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Russian Stalemate

Frank Lee

Moscow Financial Centre

The brewing conflict between the Russian Oligarchy and the Russian people is reaching a crisis point. The side that prevails will determine the future of Russia and perhaps the world.

On 17 March 1991 a referendum was held in the Soviet Union on whether or not the USSR should continue to exist. There was an 80% turnout (some 185,647,355.00 of registered voters). The upshot of this election was that 113,512,812.00 voted to preserve the USSR. That’s 71.92%. Their wishes were disregarded, however. The entrenched bureaucracies and business interests, collectively the nomenklatura, decided that this was too good an opportunity to pass up; there was money to be made in this once in a lifetime situation. Which sounds eerily rather like EU referenda practise.

The sunny interlude of Gorbachov was to give way to the beginning of the Yeltsin catastrophe – a catastrophe not equalled since WW2. The emergence of the cosmopolitan business oligarchy and its political hangers-on was to consolidate its power and create a new kind of political, economic and social structure. At the time, and even today, the leading Russian capitalists’ over-riding aim was to realign their country into an assigned subordinate position in the world hierarchy of capitalist classes thus subjecting the Russian economy into a semi-peripheral extractive structure based on oil, gas, metallurgical products and military hardware.[1]

As the old Soviet system was dismantled the scale of the looting was mind-boggling. The level of the subsidies which passed from the state sector to the private sector could be gauged from the sale of assets involved amounting to less than 5% of their market value. State enterprises were sold off at a mere 20th or even 30th of the value of their real worth.

The whole process was overseen by western advisers, such as Jeffrey Sachs, Andre Schleifer and the lawyer Jonathan Hay, all of which had a high degree of influence over Russia’s economic policy; a policy leverage which was unprecedented in a sovereign state. The whole operation was conducted under the auspices of institutions such the IMF and World Bank. Policy prescriptions emanating from these sources were predictable and banal: if it moves, privatise/deregulate it. Local additions to this retinue were the extremely dubious neo-liberal duo of Yegor Gaidar and Anatoly Chubais who were only too keen to join in the plunder.

In addition to the dismantling of the industrial/manufacturing sector of the Soviet economy to undergo another pernicious episode during the transformative process, namely the continual outflow abroad of capital from the Russian economy.

In the crisis of 2014-2015 the net outflow of private capital was estimated at $210 billion. This huge amount of money could have been used to boost both wages and investment and overcome the slump which occurred in 2008. It should be noted that when business borrows more from the world that it lends to it (i.e., imports more capital than it exports) the government sharply increases the exports of capital via its own mechanisms. Such funds are sent abroad by the state and private sector. Overall Russia remains invariably a net exporter of financial resources. It is only natural as the former Soviet republics are bled dry and real wages have fallen.”[2]

In passing it is worth mentioning in this context that what was true of Russia was also true a fortiori of the rest of the Commonwealth of Independent States (CIS) a regional organization of 10 post-Soviet republics in Eurasia formed following the dissolution of the Soviet Union, and ex-satellites in Eastern Europe. The policies and economies of these nominally sovereign states shifted to largely deindustrialised nations brought about by the decline of manufacturing and growth and the development of extractive sectors.

In terms of their position in the world economy these states have been transformed into suppliers of low value-added materials to the developed capitalist centre. An army of cheap mobile labour at one pole and a comprador class of tycoons and property owners plus out-and-out criminals at the other. Such has been the nature of their ‘liberation’, with Ukraine and Moldova bringing up the rear having descended into what can only be considered as peripheral or third world status and which are now the two poorest countries in Europe.

The post-Soviet states now export mainly products characterised by a low degree of processing of the original raw materials and import products with a high level of added value.[3]

It is an economic truism that in international trade, states do not, generally speaking, get rich or significantly develop by concentrating their efforts on the promotion and export of raw materials. Time and again it has been shown that the vicious cycles of underdevelopment can only be effectively countered by changing the productive structures of peripheral and semi-peripheral states. This took place in the United States and Germany in the 19th century. A successful nation-building project involves a top-down strategy involving increasing diversification away from sectors with diminishing returns to scale (traditional raw materials) to sectors with increasing returns (technology, increasingly intensive manufacturing and services) creating a complex division of labour and new social structures in the process.

This will create an urban market for goods, which will induce specialization and innovation, give rise to new technologies, create alternative employment and create economic synergies which will serve to unite a nation-state both economically and politically. This is not to say that extractive industry will cease, since the key to coherent development is the interplay between sectors with increasing and diminishing returns in the same labour market. This is, in essence, has been the East Asian model of development during the 20th century.

It is precisely this type of long-term nation-building strategy which is imperative for Russia but which is being thwarted by the existence of a cosmopolitan oligarch class whose interests run counter to any to any such strategy and, moreover, who are perfectly content take profits from extractive exports and then invest them back into the centre of the capitalist system, usually in the shape of paper assets like US Treasury Bills and/or property. Cronyism, corruption, incompetence are endemic characteristics of this powerful group and they are unfortunately firmly ensconced in positions of influence and power in Russia. It would be reasonable to surmise that a political, parasitic system of Yeltsin-lite is now extant in Russia and that a domestic head of steam is, judging by its internal critics, building up in opposition. For every action there is a reaction.

Of course, this evolution of capitalism to its later parasitic stages – that is to say, financialised capitalism – is by no means restricted to Russia. This process was pioneered in the United States with the shift of American corporations from managerial firms to financialised structures. The shareholder revolution along with the development of the shadow banking system consisting of hedge funds, private capital, unlisted derivatives all unregulated in over the counter (OCT) transactions coalesced to form the basis for the financialization process.

Corporations were ruthlessly downsized, restructured, stripped of assets, their investment funds severely curtailed. All that mattered was the bottom line – increasing dividends and bloated share/stock prices.

The modern financial world-capitalist system placed short-term pecuniary gain above long-term growth of productive, value-creating enterprise. The new system was codified and became known as the ‘Washington Consensus’ And of course these novel phenomena were not lost on the new lumpen-bourgeoisie who had come to power in Russia during the Yeltsin interregnum.

The postulates of Washington Consensus – price liberalisation, deregulation, liberalisation of capital controls, flexible labour markets – were taken up with alacrity by the Russian nouveaux riches who in their adulation for all things American had become more catholic than the pope. It was what George Orwell who once referred to this phenomenon as ‘Transferred Nationalism’ that is to say the total denigration of your own nation-state, society, its culture and history, to the worship and allegiance to some other body or nation. In Russia’s context the fawning infatuation of its business and political class, and some of its intelligentsia, to the United States and its culture.

Predictably perhaps, a deep split in the Russian ruling elite took place. The two groups of Yeltsin’s elites which supported Putin’s coming to power gradually transformed into two parts of his current coterie. One of them originating from business circles comprises the ‘Atlantic Integrationists’ who are favourably disposed to integrating Russia into the capitalist world system on Western conditions – in essence an archetypal comprador elite. The other significant group whose origins were in the Soviet secret services (the Siloviki) are called ‘Eurasian Sovereigntists’ who are if favour of strengthening the independent position of the country in the world economy and international policy. Their goal is to free Russia from dependency on the West, promote Eurasian integration and strengthen relations with other members of the BRICS.

Putin balances precariously between these two factions and listens to both ex-Finance Minister Alexi Kudrin an arch-Atlantic Integrationist who recently accepted a leadership post at the public finance watchdog Audit Chamber, a post that has a mandate to oversee government expenditure, and Sergei Glazyev, a Eurasian Sovereigntist who is advisor to Putin on regional economic integration, and member of the National Financial Council of the Bank of Russia. Whose side Putin is on is a matter of conjecture, but what isn’t conjecture is the result which this internal political struggle has had on the formulation and consistency of Russian Foreign Policy.

This particularly came to light in the context of the Ukrainian crisis of 2013-14. Ukraine had long been a prize which the West (i.e. NATO) sought to detach from Russia and integrate into its own sphere of influence. The first attempt was made with the Orange Revolution, led by Yuschenko and Tymoshenko, two wealthy opportunist chancers who eventually fell out over the division of spoils in what was one of the early prototypes of colour revolutions. The second time around a new colour revolution was the western inspired coup against the sitting President, Yanukovich, and as a coup was largely successful. I have written extensively on this issue elsewhere as have many others and the history is easily available.

The preparation for this putsch was meticulously engineered to realise this objective. For more than two decades western agencies, the CIA, National Endowment for Democracy (NED) Human Rights Watch, local Ukrainian and Russian oligarchs, had been actively preparing for such an outcome and were absolutely dependent on the West, particularly for finance. About 1000 NGOs were controlling the main aspects of Ukrainian society including pro-western political parties, armed neo-nazi militants such as Right Sector and Svoboda trained in Poland and Georgia by NATO instructors. All the necessary perquisites were in place to carry out a colour revolution and install an anti-Russian regime.

At the time things seemed to be going swimmingly for the Kiev Putschists. But like many detailed, fool-proof plans – But in the words of the famous Scottish poet, Robbie Burns, ‘The best laid plans of mice and men oft gang agley.’ (go awry). However, the West had spent a great deal of cash US$5billion, according to Victoria Nuland, Assistant Secretary of State of Eastern European and Eurasian Affairs, and the West wanted to see the results of its investment.

… the West was eager to reap the results of its long-term strategy. Ousting the Russian Naval from Sevastopol and replacing it with NATO forces, extending NATO membership to Ukraine, deploying US anti-missile defence system in Ukraine, disrupting economic relations of the two countries, imposing great damage on the Russian economy, including its military production, supressing the rights of the Russian speaking areas in the Ukraine, and generally humiliating Russia. Taken together these measures threaten the very foundations of Russian national security in all possible meanings. Not a single Russian government which would like to preserve even a shadow of support of its population and keep its position as an actor of international relations could tolerate such a mortal threat.”[4]

Putin was forced to make the decision to confront the NATO juggernaut and its neo-nazi client in Crimea on 16 March 2014. The referendum was overwhelmingly endorsed by the electorate by a very large majority. Crimea re-joined Russia. Moreover, the misgivings of the people of the Crimea about rule from Kiev were confirmed by the outrages of the Odessa fire atrocity and a week later by Ukrainian militia shooting down unarmed civilians in the eastern Sea of Azov port of Mariupol.

Suffice it to say that Putin’s obduracy and these events did not go down at all well with the Atlantic Integrationists in both Russia and Ukraine. The Rebellion in the Eastern provinces of Donetsk and Lugansk was the last straw for the oligarchy, forcing Putin to make some accommodation to their (the oligarch’s) demands. The Russian President also had to deal with was the Eurasian Sovereigntists as well as the mass of the Russian people who wanted him to take a much tougher stance on Western and Kiev-enabled aggression in both Russia’s backyard of the Donbass and internationally, and the Atlantic Integrationists who wanted accommodation with the West – on the West’s terms! Abject surrender might have been a more accurate description.

The bottom line was that Putin’s view of Russia’s future development and position was couched within the context of a neo-liberal global economy which, as it stood, was largely controlled by the US either directly or with the assistance of the US-controlled global institutions such as the IMF WTO WORLD BANK and so forth plus, the weaponization of the US$ as global reserve currency.

As for the Russia’s inclusion in the ‘rules based’ international environment – this was sadly out of whack with the barely hidden Western view: i.e., US Imperial-aggrandizement and a geo-political, zero-sum game of winners and losers, with Russia in the latter category. Putin was seemingly comfortable with a neo-liberal global economic order and what he considered to be Russia’s rightful place within that order. And his vision – a tissue of neo-liberal tripe dished up by the likes of Kudrin – i.e., a free market from Lisbon to Vladivostok, made him susceptible to the propaganda of the Atlantic Integrationists.

A globalized neo-liberal order would only include Russia as a subaltern member, which is precisely what the Atlantic-Integrations are hankering after. Is Putin aware of this? Well advisers like Glazyev are, or is the President trimming his sails to meet the demands of the oligarchy? It is difficult to tell. But he seems to be in the unenviable position of riding two circus horses which are moving in different directions; a political position which ultimately precludes compromise; a fact which is evident in the stirrings of an internal political crisis in Russia itself. These internal policy anomalies have been replicated in Russian foreign policy as pointed out below.

Moscow continues to lose its influence in post-Soviet states. This can be observed in both the Caucasus and Central Asia. Even, their close ally, Belarus, occasionally demonstrates unfriendly behaviour and focuses its own efforts on the exploitation of economic preferences granted by Russia.

Evaluating the current internal political situation in Russia and its foreign policy course, it’s possible to say that the Russian leadership has lost its clear vision of national development and a firm and consistent policy, which are needed for any great power. Another explanation of this is that the Russian leadership is facing pressure from multiple agents of influence, which stand against vision of a powerful independent state seeking to act as one of the centres of power on the global stage.

One more factor, often pointed out by experts, is the closed crony-caste system of elites. This system led to the creation of a leadership, which pursues its own narrow clannish interests. Apparently, all of these factors influence Russian foreign and domestic policies in one way or another. The 2014 events in Crimea showed to the Russian population that its state is ready to defend the interests of the nation and those who describe themselves as Russians even by force of arms. This was the first case when this approach was openly employed in the recent history of Russia.

Therefore, the population was enthusiastic and national pride was on the rise. However, the Kremlin failed to exploit these gained opportunities and did not use them to strengthen the Russian state. In fact, up to February 2019, the policy towards eastern Ukraine has been’ inconsistent’.’’[5]

Inconsistent seems a rather evasive term to use when describing Russia’s policies in the Donbass. The DB represented a buffer zone between Russia and the Ukie Neo-nazi militias. Russia hardly wanted the likes of the neo-nazi units and their petty-Fuhrers, Pariuby, Yarosh and Biletsky and their Wannabee-Waffen SS outfits sitting on Russia’s western frontier less than 100 km from the major city of Rostov-on-Don. But at the same time a relatively tight leash was kept on the Eastern rebel militias.

But the war was to go badly for the Ukrainian forces. A rebel counter-offensive in the winter of 2015 went into overdrive after the Ukie army and volunteer battalions underwent a crushing defeat in the battle of Ilovaisk and were forced into headlong and disorderly retreat under constant bombardment from Russian artillery along the Sea of Azov coast in February 2015. (This Russian military intervention was almost certainly ordered by Putin.)

At this point the rebel commanders were within sight of Mariupol a city of half a million in the Donetsk region, and an important Seaport and Airport; its capture would have changed the whole balance of power in the conflict. But, the capture of Mariupol was forbidden at Moscow’s orders. And this gave Poroshenko’s routed army a breathing space to regroup and fight another day.

I think it reasonable to surmise that the influence of the conservative elements in the Kremlin were responsible for this. It doesn’t take much to figure out what was happening. A compromise between the two Russian political factions led to precisely this ‘inconsistency’ in Russia’s response to the war. On the plus side The Ukie Army was stopped in its tracks at Ilovaisk and suffered another humiliating defeat at the Delbatsevo in February 2015. No fresh offensives have been launched since then. Putin is on record as saying on many occasions that any Ukrainian attempts to overrun the two republics of LPR, DPR will not be tolerated.

However, it bears repeating that with the Ukies on the run in 2015 the Kremlin ordered an immediate cease-fire and this ceasefire actually saved Poroshenko’s army and his regime from a complete rout. Given Moscow’s initial inconsistences and later compromises with Kiev and the West, distrust of the Kremlin grew constantly in the militias’ ranks, as did the popular outrage among the Russian people, at Moscow’s lack of principle and action. By September the Kremlin vacillation was transformed into a more or less logical political line: to deny both sides a decisive victory.

The Donbass would be out of bounds for Poroshenko and the Ukrainian military, but there would be no independence or integration of the DPR, LPR into Russia. The militias would be defanged, and order restored. Throughout this whole episode Russian authorities have done their best to isolate the most belligerent elements among the rebels and compel them to leave the DB. Some of the more independent leftist militia leaders – Motorola, Givi, and Zakhachenko – were assassinated by unknown assassins, allegedly Ukrainian hit-squads (which nobody believes among the local militias).

Their crime was to reject the Minsk agreements – which had also been rejected by the Kiev regime outright – which extracted unilateral concessions on the two republics, and the orders to declare their allegiance to return to a federalised Ukraine. In short, the DB had become something of an embarrassment to certain sections of the Russian ruling class; these people where more concerned about the admission to the world’s globalist elite than they were about the people of the DB or even Russia’s future as an independent sovereign state. All of this was to soothe the West and the oligarchs that everything was under control and an attempt to promote a wider accommodation to the West.

Thus, Russian foreign policy was thus a function of the internal political struggle in Russia itself. But this internal political watershed is part of a global crisis which is also giving rise to powerful disruptive shocks in the Anglo-Zionist Empire.

These are momentous and historical developments which have yet to play out and which will ultimately influence the future of humanity.

Suffice it to say that for all its shortcomings, and there were quite a number, the Soviet Union enabled, possibly by accident, the existence of national liberation struggles and social-democratic reform parties around the world. The post-war settlement was based upon an agreement between the respective class blocs in the core countries of capitalism of concessions of capital to labour and in the global south a long retreat from empire by the UK, France, and Portugal, and the first Cold War which was based upon a ‘Realist’ foreign policy of détente even when Reagan came to power. That epoch is now over. The whole era was brought to a shuddering halt and reversal with the demise of the USSR.

Post-war social progress was, it seems, a tactical, aberrant form of European capitalism made necessary by the challenge of communism. We now know the second half of the sentence whose first half, so strongly believed in 1989, stated: ‘Western style welfare capitalism is better than Eastern Communism…’ The second half went unnoticed 10 years ago … ‘but western style welfare capitalism only existed because of communism.’ Now Europe (and the world – FL) seems to be drifting towards, a divided, turbulent and ugly future.”[6]

NOTES:-

  • [1] Andre Gunder Frank – The Development of Under-Development. This process involved (a) a transition to a to a simplified structure of production which suited the needs of high-income countries of the ‘centre’ (b) the transformation of the social and economic structure of the countries in question including the pauperisation of the mass of the population, creating a reserve army of cheap labour and the rise of a ‘comprador’ bourgeoisie on the basis of the local elites which became intermediaries in the exploitation of the cheap, natural and human resources of their countries. This is essentially the structure of the world economy. Semi-peripheral states are not on a linear development path toward the exclusive club of the centre; they are simply secondary structures in the world economy who will remain so until a nation-building coalition comes to power and challenges the status quo. Such a transformation as has been seen in East Asia.
  • [2] Semi-peripheral and the Ukraine Crisis – Russia, Ukraine and Contemporary Imperialism – p.85
  • [3] Ukraine per capita income $2657.00 – Angola per capita income $4100.00 Russia per capita $10956.00. Source: Countryeconomics.com
  • [4] Semi-Peripheral Russia and the Ukraine Crisis – Ibid.
  • [5] South Front – 26 February 2019. Introduction by Saker
  • [6] Peter Gowan – The Global Gamble p.319