Tag Archives: shock therapy

Farewell Chubais

Vladimir Putin has been at the top of the Russian system of government for 20 years. Until this week, there was somebody else who’d been around even longer – former Deputy Prime Minister Anatoly Chubais. On Wednesday, however, Chubais was dismissed from his job as head of the Russian Nanotechnology Corporation (Rosnano). Only a handful of Yeltsin-era liberals still remain on the scene (former Prime Minister Sergei Kiriyenko and former Finance Minister Alexei Kudrin being the main examples). Chubais’ departure provides an opportunity to look back and reflect on what Russian liberalism wrought and why it enjoys so little support today.

Chubais rose to prominence in the late 1980s as one of group of radical, free-market economists in Leningrad (later renamed St Petersburg), and like Vladimir Putin, in the early 1990s attached himself to St Petersburg mayor Anatoly Sobchak. An advocate of rapid privatization, he became Deputy Prime Minister and then chief of the presidential administration, until he was fired in 1997. Subsequently, he ran the Russian electricity company UES with some success before taking up his post at Rosnano in 2008. Despite his later work, it is his role in the privatization of Russian industry in the early and mid-1990s for which he is best known.

The fact that Russian privatization resulted in a massive and unequal redistribution of wealth, concentrating ownership of industry in the hands of a few so-called oligarchs, while leaving millions of ordinary Russians in poverty, has forever tarnished Chubais’s reputation. In particular, he is blamed for the infamous loans-for-shares scheme in which valuable state corporations were handed over to a handful of private owners for a mere fraction of their true value.

To be fair to Chubais and his fellow reformers, the task they had was extremely difficult. In the late 1980s, the Soviet economy faced a severe crisis. Mikhail Gorbachev’s perestroika, while well intentioned, had exacerbated the country’s economic problems, producing severe shortages. Chubais and others like him were not wrong in determining that further tinkering of the socialist system would not work, and that something far more radical was required, to transform the socialist economy into a capitalist one.

Chubais was well aware that change of this sort was bound to have some negative effects. There was a certain logic, therefore, to moving as rapidly as possible, both to minimize contradictions in the process, and to make the changes irreversible before opposition could harden. Later, when it came to the loans for share scheme, the dire financial position of the Russian government meant that the temptation to resort to financial short cuts was perhaps understandable, even if the exact method chosen was decidedly untransparent and arguably even corrupt.

An economic experiment on such a large scale had never been attempted. It is hardly surprising that major errors were made. At the end of the day, though, a new system was created, which while far from perfect has provided Russians as a whole with an unprecedented degree of prosperity, albeit after a long period of suffering.

In this sense, the Yeltsin-era liberals don’t deserve all the mud that has been flung at them. That said, there are aspects of Chubais’s career which explain why so much of the mud has stuck.

For in some respects Chubais was a prime example of what one might call ‘liberal authoritarianism’. Russia’s failure to turn into a Western-style democracy is normally blamed on Putin. But in reality, Russian liberals of the reform era were themselves far from democratic in inclination.

This became clear as far back as 1989, when Chubais and fellow members of the Leningrad-based Association of Social-Economic Science published an article calling for a ‘hard course’. Criticising the proposals of Gorbachev’s government as insufficiently radical, Chubais and his fellow authors called for a ‘big leap’ forward, but warned that this would have some ‘extremely negative consequences’, including ‘mass unemployment … social-economic differentiation, illegal speculation on a gigantic scale and also the “unjustified enrichment” of some individuals’. In the face of the inevitable opposition this would provoke, the article demanded that the government take ‘tough measures … such as the dissolution of official trade unions in the event that they spoke out against government measures.’ The main political task, said Chubais, was for the government to keep all power in its hands. The difficulty was that the population as a whole lacked a democratic mentality, meaning that democracy would in practice give power to populists who would stop economic reform. For this reason, ‘The most critical problem for democrats … is the need to express their support for anti-democratic measures which are necessary for reform, such as a ban on strikes, control over information, and so on.’ To this end, it was essential that ‘control of the main element of the mass media remain in government hands.’

What is remarkable about this article is how accurately it predicted the negative consequences of reform. Nobody can say that the reformers didn’t know what they were doing. At the same time they displayed an extremely utilitarian morality – the ends justified the means, with huge inequalities, mass unemployment, and undemocratic methods all being justified by the supposed benefits to be obtained at some later date.

Interestingly, Chubais has never really backed off from his opposition to democracy in the name of democracy. Much more recently, for instance, he declared, ‘Imagine that we organized in the country genuine, fully democratic elections, based on the will of the workers, giving equal access to the mass media, and to money … the result of such elections would be of an order worse, and possibly simply catastrophic for the country.’

None of this would perhaps matter too much if the reformers had been willing to share the suffering they knew that their policies would create. But instead, they exploited the opportunity to grow rich themselves. Chubais is a case in point, being said to be ‘himself worth several million dollars’. In 2009, he caused something of a scandal when he told an academic audience, ‘If you are an assistant professor and you do not have a business, then why the hell do I even need you!’. Failure to get rich is depicted as almost a moral failure. It speaks volumes of the lack of empathy for the real difficulties many Russians had to endure as a result of the economic collapse of the 1990s.

And here perhaps the Chubais case reveals the real failing of modern Russian liberalism. It’s not the basic direction of the policies that liberals pursued in the 1990s. By 1991, Gorbachev had driven the Russian economy into the ground. A radical and rapid move towards a market economy was pretty much the only option left. Nor is the problem necessarily the actual form that the policies took – given that they were in uncharted territory, it’s understandable that the reformers made some bad mistakes along the way. Rather, the liberals’ problem is related to their utilitarian mind-frame and apparent hypocrisy. For it’s very hard to complain that Putin’s Russia is undemocratic when you’ve hardly been democratic yourself; it’s difficult to complain of corruption, when you yourselves appear to be major beneficiaries of it; and finally it’s almost impossible to appeal to what are often deemed the ‘masses’ when you seem to be rather indifferent towards their sufferings.

Between Russian liberalism and the Russian people there appears to be what one might call an ‘empathy gap’. The career of Anatoly Chubais, a man widely despised in his own country but once crowned ‘European Finance Minister of the Year’, is perhaps as clear an example as one could find.