Yeltsin and Post-Soviet Russia, 1992–2000
Introduction
The events in the former Soviet republics after December 1991 shed light on the economic problems Gorbachev tried to address.
This is especially true in Russia, the largest and most important state in the CIS.
After the Soviet Union's dissolution in December 1991, Yeltsin remained president of Russia (the Russian Federation) until the end of 1999.
Yeltsin implemented a transformation to a 'free' market economy based on:
Massive privatization of state assets at low prices.
Increased consumer prices.
This led to a small group of oligarchs acquiring state property and becoming billionaires.
Many Russians experienced:
High unemployment.
Unpaid wages and pensions.
Poverty.
Yeltsin's unpopular economic policies led him to undermine democratic institutions established by Gorbachev.
He ruled in a dictatorial manner, with nepotism and corruption similar to the old Soviet communists.
Timeline
1992:
Jan: Start of Yeltsin's economic 'shock therapy'.
Feb: Rutskoi accuses Yeltsin of 'economic genocide'; Zyuganov forms the Communist Party of the Russian Federation (CPRF).
1993:
March 20: Yeltsin announces a state of emergency and assumes special powers.
March 26: Congress of People's Deputies (CPD) tries to dismiss Yeltsin.
Sept 21: Yeltsin disbands the Supreme Soviet and the CPD, ruling by decree until new elections in December.
Sept 22: Supreme Soviet dismisses Yeltsin; Rutskoi elected acting president.
Oct 4: Yeltsin sends the army against parliament.
Dec: Elections result in more anti-Yeltsin than pro-Yeltsin deputies.
1995:
Dec: Parliamentary elections see the CPRF become the main opposition to Yeltsin's government.
1996:
Feb: Yeltsin announces he will seek re-election as president.
Jul: Yeltsin defeats Zyuganov in the final round of voting.
1999:
May: Parliament tries again to dismiss Yeltsin.
Aug: Yeltsin appoints Putin as prime minister.
Dec 31: Yeltsin resigns as Russian president; Putin takes over.
Key Questions
What were the main aspects of Yeltsin's rule in Russia, 1992–96?
How did Yeltsin maintain his rule from 1996 to 2000?
Has the 'spectre of communism' been laid to rest?
Overview
After 1991, Yeltsin initiated rapid privatization, leading to unemployment and poverty.
Economic 'shock therapy,' guided by Western advisers ('Chicago Boys'), resulted in unemployment and poverty for many Russians.
State-owned enterprises were sold off cheaply, creating billionaire Russian oligarchs.
Growing political opposition led to the formation of the Communist Party of the Russian Federation (CPRF) in February 1992.
Yeltsin increasingly ruled autocratically, assuming emergency powers in March 1993.
An unsuccessful attempt by the Congress of People’s Deputies (CPD) to dismiss him followed.
In September 1993, Yeltsin disbanded the Supreme Soviet and CPD, ruling by decree until new elections in December 1993.
The Supreme Soviet voted to dismiss him, leading Yeltsin to order the army to shell the Russian parliament on October 4.
The December 1993 elections saw more anti-Yeltsin deputies elected.
In the December 1995 elections, the CPRF became the main parliamentary opposition.
Yeltsin won a second term in the July 1996 presidential election but resigned in December 1999 and was succeeded by Vladimir Putin.
What were the main aspects of Yeltsin’s rule in Russia, 1992–96?
Yeltsin, advised by the US and Western financial institutions, aimed to transform Russia's economy into a neo-liberal 'free market' capitalist economy.
This involved abolishing subsidies and price controls, and rapidly privatizing state industries.
Economic 'shock therapy'
Implementation of Friedrich Hayek and Milton Friedman's ideas, advocating monetarism and reducing the welfare state for unrestrained capitalism.
These ideas from the 'Chicago School' were first applied in Chile and Argentina in the 1970s, then adopted by the Reagan and Thatcher governments in the 1980s.
Similar policies were applied in Eastern European satellite states after 1989.
The application of these policies in Russia was described as 'All shock, no therapy'.
J. K. Galbraith wrote about the impact of these 'neo-liberal' economic policies in an article entitled ‘Shock without therapy’, published on 25 August 2002 in The American Prospect.
Rapid emergence of Russian oligarchs and an estimated 140 million Russians falling below the poverty line.
The Lancet reported a 12.8% increase in the male death rate in two years due to increased unemployment and alcoholism.
By the mid-1990s, male life expectancy in Russia had dropped to 59 years.
Views on Economic Systems:
Commentators suggest no single economic system has all the right answers.
There were no easy solutions to the problems of the Soviet economy.
D. Lane noted under-utilization of industrial capital in the US during the 1970s was about 20%; in the early 1980s, there were over 8 million unemployed and a further 5 million under-employed.
History and bias
History is often seen as more prone to bias than the natural sciences.
Is it possible for Western historians and economists to make objective judgements about Yeltsin’s ‘free market’ policies for the Russian economy?
Discussion Point
Supporters of monetarism and ‘free market’ capitalism often argue that ‘rolling back the state’, and leaving decisions to the market instead, increases individual freedom.
Are individuals’ interests best served by elected governments or by privately owned firms?
Economic policies and the ‘Chicago Boys’
Jeffrey Sachs oversaw the move towards capitalism in Russia.
Yeltsin’s privatization schemes put most of the nation’s wealth into the oligarchs’ pockets.
Most Soviet enterprises were privatized for less than 1 per cent of their market price.
Yeltsin’s Russian advisers were split over the speed of implementation.
Yegor Gaidar and Anatoly Chubais advocated for rapid implementation, opposing new elections.
Before the end of 1991, Yeltsin agreed to follow the direction of the US Treasury Department, IMF, and World Bank.
These organizations pushed for economic ‘shock therapy’ policies before people could organize opposition.
G7 meeting in 1991
Gorbachev was told to embrace radical economic shock therapy immediately.
The consensus among Western leaders was that the Soviet Union had to follow Poland’s lead on an even faster timetable.
Gorbachev knew that the only way to impose the kind of shock therapy being advocated by the G7 and the IMF was with force.
The Economist urged Gorbachev to model himself after Chile’s Pinochet.
Boris Yeltsin was more than willing to play the role of a Russian Pinochet.
Economic ‘shock therapy’ programme
Less than a week after the Soviet Union had collapsed, Yeltsin began a full-blooded economic ‘shock therapy’ programme.
On January 2, 1992, Yeltsin allowed Gaidar to introduce policies recommended by Sachs, resulting in rapidly rising unemployment.
Price controls were lifted, and austerity measures were taken to cut welfare spending.
These measures brought about a deep economic depression in early 1992 and drastically reduced living standards.
In January alone, prices rose by 245%.
Many Russians were not paid wages, pensioners went without pensions, and millions were plunged into poverty.
Russia suffered an economic downturn more severe than the United States and Germany had experienced in the Great Depression of the 1930s.
Industrial production in 1992 was 18% down on 1991 levels, while food production dropped by 9%.
Political opposition
In February 1992, Russia’s vice-president, Alexsandr Rutskoi, accused Yeltsin of presiding over ‘economic genocide’.
In 1993, Russia’s GDP fell by 12% compared with 1992 levels.
By 1994, inflation was still in three figures, industrial output continued to decline, and free healthcare was for most just a memory.
The old Soviet economic system had been virtually destroyed.
Economic collapse
Between 1991 and 1998 overall agricultural and industrial production fell by half.
During the years of Yeltsin’s ‘first presidency’ alone, from 1992 to 1996, the decline was 3.4 million.
The growing arguments in 1992 over the impact of the ‘shock therapy’ policies led to the growth of a political opposition which tried to halt his economic programme.
This eventually led to a serious constitutional crisis in 1993, between Yeltsin and the Russian parliament, which had been elected in 1990.
During 1992, the speaker of the Russian Supreme Soviet, Ruslan Khasbulatov, became an increasingly vocal critic of the pace of Yeltsin’s economic reforms.
This soon became a political contest between Yeltsin on one side, and the Supreme Soviet of Russia and the Congress of People’s Deputies on the other.
Political opposition to Yeltsin
Yeltsin's ban of the CPSU in November 1991 was overturned by the Constitutional Court.
In February 1993, the Communist Party of the Russian Federation (CPRF) was formed by Gennady Zyuganov.
The founding Congress of the CPRF was attended by delegates representing over 450 000 members of the former Russian Communist Party.
During Yeltsin’s mounting confrontations with the Russian parliament in 1993, the CPRF became increasingly influential.
They then decided to participate in the National Salvation Front (NSF), a communist-nationalist grouping which was opposed to ‘shock therapy’.
This grouping had about 30% of the deputies in Russia’s parliament.
The Pinochet Option
On March 20, 1993, Yeltsin said he would declare a state of emergency, allowing him to assume ‘special powers’ to push through his economic policies.
On March 26, the Congress of People’s Deputies tried, unsuccessfully, to dismiss him as president.
During the summer of 1993, a situation of dual power developed in Russia, between the Supreme Soviet and Yeltsin.
On September 21, 1993, Yeltsin announced his intention to disband the Supreme Soviet and the Congress of People’s Deputies, and to rule by decree until the election of a new parliament in December.
On September 22, the Supreme Soviet voted 636:2 to dismiss Yeltsin as president.
Vice-President Rutskoi was then elected as the acting president.
Yeltsin’s actions in September resulted in mass popular unrest.
On October 4, after the parliament had refused to disperse, Yeltsin ordered the army to shell the parliament.
Over 500 members of the parliament and their supporters were killed, and over 1000 were injured.
Rutskoi and Khasbulatov, along with over 1000 others, were arrested.
Yeltsin then scrapped the constitution, temporarily banned opposition parties, censored the media.
These actions were backed by the US, and some other Western states.
The December 1993 elections
In the parliamentary elections of December 1993, Yeltsin’s party faced a resounding defeat at the hands of the NSF opposition parties.
These elections were to create a new Federal Assembly, made up of a State Duma and a Council of the Federation.
Yeltsin’s supporters were outnumbered by the huge number of anti-Yeltsin candidates elected.
Most of these were either from Gennadi Zyuganov’s new conservative CPRF, or from extreme nationalist parties.
The extreme nationalist LDP won 23% of the vote, compared with 12% for the CPRF and 8% for the CPRF’s ally, the Agrarians.
The December elections confronted Yeltsin with a new parliament containing a strong anti-neo-liberal majority.
His response to this expression of the voters’ choices was to draw up a new constitution to give the president much stronger powers.
The results of the 1993 elections, however, did lead Yeltsin, at first, to slow down the pace of privatisation and, in January 1994, Gaidar resigned from the government.
By 1995, Russia’s growing foreign debt was causing even greater economic problems – according to the World Bank, 74 million Russians were below the poverty line.
Just prior to the December 1995 elections, opinion polls put Yeltsin’s approval rating at 5%.
The 1995 elections
The parliamentary elections in December 1995 saw the CPRF become the dominant opposition to Yeltsin.
This improvement in the fortunes of the CPRF was down to its determined opposition to Yeltsin, its promotion of a patriotic alliance to ‘save Russia’, and its backing for increasing trade union protests and resistance.
The ‘patriotic’ aspect of Zyuganov’s politics, however, was criticised by other communist and left groups within Russia.
Nonetheless, the CPRF’s support almost doubled, to 22%, while the LDP’s dropped to 11%, and Yeltsin’s party, Our Home is Russia, only won 10%.
The CPRF was able to use its call for a patriotic alliance to build a strong broad-based movement to oppose the privatization of the Russian economy and the dismantling of Russian society.
Public Opinion
*In January 1996, a survey conducted by Moscow’s Bureau of Applied Sociological Research had Yeltsin’s ratings on all questions significantly lower than those for Gennady Zyuganov:
* Who, after becoming president, could most quickly stop inflation? Yeltsin (8.4%) Zyuganov (24.8%)
* Who could most quickly improve the economy? Yeltsin (7.9%) Zyuganov (21.8%)
* Who could most quickly improve health care? Yeltsin (8.1%) Zyuganov (30.6%)
* Who could most quickly solve the crime problem? Yeltsin (6.0%) Zyuganov (16.0%)
* Who could most quickly stop the war in Chechnya? Yeltsin (6.1%) Zyuganov (15.4%)
In that same 1996 survey, only 15% of respondents believed they were living better than before perestroika, while 14% stated they had experienced no significant change in their living standards.
68% said they were either living ‘worse’ or ‘much worse’.
when asked whether they approved of the social and economic policies implemented by Yeltsin since the beginning of 1992, 66% replied in the negative.
By mid-February 1996, Zyuganov’s personal ratings ranged between 20 and 22% – twice as high as Yeltsin’s.
Faced with such significant opposition, Yeltsin decided he needed support from Russia’s business elites in his bid to be re-elected president in early 1996.
He thus planned a new wave of privatisation of Russia’s most valuable state enterprises, by giving them shares in return for ‘loans’.
Yeltsin sold off valuable public assets, at unrealistically low valuations, to a small but powerful group of tycoons.
By mid-1996, these oligarchs owned most of Russia’s major firms.
The 1996 presidential election
In February 1996, Yeltsin publicly announced his intention to seek re-election.
The Communist Party had been gaining increased support, attracting support from those who now looked back fondly at the time when the Soviet state had provided security, employment and social welfare.
Yeltsin’s opinion poll ratings were so low that some of his advisers suggested he should cancel the elections and rule as dictator.
Yeltsin had presided over five years of ‘shock therapy’, unfulfilled promises, constantly rising prices, and a declining standard of living.
Russian politics had become seriously polarised, with the main opposition to Yeltsin’s neo-liberal policies coming from Zyuganov.
Anatoly Chubais became Yeltsin’s campaign manager: he effectively used the privatisation measures to gain the support of important financial and media oligarchs.
television ran a series of films and documentaries which stressed the horrors of communism, claiming that Zyuganov was a modern Stalin.
Chubais enabled these oligarchs to acquire majority stakes in some of Russia’s most valuable state- owned assets.
Chubais also warned that a victory for Zyuganov would take Russia back to totalitarianism.
In the first round of the presidential elections, Yeltsin’s vote was only 3% higher than Zyuganov’s.
The election had become a straight contest between Yeltsin and Zyuganov.
Russia’s financial system was on the verge of a total meltdown.
The government’s income had collapsed because of declining industrial output.
The IMF announced their intention to grant Russia a loan.
Yeltsin began paying some of the overdue wages and pensions before the elections.
Yeltsin also promised to drop some of his more unpopular economic reforms, and increased welfare spending.
In the final round of voting in July, Yeltsin won 54% of the vote to Zyuganov’s 41%.
How did Yeltsin maintain his rule from 1996 to 2000?
After 1996, allegations of corruption increased.
Russia had received US in loans from the IMF and other international lending organisations since 1991.
Most of the money had been stolen by Yeltsin’s friends and backers.
Political crises
The late 1990s saw the beginnings of a significant shift in Russian politics.
A financial collapse came in the context of a serious Asian financial crisis.
In August 1998, Russia was forced to devalue the rouble, and to default on the country’s domestic debt.
Living standards fell dramatically.
Almost all private banks were technically bankrupt.
Yeltsin was forced to appoint Yevgeny Primakov as prime minister.
Primakov was the choice favoured by the CPRF.
Primakov took immediate steps to deal with the financial crisis, and to break with Yeltsin’s openly pro-Western policies.
The latter included shifting Russia’s foreign policy towards greater independence – this included establishing better relations with China.
Continuing opposition
The post-1991 political experience in Russia was very different from that which had been assumed by many Western observers.
The CPRF remained the largest opposition party in Russia throughout the late 1990s, with a significant level of popular support.
Various other parties and organisations calling themselves ‘communist’ also emerged in post-Soviet Russia.
Communist | National-patriotic | Centrist | Liberal-democratic | |
|---|---|---|---|---|
Dec 1993 | 21 | 24 | 26 | 29 |
Dec 1995 | 33 | 21 | 23 | 21 |
Dec 1999 | 28 | 7 | 44 | 15 |
Given the massive social and economic decline resulting from Yeltsin’s ‘shock therapy’ reforms, it was to be expected that parties linked to those ‘reformers’ mostly closely tied to the West, privatization and ‘shock therapy’ would find little popular or mass support.
At the end of November 1998, the National Public Opinion Centre carried out a survey which showed that Yegor Gaidar’s party, Russia’s Choice, had the support of just 1% of the population.
Even right-wing politicians began to claim that they, too, were opposed to the free market and the West
Revival of support for communism
The revival of support for a communist successor party in Russia was not surprising when seen in the context of the social and economic consequences of the dissolution of the Soviet Union and the reintroduction of capitalism from the end of 1991.
The economic reform which began formally in Russia with price liberalization in January 1992 produced the greatest peacetime industrial collapse of any economy in history.
Moreover, the role of Western institutions in formulating the key stages of the reform process was well understood in Russia.
This was reinforced by the backing of Western governments for President Boris Yeltsin, even when his tanks were storming Russia’s elected parliament in October 1993.
The Russian economy
Russia’s economic problems continued, and the living standards of ordinary people remained low.
In May 1999, Yeltsin’s opponents in the State Duma tried, unsuccessfully, to remove him by parliamentary vote.
Vladimir Putin began to emerge as the champion of a stronger, more independent and confident Russia.
In August, Yeltsin fired his prime minister – he was replaced by Putin.
On December 31 1999, Yeltsin announced his resignation.
Putin was now the acting president.
Presidential elections would take place in March 2000.
One third of Russia’s population was living below the poverty line of ; more than 80% of farms had gone bankrupt, and over factories had been closed down.
Vladimir Putin
Putin’s rise was a serious challenge to the influence of the CPRF.
He did much to quickly restore the standing of Russia in international affairs.
He was able to strengthen the Russian economy via strong economic management and rising oil prices.
The CPRF has maintained its position as the largest opposition party in Russia, and has come second in every presidential election since the collapse of the Soviet Union at the end of 1991.
One of the most obvious consequences of the transition to an economy based largely on private ownership was a rapidly widening gap in earnings, and accordingly in living standards.
In 1991, the USSR’s last year, the best-paid fifth of the population took 31 per cent of all money incomes, and the least well paid 12 per cent.
Decile ratio:
In 1990 it stood at 4.4: by the end of the decade it had jumped to 13.9.
According to a United Nations Development Programme (UNDP) report published in 1997, Yeltsin’s reforms had had an extremely negative impact on the lives of most ordinary Russians.
Launched in January 1992 ushered in a period of economic decline of unprecedented proportions.
Hyper-stagflation
Under Yeltsin, Russia experienced ‘hyper-stagflation’.
Russia’s GDP decreased continuously following the collapse of the Soviet Union.
In 1994, it declined by 20%, and industrial output declined by 4.7% in 1995.
By then, industrial output had decreased by 53% since 1989.
National income fell by over 40% between 1991 and 1996.
Living standards declined sharply.
Before 1991, it was estimated that 10% of the population were living in poverty.
By 1997, and using the previously accepted poverty line of , the percentage had risen to an incredible 90%.
Even using a very different poverty threshold of , the figure was still estimated to be between 25 and 34%.
From 1990 to 1994, the price index for paid services like housing, transport and domestic utilities such as gas and electricity rose by over 6000%.
Liberalization of trade and investment
Wage inequality has increased in almost all… countries that have undertaken rapid trade liberalization.
By the beginning of 1999, there were some 150 million people unemployed worldwide and up to under-employed – a third of the world’s labour force.
The UN Conference on Trade and Development (UNCTAD) concluded that this dramatic increase in global inequality… is being caused by economic globalisation.
Ten years after liberalization of the Russian economy began in 1989, the UNDP reported that inequality had doubled, wages had fallen by almost half, and male life expectancy had declined by more than four years to 60 years.
Thus the vast majority of Russia’s people faced real hardship – this was reflected in, among other indicators, by a significant decrease in life expectancy; and by a significant increase in heart, digestive and infectious diseases.
Wages were often late in being paid – and, in many cases, were not paid at all.
All this resulted in dramatic increases in unemployment and homelessness.
. Russia had moved so far away from the relative egalitarianism of the Soviet Union that it had been transformed into a society with Latin American structures of property and income inequalities.
Expectations of high levels of investment from Western countries were not fulfilled.
From 1991 to 1998, there was an annual outflow of capital from Russia which greatly exceeded the total inflow of capital in the form of investment, foreign aid, IMF credits and other loans.
Much of this capital outflow was of the huge funds accumulated by Russian oligarchs and gangsters who had amassed massive fortunes during the deeply criminalized way in which privatization of state assets had been carried out.
Outcomes of Yeltsin's Reforms
By 1999, many observers drew up ‘balance sheets’ to assess the outcome of the reform programme pushed for by Western states and institutions and implemented by Yeltsin.
Growth under Yeltsin, most of this had been negative.
This was the result of the series of contractions experienced by the economy during the 1990s.
This outcome was the complete opposite to what Yeltsin and his Western advisers had promised.
As Figure 9.3 shows, the reality was very different.
Statistics
The fall in national income which took place during the early years of the Yeltsin-Gaidar reforms was unprecedented.
This decline, according to official figures, was at last halted – and even reversed – by just 0.4% – in 1997.
The collapse of the currency which took place in 1998 led to a further contraction.
By the time Yeltsin resigned, Russia’s Gross Domestic Product was not much higher than it had been in the last year of communist rule.
The decline in the heavy industries of the old Soviet era was massive: between 1990 and 1999, coal, oil, gas and steel production all fell by about 30 to 35%.
Catastrophic production
Decline in light industry’s production of modern consumer goods was catastrophic – an overall fall of 85%.
Advanced technology products:
Personal computers (90%).
Cameras (96%).
Video recorders (over 99%).
Capital investment collapsed to less than 25% of the 1990 level.
Russia’s GDP – which, in 1990, had been about a third of the USA’s GDP – had dropped to less than a quarter of the US figure by 1999.
Russia’s share of world trade dropped by more than 50%.
By 2000, the Russian economy had fallen behind those of Australia, Mexico and South Korea, as well as the main Western economies.
By comparing GDP per head with purchasing power parities (PPP), Russia ranked only 80th in the world; if calculated on the basis of exchange rates, Russia was 98th – in 1990, it had been ranked by the World Bank as 16th in the world.
By as early as 1995, Russia had been overtaken in its per-capita GDP by countries like Peru and Jordan.