Publication: Prism Volume: 2 Issue: 11

The Lawlessness of Russian Reform

By David Satter

The popularity of Gennady Zyuganov, the Communist candidate forpresident of Russia, poses a painful question: how was it possiblein five years for the democratic process in Russia to discredititself so thoroughly that millions of people are now ready towelcome a new dictatorship?

The most common explanation in the West is that the reform ofRussia’s planned economy has led to the widespread impoverishmentof the population.

This explanation, however, is valid only up to a point. In April,1993, a referendum was held on confidence in Yeltsin and his reformpolicies in the wake of the most catastrophic fall in living standardssince the war and, at that time, Russians overwhelmingly expressedtheir confidence not only in Yeltsin but also in his policies,viewing them, in most cases, as their only hope for a better future.

If the situation is different today, it is not because of thematerial hardship imposed by the reform process – in fact, theeconomic situation is improving – but rather because of its underlyingmoral confusion.

The democratic revolution in Russia was characterized by the aspirationto human rights in return for which Russians were ready to sacrificethe "rights" guaranteed by the Soviet system, such asguaranteed employment, free education and free medical care. Despitethis background, however, the reformers (all of whom are formerCommunists) have acted as if the building of capitalism in Russiasupersedes the requirements of morality and they have made littleeffort to establish a state based on law. The result is that themajority of the population has seen its living standards declinewithout the compensation of a system which protects the individual’sbasic integrity.

For Russia to make a real transition to democracy, a state basedon law must provide a framework for the economic transformation,assuring a fair distribution of the country’s property, a balanceof power between the executive and legislative branches of governmentand sufficient law enforcement to free Russian citizens from livesof constant anxiety.

It is the failure to guarantee these conditions that is the reasonfor the current crisis of the reform process.

The key to the legitimacy of the reform process in the eyes ofmany Russians was a fair distribution of state property. Unfortunately,from the beginning, the process, designed with the single goalof quickly creating a new class of owners, was characterized bymanipulation, intimidation and theft.

The moral failure of privatization is exemplified by its verydifferent consequences for ordinary citizens and for members ofthe former Communist elite, particularly factory owners.

For the working population, the decision of Vice Premier YegorGaidar to free prices was catastrophic because it led to a hyperinflationthat wiped out their life savings in a matter of weeks, leavingmany elderly people without enough money for their funerals. Atthe same time, savings accounts were blocked and workers beganto experience long delays in being paid.

For the factory owners, however, the situation was quite different.The law on cooperatives enacted under Gorbachev had made it possiblefor them to organize cooperatives attached to their enterprises.These cooperatives, usually staffed by their wives or relatives,operated by performing some mythical service for the factory forwhich they were paid vast sums from the factory budget, the moneyeventually making its way back into the pocket of the director.The result of this law was that by the time the Soviet Union collapsed,most factory directors were already very wealthy and their wealthincreased with the beginning of the Gaidar reforms because, underconditions of hyperinflation, their windfalls were reinvestedconstantly.

Privatization was intended to give everyone a chance to own apiece of Russian industry. According to the privatization schememost widely implemented, the management of a factory was entitledto only 5 per cent of the shares in the newly privatized enterprise.The directors, however, were able quickly to supplement this modeststake by buying up shares from workers who were plunged into povertyor needed money to tide them over while they waited to be paid.By making use of their connections with the directors of the localstate property funds, they were then able to buy up the remaining49 per cent of the shares in any enterprise that were consideredstate property for risible prices.

In this way, the directors of Russian factories quickly becametheir owners while the workers were left as powerless as theyhad been under the Communist regime but without the Communistguarantee of a permanent job.

In addition to promoting a privatization process driven by manipulationand theft, the Yeltsin government also discredited the reformprocess by refusing to accept a political system based on a reasonableseparation of powers.

In early 1992, sudden mass impoverishment inspired political oppositionto the reform policies of the government in the Russian parliament.Yeltsin reacted by ignoring the parliament. His attempt to rulewithout the parliament led to struggle for power between the presidentand parliament and, in October, 1993, Yeltsin dissolved the parliamentby force.

The dissolution of the Russian parliament and the adoption ofa new constitution hastily cobbled together by Yeltsin and hisadvisers to give the president unlimited powers was narrowly approvedin a referendum in which Russian citizens were presented witha choice of either accepting a bad constitution or having no constitutionat all. Once adopted, it freed Yeltsin of even the most minimallegislative control.

Under the system which now exists, laws passed by the State Duma,the lower house of parliament, can be rejected by the Councilof the Federation, the upper house, and if the veto of the Councilof the Federation is overridden by a two thirds vote, they canthen be vetoed by the president. The president’s veto can be overriddenby another two thirds vote but two thirds votes is a virtual impossibilityin the fractured Russian parliament.

What usually happens is that laws are stalled interminably and,under the Constitution, while a law is in preparation, the Presidentrules on the subject under consideration by decree.

The Constitution does give the Duma the right to vote no confidencein the president but if a no-confidence vote in the Duma passeson two separate occasions, the president has the right to dispersethe Duma. Not surprisingly, the Duma so far has contented itselfwith only one vote of no confidence in Yeltsin.

The result of this situation is that Yeltsin is effectively ableto rule by decree and a government which took power on a waveof democratic enthusiasm in 1991 is not subject to either legislativeor social control.

The most serious failure of the "democrats," however,is neither the corruption and unfairness of the privatizationprocess nor the failure to establish a democratic political systembut rather the government’s inability to take any meaningful stepsto stop the growth of Russian organized crime.

Racketeering in Russia grew up with capitalism in Russia and isnow its inseparable twin. When the first private businesses werelegalized under Gorbachev, it was against the law in the SovietUnion to have private guards. Since all state property was protectedby the government, a situation arose in which the first businessmenhad no legal defense. Gangs of criminals immediately stepped intothe breach to offer protection (principally from themselves) fora price.

In the first stage, Russian criminals devoted themselves to shakingdown street vendors but with the accumulation of unheard of sumsof money – which, of course, had to be laundered – they becamepartners in larger enterprises and began to take over the banks.

The result was that Russians now live with a new kind of fear.It is now virtually impossible to run a business in Russia withouteither paying protection money to or cooperating with organizedcrime. At the same time, criminals have access to bank data andwill demand a share of the proceeds from anyone receiving a banktransfer large enough to attract their attention.

Despite this situation, however, the government has done virtuallynothing to fight organized crime. Contract killings are reportedeach morning in the newspapers and it is taken for granted byeveryone that there will be no arrests. As one Russian investigatorput it, "They find the killers only in the movies."At the same time, the government has made little effort even todevelop the legal tools for fighting organized crime. A law, finallypassed by the Duma after three years, that will make it possibleto punish racketeering by holding liable the organizers of criminalacts as well as those who carry them out has been waiting to besigned by President Yeltsin for months.

The reform process in Russia was never going to be easy in lightof the previous monopolization of the economy which makes thecreation of a market economy very difficult and the deep rootsof communism in the Russian way of life and mentality. It cansucceed, however, if is carried out in the spirit of honesty andfair play to which Russians are extremely receptive.

What has happened under Yeltsin is that economic reform has beentaken as an end in itself and a goal which justified any numberof illegal and undemocratic practices. Under these conditions,the government has succeeded not only in unleashing the corruptelements in a very fragile society but in discrediting the ideaof reform itself.

It is typical of the situation in Russia today that not only isa Communist leading in most opinion polls but also that the "democrats"are saying openly that, no matter who emerges victorious, theyhave no intention of giving up power.

In fact, a victory by the Communists poses a grave danger to thefuture of a country which is in plenty of trouble without them.Although Zyuganov is studiously vague on many issues, the Communistparty program calls for privatized property to be "returnedto the people." Any attempt to redistribute property, regardlessof the rights and wrongs of the original distribution, however,could inspire enough resistance to provide a pretext for the impositionof police state control.

No one can predict the outcome of the Russian election but nomatter who is victorious, it is important both for the Russianreformers and for the West to understand that the drive to createa market economy, however necessary it may be in the long run,is not sufficient to give the reform process moral legitimacyin Russia. The psychological power of communism derived from thefact that it claimed to connect the social system to certain ultimatevalues. During the perestroika period, the "class values"of the Communist system were discredited, creating a moral andemotional vacuum. Russians will not forgive the reformers forbetraying the universal values, expressed in respect for law,that were supposed to have taken their place.

Mr. Satter is a senior fellow at the Jamestown Foundation anda visiting scholar at the Johns Hopkins University School of AdvancedInternational Studies. His book, Age of Delirium: The Declineand Fall of the Soviet Union is just out from Knopf.

Reprinted with permission of the Wall Street Journal.

Copyright 1996 Dow Jones & Company, Inc.