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How the “Chicago Boys” Brought Free Trade, Poverty and Economic Misery to Millions of Russian Citizens
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by Polly Mann, W A M M
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In 1994, the peak of Yeltsin’s “reforms,” suicide rates almost doubled from eight years previously. Twenty-five percent of Russians—almost 37 million people—lived in poverty, described as desperate.
How was it possible that so many Communist leaders became leading Russian capitalists so shortly after the death of the Soviet Union? It’s a question that has plagued me for years. Author Naomi Klein provides answers in a chapter from one of the most important books I’ve ever read—The Shock Doctrine: The Rise of Disaster Capitalism.
Early in the 1990s Soviet President Mikhail Gorbachev led the Soviet Union through a remarkable political process with a goal of changing it to a social democracy on the Scandinavian model. However, at the 1991 meeting of the G7 heads of state (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) he was given an ultimatum. According to Klein, “what happened next—the dissolution of the Soviet Union, Gorbachev’s eclipse by Boris Yeltsin, and the tumultuous course of economic shock therapy in Russia—is a well-documented chapter of contemporary history.”
On August 19, 1991, in a showdown, a group from the Communist old guard drove tanks to the parliament building trying to halt the “democratization” process. Yeltsin, president of Russia, stood up on one of the tanks and denounced the aggression as a “cynical right-wing coup attempt.” The demonstrators retreated and Yeltsin scored a major victory. He formed an alliance with two other Soviet republics, effectively dissolving the Soviet Union, thereby forcing Gorbachev’s resignation as head of the entire Soviet Union.
Yeltsin won the power struggle with Gorbachev and announced that the Group of Seven must grant Russia large sums of financial aid. Yeltsin was granted special power from the parliament with a year of special dictatorial power. He assembled a team of economists, dubbed “the Chicago Boys” by the Russian press, a reference to the economists from the University of Chicago who were disciples of Milton Friedman.
This team recommended a New York-style stock exchange, and in the fall of 1992 USAID awarded $2.1 million to a Harvard group to oversee the process. In October of 1991 Yeltsin lifted all price controls, and instituted so-called free-trade policies and the first phase of the privatization of the country’s approximately 225,000 state-owned companies.
At the same time 67 percent of the Russian people told pollsters in 1992 they believed workers’ cooperatives were the most equitable way to privatize the assets of the Communist state. Seventy-nine percent said maintaining full employment was a core function of government. Klein states that “if Yeltsin’s team had submitted their plans to democratic debate, rather than launching a stealth attack on an already deeply disoriented public, the Chicago School revolution would not have stood a chance.”
“After only one year, shock therapy had taken a devastating toll: millions of middle-class Russians had lost their life savings. . . . The average Russian consumed 40 percent less in 1992 than in 1991, and a third of the population fell below the poverty line. The middle class was forced to sell personal belongings from card tables on the street.”
Eventually, Yeltsin and the Chicago Boys were, to some degree, reined in. The West (unsurprisingly) threw its weight behind Yeltsin. And the majority of the Western press did likewise, calling the entire parliament “Communist hardliners.” In the spring of 1993 the parliament refused to follow some of the IMF demands, and the battle between the Russian parliament and the free-market advocates was on. An official of the IMF, the international and powerful free-trade pusher, leaked to the press that a promised $1.5 billion loan was being rescinded because of “Russia’s backtracking on reforms.” Whereupon Yeltsin declared the constitution and parliament dissolved. Two days later, parliament voted 636-2 to impeach Yeltsin for this outrageous act.
Even though Russia’s Constitutional Court ruled against Yeltsin, U.S. President Bill Clinton continued to back him and Congress voted to give Yeltsin $2.5 billion in aid. Both sides became entrenched. Yeltsin moved into war posture. In one encounter Yeltsin’s troops machine-gunned a hundred demonstrators and later ordered a reluctant army to storm the parliament building, setting it on fire. Following the coup, Russia was under unchecked dictatorial rule, and shock doctrine was applied. According to Klein, there were “huge budget cuts, the removal of price controls on basic food items and even more and faster privatizations – the standard policies that cause so much instant misery that they seem to require a police state to stave off rebellion.”
Klein’s analysis continues: “. . . this was supposed to create the economic boom that would lift Russia out of desperation; in practice the Communist state was simply replaced with a corporatist one; the beneficiaries of the boom were confined to a small club of Russians, many of them former Communist Party apparatchiks, and a handful of Western mutual fund managers . . . A clique of nouveaux billionaires . . . teamed up with Yeltsin’s Chicago Boys and stripped the country of nearly everything of value, moving the enormous profits offshore at a rate of $2 billion a month. Before shock therapy, Russia had no millionaires; by 2003, the number of Russian billionaires had risen to 17, according to the Forbes list.”
In December of 1994 Yeltsin started a war with the Republic of Chechnya—taking over the already abandoned presidential palace in Grozny and declaring a victory. An election followed which Yeltsin won. Klein explains this was due to an “estimated $100 million in financing from oligarchs (33 times the legal amount) as well as 800 times more coverage on oligarch-controlled TV stations than his rivals.”
What followed was a “bargain basement” liquidation sale. Forty percent of the oil company’s total—which had 2006 sales of $192 million – was sold for $88 million. Norilsk Nickel, producing a fifth of the world’s nickel, with profits of $1.5 billion annually, sold for $170 million. The oil company Yukos, earning more than $3 billion annually in revenue, sold for $309 million. A huge weapons factory sold for $3 million. These were all purchased with public money. Several of Yeltsin’s ministers transferred large sums of public money, which should have gone into the national bank or treasury, into private banks that had been hastily incorporated by oligarchs. The banks (owned by the oligarchs) then ran auctions selling the oil fields and mines. And to whom did they sell them? Themselves. Some multinationals also were buyers, but the principal share of the wealth was in the hands of Russians.
By 1996 25 percent of Russians, almost 37 million people, lived in desperate poverty.
By 1998 more than 88 percent of Russian farms had gone bankrupt and roughly 70,000 state factories were closed, creating an epidemic of unemployment. 37 million people were living in poverty, on less than $4 a day. Russians, noted for their heavy consumption of alcohol, began drinking twice as much as previously—up 900 percent from 1994 to 2004, and among them are many heroin addicts. With the introduction of shock therapy, suicides increased. In 1994, the peak of Yeltsin’s “reforms,” suicide rates almost doubled from eight years previously. Twenty-five percent of Russians—almost 37 million people—lived in poverty, described as desperate.
In a closing paragraph of the chapter Klein describes the Moscow of today: ". . . a futuristic twenty-first-century sin city, where oligarchs race around in black Mercedes convoys, guarded by top-of-the-line mercenary soldiers, and where Western money managers are seduced by the open investment rules by day and by on-the-house prostitutes by night. In the other time zone, a seventeen-year-old provincial girl, asked about her hopes for the future, replied, ‘It’s difficult to talk about the twenty-first century when you’re sitting here reading by candlelight. The twenty-first century does not matter. It’s the nineteenth century here.’"
As the U.S. economy continues imploding from its own practices of unfettered, corrupt, crony capitalism, we should view the plight of today’s Russian citizens as an important cautionary tale. Indeed, many comparisons already ring true: both former “superpowers” are now just debt-ridden land masses propped up by smoke-and-mirrors shows, behind which masses of unemployed and underemployed Russian and U.S. citizens struggle day in and day out to make ends meet. |
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© 2008 Women Against Military Madness. All rights reserved.
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