The unfolding Russian crisis is not just a “bump on the road” of the democratic, free-market reforms that are supposed to have been under way in Russia since 1991. The crisis goes to the very heart of the policy course chosen by Boris Yeltsin seven years ago. In fact, it marks the total failure of that course.
It is true that the situation in the country seven years ago was very difficult. The mistakes my government made in economic policy during the years of perestroika, coupled with deliberate efforts by perestroika‘s opponents to shatter the country’s financial system, had brought about the collapse of the consumer market. The attempt by the reactionaries to turn back the clock, in the failed August 1991 coup, triggered a sharp backlash, with the other Soviet republics running away from the Union center. Still, there was a clear choice–either to move forward firmly but prudently, step by step, reforming both the economy and the Soviet Union, or to plunge into a reckless political and economic adventure.
Yeltsin wanted the latter course, not only because he always preferred “strong medicine” but also because irresponsible radicalism, or what others would call extremism, was his shortcut to power and one-man rule. For that, he was prepared to go a long way, even to the point of breaking up the country. Prosperity was right around the corner, Yeltsin told the people: Once Russia got rid of the burden of other republics and reformed the economy via “shock therapy,” it would take just two or three years to become one of the world’s most prosperous countries. And the sad truth is that people believed and supported him.
Yet it was this decision to break up the Union and subject the economy to shock therapy that predetermined Yeltsin’s failure. The root cause of the current collapse lies there rather than in the “intrigues of the opposition” or the consequences of the Asian economic crisis.
Yeltsin’s policies abruptly broke the production and market integration that linked Russia and other former Soviet republics much more closely than even the European Union. As the republics pursued uncoordinated financial and economic policies, their ability to reform successfully was undermined. Precipitate decontrol of prices led to a sharp decline in real incomes and made people’s savings, including those of the large middle class, worthless. Opening up the markets to imported products at a time when most Russian producers were not competitive destroyed the chances of many industries to restructure and “marketize” themselves. As for privatization, it quickly degenerated into a gigantic scheme to grab and steal what had been built during the previous decades.