PRIVATIZATION TATARSTAN-STYLE BACKFIRES

Privatization Tatarstan-style backfires

by Mikhail Gershaft

Western assessments of the events and processes taking place onthe territory of the former Soviet Union as a rule are both highlysimplified and inexact. It is difficult to say just why this isso: the lack of understanding arising from too little information,the use of false analogies, or the preservation of the traditionalWestern view of Russia as an opponent. It is entirely possiblethat other forces are at work as well. Nowhere, however, are suchinexact estimations as much in evidence as in assessments of developmentsin the various regions of Russia. And yet precisely in these regionsmuch of the future of Russia is being determined.

One of the most important of these regions or as they are nowcalled, subjects of the Federation, is Tatarstan. It occupies68,000 square kilometers and has a population of 3.7 million.More than 70 percent of its population is urban, and its indigenouspopulation, the Tatars, form 48.5 percent of the population. Itis situated in the center of the European portion of Russia andhas an important petroleum, aviation, and defense industrial base.All of these have experienced a deep depression in the post-perestroikaperiod, the roots of which go back into the decades of the previousdevelopment of the command economy and the hypertrophic qualitiesof the military-industrial complex–something characteristic ofmany regions in Russia–and also in the methods of the local politicaland economic maneuvering of elites seeking to establish theirown conception of a "soft entry into the market."

The Tatar Autonomous Soviet Socialist Republic–and that is howTatarstan was called in Soviet times–as the weakness of the centralauthorities became obvious during the Gorbachev period declareditself a Union Republic and attempted to participate in the signingof the Union Treaty on an equal basis with other former Unionrepublics and even to enter the United Nations as an independentstate. Before the final collapse of the Union during a comparativelyshort period, the republic was able to conduct a referendum inwhich the population voted for the independent state existenceof Tatarstan as a "subject of international law," forthe acceptance of a declaration of state independence, for theadoption of a constitution which asserted that the laws of theRussian Federation applied to Tatarstan only after their approvalby the local parliament, and for the idea that the former Unionstate property should become the property of Tatarstan. A transferof enterprises to the jurisdiction of the Tatarstan authoritiesbegan, and a president was elected. Thus, at the moment of thefinal collapse of the Soviet Union, Tatarstan could already ifnot dictate its own conditions on all questions at least havea major say in their answers.

That which many abroad considered to be the re-establishment ofnational independence, sovereignty and the realization of humanrights, in reality was an attempt and an extremely successfulone by the former party and economic elite not only to preservethe power they had acquired but also to lay the foundations forthe redistribution of power and–even more–of property in theirfavor. Succeeding events have confirmed this assessment againand again.

All these processes have been accompanied–as in virtually allregions of the former Soviet Union–by rhetoric about theft ofproperty in the past and present by Moscow, the local ethnic group,the Russians, or someone else or by rhetorical suggestions thata new heaven on earth could be constructed if only the Tatarstanauthorities had control of oil resources and if only they couldintroduce a market economy.

Unfortunately, it was necessary to try to realize such grandiosepromises. For a certain time, it was possible to refrain fromdoing anything by means of simple criticism of the errors of Russianreformers who had applied "shock therapy," but suchmethods did not work for long. Soon, the local leaders of Tatarstanhad to come up with their own recipes for the formation of an"economic miracle."

Entering the Market Without Anyone Being Hurt

Since the middle 1970s, there had been ration cards for meat andsometimes butter in the major cities of Tatarstan. From 1990 on,rationing came to be applied ever more widely to consumer goodsand then to industrial products. It is undoubtedly difficult fora Western reader to imagine such an environment where ration cardsdetermined so much of life. Those who did not drink could exchange"vodka cards" for money, but there were never enoughgoods or products, and purchases always had to be put off intothe future. People were able to acquire goods in short supplynot by virtue of their needs or even income but only by the decisionsof the authorities, a fact that made the situation even more annoying.

It is difficult to believe that today the population of Russiaas a whole, so hurt by chronic inflation, would again choose thisvariant, but one should not exclude that possibility. In the memoryof the population, there is no clear understanding that the deficitof goods and the ration card were the direct products of low andstable prices and planned distribution.

In short, in Tatarstan as throughout Russia, barter relationsdominated everyone’s life. Naturally, the government could notremain on the sidelines and fail to be a participant in such activities.Ideologically, local officials explained the problems of the populationby the fact that Tatarstan did not have its own property: 80 percentof its economic potential belonged to Union ministries, and 18percent belonged to those of the Russian Federation. At that time,no one could talk about changing the form of property.

Behind the transfer of enterprises under the jurisdiction of Tatarstanin the early 1990s was the former striving of the state-commandelite for control of distribution but adapted to the new conditionsof "taking and exchanging." The government began toform a so-called Reserve Fund. In it were deposited part of theproduction of enterprises for exchange with other regions andstates of the CIS. Thus a phenomenon familiar from the past wasinitially camouflaged by words about "feeding the people"and introducing justice among the producers of "profitable"and "non-profitable" production. But only those whodid not understand what was going on could call this a market,even a "soft" one.

The biggest victims of this situation were the enterprises. Ifearly when exchanging their production in a barter fashion formuch needed materials of all kinds, they could as it were makedo; but with the introduction of special licenses and quotes onexports from Tatarstan, a component part of the Reserve Fund system,they could not do so. Fortunately, real market forces quickly"buried" this local initiative.

It is difficult to say which was more to blame here: ignoranceof elementary rules of market theory and the attempt to try bytrial and effort to enter into a market, or the striving of theformer regional elite to hold onto power and to show to the populationthat it and it alone could administer the economy in the properfashion–unlike the Yegor Gaidars of Moscow.

It is, however, clear that the "barter basket" was notthe only attribute that served to recommend the experience ofTatarstan to other regions who wanted a soft entry into the worldof the market. There were the restrictions that Kazan imposedon the export of food and other consumer goods beyond the bordersof the republic. And there were other control on prices and theemerging market which appeared to ward off some of the worst excessesof the market as being introduced in Moscow.

In January 1992, Moscow freed most prices, a requirement of shocktherapy. In Tatarstan, they were increased but not freed, andthey thus remained less than Russian prices particularly for rationedgoods. These steps achieved several things for the regional elite:they won the sympathies of the population which was frightenedof the shocks inherent in shock therapy, they provided a new justificationof the ration card system as a means of defending the local consumersfrom the "attacks" of outsiders, and they provided thebasis for other tougher measures for the realization of nationalsovereignty through the privatization of former state property.

Although the population of Tatarstan did not have any illusionsrelative about the touching concern of their leaders for the welfareof the people, nevertheless, at the referendum in the spring of1992, 62 percent of the people voted for sovereignty evidentlysupposing that such a step would help them weather the move tothe market. As things turned out, only 40 days after the referendum,its initiators and the authors of the "soft" entranceinto the market were forced to raise, not free prices, somethingthey had to do again and again. But the idea of a special softentry had already played its role. All of this recalls the storyof the cat whose tail was cut off bit by bit so that its ownerscould consider themselves more humane than those who proposedto chop the tail off all at once.

If Things Can Go Wrong, They Will

One can assert that this mechanism to a remarkable extent is responsiblefor the failures, length and breakdowns in economic reform duringits first stages. In reality, the quotas imposed on goods to beexported from Tatarstan increased their deficit in other regionsand thus increased the price spiral there. But the leaders ofTatarstan, like their colleagues in other regions assumed that"the policy of regulation of prices during the transitionperiod had entirely justified itself. … and that "therewas no other way" to enter the market in a "soft"fashion.

Even someone with no knowledge of economics is forced to ask:what was behind all these efforts at a soft entrance to the market?Initially, efforts to "give sovereignty a real content"became ever more decisive in the face of the inaction of the centralauthorities and its focus on its own problems. After the decreeof the president of Tatarstan declared all state property on theterritory of the republic its own property, the Tatarstan parliamentadopted a budget law which sent only token contribution to Moscow.The local mass media were filled with articles at that time aboutthe "losses" of the republic as a result of its paymentsto Moscow. But under conditions of radical inflation, any contributionsset at one time soon became meaningless. In this case, the leadershipof Tatarstan exploited the contradictions between the presidentand parliament of Russia which ended with the events of October1993. Until this event, both Boris Yeltsin and Ruslan Khasbulatovtried to win the sympathy and support of Tatarstan and their desireto do so allowed the leadership of the republic to maneuver successfullyamong the pounding waves of Russian politics.

Immediately after the balance of forces was tipped in favor ofthe president, Tatarstan paid its debts to the federal budget.

It is worth noting here that the struggle between Russia and Tatarstandeveloped according to a model already used by Boris Yeltsin inhis struggle with Mikhail Gorbachev and ended by the collapseof the Soviet Union. It is extremely symptomatic that preciselythe same method was used by the leaders of Tatarstan against Moscowduring the next round of the political struggle. The boomerangof economic pressure for political goals thrown by the Russianpresident returned in a way that threatened the integrity of theRussian Federation itself. After Tatarstan refused to pay intothe federal budget, other regions did the same–not just non-Russianones but Russian oblasts and krays, a pattern that suggests theseevents were political and economic in origin rather than drivenby nationalism per se.

Murphy’s Law Continues to Apply

Unable to collect taxes from the regions, the Russian governmentcovered its rising deficit by printing more and more money thuscontributing to ever more inflation. And all Russian efforts totry to slow things down in this area or to reintroduce controlswere conceived by the elite in Tatarstan and presented to thepublic there as a recognition that the Tatar government had adoptedthe right policy in the first place.

The leadership of Tatarstan did not understand or did not wantto understand that its own policy was contributing to the Russianproblems and would ultimately rebound on Tatarstan itself. Indeed,an economic crisis quickly began to embrace all of Tatarstan.Orders to defense plants fell quickly, and production elsewherefell as well. Fewer and fewer workers received their pay. Pricesjumped up whenever the government looked the other way, and socialpayments and protections collapsed under the impact of inflationand a breakdown in federal and local payments.

Privatization not only was slowed down but ever more took on formsthat could only be called market-related with the greatest difficulty.And as a result, the "soft entrance into the market"in reality seemed so soft that no one could feel it. Tatarstanbegan to lose out to those regions such as Nizhny Novgorod, Yekaterinburg,and Chelyabinsk, not to mention Moscow and Saint Petersburg. Unfortunately,the financial resources received by Kazan in this period werenot used for investment but rather directed to creating the "image"of a state that defended the socially defenseless strata of thepopulation.

For the sake of justice, one must note that the leadership ofTatarstan by this very policy opened the eyes of the population.The dissatisfaction with the social and economic policy as a ruledid not exceed the limits allowed by the processes of perestroika.The president has been able to administer and more than that manipulatethe election process with the element of the rural and predominantlyTatar population. The situation in the republic on the whole isstable and developments in a "Chechen" direction arepractically excluded. Stability even serves as the basic argumentamong the current leaders of the republic for the attraction offoreign investment.

Meanwhile, the natural processes of economic development havedictated their own conditions, and it is necessary to understandhow they will move things in the future. Most likely, the currentleaders of the republic consider their task of winning the sympathyof the population fulfilled and their own control the republic’swealth now beyond question. But the market has its own laws, andthey and the people of Tatarstan may be surprised once again.

Mikhail Gershaft is a former professor of the University ofKazan.