Russian rubble

National Review, Sept 28, 1998 by David Satter

The root of Russia's crisis is not economic, but moral.

Mr. Satter is a senior fellow at the Hudson Institute and the Jamestown Foundation and a visiting scholar at the Johns Hopkins University Nitze School of Advanced International Studies (SAIS). He is the author of Age of Delirium: The Decline and Fall of the Soviet Union (Knopf).

After almost seven years of supposedly free-market reforms, Russia today is poised on the brink of a social and political catastrophe, and the events of Russia's cataclysmic past form a somber backdrop for increasingly urgent discussions of the possibility of mass unrest. There has been such talk before. It surfaced during perestroika, subsided after the fall of the Soviet Union, and then became insistent after the forcible dispersal of the Supreme Soviet in October 1993. But rarely has the fear of disorder been as pointed -- or as justified by conditions -- as it is now.

In the wake of ruble devaluation, an effective default on $40 billion worth of treasury bills, and a 90-day moratorium on the repayment of foreign debt, Western businessmen, long mesmerized by Russia's supposedly golden future, have begun to understand the dangers of treating Russia like a normal country. It will be many years before they risk investing in Russia again.

More important for international stability, however, is the fact that the Russian financial crisis, coming on top of a catastrophic economic depression, threatens to drive the majority of the Russian population into destitution, and raises the prospect of widespread hunger.

Russians are endowed with legendary patience -- which is often a reflection of the helplessness of their situation -- but there are signs that their patience is wearing thin. A poll conducted by the Ministry of Internal Affairs before the beginning of the present crisis showed that 37 per cent of the population believed that mass disorder was possible and 23 per cent were ready to take up arms themselves. Those figures are likely to have increased as a result of the present uncertainty.

Gen. Aleksandr Lebed, certain to be a candidate in the next presidential election, said in a recent interview that the army was in ''a revolutionary mood'' and that ''power in the country could collapse within 24 hours.'' He suggested the following scenario: A woman whose child has died from hunger or medical neglect takes the child's body and begins walking with it down the main street of a Russian industrial city. In the current atmosphere such an act could easily trigger a mass insurrection. Troops sent in to restore order refuse to fire on the crowds, and when other units are ordered to intervene, soldiers begin firing on each other, giving the impetus for the outbreak of pitched battles on a nationwide scale.

How did Russia come to this pass? For seven years, it has been pillaged by its so-called ''reformers.'' The results have been the creation of a criminal business oligarchy possessing vast wealth and the impoverishment of the mass of the population.

The roots of the present crisis go back to the late 1980s, when the reformers, who worked in Soviet ideological institutions, developed the ideas that were to guide the Russian reform process. Denied the highest positions in the Communist system, they became convinced free-marketers but retained their Marxist faith in the primacy of economic relations over considerations of law and morality. If Communists argued that once the means of production were socialized, a classless society would appear, automatically assuring freedom and unlimited wealth, the reformers argued that if only property were put in private hands, there would be the same utopian result.

The reformers' lack of respect for law had two serious consequences. In the first place, it led them to implement the reforms as rapidly as possible in order to make the destruction of the previous system irreversible. It also led them to view criminals as allies: the reformers believed they would be supported only by the wealthy, and they saw no wealthy persons in Russia other than those who had accumulated capital in the shadow economy.

The speed of the reform process and its criminalization traduced the future of Russia, creating an economy that could only generate impoverishment because it was based not on productivity but on theft.

The first grand act of theft was the confiscation of the Russian people's savings through the hyperinflation that resulted from the uncontrolled freeing of prices in January 1992. Money that had been saved for decades by millions of people disappeared overnight.

The elimination of the ''ruble overhang'' -- in other words, the money in people's savings accounts accumulated through a lifetime of hard work -- was followed by the second act of theft, the government's program of privatization, which took place in two stages: voucher privatization and money privatization. During voucher privatization, each citizen was entitled to a voucher with a face value of 10,000 rubles and was supposed to use it to buy a share of Russian industry. In practice, however, these vouchers were useless to individual citizens and were bought up on the street by shadowy commercial and criminal organizations which used them to purchase Russian industry at giveaway prices.