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Robbing Russia | The Nation

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Robbing Russia

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Finally, the rampant corruption at the core of Russia's post-Communist transformation is front-page news. On August 19 the New York Times reported that up to $10 billion in tainted Russian money may have been laundered through the Bank of New York since early 1998. It's odd to see a story long reported in The Nation treated like breaking news. Maybe prestigious news outlets have been too busy defending Boris Yeltsin to notice Western complicity in Russian corruption until now.

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It's important that this not be turned into a mere police story, though the mainstream press seems to want it that way. A Times headline intended to clarify when it said, "Russian Gangsters Exploit Capitalism to Increase Profits," but it blurred the point that the real crime was the looting of the Russian state--beginning in 1991, to the point where it could not pay federal employees or pensions, enforce its laws or conduct an economic policy that would benefit citizens--and the wholesale giveaway ("privatization") of Russia's most valuable assets to a group of oligarchs linked with the liberal "reformers" Washington championed. The moral crime is that these policies have impoverished millions of Russians.

That didn't have to happen. The new Russian capitalists, or, as they are called in Moscow, "corruptionalists," have made no real investment in production or the country's infrastructure. Quite the contrary--what the US establishment calls the "transition" has been the greatest episode of asset-stripping in history, abetted and cheered on by the US Treasury, elite academic economists, the World Bank and the International Monetary Fund.

Capital flight in the Yeltsin years is estimated at about $150 billion. (The Economist, eager to preserve the essential distinctions, editorialized in favor of distinguishing capital flight, which isn't a crime, from money laundering, which is.) Not only is $150 billion more than the Latin American flight of the eighties--and about the size of Russia's entire foreign debt, which it can't service--but it's gone on far longer. In fact, it's probably wrong to think of it as capital flight (short-term outflow of panicked capital into secure instruments like US Treasury bonds); think of it rather as a chronic hemorrhaging of Russia's natural resources. That could hardly have occurred without the knowledge and complicity of Western governments, central banks and finance houses. And as Stephen Cohen has warned repeatedly since 1992 in these pages, it has contributed to one of the greatest peacetime economic and social disasters in history.

There aren't many precedents for Russia's collapse (or that of some of the other former Soviet republics, which have done even worse). Some 70 percent of Russians now live below or just above the poverty level, and capital investment (the source of future prosperity) is only 10 percent of what it was a decade ago. In addition, basic social statistics reveal a "catastrophe of historic proportions," as Nicholas Eberstadt documented in the Heritage Foundation's Policy Review, a venue that's not likely to wax nostalgic for the USSR. Eberstadt, extrapolating from World Health Organization estimates, argues that more than 3 million "excess deaths"--people who died who wouldn't have, according to old demographic patterns--occurred between 1992 and 1998. With deaths exceeding births, the population is shrinking annually, something rarely seen unless there is war or famine.

Jim Leach, whose House banking committee will soon hold hearings on the bank scandal, said that the question at the heart of the affair is whether the Bank of New York officials were "unwittingly duped or were willing facilitators in what may be the greatest example of kleptocratic governance in modern history." He's right, as far as he goes; whatever the particular situation of the Bank of New York, those responsible for facilitating the kleptocratic governance of the past decade include senior government officials and financial houses from the sleaziest to the snazziest.

With their power of subpoena, Leach and his committee could expose a lot of closeted skeletons: which Western banks helped which Russian kleptocrats spirit money away and where they hid it, which US economists got paid how much for sanctifying the process, and what the Clinton Administration and the IMF knew and when they knew it. Since such investigations would prove embarrassing to some very important people, they probably won't happen. But the least we could do for ordinary Russians, who have been plundered and impoverished, is to help them try to get some of their money back through a concerted Western effort to locate and repatriate the enormous wealth stashed abroad during the years of "reform."

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