[LRCI, April 2001]
Over the past decade and particularly since the August 1998 currency crisis capitalist restoration in Russia has made huge advances. This was not only expressed in the clear growth of Russia’s GDP (8 % in 2000) and industrial production (18%) but also in the massive intensification of the process of capital accumulation (13%).
The first ten years of capitalist restoration were ones of initial capital accumulation which mainly profited a class "oligarchs" – as gangster-like and corrupt as the Rockefellers & Co. were in the USA in the 19th century.They made their wealth through corrupt privatisation of state assets, stealing and bribing, and financial speculation.
The creation in the mid-1990s of FIGs (financial-industrial groups) were the organised expression of the parasitic character of accumulation inside Russia under Yeltsin. Money made, subsidies given from government were mainly invested in banks abroad rather than promoting a cycle of productive accumulation in Russia.
But the period after the August 1998 crisis was a decisive watershed. Capital accumulation was enhanced by the de-valuation of the rubble and therefor massive cheapening of Russia’s exports and the import-substituting effects which helped Russian enterprises gain shares at the domestic marked by replacing foreign exports. Finally, the oil boom and the rocketing of oil prices on the world market were also partly responsible for export growth.
The rouble crisis and devaluation in 1998 forced the state to halt the process of hidden subsidies that underpinned the system of barter economy in order to address the fiscal crisis of the state (i.e. enhance revenue through enforcing taxation). Tax collection increased from 8 per cent to 60 per cent in two years in the crucial energy sector. Tax revenues increased generally by 30 per cent in 2000.
The barter system gave an incentive to plant managers of unprofitable enterprises to keep them going in order to take the subsidies and enrich themselves. Barter reached just less than 55 per cent of all transactions in 1998. By the end of 2000 it had fallen to less than 19 per cent. When barter was its height 18 per cent of companies reported that they were in good financial health (i.e. profitable).
But the enforcement of tax collection, end of subsidies and finally under Putin the outlawing of barter, drove many firms out and so by the end of 2000 52 per cent of enterprises recorded profits.
Possibly therefore a majority of Russia firms are making operating profits after taxes and an increasing number are retaining at least some profits for investment. However one needs to bear in mind that Putin said last month in his state of the nation address that restructuring of firms has yet to really begin via genuine competition and investment. He concluded that: " we still live in an economy that depends on rent not production".
The banking system however remains non-commercial. And its backwardness is the main reason that investment is so poor since firms need to borrow to finance most of their major investment. There are still more than 2000 banks, unchanged since 1995 if slightly down on 1998. The only effect of the 1998 crisis therefore has been to make more of them more unprofitable. Bad loans as a proportion of total loans has increased since 1998 from 3 per cent to 12 per cent.
The problem is that most banks in origin and today are financial departments of single big industrial companies and hence they do not play the role of aggregating savings and profits of the whole economy and recycling them to most profitable areas on commercial grounds. Indeed, people prefer to keep a reported $40 billion in cash at home rather than bank it.
Investment needs during the last two years have been met by very healthy revenues as a result of the rouble devaluation and growth in GDP. This is now exhausted and a crisis of financing will hit this year or next.
Capitalism restoration has crossed the Rubicon
Albeit there are still serious obstacles for the full operation of the law of value the LRCI considers now that in the period 1999-2000 the decisive measures have been taken and Russia has now become a country with a (even fragile) capitalist economy.
Despite the often confusing official data from Goskomstat a clear turn towards profit-orientated production is visible. The proportion of loss-making enterprises remains high but is declining (from 49.2% in 1998 down to 39.7%). While this statistic does not clarify which enterprises exactly are loss-making we know at least that the industrial and transport enterprises (i.e. the productive sector) has the best performance while the housing and communal sector the worst.
Profits rose in Q1 2000 (compared with Q1 1999) by 220% in average. In the oil sector it was even 340% but also in the metal sector profits rose by 310%. There are also strong indications that particularly the bigger enterprises are becoming profitable. Already in 1999 the Top 200 enterprises operated with a profit which was not the case in the year before. Also individual reports about the Oligarchs and the increasing productive investment abroad by Russian monopolies suggest a changed picture. Finally the change of the situation is also reflected by the fact that not only barter dropped significantly but also enterprise subsidies of the Russian government declined from 16% of GDP in 1998 to 5% in 2000.
However we must not ignore the still huge challenges for capitalist restoration. First the bankruptcy process is definitely still in the early stages as the high figure of loss-making enterprises suggests. Second, and combined with this, there is still a high level of so called hidden employment, i.e. workers who do not create profit but are not sacked. Third, the operation of law of value is weak in the banking sector. The last point has some similarities with the path to capitalist restoration in Czech Republic where the financial sector was also restructured according to the law of value after capitalist restoration succeeded.
The consequences of all this are that we have to expect a massive corporate assault in the coming years against the working class with high unemployment and poverty as a result. This naturally implies significant dangers for the ruling class which is why they desperately need a strong bonapartist regime.
Russia: a semi-colonial future?
The 1998 crisis has acted as a catalyst to create a number of powerful Russian monopolies in the energy and food production sectors. Using the massive influx of new revenues based on cheap rubble for energy exports and increased markets for domestically produced foodstuffs, a number of firms have consolidated through mergers and acquisitions. In 1999 and 2000 some of them (eg Lukoil, Gazprom, UEA) have invested abroad and even taken over firms in the CIS, Ukraine and Hungary.
Also as the world's fourth largest arms producer Russia is technologically advanced enough to have important sales of fighters, missiles and tanks in India, China and even Nato countries.
But Russia is far from possessing a strong, or even significant in global terms, finance capital. Banking remains pathetically weak and not the leading partner in a fusion of banking and industrial capital.
In fact, Russia resembles in some ways countries like Brazil – a regionally powerful economy, possessing huge (in global terms) MNCs in the energy sector, a weak finance capital and above all chronically debt-laden and marginalised from the world's capital markets. Russia will be paying nearly 50 per cent of state revenues in debt repayments in 2003 on present projections.
It is at the mercy of the movements of the capital markets, global interest rates etc and not even a junior partner in a coalition of major powers which determine these issues. In short having lost the Cold War, having been subject to fast-track imperialist-supervised programmes of capitalist restoration, having seen all its social indices (mortality, poverty, inequality, health) become closer to the Third World rather than the First, it is more than likely that Russia's future is one of a regionaly powerful semi-colony, under the hegemony of the Europe Union.
The Putin regime
The August 1998 crisis was also a watershed in the sphere of the bourgeois restorationist state apparatus. After the short period of the Primakow government (October 1998 – May 1999) – a democratic-counterrevolutionary government which had the purpose of muddling through a pre-revolutionary crisis via the integration of the KPRF – Yeltsin successfully installed Putin as his successor.
This project has by and large succeeded up to now. The change of the political regime should not be underestimated. The weak semi-bonapartist regime of Yeltsin endangered the capitalist restoration because of the threatening collapse of the federal state and therefor could not provide the necessary strong power house to go beyond the anarchic initial phase of capital accumulation and to fully create a newly restored capitalism.
The Putin regime is not a state capitalist regime but certainly a regime in which the state plays a much more important role not only in the political sphere but also a more etatist, regulatory role. This role will probably increase in the future since the massive necessary investments to renew the infrastructure will have to be provided primarily by the state. Moreover, the Russian state still owns a majority or controlling share of some of the key companies (e.g. majority in UES, a controlling share in Gazprom), which in turn have great leverage over the viability of other companies."
To a certain degree the huge majority of the ruling class – both in the state bureaucracy and the Oligarchs – understood the dangers of the weak and extremely unpopular Yeltsin-regime and the necessity to counteract decisively. They all therefor supported the Putin regime at the beginning and most still do.
To fully implement capitalism as a political and economic project the Putin regime had to and has to create a strong bonapartist state, a "patriotic", i.e. Great Russian chauvinist ideology (for both the second Chechnya war was very important), a strengthening of the repression apparatus, a subordination of individual Oligarchs (in the political sphere) and the regional governors, removing the huge wage and payment arrears, the improvement of conditions for capitalist production (starting from tax reform to Land and Labour code reform) and the initiation of a huge investment offensive in the infrastructure.
So far the Putin regime has succeeded in several of these tasks while several others are still ahead (particularly concerning the regional governors and the improvement of conditions for capitalist production).
The Putin regime is an example of a specific phenomena of capitalist restoration. The process of capitalist restoration in the last decade gave birth to a new, specific form of bonapartism – restorationist bonapartism. Restorationist bonapartism represents the rule of an alliance of the pro-capitalist bureaucracy and the newly emerging bourgeoisie against the background of an economy in a highly destructive and instable transition from planned property relations to capitalism.
Restorationist bonapartism is a specific, ambivalent phenomena. On one hand it has a relatively weak social basis. The new bourgeois class is small and so are the middle layers. The bureaucracy itself is in a process of transition; it lacks popular trust and legitimacy and wants people make forget that it served the Stalinist rulers until recently.
In the period of the counter-revolutionary transition there is also a basis for massive tensions and faction struggles inside the new ruling class which can result in coup d’etats. Combined with this is the economic collapse which massively reduces the material ressources to sustain the state apparatus. From this flows the weak, instable status of the restorationist state apparatus. (examples for this are the sudden collapse of the Albanian repression forces in the 1997 revolution, the retreat of the Romanian police during the January 1999 miners march and the pathetic performance of the Russian army in the Chechnya wars.) It is a sign of the weak social base of Putin's bonapartism that he has had to wage war against all independent mass media to ensure a monopoly on political communication.
On the other hand restorationist bonapartism has an enormous strength: the atomisation, confusion and demoralisation of its main enemy – the working class which has suffered historic defeats by social counter-revolution.
Given the lack of stable support among strong classes in civil society Putin's bonapartism also has to rest upon the support of the armed forces. Putin doubled the defence spending in his first year to bind the army to him, has gained their support through his anti-Chechyna campaign and he himself is intimately linked to the security services.
Looking at the physiognomy of the restorationist state apparatus one can see a clear difference between the process in Eastern Europe and the countries of the former USSR. While in the majority of Eastern European countries capitalist restoration was (and is) carried through via a by and large bourgeois democratic restorationist regime (with certain bonapartist elements in form of an influential president) in the former USSR there are in all countries bonapartist restorationist regimes – sometimes combined with certain elements of bourgeois democracy or none.
What are the reasons for this difference? Naturally in some countries the enormous political contradictions arising from national wars and civil wars played an important role for the formation of authoritarian bourgeois regimes (on the Balkans, in the Caucasus). Also the influx of imperialist foreign direct investment played a significant role for the fast process of formation of a new capitalist class in Central European countries which again formed a basis for a more stable bourgeois democratic form of restoration.
But the most fundamental, general reason for this difference must be located in the different historic basis for capitalism. In Eastern Europe capitalism was abolished only for four decades before while in the former USSR it did not exist for more than seventy years. In countries like Poland, Hungary or Yugoslavia there existed even before 1989 a sizeable petty-bourgeoisie which provided the basis for a relatively fast formation of the new capitalist class.
But even in Eastern European countries where no petty-bourgeoisie existed for most of the time (e.g. Czech Republic, Romania, Albania) there were nevertheless layers which had origins – either personally or via their parents – in bourgeois and petty-bourgeois classes (in case of Czech Republic there was even the legacy of an imperialist bourgeoisie). But in case of USSR the bourgeoisie and middle classes were annihilated for many decades. Combined with the dramatic economic decline in the period of restoration this provided the basis for the difference in the political restorationist regimes.
Restorationist bonapartism emerged with the social counter-revolution, i.e. the victory of the restorationist forces in 1989/91. It can – and likely will – continue for the whole transition period of restructuring the economic and social basis of the society in a capitalist mode. By the end of this process it can transform into "normal" bourgeois forms of bonapartism or it can be transformed to various combinations with bourgeois democracy – depending on the national (and international) relation of class forces.
August 1998: a pre-revolutionary crisis which ended in a counter-revolutionary defeat for the workers movement
So the August 1998 crisis was indeed a watershed point. The economic and political collapse erupted in a situation of the high point of class struggle (the rail war in summer 1998 and the threatened mass strike for autumn). It clearly opened a pre-revolutionary crisis but because of the treason of the trade union bureaucracy and the KPU leadership which traded the sell out of the struggle for some governmental post it ended in a defeat. It opened the road to strong bonapartist Putin regime.
The atomisation of the Russian workers' movement under Stalinist dictatorship was replaced with a fragmentation under the Yeltsin regime. The dislocation of the federation into semi-autonomous regions and the demonetarisation of the economy and replacement with local barter arrangement all has worked to ensure that bitter, protracted and often highly militant local struggles have been kept isolated and eventually defeated due to lack of generalisation and solidarity across Russia. In addition, the fact that the struggles were often in unprofitable firms meant that only political solutions (i.e. nationalisation) were adequate and these required an organised pressure upon the Russian government, something very difficult to achieve in the fragmented state."
The workers movement clearly faced a decline after the highpoint of 1998 and some important occupation struggles which followed in 1999. Strike numbers have gone down drastically. But this was accompanied with a certain regroupment in the workers movement and the emergence of more left-wing, militant forces like Zashita, the dockers union and others which lead the struggle against the new Labour Code and also the Movement for a Workers Party on the political level. These forces are still small but they represent an enormous step forward compared with the dark 1990s.
What are prospects for the future of the workers movement? A successful capitalist restoration in Russia means a strengthened bourgeoisie on one hand. But it also means – at least in the longer term – the formation of a working class which produces value, which is not atomised by a moribund economy and feels impotent to strike because the enterprise is not producing anything anyway. It will therefor be in a better position to put more pressure on the bourgeoisie.
In this context the development of a militant, left wing inside the workers movement represents an important opportunities for the future. While a small force with some roots in the masses at the moment it could become a significant mass force in the coming uprising curve of the class struggle and the next pre-revolutionary situation. The tasks of Marxists in this situation is to help building a new, authentic workers party, i.e. a revolutionary workers party and presenting a programmatic basis for it.
Whither Russia?
Despite all successes there are several dangers for the Putin regime. First it needs to create the conditions for further massive capital accumulation and through this to stop the ongoing massive capital flight. This is also very important because the infrastructure (starting from pipelines, electricity systems to machinery and military assets) needs many billions of dollar for renewal or better say to avoid a breakdown as the fire at Ostankino TV showed.
Otherwise another economic crisis could emerge. Second it needs to succeed in fully unifying the federal state economically. Third it must solve the chronic crisis of the army, cut it down and create either a better equipped professional army or at least an enlarged professional part of the army. Fourth it must one way or another finish the Chechnya war (either by a negotiation deal – possible – or full military victory – highly unlikely).
It is not likely that the Putin regime will come into crisis because of a rising class struggle. The other way is much more likely: that it will come into crisis because of a world economic crisis, a defeat in Chechnya, a split in the ruling class, catastrophes because of the declining infrastructure or similar events.
It is difficult to give exact predictions about the likelihood of such events. While a world economic crisis is certain in the near future the consequences for Russia are less clear. Will such a crisis lead to a collapse of oil prised and therefor Russian exports. Maybe but not necessarily as the developments on the oil market in the 1974-75 and 1980-82 recessions showed.
And given the low level of foreign direct investment Russia will also not be so much affected by this. The problems of the declining infrastructure is much more certain to predict. If the Russian bourgeoisie can not mobilise the necessary resources the economy will simply collapse at some time in this decade.
While an upswing of class struggle before such a crisis is quiet possible we do not expect a massive class struggle wave in the near future respective before such events as mentioned before. This is because of the massive atomisation of the working class because of the impoverishment in the 1990s, the legacy of Stalinism and the today treason of the bureaucracy and the recent defeat after August 1998.
The democratic question and permanent revolution
From this fundamentally defensive position of the working class flows the importance of the democratic question. Marxists in Russia have to look very attentively to all opportunities were they can challenge and weaken the bonapartist regime (starting from Chechnya war to the Gusinskiy and Babitsky affair). In a period of counter-revolutionary defeats for the working class revolutionary Marxists understand that it is more likely that political frictions are more likely opened on democratic questions – involving rather petty-bourgeois or even bourgeois forces than proletarian – than on the enterprise level.
In opposition to the sectarians the LRCI recognises that defending democratic rights is of major importance particularly in such periods. At the same time such democratic issues must be linked with economic issues and the goal of workers and peasant power – i.e. they must be integrated into the strategy of permanent revolution.
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