WASHINGTON, D.C.—Between the years when Communist rule ended in 1991 and Putin began his rise to power in 1999, there was a window of opportunity for democracy and free market reforms to take hold.
Although market economy was achieved and Russia has become the 10th largest economy in the world with an annual growth rate of nearly 7% since 1999, an authoritarian structure now grips Russia. Furthermore, under Vladimir Putin, Russia is no longer a free and democratic country.
On November 19, Åslund defended his book at the Peterson Institute, while his ideas were critiqued by Harvard historian Richard Pipes and Andrei N. Illarionov, former senior economic advisor to President Putin. By 1991, the Soviet Union had completely collapsed, finally bringing an end to the communist dictatorship, the KGB, and its brutal repression of the Russian people. Mikhail Gorbachev, who was selected as general secretary of the Communist party in March 1985, had tried to fix Soviet communism through gradual reforms, but it couldn't work.
"…Soviet socialism was no solution but a dead end. Soviet communism could not be reformed, only destroyed," writes Åslund. It was under Gorbachev's successor, Boris Yeltsin, who favored the radical economic medicine that made Russia into a market economy. Yeltsin also saw the urgency to dissolve the USSR and carried it out, which the reformer Gorbachev could not do.
Unfortunately, Yeltsin was so preoccupied with the economic reforms and the dissolution of the Soviet Union, he paid too little attention for the need of democratic reforms. The old regime was suspended for a brief time, and he needed to act as decisively as he did with the market reforms, according to Åslund .
Åslund was in a good position to know from the inside how the Russian capitalist revolution in the 1990s transpired. Between 1991-94, he was a member of an official economic team of 30 advisors to the Yeltsin reform government when Yegor Gaidar, ("arguably the best and most erudite Russian economist," says Åslund) headed a team of the cream of young Russian economists.
Åslund speaks of the excitement and honor of working for "legendary reformers" Yegor Gaidar, Boris Fedorov, and Anatoly Chubais, but this could also have clouded his judgment of those days..
A Swedish born economist and diplomat, Anders Åslund is currently Senior Fellow at the Peterson Institute for International Economics, a nonpartisan think tank in Washington, D.C.
From Communism to Putinism
Åslund says that the people were receptive for democracy and change after the aborted August 1991 coup, and Boris Yeltsin should have dissolved the unrepresentative parliament, called for free elections, and disbanded the feared and hated secret police, the KGB, but Yeltsin hesitated and did not act. The reason may have been that Yeltsin didn't see the necessity.
"Democracy failed because of the absence of any clear idea of how to build it," says Åslund.
Two years later when Yeltsin finally did dissolve the parliament, it led to bloodshed that marred the democracy. The window of opportunity for democracy was missed says Åslund.
The checks and balances of the three co-equal branches of government—legislative, executive, and judicial—that America and Europe have used were not implemented rightly in Russia's new Constitution, says Åslund. The Constitution that was adopted by popular referendum in 1993 gave "excessive" power to the chief executive, which Putin was later able to exploit.
"After eight years of Putin, it is evident that his main endeavor has been to dismantle all democratic institutions and build an authoritarian system," says Åslund.
For example, in the parliamentary elections Putin has used a number of methods to marginalize his opponents: "refusal to register parties, the disqualification of candidates, illegal harassment, temporary arrests, and prohibition against public meetings," says Åslund. Political dissent is severely punished. Åslund is dismayed by Putin's vindictiveness, showing his fury and contempt for his adversaries.
Åslund is optimistic that Russia will "throw off its authoritarian yoke and mature as a democracy." He sees a contradiction between an obsolete, tsarist political system and a modern society and economy.
"Russia is simply too rich, too economically pluralist, too educated, and too open to be so authoritarian." Two-thirds of Russian youth go to college, which is higher than Europe. Russia is likely to move towards a new wave of democratization, Åslund says.
Professor Pipes said that everywhere there are ads which say, "A victory for Putin is a victory for Russia." Åslund described some fascist tendencies, for example, the formation of the Nashi (Ours), a youth group reminiscent of Hiltler's "Youth" and his storm-troopers.
From Communism to Capitalism
Åslund describes in detail the implementation of policies creating a market economy out of the communist state-controlled economy that regulated prices, controlled domestic and foreign trade, lacked private property rights and a stable, unified currency.
These basic changes to build a capitalist system were the result of a "revolution," in some ways like the communist takeover in 1917 was a revolution in Åslund's view. A complete departure from the past was needed and that's what Yeltsin accomplished, says Åslund. This "capitalist revolution," however, was conducted almost entirely without bloodshed.
A revolution meant a temporary breakdown of all institutions, enabling a few policymakers for a very short period of half a year in 1991-92, the freedom to put into place the stringent policies needed to erase the communist economic system with its regulated prices, state ownership of enterprises, and chaotic currency controls. The window of opportunity was short and the policymakers needed to act fast and be uncompromising in making drastic changes, says the economist Åslund of this critical time period in Russia..
It was necessary that the Communist Party of the Soviet Union (CPSU) was outlawed immediately after the failed coup of August 1991, when the communists tried to recover their power, according to Åslund. This move by Yeltsin and Gorbachev (Yeltsin was the driving force, says Åslund) gave the new government the breathing space it needed.
"To wait means to fail," quotes Åslund from the former Prime Minister of Estonia, Mart Laar.
Russian policymakers under Yeltsin took the plunge into the unknown, hoping not too much chaos would ensue. In December 1992 Yelsin, signed a decree to bring about swift price deregulation to start the transition to a market economy. Prices rose instantly by 250%, far more than the 100% the government had expected. But "…goods that had not been seen for years reappeared in shops, and many perishable goods that had not survived the Soviet distribution system…suddenly surfaced," writes Åslund.
Next, the economists wanted to bring about "trade liberalization," ending import controls and the need for one to obtain special permission to engage in domestic trade. Trade liberalization did suddenly end the shortages endemic in a state controlled economy. By 1993, the number of small private enterprises legally registered was nearly a million.
Reversing one of the great dogmas of communism—the nationalization of the means of production—was undertaken and partially achieved in a short duration of time. Russia undertook the largest and fastest mass privatization in world history, with 106,000 small privatized by August 1994, according to the Yeltsin government. Åslund said the small-scale privatization was quite successful and not very controversial, but the large sectors of the economy such as agriculture and military-industrial remained state owned.
To the extent that the new government hesitated and compromised, resulted in economic difficulties later, according to Åslund. He mentions the permissive monetary policy of the Central Bank, the inflationary ruble zone, and the unwillingness of Yeltsin to be persuaded to liberalize energy prices as areas in which the economic revolutionaries were not able to fix immediately. These compromises, subsequently, led to severe problems down the road and the financial crash in August 1998. But the initial package of radical reforms was sufficient to ensure that the market economy survived.
The transformation of the Soviet Union into as free of a market economy as the European countries while democratic institutions failed to take root may hold important lessons for the remaining communist regimes—China, North Korea, Vietnam and Cuba.
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