Russia in the 1990s

1. From Collapse to Oligarchy
1991-1997

2. Reasons for USSR Collapse
Short and Long Term
Short Term:
• Gorbachev overestimated:
– party’s ability to lead reform
– party’s support among people
• Underestimated nationalism
• Too much too fast:
– Dismantled old economy before
new was ready
– Political + economic reform
together.
• Trusted party conservatives
• Indecisive zig-zags.
– Wants to hold system together.
– Must balance conservatives and
radicals.
Long Term:
• Population lost faith in the
system. System too rigid.
• Rapid economic collapse
• Party elite, KGB, Army all
divided
• No tradition of democracy
• No tradition of legal
capitalism
• Deep national resentments
• Cultural and economic
globalization

3. The 1991 Crisis
Jan.: Vilnius, Lithuania massacre, 15 killed.
Mar.: Democracy, anti-party demonstrations;
Gorbachev rejects use of repression
Apr.: Negotiation of Union Treaty with Republics begins
June: Yeltsin elected President of Russia
July: Yeltsin bans Communist Party in workplaces
Divided Central Committee meeting
Aug.: Conservative coup against Gorbachev
• Yeltsin resists, mobilizes democratic politicians
• KGB and Army split; coup fails
Nov.: Yeltsin takes emergency powers
Dec.: Minsk Agreement; USSR dissolved; Gorbachev
resigns

4. The August Putsch

5. Who is Boris Yeltsin?
• Born in 1931 in Urals.
• Son of a kulak.
• Joined Party in 1961 and
rose rapidly.
• Became Moscow Party
boss in 1985.
• Supported radical political
and economic reform of
Soviet system.
• Became Gorbachev’s rival
when the former hesitated
on reform.
• Lover of tennis and
vodka.

6. Results of the Putsch
1. Russia politically divided:
– Hardliners though discredited, the Communist
Party, 40% of the population supported the
“putchists.” Keep USSR together and stop
reform.
– The “democrats” split between moderates and
radicals
• What will Russia look like? Union or Federation.
• How fast to capitalism? Gradual or rapid?
– Ruling elite as a whole split with no one able to
claim majority popular support.

7. Results of the Putsch
2. Institutions that held USSR together began
falling apart.
– Communist Party, army, and police politically
undermined and with competing interests.
– Yeltsin banning the CPSU destroyed the
political and economic chain of command.
– No law and order and power is concentrated in
Yeltsin’s hands.

8. Results of the Putsch
3. “Dual power,” A Russian Federal
government headed by Yeltsin, and a Union
government headed by Gorbachev.
– Yeltsin unwilling to share power with
Gorbachev.
– The breakup of the USSR resulted in 15
separate states, all with their own interests.
– No new ideology or institutions to govern.
Elites and no experience with democracy,
markets, or the division of power between the
presidency and parliament.
– Democracy = rule by those who were elected.

9. Which Way Russia?
• From Kremlinology to Transitionology.
• Collapse of USSR proves the triumph of “democracy and
the free market” and the “end of History.”
• Free market = liberal democracy, liberal democracy = free
market.
• Russia as under assault by Communists and Nationalists
who want to “go back to Communism” or reestablish the
Russian “empire.”
• Russia’s failure to “transition” is the fault of backward
Russians, rather than the eschatology of liberalism.

10. Shock Therapy
• Economic policy advocated by the
“Chicago Boys” and Harvard economic
advisors, especially Jeffrey Sachs.
• Calls for to the rapid transition to market
economy.
– Liberalization: Privatization of all
property and services, deregulation and
rapid decrease in state intervention and
subsidy.
– Monetarization: Release of all price
controls and make currency convertible.
Government regulation of the economy
through controlling the money supply.
• Immediate chaos, but better future. Critics
called them “market Bolsheviks.”
Yegor Gaidar, “Market
Bolshevik”

11. Shock Treatment

12. “Too much shock, too little therapy”
• January 2, 1992 price controls released on 90% of goods except
bread, vodka, public transport, and energy. Prices rose 250% in
one day, 2,500 by end of year.
• Savings of millions of Russians wiped out in months due to
inflation. Wages dropped 33% less, 1/3 of population in
poverty, late or no wage payments (even police and army),
• Privatization of Russian economy. Every citizen given 10,000
ruble ($22) vouchers as stock. Some factories worker
controlled, but most vouchers bought by people with hard
currency-mafia and politically connected. 95% of all business
private by fall 1994.
• Economic chaos, poverty, violence, and political opposition.

13. Privatization

14. Constitutional Crisis, 1993
Parliament vs. the President
• Russian Parliament (Duma) controlled by Communists,
representatives of the bureaucracy.
• Oppose “shock therapy”. Reforms by Presidential decree.
• Parliament refuses to vote Gaidar as PM. Pressure forces
Yeltsin to replace him with Viktor Chernomyrdin in
December 1992.
• Duma: Yeltsin unconstitutional. Yeltsin: Duma “a fortress of
conservative and reactionary forces.”
• April 1993, Yeltsin calls for referendum:
– Do you have confidence in the President of the Russian Federation,
B. N. Yeltsin?—59% Yes.
– Do you support the economic and social policy that has been
conducted since 1992 by the President and Government of the
Russian Federation?—54% Yes.
– Should there be early elections for the President of the Russian
Federation?—51% No.
– Should there be early elections for the People's Deputies of the
Russian Federation?—69% Yes.
• to amend constitution. Wins with 53% of public. Yeltsin
sees it as a mandate for his power and policy of rapid
reform.

15. Yeltsin’s “Special Regime”
• March 20, 1993 Yeltsin
dissolves the Duma and
declares a “special regime”
until elections are held.
• Duma refuses to dissolve.
Occupy White House and
take control of Ostankino Tv
station. Anti-Yeltsin protests
in the streets.
• Labeled “hardliners” in
Western press. Yeltsin calls it
an “armed Communist-
fascist mutiny.”
• Yeltsin sends in tanks to
bombard Parliament.
Resistance crushed.

16. Russia’s Presidential Republic
• Yeltsin Constitution passed December 1993
with 58% of vote.
• President stands above Duma.
• Nominates Prime Minister, legislate by
decree, commands bureaucracy.
• Duma elected by half party lists and half
single candidates
• Weak Duma, strong Presidency.

17. 1996 Presidential Election
• Yeltsin at 6% popularity.
• Run off between Yeltsin and Communist candidate
Gennady Zyuganov.
• Yeltsin gets elite support with “loans for shares.”
Gives Yeltsin campaign $100 million. Buys media
coverage. Gets bailed out by West with a $10 billion
loan.
• Yeltsin wins through mass fraud, elite and Western
support. 54% to Yeltsin, 40% to Zyuganov.
• Russia has “freedom” but no “democracy.”

18. Loans for Shares

19. Closing the Deal

20. • Prime Minister
Cheromyrdin made 5
billion on his 25% of
national gas company
• 1994:
– 600 businessmen, 30
bank presidents killed
– 30,000 murders
– 31,000 disappeared
• 6 state prosecutors fired
when they investigated
corruption
• Every year, US banks
transfer 20 billion in US
dollars to private Russian
accounts
• Russian debt = 80 bill.
• 1/2 of Russia’s 2000 banks
and 40,000 firms controlled
by mafia.
• 90% of salaries below
poverty line
• GNP falling average 50%
per year, 1993-96
Violent Entrepreneurs and
Kleptocracy

21. Oligarchy
Boris Berezovsky,
banking, $1.3
billion
Vladimir
Potanin,
banking, 19.3
billion
Mikhail
Khodorkovsky, oil,
$2.3 billion
Vladimir Gusinsky,
$400 million, media
Anatoly
Chubias,
father of the
Oligarchs
Roman
Ambramovich,
$23.5 billion,
oil
Mikhail Fridman,
$20.8, billion,
banking