Appendix: Capitalist Restoration – From Soviet Union to Russian Federation¶
Core Argument¶
Appendix: Capitalist Restoration – From Soviet Union to Russian Federation
This appendix traces the methodical dismantling of the Soviet workers’ state and the construction of a new capitalist order in Russia. The October Revolution had abolished private ownership of the means of production and demonstrated that a nationalised planned economy could function. Trotsky had warned that the bureaucracy, by administering bourgeois norms of distribution, was preparing a capitalist restoration. The USSR remained a workers’ state, albeit bureaucratically deformed, as long as it retained a planned economy, nationalised land and means of production, state control of foreign trade, and an independent currency. Each of these conditions was reversed after 1990.
Gorbachev’s glasnost and perestroika were attempts by the bureaucracy to contain popular aspirations while introducing minor reforms. The first step was lifting the state monopoly of foreign trade in 1984. During 1987-88, central economic control was loosened, leading to widespread theft and “spontaneous privatisation”. By 1989, state enterprises were required to become self-financing. Former officials launched commercial banks, and the KGB funnelled vast resources abroad. The working class remained passive, lacking revolutionary leadership. The 1989 coal miners’ strikes demonstrated workers’ power but were co-opted by modernisers, with the US AFL-CIO and the PIER project supporting the breakaway Independent Miners Union, which backed privatisation.
Yeltsin, elected President of the Russian Republic in June 1991, used the failed August 1991 coup to suspend and then ban the CPSU, and secure extraordinary powers. He then dissolved the USSR via the Belovezh Accord and Alma-Ata Protocols. A team from the IMF, World Bank, and US Treasury devised ‘shock therapy’: ending price controls, privatising state enterprises and land, floating the rouble, and ending the state foreign trade monopoly. Yeltsin enacted these by decree on 2 January 1992, bypassing the elected Congress. Prices rose twenty-fold within a year; wages went unpaid; mass layoffs followed. To create a capitalist class where none existed, a voucher privatisation scheme gave each citizen a 10,000-rouble voucher worth under US$50. Managers were incentivised with stock; the Bolshevik Biscuit Factory was sold for under US$700,000, while an identical Polish firm had sold for US$80 million. Most citizens sold vouchers for cash; managers and the mafia acquired controlling stakes. By 1994, two-thirds of industrial workers had been transferred to private companies.
Presidential Decree No. 1403 of 17 November 1992 divided national oil and gas operations into separate companies for privatisation. The nomenklatura already heading these companies, and administrators controlling export licenses, were best positioned to take ownership. The Gas Ministry became Gazprom, positioning top bureaucrats as major shareholders. Viktor Chernomyrdin, the last Soviet Gas Industry Minister, organised the scheme and became the main stakeholder. As Prime Minister (1992-1998), he maintained daily contact with Gazprom’s Management Committee, protected the company from tight regulation and low taxes, and engaged in asset stripping with other board members. By early 2000, managers had increased their stake to around a third, with much hidden ownership possibly acquired by Chernomyrdin.
Under Yeltsin, GDP and industrial production fell by almost half, incomes by one third, and poverty rose from 1.5 per cent of the population in 1989 to 37 per cent a decade later. Russia became the most unequal major economy, with the top decile owning 89 per cent of household wealth. Yeltsin completed five tasks necessary for capitalist restoration: ending the foreign trade monopoly, privatising major enterprises via the loans-for-shares scam, abolishing state planning, and floating the rouble in 1998 as a condition of an IMF loan. Putin was selected by the oligarchs to stabilise the new order. He consolidated presidential rule, subordinated local authorities, and packed the state bureaucracy with FSB and military personnel. The state re-nationalised strategically important hydrocarbon and defence companies, not for socialism but to strengthen Russian capitalism. Putin established a Bonapartist regime: the capitalist class retained property but ceded political control to a strongman who balanced between classes. The working class faces increasing poverty