Inconvenient though it may be to American columnists and members of Congress, the truth is that Northwest European-style capitalism -- originally Protestant, Anglo-Saxon and Scandinavian -- is very rare in the world today. Most countries will require decades, perhaps centuries, of experience with the free market and democracy before they attain a similar standard. The going is likely to be especially rough in Russia's neighborhood, which -- from Romania and Bulgaria to Turkey, Iran, Iraq, Afghanistan, Pakistan and China -- has been notoriously corrupt for centuries.

Like its neighbors, Russia has been corrupt for centuries. But corruption reached its apogee under the Communists. By extirpating, suppressing or subverting the civil and governmental institutions that promote self-restraint and personal responsibility (the church, charities, professional associations and an independent judiciary), by censoring everything that was published, by making the party nomenklatura immune from criminal prosecution, Soviet totalitarianism achieved universal thievery and bribery. "Tell me where you work, and I will tell you what you are carrying home in your bag," went a Soviet underground joke in the 1970s. In a superb primer on Soviet corruption (" U.S.S.R.: The Corrupt Society," written in the 1970s and published in the United States in 1982), a former leading Soviet legal scholar, Konstantin Simis, called the Soviet Union " the land of kleptocracy." Describing the country's " horrible moral state," Gorbachev's first prime minister, Nikolai Ryzhkov (now a Communist leader in the Duma), wrote of the country in the 1980s, " We stole from ourselves, we took bribes, we wallowed in lies."

The burden of this history is compounded by the realities of economic transition. In the no-man's-land between the state-controlled economy and the free market -- where some restrictions have been removed while others remain, and former state property is left defenseless as a beached whale -- the hungry, newly empowered entrepreneur meets the impoverished bureaucrat or politician, who sells him access to the beach. Corruption of this type was or is a problem in Carlos Menem's Argentina, Fernando Cordoso's Brazil, Carlos Salinas' Mexico, Kim Dae Jung's South Korea, Turgut Ozal's Turkey, Nelson Mandela's South Africa and all the post-Communist nations without exception. (Russia, indeed, is the least corrupt of the countries of the former U.S.S.R., with the exception of the Baltics.)

Of course, neither history nor political culture absolves the guilty. They do, however, have clear policy implications. The roots of Russian corruption go much deeper than the alleged mistakes and personal frailties of Yeltsin and the " reformers." In societies where corruption is hereditary, the problem can be alleviated only by decades of democratic politics and press freedom, over several post-Communist generations.

Dealing with corrupt regimes for the sake of overriding national or global interests poses no problem either for the United States or for world financial institutions.

It would be a terrible blunder to make Russian corruption synonymous with the failure of Russia's grand experiment in free-market economics. There is a critical distinction between the countries where corruption overwhelms the state and the economy and leads to a breakdown or permanent crisis (Albania, Indonesia, Venezuela, Colombia) and those where corruption, no matter how ubiquitous, still allows for democratic order, economic progress and integration in the world economy (Italy, Turkey). Russia appears to be evolving along the latter path.

Post-Communist Russia's epic experiment with self-rule, political liberty and the free market is like the progress of a long and disorderly wagon train trekking across a vast and swampy plain, stopping, zigzagging, occasionally almost drowning in mud, yet stubbornly plowing forward. Following close behind but never quite catching up with the caravan is a crowd of journalists and experts. Their heads are hanging. They look neither forward, to see where the road might lead; nor back, to measure the astonishing distance already covered; nor even to the sides, to compare the caravan's progress with that of Russia's neighbors. They look only downward, at the dirt on the wheels, the ruts in the road, and the ugly swamp creatures awakened by the wagon train's passage and feasting on the refuse in its wake.

A longer and broader view yields different observations. There is a great deal in today's Russia that, to the citizen of a mature liberal democracy, appears flawed or even appalling. Yet the progress is undeniable and enormous.

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