Preliminary Change of Values
Anyone over forty remembers the Cold War, or at least knows the stories of Secret Service people who terrorize people in their beds and carry them off to encampments in Siberia, never to be heard or seen from again. They are declared enemies of the Republic, but their crimes are not revealed. Those over fifty will remember that the fear of Russia becoming the number one influence over global affairs included such warnings as an inability to retain personal assets such as real estate, housing or private businesses, loss of basic Constitutional freedoms such as assembly and press, and restriction of movement. The public was told that in a Russian influenced government, children would basically be raised by the State. All able bodied adults were expected to work.
This was enough to stimulate an aggressive stance against the communistic principles of Russia. It was enough to raise a barricade of nuclear arms, consciously knowing their use could trigger mass extermination. It was enough to instigate a manhunt of anybody thought to be sympathetic with the Communist Party, which culminated only through the exposure of Senator Joseph McCarthy and his unwarranted persecution of innocent citizens. It was enough to retain a fear of Russia, even after the Iron Curtain went down.
When the Cold War ended and before the Russian economy crashed, political scientists observed that Russia was moving steadily toward a democratic state, while the United States was becoming more communistic in its principles. This observation was quickly seized upon by anyone hoping to persuade the public. Without the vaguest idea of what communism actually entails, social programs were scrapped, educational funds dwindled, and privatization of tax funded services were considered favorably behind the cry that socialized services led to a communist state.
In retrospect, it’s much easier to understand the references of the political scientists. By the late nineteen sixties, Western households saw a major shift from a single bread winning household to double incomes. More people were attending college. Women were stepping more firmly into professional careers. Children were enrolled in day care centers that included early learning skills, creating a competitive edge for pre-school academic skills. The schools began to fill with counselors, special education aides, and a greater concern for extra-curricular activity involvement. The role of parent faded into the background. Poorly performing students became a reason for investigating the child’s upbringing. A large number of poorly performing children were either placed arbitrarily into a federally funded special needs program, bolstering the educational budget, or fell into the abyss of foster homes. The State has effectively taken over the upbringing of the children.
By the nineteen nineties, small business began to collapse under the pressure of giant food chains and department stores. Small farms gave way to strip malls and agricultural farms to corporate management. Any job at all was better than no job was the motto given to young people graduating from high school or college and finding nothing more than a hamburger flipping job in a fast food restaurant, or to the many middle aged independent contract workers and ex-businessmen, whose only expectation of keeping their heads above water was to be re-trained and re-educated. When the real estate crash occurred in 2007, thousands of people were suddenly without homes. Within our present economy, few people are left with assets or real property.
Following the September 11, 2001 attacks on the Twin Towers, America became not only a fearful, but a terrified nation. It willingly allowed the passage of laws that not only restricted border movement from foreign countries, but also hindered its own citizens from returning into the U.S. The public allowed increased camera and security personnel at the airports and docks, consented to invasions of privacy, carry on restrictions and body searches. Without a murmur, the United States accepted restriction of travel.
When Capitalism Fails
By the year 2008, the United States had successfully incorporated most of the policies its citizens were once led to fear by the take-over of a communistic regime. In the meantime, Russia had begun its own experiments with democracy. Following the death of Chernenko in 1985, Gorbachev was appointed General Secretary of the party despite being the youngest member of the Politburo. He embarked on a comprehensive program of political, economic, and social liberalization under the slogans of glasnost (openness) and perestroika (restructuring). The nuclear disaster at Chernobyl (1986) forced Gorbachev to allow even greater freedom of expression. The government released political prisoners, allowed increased emigration, attacked corruption, and encouraged the critical reexamination of Soviet history.
In a series of summit talks (1985-88), Gorbachev improved relations with U.S. President Ronald Reagan, with whom he signed an Intermediate Nuclear Forces (INF) arms limitation treaty in 1987. By 1989 he had brought about the end of the Soviet occupation of Afghanistan and had sanctioned the end of the Communist monopoly on political power in Eastern Europe. For his contributions to reducing East-West tensions, he was awarded the 1990 Nobel Peace Prize.
The perestoika did not prevent the economy of Russia from collapsing, although it did encourage entrepreneurship. In 1987, at the age of 24, Khodorkovsky founded the Youth Center for Scientific and Technical Development to conduct market research for large manufacturers and introduce them to new technologies. In 1989, together with his business partners, he founded one of the first commercial banks in Russia – later known as Bank MENATEP. In 1994, Bank MENATEP’s board of directors decided to expand its business model to form a diversified industrial group called ROSPROM, which managed the transition of more than 100 large manufacturers from the Soviet economic model to free enterprise. In 1997, Group MENATEP Limited was established as a holding company, which later acquired majority interest in YUKOS.
Russia seemed to be looking at some very good years. The doors were open to the privatization of businesses. Petroleum, natural gas, metals, and timber accounted for more than 80% of Russian exports. Khodorkoysky rose to fame and was listed in Forbes magazine as the world’s fourteenth wealthiest man. Western relationships were good. As the Soviet Union moved from a centrally planned economy to a more market based one, they were assisted by generous loans from the International Monetary Fund. However, by 1998, Russia’s new market based economy had collapsed.
Economic analysts list several reasons for Russia’s failure in capitalistic enterprise. Economic reforms in the 1990s privatized most industry, with notable exceptions in the energy and defense-related sectors. Nonetheless, the rapid privatization process, including a much criticized “loans-for-shares” scheme that turned over major state-owned firms to politically-connected “oligarchs”, left equity ownership highly concentrated.
The natural resources Russia had been exporting were highly susceptible to the swings in world prices. The Asian market, which began declining in 1997, and heavily dependent on the raw materials Russia had to offer, could no longer afford them. Without its most stable buyers, Russian oil and natural gas exports decreased.
In Chapter 8 of “Russia’s Road to Corruption”, the author states, On March 23, 1998, five months before the Russian government’s default on its international and domestic debts led to the nation’s complete economic collapse, Viktor Chernomyrdin was fired as Prime Minister. The allegations of corruption against him had only reinforced the public impression that the policy of a handful of powerful Russian officials was not the construction of a free enterprise system, but rather the subversion of the public good through crony capitalism.
The unexpected firing of Chernomyrdin, Vice President Gore’s partner in the highly visible Gore-Chernomyrdin Commission, unnerved Clinton administration officials. They were just as unprepared for the appointment of the little-known Sergei Kirienko to replace Chernomyrdin. Lawrence Summers, then Deputy Secretary of the Treasury, had inauspiciously dubbed the outgoing Prime Minister’s deputies, Boris Nemtsov and Anatoly Chubais, “the Dream Team.” Summers’ characterization epitomized the wishful thinking of the administration, and its willful blindness to the worsening reality in Russia.
As late as the summer of 1998, the Clinton administration still failed to grasp the fundamental error of its policy of funneling enormous amounts of money into a corrupt central government. Despite widespread rumors that Kirienko, too, would soon be fired, the administration proposed nothing more than pouring still more loans from the International Monetary Fund (IMF) into Russia’s central government. Vice President Gore, Treasury Secretary Robert Rubin, and Summers set to work on an additional $18 billion U.S. commitment to the IMF chiefly intended to support new lending to Russia.
“We have a significant opportunity to use the leverage of IMF financing to help the Russian government,” Rubin wrote to then-House Speaker Newt Gingrich on July 28, 1998. “The basics are all in the right direction,” Stanley Fischer, the IMF’s Deputy Managing Director, said the same day. The administration successfully forced the $18 billion through Congress.
The reality of the situation, however, was that the Russian economy had already begun to collapse. The stock market was plunging. The day before Rubin’s letter to the Speaker of the House and the IMF’s blindly upbeat assessment, the market had suffered a 9% drop. Over the next two weeks, the deterioration continued. Finally, on August 17–one month after the latest bailout–the roof caved in.”
Fringe provinces attached to the outer rim of Russia were not happy with the political changes. Reform through privatization remained highly centralized. The first region to produce mass, organized dissent was the Baltic region, where, in 1987, the government of Estonia demanded autonomy. This move was later followed by similar moves in Lithuania and Latvia, the other two Baltic republics. The nationalist movements in the Baltics constituted a strong challenge to Gorbachev’s policy of glasnost. He did not want to crack down too severely on the participants in these movements, yet at the same time, it became increasingly evident that allowing them to run their course would spell disaster for the Soviet Union, which would completely collapse if all of the periphery republics were to demand independence.
The situation came to a head in August of 1991. In a last-ditch effort to save the Soviet Union, which was floundering under the impact of the political movements which had emerged since the implementation of Gorbachev’s glasnost, a group of “hard-line” Communists organized a coup d’etat. They kidnapped Gorbachev, and then, on August 19 of 1991, they announced on state television that Gorbachev was very ill and would no longer be able to govern. The country went into an uproar. Massive protests were staged in Moscow, Leningrad, and many of the other major cities of the Soviet Union. When the coup organizers tried to bring in the military to quell the protestors, the soldiers themselves rebelled, saying that they could not fire on their fellow countrymen. After three days of massive protest, the coup organizers surrendered, realizing that without the cooperation of the military, they did not have the ability to overcome the power of the entire population of the country.
Fifteen new countries emerged with the dissolution of the Soviet Union. They were faced with an over-whelming task. They would have to develop their economies, reorganize their political systems, and, in many cases, settle bitter territorial disputes. A number of wars developed on the peripheries of the former Soviet Union. Additionally, the entire region began suffering a period of severe economic hardship.
The collapse of the Soviet Union was hailed by the west as a victory for freedom, a triumph of democracy over totalitarianism, and evidence of the superiority of capitalism over socialism. The United States rejoiced as its formidable enemy was brought to its knees, thereby ending the Cold War which had hovered over these two superpowers since the end of World War II.
The collapse of the Soviet Union also brought an enormous responsibility to Russia, which absorbed the entire monetary debt to be paid back to the International Monetary Fund. The once prosperous middle class found itself destitute. Breadlines formed, crime sky rocketed. Under Vladimir Putin, the country slowly began to regain its economic and political stability. During his eight years in office, he balanced Russia’s debt through strong macroeconomic management, important fiscal policy reforms, and a confluence of high oil prices, surging capital inflows, and access to low-cost external financing. He cut poverty in half, with an increase of 150% in the average monthly income.
During his presidency, Putin passed into law a series of fundamental reforms, including a flat income tax of 13%, a reduced profits tax, and new land and legal codes. At the same time, his conduct in office has been questioned by domestic political opposition, foreign governments, and human rights organizations for leading the Second Chechen War, for his record on internal human rights and freedoms, and for his alleged bullying of the former Soviet Republics.
The years of struggle have taken their toll on the Russian people. It’s death rate of 15 people per 1,000 people is far higher than the global average of just under nine per 1,000 people. The United States Census Bureau estimates that Russia’s population will decline from the current 143 million to a mere 111 million by 2050, a loss of more than 30 million people and a decrease of more than 20%.
The primary causes of Russia’s population decrease and loss of about 700,000 to 800,000 citizens each year are a high death rate, low birth rate, high rate of abortions, and a low level of immigration.
America witnessed the dissolution of the Iron Curtain. It has watched Russia take its first tentative steps into democracy, experiment with capital enterprise. It has watched it fall to its knees, then rise again, vibrant with its natural resources, technology and industrial enterprise. It is now a country hesitantly on the brink of a new era in diplomacy and mediation. Its channels are open, yet America is fearful. As the U.S. begins its own fall from grace, as corruption scandals disrupt the media and unemployment soars, criticism of Russia continues. The American people are at the same apex of financial collapse and political polarity Russia was at twelve years ago. Whatever the United States feared Russia would take from it, it has taken from itself. It’s not the time for the Western world to turn its backs on Russia. It’s time to listen, time to question, time to communicate. It’s time to put away our fear.
Next week: Part II, Why the United States Fears Russia: The Power of Resources