PRIVATE - capitalism in Russia
Strategy, tactics and methods used in the privatisation of industry as conceived by Mr. Chubais, the origins of oligarch capital
THE NORILSK NICKEL CASE
“-Tell me then, American boy, what is power?
It’s not money, is it?
My brother says it is.
So you’ve got a lot of money, so what?
I think that power lies in truth!
He who has truth is stronger!
Say you conned someone and piled up money... are you stronger?
No, you’re not... because you do not have truth behind you!
Truth is behind the one you cheated!
So he is stronger!
(From Danila’s monologue, as recited by Sergey Bodrov in the Russian film “The Brother”)
The matter presented to my respected readership in this book is by no means a work of literature. It was conceived a long time ago, representing, in essence, a cocktail of personal, pro-fessional and life experiences and knowledge, stirred by human impressions and shaped by the events which have taken place in Russia over the last twelve years.
These were the years in which ideals were shattered, morals destroyed, the years in which great frauds were perpetrated, reducing some to utter poverty whilst others grew outrageously rich. These were the times when the crushing of the communist ideology also took away the fun-daments of social justice, upon which more than a generation of Soviet people based their lives. It may be appropriate to assure the reader at this point that the author has nothing against the es-tablishment and development of democracy in Russia. However, it is not a coincidence that it was that same Russian public who came up with the popular saying that “the difference between democracy and democratisation is the same as that between a canal and a sewer.”
Whilst analysing the methods used in the building of a democracy by democratising the entire country, I could not stop thinking that they actually tried very hard to build a canal of dreams and hopes But as always, they ended up building a repulsive, smelly sewer, in which those dreams and hopes, which Russian democracy was all about, were “successfully” drowned. It is now very doubtful whether it would ever be possible to find those dreams and hope without seriously dirtying oneself.
The aim of the book is to carry out an historical analysis of the privatisation process in Russia during the last twelve years of the 20th century, based on the privatisation of one of the world’s largest non-ferrous and precious metal processing giants, the Russian State Concern Norilsk Nickel. My genuine interest in this process was further stimulated by the fact that the state privatisation committee in charge of Norilsk Nickel was headed by the then Chair-man of the Russian State Committee for State Property Management, Mr. Anatoly Chubais
“I am not saying that Messrs Chubais, Gaidar and their followers intentionally cheated Russia. They focused on the living and working conditions of 10% of the Russian population who were prepared to radically change their lives by turning their backs on the state paternalism, whilst forgetting the other 90% The tragic failures of their policies on the other hand, were more often than not, concealed by cheating.
They cheated 90% of the population generously promising that “two Volga cars” can be bought for a privatisation voucher. This was written not by some small-time leftist propaganda activist but a repenting former prisoner of the Moscow’s 4th Investigation Custody Centre, the former Chairman of the Board and the major shareholder in the IUKOS oil group, Mikhail Khodorokovsky. He further described how “they were turning a blind eye to the social reality in Russia, painting on privatisation with a wide brush, ignoring its negative social consequences; affectionately referring to it as painless, honest and just”. (M. Khodorokovsky’s article entitled “The crisis of liberalism in Russia”, published 29th March 2004. in Vedomosty)
Here we are going to talk about the destiny and interests of these percental parts of the Russian nation. It is up to the reader to judge whether the various conclusions or predictions made in this book are justified or not. Indeed, in certain circumstances, the views and determina-tion of each reader will, to some extent, also determine the future of my own country - Russia
Some will support the opinion voiced by the late Senior Editor of the Russian edition of Forbs magazine, Pavel (Paul) Khlebnikov, who was executed in 2004, and who in his book “Godfather of the Kremlin Boris Berezovsky and the Looting of Russia”, wrote “However strange it may seem, the causes of economic and demographic recession in Russia are the actions of “young reformers” and “democrats” – a group headed by Yegor Gaidar and Anatoly Chu-bais”. (P Khlebnikov “Godfather of the Kremlin Boris Berezovsky”, page 13)
Some will perhaps, be readily prepared to agree with Anatoly Chubais who in 2005 sur-vived an attempted assassination and who is presently occupying the post of the Chairman of the Board of RAO Electrical Energy System of Russia and who said: “We completed the privatisa-tion in 1997-1998 but still people increasingly dismiss any rational claims that oligarchs did not simply steal the companies, they made those companies work better, started to invest in them and paid salaries on time. The taxes paid by those companies in the budget go towards paying out pensions. Most people do not want to hear this because the idea of unjust privatisation lives in their subconscious minds...” (“Commersant POWER”, No.46 (599) of 24 November 2004, p 43)
Indeed, it is hard to get to the truth; however, one can hope that at least some of those people who have been keeping the injustice of the completed industrial privatisation only in their subconscious minds will now start acknowledging that injustice with their conscious minds, based on the evidence presented herein. Surely there is value in the time spent on writing a book and dare I hope that people will read it.
The results of the industrial privatisation process as conceived by Mr. Chubais as well as the subsequent events relative to reorganisation of the newly privatised companies, restructuring of their debts and all related scams, would have been less interesting had they not directly af-fected the state politics.
Lightening speed, poor preparation, unscrupulousness and illegality are some of the char-acteristics of the Russian industrial privatisation However, its main distinct quality was its eco-nomic and above all, political tendencies. These, although not always clearly manifested were firmly embedded in the basis of the privatisation of every one of the largest viable giants of the Russian extraction sector. Indeed, many new proprietors of these hitherto state companies and groups, now influence not only the formation of the regional business elites but also directly im-plant their people into the state administration and management bodies. This occurs at both a federal level and at the Centre of the Russian Federation.
We see the incredibly rapid career advance of the former Director General of the RAO Norilsk Nickel, who now stands at the head of the privatised Russian State Concern Norilsk Nickel. This former Governor of the Taymirsk (Dolgano-Nenetsky) an autonomous region and today, the Governor of the Krasnoyarsk Region, Alexander Khloponin, is a typical example. Es-pecially when we consider that his patrons, Vladimir Potanin and Mikhail Prokhorov, the major-ity shareholders of the company whose assets used to belong to the blooming state concern Norilsk Nickel, and who helped Mr, Khloponin climb up the state hierarchy ladder, naturally do not intend to stop there. They are prepared to see Alexander Genadyevitch Khloponin amongst the most likely candidates for one of the highest-ranking state jobs in the Russian Federation rather than just a regional governor, even though his policies are of significant importance to the smooth running of the mining industry, which is the foundation of the oligarch capital.
This is why systematic preparations have been carried out to compile weighty arguments which could be used to present Alexander Khloponin as one of the politicians who is most loyal to the federal centre, in charge of the largest administrative and territorial units in the Russian Federation and a member of the Unified Russian Party’s top leadership, whose entire activity is carried out in accordance with the policies of the current Russian President.
Indeed, this came to light during the national referendum of April 17th 2005, when the Krasnoyarsk region, and the Zvenkinsky and Taymirsky (Dolgano-Nenetsky) autonomous re-gions were merged into a single administration and territorial unit, and when Alexander Khlo-ponin invested in a massive propaganda effort to support the presidential strategic country re-structuring plan. During that time, Khloponin preferred not to remember, that four years earlier, following the line of large private capital and as the Governor of Taymirsky (Dolgano-Nenetsky) autonomous region, he had advocated economic independence for the federal unit he was head-ing, from the Krasnoyarsk region.
That, however, was then. What happened in 2005, was that the now Governor of the Krasnoyarsk region, Alexander Khloponin, having earned an adequate distinction in the matter of state restructuring project, managed to become one of faithful “Putinets” or “Putin’s men”, while remaining an even more faithful “Potanin’s man”. Indeed, under the rule of one’s “own” Governor, the regional merger would undoubtedly have a positive effect on the oligarch capital’s economic aspects.
Repeated public statements by the Russian President Vladimir Putin, asserting his reluc-tance to consider changes to Article 81 Paragraph 3 of the Russian Constitution, pertaining to the number of subsequent terms in office to which a head of state may be elected, stimulated ani-mated discussions amongst state officials regarding the possible candidates for the presidential office.
Bearing in mind the solid rating of Vladimir Putin which would, most likely, reach new heights following his refusal to organise his own legal re-election for a third term, the indisput-able right to determine the qualifying presidential candidature in the general elections in 2008 was his alone. The indisputably Asian mentality of the majority of the Russian electorate was used to honestly believing in the rightness of the decisions made by those placed above them. Also, the country’s political system was too short-lived to prove its solidity. In tandem, these factors were going to make the choice of President difficult in view of the enormous historic re-sponsibility on the shoulders of a single decision maker, whose judgment will affect the future of absolutely all citizens of the territory, uniting the greatest multitude of nationalities in the world. Indeed, a wrong choice of successor would prove too costly. It may well happen that one of the greatest issues of the second mandate for the new President will not be that of continuous de-mocratic reforms but of the preservation of Russia‘s territorial integrity.
The process of candidature selection could possibly be affected by the necessity to find a political compromise between various political and public forces in Russia. Looking from this perspective, a man like Alexander Khloponin, or someone of his ilk, could prove acceptable to most He is the former manager of a holding which unites the most successful, privatised, mining companies producing most of the country’s non-ferrous and precious metals (excluding gold), and an experienced coordinator who zealously defends the interests of his employees. Further-more, he is a politician who already fits the profile of a determined leader, capable of searching for and making compromise decisions, a defender of people’s interests, a centrist, a reliable im-plementer of the current President-reformer’s strategic policies. This profile is on one hand a product of Khloponin’s own efforts, based on his wonderful business qualities and efficiency and on the other, the result of an engagement of an entire apparatus of lobbying politicians of various calibres, political organisers hired by large private business proprietors as well as an unimagin-able quantity of generously financed promotional campaigns.
It is very likely that the plan for promising political advancement of a protégé of the oli-garch body, united behind common interest, rests on gradual, inconspicuous persuasion of the current Russian President’s entourage and possibly the President himself. A plan, that a man like the present Governor of the Krasnoyarsk region is the most suitable candidate for the next Rus-sian Presidency. As a result of such gradual but incessant information force-feeding of the high state officials, they are lead to “make” the suggested choice.
Whilst the plan is being implemented, the oligarchic origins of a politician, such as the Governor of the Krasnoyarsk region, Alexander Khloponin are pushed from sight. It is forgotten who organised and financed his election to various state positions, helped form his views and set his strategic objectives. The role of Alexander Khloponin in the post-privatisation restructuring of the RAO Norilsk Nickel (which took over from the Russian State Concern Norilsk Nickel and the interests of the large private business) in unofficially influencing the formal establishment of remunerative parts in municipal budgets and those of various Russian Federative units, “our people” in politics, are all covered in this book.
As part of the preparation for the book, I carefully selected documents supporting my de-scription of events, strictly assessed the validity of the sources if information was provided ver-bally. A primary basis of analysis was established using legal and other documents issued by the Russian Federation Authorities and government and also administrative documents issued by the authorities of the subjects of the Russian Federation and local administration. In order to verify details pertaining to the events which took place in the recent history, orders, directives and memoranda were used, issued by the heads of commercial organisations, parts of correspondence between various high level managers from state, municipal and commercial organisations.
The author’s conclusions which are left to the reader to judge are not given as an absolute truth; indeed everything that makes up the world around us is relative and judged in a subjective manner. The reader is invited to make his own judgement about the essence of the events lived by Russia over the last 12 years as well as about the possible development scenarios for the near future.
Amongst other materials, this work also contains features from various printed publica-tions, such as newspapers, magazines and other media. It is genuinely hard to over-estimate the role that the media played in this drama which could have been entitled “Privatisation – the Rus-sian way”.
The vast majority of the Russian population used to, and still do, readily accept the in-formation received from TV screens, found on the Internet or heard on the radio as the absolute truth. People sing the songs served by TV, feel for the fate of various heroes from police dramas or soaps which go on for years. They try to get into someone else’s private life through “Telly reality” programmes and to participate in the solution of; not one’s own but someone else’s ‘dice with destiny’. Indeed, this takes them away from their persistent everyday worries and problems from which there seems to be no end. Used to adapting their lives to someone else’s schedule, when the election time comes, people simply vote for the person who most frequently appears on television; between concerts, comedies and soaps, repeating the words of those who, in their opinion, are embodying our times, never giving a thought to the meaning of the events observed, turning away from the surrounding poverty and hopelessness.
In order for industrial privatisation programmes to be successfully implemented in Russia during the 90’s, it was sufficient to use the media to convince as many people as possible that the concepts of “democracy”, “private property” and “privatisation” were inalienable. This was enough for the dogma to take root, whereby anyone who publicly criticised the policies of the Russian President Boris Yeltsin or the actions or inactions of Anatoly Chubais, would be branded as a fundamental enemy of democratic reforms. In this way, TV screens started to shape some kind of a red-brown or similar enemy, a kind of obscurant who wants to drag us back into the stagnant past, “oppressing” the concepts of social equality and industrial egalitarianism. Amongst other things, this made it possible for a former air force pilot, an Afghan war veteran who back in 1993 was one of the first ones to defend the country’s Constitution and the legal rights of his fellow-Russians, and a constructive critic of the current President’s policies, to be instantly transferred into an enemy of democracy and a “putchist”, invoking his responsibility for the deaths of people without any substantiation.
As a reassertion of the decisive role of mass media in the forming of a uniform view amongst large sections of the population, was the case during the privatisation of the Russian State Concern Norilsk Nickel. I would like to quote from Sergey Kara-Murza’s book “Manipula-tion of the Consciousness”, where “the main role of mass media in the civil society is to group people into a huge mass, not always located in a single place, through mass culture and a uni-form information channels, designed to “mould minds into a uniform, standard shape, secur-ing compliance of each human specimen with the set model”. The average person will believe even the most absurd claims although common sense should make him/her doubt”. (S. Kara-Murza, “Manipulation of the Consciousness”, page 282)
You, the respected readers, some of whom in one way or the other, witnessed the indus-trial privatisation, are invited to judge to what extend the events and facts listed in this book could be generalised, perhaps identifying similar features characterising other privatisation pro-jects, involving some or perhaps all large industrial companies and groups in Russia.
I sincerely believe that a genuine, objective and well substantiated debate about Russian industrial privatisation as conceived by Mr. Chubais is yet to be heard...
Before laying out the material and analysing the facts directly relating to the issue of shares and privatisation of the Russian State Concern Norilsk Nickel, let us take a wider view of the preceding events. And, whilst moving from the communal to the private, let us focus on certain isolated facts and consider them with possible impartiality, as part of the overall perspective of historic trends which occurred in Russia at the end of XX and in early XXI century. Indeed, a certain systematism is embedded in the very nature of historic events, linking them in various relationships between causes and consequences, and the events described herein are no exception.
1. Applying the ethnogenesis theory
to the assessment of events occurring in Russia at the end of XX century.
According to the ethnogenesis theory, created in the third quarter of XX century, by the leading Russian scientist and historian Lev Gumiliov, every ethnos, representing a collectivity of people living on a certain territory over a certain time period, goes through the phases of activity increase, overheating and finally, slow recession, over a period of 1200 – 1500 years, following which, in most cases, it disintegrates. This historic progression, from the beginning to the end, represents the core of ethnogenesis.
“Following its genesis, the ethnos goes through a range of determinative phases which can be related to various stages in human development. The first phase, the passionary rise of the ethnos, is fuelled by passionary drive. It ought to be pointed out that some ancient ethne, from which later rose new ones, were linked up in complex systems. Seemingly dissimilar sub-ethnic groups are brought together into entities fuelled by passionary energy which, expanding, submits its geographic neighbours. This is how ethnos is built.” Let me precise that the concept of “passionary”, introduced by Gumiliov, represents a “phenomenon, created through mutation (the passionary drive) which creates an increased drive for action, within a certain number of individuals within the population”. These people, the passionaries, “strive to change the surrounding circumstances and have the potential to do so …. By investing their excessive energy in the organisation and management of the members of the same ethnos, at all levels of the social hierarchy, in spite of difficulties, these people eventually develop new types of behaviour stereotypes and by imposing them on all others; they build a new ethnic system, a brand new ethnos, which is identified by history”. (L.Gumiliov, “From Rus to Russia”, page. 19-20)
According to Lev Gumiliov, the contemporary Russian ethnos was created in the period between 1200 – 1380, through the merging of Slavs, Tatars, Lithuanians, Finno-Ugors and other ethnic groups. (L.Gumiliov, “From Rus to Russia”, page 254) This was the time when Russian statehood was born and started to develop slowly. It was then, under the rule of the Moscow Duke Ivan Danilovitch Kalyta (Ivan I), that the principle of ethnic tolerance was built into the structure of the Russian state, which was later respected by all Russian rulers.
According to Lev Gumiliov, the phase of passionary rise of Russia was completed by its full assertion as an Empire, to be replaced, from 1801 onwards, by the crisis phase, qualified by “immense dispersion of energy, reflected in the cultural and art heritage. However, this cultural bloom indicated a decrease in passionary trends rather than their rise. This phase inevitably finishes in bloodshed; the system ejects the excess passionarity and visible balance is re-established. The ethnos starts to live “by inertia”, based on the acquired values” (L. Gumiliov, “From Rus to Russia”, page. 20-22). This period in Russian history was characterised by a large number of internal conflicts, on some occasions leading to a violent death of the Emperor (the murder of Paul I and Alexander II), on others, to progressive state reforms (abolishment of serfdom, agrarian reforms, judiciary reform etc.).
If the theory of Lev Gumiliov is to be followed further, the “obscuration phase, following which the disintegration process can no longer be reversed”, or the ultimate phase in ethnogenesis, the balance with nature, whereby “people live in harmony with the surrounding environment, preferring philistine placidity to great ideas”, than Russia still has a long way to go. The ethnos inhabiting the Russian territory cannot live longer than eight centuries. Nevertheless, following the breakup of the Union of Soviet Socialist Republics or, in a more profound sense, the disintegration of the Russian State as it was known to history, the Russian civic society has started to develop visible signs of obscuration, which in turn is capable of accelerating the dissolution of the Russian ethnos as a single entity. This phase is characterized by the evidence of widespread “rule of the dull and selfish, lead by a consumer psychology ”, and once they have “eaten away and drunk everything of value, preserved from the heroic past, the last phase shall start”, following which the new ethnos and the new state shall be built.
(L. Gumiliov, “From Rus to Russia”, pages 22 and 254)
Is this “eating away” of the country’s economic and natural resources, including the so called capital exports, the excessive consumerist attitude to the achievements of those who conquered the endless space of the Russian land, explored its bowels, built cities, works, factories, and power plants, not even remotely paying respect to the protectors of our Fatherland, not typical of our time?!?
The Russian ethnos is at least five hundred years younger than its European counterparts, rising from the remains of the Roman and Charlemagne’s empires. This may be why in Russia, the tendencies to renounce one’s national traditions are, fortunately, not as strong. Of course, such tendencies are present, especially amongst the West-oriented Russian intelligentsia, who use the media to confess and preach cosmopolitism, free of the burden of national and spiritual values, scorn for the native customs and traditions for the sake of the artificially generated concept of the inhumane values of globalisation.
No sane mind will dispute the importance and necessity of cooperation between Russia and the United Europe who will, in the future, both be united by a common European ethnos. However, if the Russian ethnos is to be fully and thoroughly integrated into the more mature European ethnos, the cost of such integration, according to the historical and scientific conclusions of Lev Gumiliov, will be “total rejection of the national traditions and consequent assimilation” of the Russian peoples. (L. Gumiliov, “From Rus to Russia”, page.256)
The Author has, where possible, intentionally focused the reader on the ethnogenesis theory, believing that this theory is best suited to evaluate the events which occurred in Russia in the late XX century. I would like to express my conviction that a discussion about particular issues relative to the privatisation of the Russian State Concern Norilsk Nickel against the background of a general theory of the rise, development and death of ethne, will afford the reader a better overview and assessment of the results of the industrial privatisation – the Russian way – as well as to get a better idea of what may follow.
2. Privatisation of industry in Russia.
2.1. From nationalisation to privatisation.
The reader is invited to learn a short, general history of privatisation in Russia in order to facilitate his./her orientation in respect of the individual issues relative to the privatisation of the particular industrial group (concern).
It seems appropriate to seek the roots of privatisation in those processes which lead to the nationalisation of private property of the subjects of the Russian Empire. Not that long ago, on November 6th 1917, Vladimir Ulianov (Lenin), the leader of the workers’ revolution in Russia, announced in his address to the people:
“Comrades workers, soldiers, peasants and all working people!
Place all power within the hands of your local Soviets. Protect and guard the land, the bread, factories, tools, products and transport like the pupil of your eye, as all this will, from now on, be your common property”. (V Lenin, “To the people”, collective works in four volumes, vol. 3, page 24)
This happened literally the next day. In an instant, the entire legislation of the Russian Empire was deprived of all legal force, based on the revolutionary sense of justice, founded by the principle of purposefulness rather than on legality, the property of wealthy, noble families was requisitioned for the benefit of the working populous. The impressments methods used in this genuinely total nationalisation were accompanied with violence, further accelerating the implementation of the tasks set by the revolutionary government.
Vladimir Ulianov (Lenin) thus wrote: “To believe that the transition from capitalism to socialism could be possible without coercion and dictatorship would be stupid and absurdly utopian … as the Soviet government is nothing but an organised proletarian dictatorship, an advanced dictatorship rising to a new form of democracy and independent participation in the government of tens of millions of workers and exploited people, learning from their own experience, how to identify the disciplined and meaningful proletarian avant-garde as their true leader. Dictatorship is indeed a great word. And great words are not to be thrown in the wind. Dictatorship is an iron fist, revolutionary daring and quick, merciless in the suppression of both exploiters and hooligans”. (V Lenin, “The regular tasks of the Soviet government ”, collective works in four volumes, vol. 3, pages 182-184)
Many years later, in the spring of 1985, the then Secretary General of the Central Committee of the Communist Party of the USSR Mikhail Gorbachev, was, according to his party function, a faithful Leninist, whilst according to his inner conviction, probably a human messiah, decided to finish off the Bolshevik era in the state history and declared the “Perestroika”. Renouncing coercion, Mikhail Gorbachev relied entirely on conviction, bearing in mind Lenin’s principle, according to which: “The main task of any future party will be to convince the majority of the people in the rightness of their programme and tactics”. (V Lenin, “The regular tasks of the Soviet government”, collective works in four volumes, vol. 3, page 166)
Several years were spent on convincing, on endless discussions with party comrades, on hundreds of meetings with simple Soviet citizens who were eagerly meeting this leader who was, at the same time so remote yet so near his people. People listened to his words, discussed them and quoted them, believing in a brighter future.
Whilst it is not clear whether Mikhail Gorbachev in fact wanted to create an improved version of the so called New Lenin Democratism, which was truly discredited at the time of Joseph Stalin’s leadership, or just wanted to return to the old, classical philosophical concept of democracy, it was certain that the new course was aimed at democratisation of the entire country. As a result of this policy, the Soviet citizens were given the right to talk about politics and economics by not only whispering in their kitchens but by loudly talking about all, or more precisely, almost all issues, facing the government and the people, as openly debated in the state media. The television programme entitled “Point of View ” and the magazine called “Flame ” simply enflamed passions with their exposures and publications, amongst others, about the savageries of the Stalin’s regime. In brief, as the saying goes, in the beginning there was a word!
And then, there was action! The rulers of Ancient Rome knew that their people craved bread and games. Once they were fed up looking at their democratised leader, having already discussed everything that was proposed to them by the state media, people simply had to start talking about their current problems, about the insufficient food produce in their supply systems. Or as the Russian saying has it “Bread is the be all and end all!”
At that time, the Communist Party of the USSR, in their internal documents, called upon people to actively show private initiative by performing individual microeconomic activities. Expressions such as “intensive rather than extensive economic development”, “self-financing” and “productive cooperation” entered into circulation. Although only timid, this was definitely a stimulating step towards the emergence of an independent small goods producer and development of the private service sector. The absence of a legal base during this first stage, which could provide protection for the interests of these fledgling private owners, did not prevent the emergence of small and very small businesses. “Small business gives rise to capitalism and bourgeoisie, continuously, day by day and hour by hour, in a mass fashion”, wrote Vladimir Ulianov (Lenin) in the spring of 1920 in his article entitled “The infantile sickness of “leftism” in communism”. (V Lenin, “Leftishness as a childhood illness in communism”, collective works in four volumes, vol 4, page 69)
In 1986, in the Soviet Union the first, almost alternative elections were held for the National Deputies. This was the first practical result of the “Perestroika”. The entire country was stuck to their TV screens, listening to the eloquent words of the speakers taking the tribune at the first few such Congresses of the National Deputies of the USSR, digesting and savouring the taste of freedom, the taste of something new, unusual, somewhat frightening but alluring. The society was anticipating changes.
However, this illusive feeling of freedom was gradually accompanied by the fear of that same freedom, which gave the individuals a chance to reveal themselves. Some displayed unbearable desire to rise to the summits of power and social assertion and they became National Deputies, public officials. Others, set on enriching themselves, on owning significantly more assets and money than they had before, started to work on developing their businesses. Indeed, the first option, consisting of rising to the power, did not always exclude the second, that is to say enriching oneself, as Friedrich Nietzsche pointed out: “when the spiritual liberation of the man is the result of serious intentions, his secret passions and desires are also hoping to benefit”. (S Kara-Murza, “manipulation of consciousness”, page 427)
Freedom of an individuum in human society is never full. If it had been, this would lead to general chaos and war in which everyone would fight everyone else. Political freedom “consists of the safety of citizens or their belief in their safety”, in other words, the genuine “freedom of citizens depends mainly on the quality of criminal legislation”, as implemented by the government. (C Montesquieu, “On the Spirit of Laws”, page. 164-165)
For those better informed and closer to the heights of power, this freedom and enjoyment of rights were welcome as they were able to use their freedom to extend and exercise their rights. For others, the taste of freedom was not all that sweet as faith did not endow them with the same capabilities as their counterparts. The exercise of rights and the use of freedom by the first group along with the passive attitude of the others, caused either by objective circumstances such as old age, remoteness of their places of residence or subjective ones, such as lack of necessary education and the desire to change their circumstances, low self-esteem or pathological honesty, soon lead to inequality, antagonism between the people as well as the associated fear of the things to come. Even if a citizen could escape from the fear of external violence, from third parties, encouraged by the more than probable and even very likely presence of a perfect criminal legislation and professional, incorrupt interior ministry operatives, he could not escape the fear of potential loss of employment and livelihood as this would be just like running away from oneself.
For over seventy years the way of life of the Soviet people was based on the appreciation of the dominating state rights over the property which was considered common or people’s, over any personal property rights of individual USSR citizens. Competition between state, common and common institution interests, which at that point were inseparable and the interests of individuals, was not permitted. Indeed in a number of cases such competition was severely punished in full compliance with the norms set out by criminal legislation.
The Soviet government, as an instrument of management, regulation and suppression was headed by the leaders of the Communist Party of the USSR. Along with their family members, these people represented the country’s elite, endowed with real power, however in property terms, they were limited in many ways, their rights being reduced to possession and the usage of common assets, but not disposal. They often owned only the minimum necessary to assert their status and lifestyle. Although they could widely and freely use other property (official secondary residences, apartments, cars and similar), they could not dispose of them: sell them, present them, mortgage them and above all, sign them over as inheritance.
The problem was, that at that time, the concept of private ownership did not exist in the Soviet Union, which would give the owner the right of possession, usage, disposal and absolute holding of his property, as well as guaranteed protection of those rights from any third parties, including the state. Consequently, there was no bourgeoisie elite, whose internal relationships are based on the possibility of each individual to acquire such private property rights, not only for objects of general use but also for assets, which, used in the economic and production environment can generate surplus value (profit).
Today, many years after the outset of the “Perestroika”, the deeper sense of the phrase “the decision-makers decide everything!” becomes much clearer, especially when we talk about the periods when the country was at the crossroads of epochs, transiting from capitalism to communism and then back from communism to capitalism.
In the early XX century, the leader of the Bolshevik revolution in Russia, Vladimir Ulianov (Lenin) wrote that “communism can only be built using the human material left over from capitalism as the bourgeoisie intelligentsia cannot be destroyed; it needs to be conquered, modified, reprocessed and re-educated”. (V Lenin, “The infantile sickness of “leftism” in communism”, collective works in four volumes, vol. 4, page 137) Educated in the works of the theoreticians of Marxism and Leninism, the Secretary General of the Central Committee of the very same Communist (Bolshevik) Party of the USSR, Mikhail Gorbachev, at the end of XX century, had to re-educate, modify and reprocess the human material, formed on the ideas of the bright “communist future”, reshaping it as a basis for the formation of a bourgeois small-business society suited to the future.
At first, there was no way a large bourgeois individual could be created even from the ranks of the state party elite. Indeed, some “faithful Leninists”, their Party membership cards in the pocket, did have certain personal property which, compared to that of a normal citizen, could appear great. Furthermore, they enjoyed a range of privileges. However, no assets, to which the owner had the rights pertaining to personal property, would provide the owner with the opportunity to posses it or use it, in a way which would generate income. The possessor of such personal goods was the end user and as such the only enjoyer of the benefits arising from them. All assets identified as industrial means of production in the USSR were controlled by the State, making the appearance of any significant industrial entrepreneurs rising from the ranks of the Soviet citizens simply impossible.
By implementing the “Perestroika”, Mikhail Gorbachev was only trying to provide a new impetus for the social-production relations, by providing government support for the hidden desires of every citizen to provide decent material existence for himself, based on own efforts (with a minimum exploitation of other people’s, for instance within production cooperatives). However, the more you eat the more you want and so, a greedy, grasping instinct appeared, awoken by “Perestroika” and further encouraged by the absence of a clear legislative basis. This soon lead, at the same time, to a flash-like absurd enrichment of tens, maybe hundreds of people, as well as impoverishment of tens of millions of the former Soviet citizens. It was then that the fears, mentioned before, became more discerned, taking up a recurring form. The times had already changed, bringing about another political regime, under the leadership of Boris Yeltsin.
The following fact was ascertained with historic accuracy: in 1917, Russia had to endure more than three years of bloody civil war whilst the majority requisitioned and nationalised the private property of the minority, turning it into the so called people’s property. In the nineteen nineties, on the other hand, the descendants of the same Bolsheviks, the heroes of the 1917 requisition, needed only to agree between themselves to, within three to four years, “legally” rob the majority of the population of a good third of the country’s economy. “Legally”, as this could not have been done without the participation of the Government, which set the rules for the privatisation game by setting up the concept of private property: by making the country’s population take part in the privatisation, very inadequately informed and untrained, with tight deadlines and without any sanctions for overt infringements, manipulations and frauds.
In this respect, let us quote two completely different statements, made by two people who were, at the time, critical in respect of one another but who were also very interesting.
1. “It is clear that in 89, 90 and 91, very few people at all believed in the possibility of private entrepreneurship in Russia. This huge field was almost empty. It was very easy to make money. Very few people actually believed that this was legal, that they would not go to prison the day after”, concluded Boris Berezovsky. (B Berezovsky, “The art of the impossible”, vol 1, page 102)
Neither civil nor criminal laws corresponded to the quickly changing conditions of life. State laws were created ‘on the fly’, they were very fragmented and without a system. On the one hand, the existing Civil Code of the RSFSR did not stipulate the activity of the private entrepreneurs, consequently, allowing a great deal of creativity. On the other hand, the Criminal Code of the RSFSR did not envisage any punishment for those infringements made in the purely market sphere.
2. “The Russian Criminal Code contained many ambiguities and loopholes. Many financial operations which, in the West, would have been considered illegal (certain forms of bribery, fraud, embezzlement or extortion), were not deemed a crime in Russia”, concluded Paul Khlebnikov. (P. Khlebnikov “Boris Berezovsky - Godfather of the Kremlin”, page. 11)
In essence, therefore, the basis for the construction and consequent development of capitalism in Russia was made, to paraphrase Vladimir Ulianov (Lenin), from the human material created by socialism, using the methods tested by the Bolsheviks in the early XX century.
One of the main methods, amongst others, was the collective processing of human brains using the media, which, over a few years, formed public opinion to perceive the democratisation of society and privatisation of assets as a twin concept, whereby anyone who is against such privatisation is automatically against democracy and so on. And just as the accurately formulated propaganda had helped the Bolsheviks mobilise the people in their fight for socialist ideals at the beginning of the century, the same tactics were used towards the end of the last century, by their descendents, to prevent the people from coming forward en masse, in protection of the same ideals, including the right to guaranteed work and dignified ageing.
The principal ideologist of privatisation in Russia, Anatoly Chubais wrote about his father: “My father was always a dedicated communist. He did not believe in the idea because it was convenient from the point of view of his career. He really believed – truly and devoutly”. (Under the editorship of A Chubais, “Privatisation – the Russian way”, pages 3-4)
Several generations of Soviet people were brought up with the books about Arkady Gaidar, a civil war hero who fought on the private property requisitionists’ side, such as “The School” or “Timur and his squad”. These books were written from the heart, by a man who placed the duty to serve his socialist fatherland, his nation, the principle of universal equality and fraternity, above his personal interests. His books, many of which can even today, still be found on many bookstore and library shelves, glorify the human feat, in which self sacrifice is made in order to achieve an objective of common importance or save the life of a comrade, teach us to do good, help the aged or the families of frontline fighters etc.
Alas, not all life principles of this grandfather were reflected in the outlook of his grandson – Yegor Gaidar, who, in November 1991 was appointed as Deputy Prime Minister of the Russian Federation, and placed in charge of economic policies, and who was the Acting President of the Council of Ministers of the Russian Federation from 15th June to 14th December 1992. In addition to poorly organised and utterly irresponsible operation in which wholesale and retail prices of consumer goods were “freely floated”, in early 1992, Yegor Timurovitch added to the list of his “deeds”, his participation in formulating the strategy for issuing of shares and privatising some of the county’s largest industrial companies and groups (concerns).
Whilst in the imposition of nationalisation, the Bolshevik government acted alone, relying on the ideological uncompromising nature of the implementers of proletariat dictatorship, the industrial privatisation, a two-way process from a legal point of view, required the Russian “democratic” government, to have a partner, in the form of acquirers of certain assets or rights from the state registry, the assets which in general terms were communal but which had legal definition. Through its high officials, relying on people’s obedience and their trust for the authorities, cultivated through decades of proletarian dictatorship and Stalin’s prison camps, the Government surreptitiously (“behind the scenes”) changed the rules of the privatisation game, in respect of those industrial companies which, in terms of the anticipated economic performance, represented particularly “tasty” morsels, to suit its “deserving” partners.
2.2. Privatisation processes prior to the events of August 1991.
Following the delegation of the first Congress of the People’s Deputies of the USSR and the consequent appointment of the Supreme Soviet, the legislative machine started to work again, slowly accelerating, whilst the country’s leading legal experts were engaged in creating new laws. Just over seventy calendar years had past since the Bolshevik coup, and Russia was still a unifying territorial and economic force and the centre of the Soviet Union, covering essentially the same territory as the former Russian Empire, and as such, started a process of general restoration of the civil and legal legislative basis.
The laws “On property in the USSR” and “On enterprises in the USSR” were soon adopted, formulating and establishing the legal concept of “comprehensive economic operation”, which artificially equated the right arising from the possession of property entrusted to state organisations to property rights. The process of restoration or, more accurately, creation of USSR legislation was carried out rather quickly and already on May 31st 1991, at the Moscow Kremlin, the President of the Supreme Soviet, Anatoly Luikianov, signed the approved “Fundaments of Civil Legislation of the USSR and Republics”, which were scheduled to come into effect as of January 1st 1992. This, however, was never going to happen. Following the breakup of the USSR, “Fundaments of Civil Legislation of the USSR and Republics” were only implemented in the Russian Federation in July 1992, as a temporary alternative to the outdated Civil Code of the RSFSR, which was adopted in 1964.
At the same time, a legislative basis was being created for the Russian Soviet Federative Socialist Republic, as a republic in the Soviet Union. Only one day apart, two pieces of legislation were signed by the then President of the Supreme Soviet of the RSFSR, Boris Yeltsin, on the 24th and 25th December 1990, laying the fundaments of the future economic relations in the republic: “On property in the RSFSR” and “On enterprises and entrepreneurship”.
The crucial step in the process of the removal of state control from the economy was the adoption, at both the USSR and the RSFSR legislative level, of the laws limiting monopolies.
The USSR law “On limiting monopolies in the USSR” was adopted on July 10th 1991 and came into effect upon publication. Pursuant to Paragraph 3 of the Decree by the Supreme Soviet of the USR pertaining to the implementation of said law, the Antimonopoly Committee, appointed in accordance with Article 6 by the President of the USSR and accountable to the Supreme Soviet of the USSR, was instructed to “develop and submit to the Supreme Soviet of the USSR, by October 1st 1991, a programme of demonopolisation of the economy”.
A few months earlier, on 22nd March 1991, the legislative body of the RSFSR adopted a republican law “On competition and limitation of monopolies on commodity markets” which became effective upon publication. Pursuant to Paragraph 2 of the Decree by the Supreme Soviet of the RSFSR, pertaining to the implementation protocol, for the republican Council of Ministers, which, according to Article 3 of the said law, also includes the RSFSR State Committee for Antimonopoly Policies and Support for New Economic Structures, and whose task it was to generalise the results of the analysis and recommendations of the RSFSR administration and ministries, the Councils of Minister of constitutive republics, regional and district executive committees and labour organisations, and work out, in 1991, a set of measures aimed at demonopolisation of the RSFSR economy”.
The legislative competition between people’s deputies at Union and republican levels soon moved from constructive dialogue about the practical aspects of fine-tuning the country’s civil legislation and adapting it to the newly born market relations, to a rather non-ideological battle for distribution of the state property between the USSR and RSFSR and its removal from state control and privatisation. By mid-summer 1991, the situation became very tense. The cause of the tension were the relentless parallel efforts to quickly develop a legislative basis for the organisation of a schedule for transfer of property from state to private control at both the Union and republican level.
There is no doubt that the fundamental conceptual difference between the reforms lead by Mikhail Gorbachev and those headed by Boris Yeltsin, regarding the removal of state control and privatisation, was in the disparity of objectives and tasks set for the Cabinet of the USSR and the Council of Ministers of the RSFSR.
Those from the first camp insisted that control over industrial companies and groups (concerns) which are of key importance to the Union, as well as the development of, above all, small and medium sized business, whose rise from the active population was going to be stimulated by the privatisation of the means of production, should remain within the domain of the State.
The others strived to extend the jurisdiction of the RSFSR, in opposition to the central authority of the USSR, on all large industrial companies and groups (concerns) in the country, insisting on stimulating the rise of large scale private businessmen from the same, indigent Soviet population, through a selection of “deserving” individuals from the popular mass, the agents of “ideological turncoats” from the communist party state nomenclature.
Whilst the power centre of the USSR could, where necessary, resort to force as an ultimate argument in the dialogue with those Soviet republics situated along the Soviet borders, in its relations with the republican authorities of the RSFSR, the tone of negotiations was rather restrained. This was dictated by both the geographical position and economic role which Russia played in the internal politics of the Great Country which was the Soviet Union.
The most crucial act of that time became the “Declaration of state sovereignty of the RSFSR”, adopted June 12th 1990, which announced the principle of supremacy of the Constitution and laws of the RSFSR for the entire territory of the republic and whereby it was envisaged that those USSR acts which are contradictory to the sovereign rights of the RSFSR may be suspended in Russia. The same principle was reflected in Article 2 of the RSFSR law “On relations between the Councils of Peoples’ Deputies and executive bodies during the implementation of economic reforms”, whereby “the Norms as set out by the legislative acts of the USSR shall be implemented on the territory of the RSFSR providing that they are not in contradiction with the Declaration of state sovereignty of the RSFSR and other legislative acts thereof”.
Literally the same, although in more detail, was expressed in the special RSFSR Law No. 263-1, adopted 24th October 1990, “On the validity of the acts issued by the authorities of the USSR on the territory of the RSFSR”, and signed by the first Deputy President of the Supreme Soviet of the RSFSR, Ruslan Hasbulatov. Article 1 of that Law stated that all laws and other acts issued by the USSR high administration, issued within the jurisdiction as entrusted to the USSR by the Russian Federation, pursuant to the Declaration of state sovereignty of the RSFSR and the Decree of the Congress of Peoples’ Deputies of the RSFSR “On separation of administrative functions for the organisations situated within the RSFSR”, would be directly implemented in the RSFSR. Furthermore, the Supreme Soviet of the RSFSR or, correspondingly, the Council of Ministers of the RSFSR acted rightfully by suspending the validity of the aforementioned acts where the said acts were in contradiction with the principle of sovereignty of the Russian Federation.
The provisions of Articles 5 and 6 of the aforementioned law were stricter still:
“Article 5: All Decisions pertaining to the territory of the RSFSR, issued by the state administration, social, political, cooperative and other organisations and companies or officials, as well as all contracts and other agreements, approved or completed pursuant to acts issued by USSR administration, which are not ratified, approved or suspended in accordance herewith shall be invalid.
Article 6: In cases involving any of the acts as set out in Article 5 herein, the citizens, officials and agents acting on behalf of the state, social, political, cooperative or other organisations and companies committing such acts, shall bear full responsibility in accordance with the legislation of the RSFSR”.
Notwithstanding, the Constitution of the Soviet Union declared the principle of priority of all USSR legislation over the legislation of the Union republics.
A peculiar conflict of sovereignty was evident!
On the same day, 24th October 1990, the USSR law “On enforcement of laws and other acts pursuant to the USSR legislation”, was adopted, whereby most likely before the adoption of the already debated RSFSR law “On the validity of the acts issued by USSR administration on the territory of the RSFSR”.
Article 1 of the aforementioned USSR law stated that “all laws, USSR Presidential Decrees, as well as all other acts issued by the high administration of the USSR, in accordance with the authority thereof, shall be implemented by all state and organisational bodies, officials and citizens, on the territory of the USSR”. Further on, it was stated that “where the republican laws shall be found to be in contradiction with the USSR law, the latter shall be implemented until a new Union Treaty shall be concluded”.
Pursuant to Article 3 of the same USSR law, “the stipulating force of laws of the USSR on the entire territory of the country shall not be subject to agreement of individual republics, nor can it be subject to agreement between the USSR authorities and individual republics; any upholding of preliminary conditions in the republics, or any direct or indirect limitations to USSR laws or any other acts as issued by the USSR high government administration shall be deemed illegal attempts to the sovereignty of the USSR … and shall be of no legal consequence”. The same text states the inadmissibility of any infringement of the legal provisions of the USSR Law “On the separation of powers between the USSR and the subjects of the Federation”.
The competition between sovereignties was further exacerbated when the legislative authorities of both the USSR and RSFSR adopted laws stipulating the removal of state control and implementation of industrial privatisation!
Consequently, on July 1st 1991, the USSR Law “On the basic principles of removal of state control and privatisation of companies” was adopted and implemented upon publication. In Paragraph 2 of the Decree by the Supreme Soviet of the USSR, pertaining to the implementation of the said law it was stipulated that “until the legislation of the USSR and that of the republics shall be brought into compliance with the USSR Law “On the basic principles of removal of state control and privatisation of companies”, all acts of current legislation shall be implemented in parts which are not in contradiction with the said law; those legislative and other acts of legislature in the republics, which are unilaterally stipulating the property issues pertaining to removal of state control and privatisation of those companies currently part of the Union property and managed jointly by the USSR and the republics, shall not have legal force”.
Pursuant to Paragraph 3 of the same Decree, the State Property Fund of the USSR was obliged to develop, and submit to the Supreme Soviet of the USSR, by September 1st 1991, a “Programme of initial measures aimed at removal of the state control and privatisation of those companies currently part of Union property and managed jointly by the USSR and the republics”.
Nevertheless, literally one day later, on July 3rd 1991, a law was adopted in the RSFSR, and implemented upon publication, “On privatisation of state and municipal companies in the RSFSR”. The provisions of Paragraph 3 of the Decree by the Supreme Soviet of the RSFSR, stipulating the implementation of the said law requested the following from the Council of Ministers of the RSFSR:
“– to ensure, by August 15th 1991, a review and abolition, by the ministries, committees and administrative bodies of the RSFSR, of their legislative acts as well as cancellation of all legislative acts issued by the Government, ministries, state committees and administrative bodies of the USSR, which shall be found to be contradictory to the RSFSR law “On privatisation of state and municipal companies in the RSFSR;
– to develop and submit, by September 1st 1991, to the Supreme Soviet of the RSFSR, a State Privatisation Programme, a Decree about formation of holding companies based on the companies forming the group (association or concern) or those under the management of state or local administration”.
The texts of the USSR and RSFSR laws stipulating the removal of state control and industrial privatisation were adopted almost simultaneously, also containing a range of essential contradictions.
1. Article 2 of the USSR Law for instance, stipulated that “the removal of state control and privatisation of companies under the joint management of the USSR and the republics shall be implemented in accordance with the present Laws as well as in accordance with the agreements between those two administrators”. This was contradictory to Article 2 of the RSFSR Law which stipulated that “privatisation of state companies, which are part of both, the RSFSR and the USSR, as well as other republics, shall be stipulated by the present Law, other legislative acts as well as agreements between the USSR and the Union republics”. The law does not make any references to the corresponding USSR law which was adopted earlier.
2. “A list of companies not subject to removal of state control and privatisation based on their importance for state defence and security, environmental protection and health of the population, as well as the need for a state monopoly in certain sectors, shall be set by the Cabinet of Ministers of the USSR (and approved by the Supreme Soviet of the USSR) or by the high authorities of the republics”, – Article 4 of the USSR Law.
In relation to this issue, Article 3 of the RSFSR Law stipulated that the State Privatisation Programme “sets a list of state companies, associations or subdivisions thereof which shall not be subject to privatisation”. It ought to be pointed out that in spite of the fact that pursuant to RSFSR Law, the State Privatisation Programme was subject to a debate of the Council of Ministers of the RSFSR and approval of the Supreme Soviet of the RSFSR, one cannot help notice that the USSR legislation much more clearly determined the principle approaches to which conditions could lead to non-inclusion of certain state organisations in the list of companies to be privatised. At the same time, the RSFSR Law referred the resolution of this issue to the authors and formulators of state privatisation programmes, which were developed individually for three-year periods. The absence of clearly stipulated principles from the RSFSR legislation, aimed at setting the limits for industrial privatisation, undoubtedly gave more manoeuvring space to those who, in practice, coordinated the privatisation processes.
3. I would, furthermore, like to draw the readers’ attention to a very peculiar provision of the USSR Law, which had no equivalent in the RSFSR Law. Article 6 of the USSR Law stipulated that “with the view to avoid excessive concentration of capital and monopolisation of production, the legislation of both the USSR and he republics thereof may set summary quotas for the acquisition of company shares (stocks) or other property, by banks and other legal entities; privatisation and state control removal programmes may hence, impose limitations as well as summary quotas on acquisition of the privatised property, for both individual foreign investors and all foreign capital”. From the legal point of view, the formula “may impose ” did not imply imperative character of a precise setting for rights and obligations, but rather created a hypothetical possibility of the imposition of limitations to industrial privatisation, where necessary, if, for instance, it was dictated by the necessity to protect the country’s economic interests.
The developers of the RSFSR draft Law “on privatisation of the state and municipal companies in the RSFSR”, on the other hand, completely rejected the possibility of an introduction of quotas by legislation, aimed at avoiding the concentration of large scale industrial capacities in a single pair of hands, creating a monopoly of private capital over entire sectors of the privatised state industry, by, in some instances, limiting (in a quantitative sense) the right of prospective buyers to the state industrial assets. On the contrary; they first created a minimally defined legislative basis in order to quickly implement a targeted privatisation (assets to be transferred only to the “chosen”) of the largest industrial mining and oil-producing groups (concerns), which, of course, was contrary to the interests of the vast majority of the country’s citizens.
This is how Anatoly Chubais described the events at the time when the sovereignties of the USSR and RSFSR were in competition, in his book “Privatisation – the Russian way”, self edited and introduced: “At that time, the Supreme Soviet was one of the main “breeding grounds” for reformist ideas in Russia. The most active organisation, in this sense, was the Economic Reform Committee, headed by Sergei Krasavchenko and his two deputies, Pyotr Philipov and Vladimir Shumeiko. By the end of 1990, the sub-committee for property and privatisation prepared a draft law on privatisation. Pyotr Philipov and I wrote this law very quickly and as it seemed, just in time”. When describing Pyotr Philipov, Anatoly Chubais wrote: “I knew that if Petya was there, there would not be any of that Soviet rubbish”. (“Privatisation – the Russian way” edited and introduced by A Chubais, pages 40-41, page 23) It is possible that this is exactly what Anatoly Chubais had in mind when refraining from including any legal norms in his draft law, which could in any way; limit the rights of the acquirers of the state industrial property.
The competition between the two laws, the USSR law “On the basic principles of removal of state control and privatisation of companies” and the Soviet Republic of RSFSR law “On privatisation of state and municipal companies in the RSFSR”, had already started during the draft stage. “The appearance of the Union draft, which, according to the practice of that time, was published “to be debated by the people”, significantly increased the risk of “spontaneous” removal of state control within Russian territory. This is why the Supreme Soviet of the RSFSR issued a Decree freezing the process of removal of state control and privatisation in Russia until a republican law on privatisation was adopted. The only legitimate form of acquisition was to buy a property according to a previously concluded rental and purchase agreement. In essence, any other concepts and tendencies pertaining to privatisation were not to be implemented in Russia”, – wrote Anatoly Chubais. (“Privatisation – the Russian way” edited and introduced by A Chubais, page 41)
However, the territory of the RSFSR was part of the USSR, and adoption of any such measures placed the supreme authority of the Soviet Union with a difficult choice, both factually and legally: to accept the incapacity and quietly observe the actions of the high authorities of its most powerful Soviet republic, or to take action.
In the process of this legislative confrontation between the USSR and the “sovereign” RSFSR over real state power, the capability to influence the processes of the country’s economic reform, priority in the setting of conditions for the implementation of industrial privatisation, determination of the list of state organisations to be privatised, the authorities of the RSFSR provided a legal basis for the breakup of the USSR and extension of sovereignty to other Soviet republics.
This became possible as a result of rather ineffective internal policies of the then President of the USSR and Secretary-General of the Communist Party of the Soviet Union, Mikhail Gorbachev. At that time, his entire political energy and will was spent on the establishment of warm and friendly relations with the governments of Western Europe and the USA and his own image as a democrat and reformer. At the same time, by implementing reforms, Mikhail Gorbachev must have understood that any consolidation of his authority in the foreign policy would, in direct proportion, weaken his position as the country leader, at home.
“In order to preserve the unity of the USSR (a desire clearly shared by most Western governments) he (Mikhail Gorbachev) could only rely on the support of the army, the KGB and the party machine”, – wrote the director of Catalaxia Books and the President of the Property and Law Foundation, Boris Pinsker in the autumn of 1990, stating: “so, how can one cut the army and carry out the conversion of the defence sector, at the same time, relying on the army when trying to preserve the county’s integrity? The situation appears worse still when we talk about the CPSU machine. This is currently the third largest force which could defend the country’s integrity, oppose the republican strive to statehood and independence. Can this machine, closely intermingled with the military, be used to keep the republics within the imperial chariot, at the same time denationalising the assets? The gravity of this problem should not be underestimated. … The solution, indeed, is to rely on the integrationist potential of the market and give the republic all of the independence they are demanding. The bottom line is that the attractiveness of this enormous and potentially very rich Russian market should be sufficient for securing the military and political cohesion of the future association of states. However, even if Mr. Gorbachev could believe in such a development it will be most difficult to persuade the army of the worthiness of such a perspective. Indeed, judging by how the situation has been developing since late summer of 1990, Mr. Gorbachev himself appears more prepared to sacrifice the pace of economic reforms than to risk the loss of army support and party machine”. (The collected materials from the conference organised by the Caton Institute (USA, held in Moscow in September 1990, entitled “From plan to market”, page 156, article by B Pinsker entitled “Privatisation and politics”)
Sooner or later, the confrontation between the two legislative authorities - that of the USSR and the RFSR, was going to lead to a situation in which confrontation between the two instance’s executive powers was going to be inevitable. To keep the Soviet Union from breaking up, an entity shaken by the fever of contradiction between competitive decisions, taken by the authorities of the USSR and the RSFSR, without serious consolidation of the executive power, now seemed impossible. The first attempt to do just that came before the confrontation, when the Congress of Peoples’ Deputies of the USSR, decided to set up a post of President of the USSR, “with a view to ensure further implementation of the political and economic reforms currently carried out in the country, consolidate the constitutional order, protect the rights, liberties and safety of citizens, improve the cooperation between the high authorities of the state and government of the USSR”. (Preamble of the USSR Law No. 1360-1, of March 14th 1990, “On the establishment of the post of the President of the USSR and the corresponding amendments and addendae to the Constitution (the Basic Law) of the USSR”)
The USSR Law No. 1360-1, of March 14th 1990, “On the establishment of the post of the President of the USSR and the corresponding amendments and addendae to the Constitution (the Basic Law) of the USSR” introduced a new principle of organisation and operation of the executive power in the country. Many contemporaries of this law tend to remember it as a statutory act; which embedded the multitude of property forms in the Constitution, omitting the “leading role of the Communist Party as the vanguard of the entire population”. Indeed, it was then that the new version of Article 7 of the USSR Constitution, secured the principle of equality between all social associations before law: “All political parties, social organisations and mass movements, shall act in compliance with the Constitution and the Soviet laws when acting in accordance with their programmes and statutes”.
It was then that the new version of Article 10 of the USSR Constitution stated the principle of equality between ownership forms: “The economic system of the USSR shall be developed, based on the property of Soviet citizens as well as state property, whether under collective or state ownership. The state shall create the conditions necessary for the development of various forms of ownership, and guarantee protection thereof”.
Practically speaking, on one hand, the Congress of People’s Deputies of the USSR, as the highest instance of the country’s government, “released the steam”, by reflecting the democratic achievements of the Perestroika years, in the Constitution whilst on the other hand, by introducing the presidency, it legally increased the degree of influence of the USSR central authority to internal political processes.
If, however, one takes a closer look at this legislative act of colossal legal, historical and state governmental implications, one will notice that from the very outset, the President did not embody executive power in the country, as it is the case in other, presidential states. This President was like a chief coordinator of all power streams, endowed with the power of inviolability and impeachable “only by the Congress of People’s Deputies of the USSR, in the cases of infringement of the Constitution and laws of the USSR”.
The reason for this was that the USSR draft law No. 1360-1, of March 14th 1990 was prepared by a team of supporters of Mikhail Gorbachev, which based the text on a system, which had been proven in practice over decades, and which was obligatory in its essence, and suggestive by its form, and which was used to coordinate both the functions of state authority bodies and the Soviet Communist Party nomenclature. In essence, like previously in the case of the Secretary-General of the CPSU, the President of the USSR created counselling and recommendatory coordination bodies which in some senses, acted in parallel with other governmental authorities, working on the solution of practical issues in accordance with their designations.
One of the examples is the Presidential Council of the USSR, which existed during the Presidency of the USSR, and whose job was to “develop the framework for determination of the basic directions of both internal and foreign policies of the USSR as well as ensuring the country’s security”. Members of the Presidential Council of the USSR were appointed by the President of the USSR, in the Council’s basic composition, without seeking approval of the Supreme Soviet of the USSR.
Pursuant to Paragraph 2 of Article 127.3 of the new version of the Soviet Constitution, the President of the USSR was empowered to take the necessary measures to defend the sovereignty of the USSR and republics thereof, provide security and preserve the country’s territorial integrity, as well as to implement the principles of the national and state organisation of the USSR”.
The situation where the CPSU ceased to be the state’s uniting, governing and coordinating force, when the former first secretaries of Communist parties of the Soviet republics, regions and districts, gradually started to take a parochial stance, superimposing the interests of individual regions when trying to resolve issues with the USSR, brought about the birth of the Federation Council of the USSR. This was a uniting body created by the central authorities with the view to preserve its overall leadership, and directional influence in all parts of this powerful country. The internal structure of the Federation Council embodied the USSR. It brought together leaders of the state officialdom of the constitutive republics, headed by the President of the USSR, whilst its sessions “were attended by the highest government officials of the autonomous republics, regions and districts”.
Based on Article 127.6. of the new Constitution of the Soviet Union, “during the debates about most crucial issues relative to both country’s internal and foreign policies” the President of the USSR could call both the Federation Council and the Presidential Council, who would sit at the same time. The idea of such, joint sessions, was evidently in the fact that the presence of the President’s supporters from the Presidential Council at the sessions of the Federation Council was meant to exercise certain moral pressure on certain, particularly obstinate leaders from the Soviet republics.
Nevertheless, in spite of all this, the first President of the USSR, in the form of Mikhail Gorbachev, who was appointed by the Congress of People’s Deputies of the Soviet Union, based on a special legal provision, embedded in the third section of the aforementioned USSR Law No. 1360-1, of March 14th 1990, having received legal leverage, did not manage to use them as intended. It seems that he did not realise that on June 12th 1990, along with the emergence of the Declaration of state sovereignty of the RSFSR, a question mark was placed over the real capabilities for the USSR’s central power, and which demanded a response, within a few months and at latest, within two to three calendar years.
It was not long before the closest companions of Mikhail Gorbachev realised that if a challenge was to arise, relative, for instance to preservation of the country’s territorial integrity, the President would not be capable of taking any responsible, brave decisions, in terms of interior policies, if those would involve any risk in respect of his authority abroad. There is no doubt that the indecisiveness of Mikhail Gorbachev could be explained not only by his concern for his foreign image., but also by the fact that he, as the first (and sadly the last) President of the Soviet Union, was not elected by “the citizens of the USSR, by a universal, equal and direct suffrage, and secret vote”, but by the Congress of the People’s Deputies of the USSR.
Indeed, “the first time is always the hardest”!
The one and only time Article 127.1 of the USSR Constitution, stipulating the principle of universal suffrage in the election of the President of the USSR, was legally bypassed, and as a result of that, Mikhail Gorbachev could not keep power in his hands, if for nothing else, then to preserve the integrity of this powerful country, denying our descendents the right to elect the next President of the Soviet Union.
Before all of that, however, in the second half of 1990, another political figure needed urgently to be selected from the USSR high officialdom, to be given partial, and in some circumstances, full authority, to carry out presidential functions. A radical consolidation of the governmental control was required, through the introduction of the legal concept of USSR Vice-Presidency. It seems that, according to the plans of Mikhail Gorbachev’s entourage, and maybe even the President himself, it was the Vice-President of the USSR who could, in certain situations, play the stuntman of the President, taking the actions which the President himself could not take. In practice, this was going to be an insurance policy – an alternative.
The legal stipulation of the new option took several months, and was only completed 26th December 1990, when the Congress of the People’s Deputies of the USSR adopted the USSR Law No. 1861-1 “On amendments and addenda of the Constitution (the Basic Law) of the USSR, pertaining to improvements in the state government systems”. This legislative act of importance to the entire Union not only established the concept of Vice-President but also provided a clearer definition of the powers of the President of the USSR which were now the highest order of state power.
1. And so in accordance with the provision contained in Paragraph 4, Article 127.3. of the Constitution of the USSR, (including the amendments of March 1990), “the President of the USSR shall ensure the interaction between the high offices of state power and government of the USSR”. The same Paragraph of the Constitution of the USSR, (including the amendments of December 1990) stipulated that the “President of the USSR shall head all government offices, ensuring their interaction with the high offices of government of the USSR”.
2. In accordance with the previous version of Paragraph 9, Article 127.3. of the USSR Constitution, “the President of the USSR shall have the right to suspend the Decrees and Orders of the Council of Ministers of the USSR” (as of December 1990, the Cabinet of Ministers of the USSR). And that is all!
The reader will only need to think about the meaning of the term “suspend”, to realise how insignificant the power in question is. The situation was changed radically when, on December 26th 1990, the USSR Law No 1861-1. A new version of the aforementioned Paragraph of the USSR Constitution was adopted: “The President of the USSR shall have the right to cancel Decrees and Orders by the Cabinet of Ministers of the USSR, acts by the USSR ministries and other subordinate bodies; the President shall have the right to suspend the execution of Decrees and Orders by the Council of Ministers of republics, concerning the government of the USSR, if the said Councils of Ministers shall act in breach of either the Constitution or the Laws of the USSR ”.
Admittedly, the constitutional backing for the President’s right to, not just suspend but cancel acts issued by subordinate government offices, as well as suspend the execution of regulatory acts issued by the executive authorities of the Soviet republics, represented a significant increase of the presidential powers.
3. The Presidential Council of the USSR was committed to history whilst the USSR Security Council took its place, endowed with much better defined powers. The fact that the name of the new government body which, although only partly, still performed some of the functions of the old Presidential Council of the USSR, whilst including the word “security”, rather clearly reflects the anxiety and expectation of something bad, in the minds of the authors of the latest constitutional changes. Furthermore, it ought to be pointed out, that unlike members of the old Presidential Council, Security Council members were not only appointed by the President of the USSR but their appointment also had to be cleared with the Supreme Soviet of the USSR and endorsed by the USSR Federation Council. Such situation undoubtedly further strengthened their status when exercising their authority, aimed at the development of “recommendations pertaining to the implementation of all-union policies in the domains of defence, maintenance of the country’s sound economic and ecological state, resistance to natural catastrophes and other emergency situations, ensuring of stability and legal order in the society”. (Paragraph 9.1., Article 127.3 of the Constitution of the USSR)
4. The USSR Law No. 1861-1 of 26th December 1990, created an entire chapter in the Constitution dedicated to regulating the work of the Federation Council. Apart from the President of the USSR and the Presidents (or high government officials) of the Soviet republics, the Federation Council also included the Vice-President of the USSR. The central power of the USSR was bringing the republican leaders ever closer, trying to protect them from the possible attempts to cause them to act against the interests of the United Soviet government. The entire activity of the Federation Council was based upon “internal and external policy trends as set by the Congress of Peoples’ Deputies of the USSR”, and aimed at “coordination of the activity of the high government of both the Union and its republics”. The Federation Council monitored the general compliance with the Union Treaty, defined measures for the implementation of national policies of the Soviet government. (Article 127.8 The Constitution of the USSR)
5. The state function of Vice-President of the USSR, introduced in December 1990, significantly strengthened the position of the President himself and, from a legal point of view, created the possibility to implement an option whereby the Presidential powers could, for a certain period of time, be weald by his legal double. The Constitution of the USSR contained few articles stipulating the activities of the USSR’s Vice-President; however the functional essence of this new, high position, in his capacity as an insurance-double for the President, was clearly reflected in a legal sense.
Hence, Article 127.4. of the Constitution of the USSR stipulated: “The Vice-President of the USSR shall exercise, upon a corresponding request from the President of the USSR, certain of his powers, replacing the President of the USSR in cases of his unavailability or incapacity to carry out his functions ”.
The most important role of the Vice-President of USSR was even more eloquently described in Article 127.7 of the USSR Constitution: “If the President of the USSR shall cease to be able to carry out his functions, due to any circumstances whatsoever, his powers shall be transferred to the Vice-President of the USSR, until a new President of the USSR shall be elected; if such transfer shall not be possible, the said powers shall be transferred to the President of the Supreme Soviet of the USSR. In the cases as described in the foregoing, the new President of the USSR shall be elected within three months”.
Naturally, a similar legal formula was also present in the USSR Law No. 1360-1, of March 14th 1990, however the transfer of Presidential powers as stipulated in this provision was envisaged either for the President of the Supreme Soviet, representing the legislative power, or to the President of the Council of Ministers, as the representative of executive power in the Soviet Union. It was, however, only in December 1990 that the conditions were created for this high official to enter the political arena of Soviet government. In the essence of the Vice-President’s functional appointment was the possibility to temporarily replace the current President of the USSR. The Vice-President did not affect, either the parliament or executive power, however, his function was exceptional.
It is of particular interest that in the case of a swap between the two highest government officials, over a certain period of time, no special administrative acts needed to be signed by the President of the USSR. Let us remind ourselves, however, that pursuant to the legal provisions of Article 127.7. of the USSR Constitution, “if the President of the USSR, for any reasons whatsoever, proves incapable of continuing to carry out his presidential functions”, this fact alone, without going any deeper into the circumstances in question, provided sufficient legal grounds for invoking the corresponding legal consequences, which may “entail the transfer of the presidential powers to the Vice-President of the USSR”.
For the sake of clarity, let us compare the legal provisions of Articles 127.7 and say, Article 127.4. of the USSR Constitution, which stipulates that: “the Vice-President of the USSR shall carry out some of presidential functions, upon request of the President of the USSR ”, or with Article 127.9, which was included in the Constitution of the USSR until 26th December 1990, and which stipulated: “The President of the USSR may entrust the execution of his functions”. Both examples clearly indicate that a certain expression of will was required from the President of the USSR, which always needed to be laid out in a form of an administration management act.
And so, the executive power in the Soviet Union was strengthened whilst the leaders of Soviet republics were invited to work through the Federation Council, above all in accordance with the Constitution and the laws of the Soviet government, acting “in accordance with the internal and external policies of the USSR, as set by the Congress of People’s Deputies of the USSR”. In the cases where the President of the USSR, Mikhail Gorbachev, for any reasons whatsoever, could be prevented from performing his duties, regardless of the causes of such prevention, legal foundations had been laid down in accordance with which he could be replaced, for a period of up to three years, by his Vice-President, which, at the time was embodied in the person of Genady Yanayev.
6. Furthermore, anxious about the growing separatism amongst the ranks of Soviet republican governments, which could potentially lead to irreversible consequences for the Soviet Union as a sovereign, single subject of international law, the Congress of People’s Deputies of the USSR decided to organise an all-nation vote (a referendum) on the existence of the USSR.
Such a call on the widest possible population in all Soviet republics, to express support for the policies carried out by the Soviet government was, undoubtedly, required in order to secure an unambiguous justification to use all command and administrational resources to preserve the integrity of the Soviet Union, as envisaged by the Constitution and laws of the USSR.
The results of the all-union referendum, this legal instrument of spontaneous (direct) democracy, carried out on March 17th 1991, showed that 74%, that is to say, a vast majority (almost ¾) of those citizens taking part in the referendum, supported the preservation of the Soviet Union, although in its reformed shape. The reform assumed renunciation of the concept of the construction of socialism and acknowledgement of the necessity to revise the relations within the Union and sign a revised Union Treaty.
However, the leadership of the Soviet republics, especially the RSFSR, referring to Article 72 of the Constitution of the USSR, whereby each Soviet republic shall have the right to freely leave the USSR, stubbornly continued to implement policies aimed at irreversible consolidation of republican sovereignty and its own power, the cost of which was a reduction in the sovereignty of the USSR and limitation of Soviet Government authority.
In the ensuing situation, the President of the USSR, Mikhail Gorbachev made his last and, as time has shown, rather weak efforts to preserve the integrity of the state he was heading. He lead continuous talks with the leaderships of the Soviet republics, aimed at signing a revised version of the Union Treaty, which, based on the new historic facts and the results of the recent referendum, could reassert the purposefulness of the existence of the USSR, in a form of a federation of sovereign states, created by their voluntary unification. In this respect, the administrational and economic rights of the republics were going to be significantly extended, whilst the republics would transfer one part of their sovereign rights to the Federation, in the body of the Soviet Union. Some of these rights would result in the creation of a joint federal state border and customs service, a single currency, central command of the armed forces, interior and border troops and a single judiciary system.
It should be pointed out that these talks were concluded with an expectation of a positive outcome where they were chaired by the leadership of those Soviet republics, situated along the borders of the USSR who had not yet announced (declared) their intention to seek independence. Only the RSFSR was against, stirring a “ship mutiny” on its own.
Finally, by his Decision, the President of the USSR Mikhail Gorbachev set 20th August 1991 as the date for the opening of a procedure for signing of the new version of the Union Treaty, the draft copy of which had been published, a few days earlier, in the main printed media.
As indicated by the analysis of the aforementioned legislative USSR and RSFSR acts, in the second half of the summer of 1991, the central government of the Soviet Union was de facto facing a challenge in a legislative form. Almost simultaneously, over a period of a few days in August 1991, some important events were going to happen, which could not have been without consequence for the actions of the government high officials, on which depended the destiny of the new Union Treaty. Let us remember:
1) The Council of Ministers of the RSFSR was legally obliged to suspend all statutory acts issued by the Government, ministries, state committees and bodies of the USSR, on the territory of the RSFSR, which were in contradiction with the RSFSR Law “On privatisation of state and municipal companies in the RSFSR”, as of August 15th 1991;
2) By September 1st 1991, a State Privatisation Programme had to be drawn up and submitted to the Supreme Soviet of the RSFSR for approval;
In spite of Article 74 of the Constitution of the USSR, which at the time was still valid, which contained a legal provision pursuant to which the USSR laws had equal force on all territories of the Soviet republics. If the republican laws were not in compliance with the all-Union laws, the USSR law would prevail.
All that happened was that the leadership of the RSFSR started a battle for the right to independently coordinate its policies for removal of state control and determination of the privatisation implementation programme, disguised as a battle for sovereignty, deliberately infringing the Constitution of the USSR, consequently, provoking the high state authorities of the Soviet Union to resort to a corresponding response.
What was coming was not a democratic revolution but a “communal” squabble at a highest level, between the authorities of the USSR and the RSFSR, about who would set the rules for the distribution of people’s industrial assets which had been accumulated for decades.
The Soviet authorities, demonstrating visible inertia based on the still present socialist sense of justice, were not nearly as active as the “young reformers” team of Boris Yeltsin, whose members were acquainted with the theory of capitalist management of economy and who were now doing their best to reserve the right to cut up the “privatisation cake”, distributing it between the “protectors of democracy”, as selected by the master of the Kremlin and the rest of the population.
It was in this situation that the President of the USSR, Mikhail Gorbachev naively proposed the signature of a new version of the Union Treaty to Boris Yeltsin who was appointed to his post on June 16th 1991, who, in the past moved from the First Secretary of the Sverdlovsk Regional Committee of the Communist Party of the USSR to become the President of the Supreme Soviet of the RSFSR, and whose education was based on the examples of Bolshevik methods in political fighting. True, all this would be funny today, had it not been so sad!
We can only guess what version of the Union Treaty would have been acceptable to Boris Yeltsin, who, since mid-June 1990 had been inspiring his actions by such revolutionary documents of that time as the “Declaration of the state sovereignty of the RSFSR”, and who was lead by his conviction, not completely unfounded, that Mikhail Gorbachev was completely incapable of defending the life of the USSR.
In the circumstances of confrontation with the leading republic, with the largest economic potential, all efforts by the President of the USSR, preoccupied with his own foreign policy of “new thinking”, to preserve the historic integrity of the Great state, proved futile. The pungency of the moment was further intensified by the clear intention of the high officials coordinating the government of the RSFSR, to proceed, as quickly as possible, with privatisation of the largest state industrial companies and groups (concerns), according to their own rules and without any limitations in a form of quota.
The conflict of sovereignty between the USSR and the RSFSRT was nearing conclusion.
The probability of political dismemberment, undesired by the President of the USSR, was high. Based on the logic of the events, the President of Russia Boris Yeltsin could afford to categorically refuse to sign the Novo-Ogarev draft Union Treaty, prepared under the leadership of the USSR President Mikhail Gorbachev, on August 20th 1991, publicly, in front of other leaders of the Union republics..
Any other draft Union Treaty, which could have been made to take account of the Declaration No.1 “Of state sovereignty of the RSFSR”, would, in the best of cases, lead to the creation of a confederation of the Union republics, and the Soviet Union would have ceased to exist in its form of a single, strong, federal state. This was, evidently, the idea behind the text of the Declaration, where in the first few lines, following the ceremonious declaration of the RSFSR’s sovereignty, the text talks of “determination to create a democratic, constitutional state within the renewed USSR”.
The renewed USSR would, no doubt, be such a confederation. In view of this, the actions of the high officials at the head of the RSFSR, taken immediately following the Declaration, aimed at obtaining real sovereign powers, who, in this respect, consequently, sought the increase in tensions in their relations with the leadership of the Soviet Union, in all key issues concerning government powers.
It was in these, most complex circumstances, that Mikhail Gorbachev went on holiday with his family, on August 3rd 1991, leaving Moscow for the state holiday ‘dacha’ near Foros, in the Crimea. This incredible move must have been inspired by the Russian saying: “When you don’t know what to do, instead of stepping ahead, make a pause and then go on holiday”. Removing himself from power, Mikhail Gorbachev leaves his Vice-President Genady Yanayev in charge, a man who, in the words of a well-known columnist and in the past, a KGB General-Lieutenant, Nikolay Leonov, was a little-known personality whose colourlessness stood out even against the background of the overall Soviet political greyness of the past. Gorbachev insistently strived to secure the appointment of this man to the post of Vice-President of the USSR, based on a well-known selection principle “the darker the skies, the brighter the stars”. (N Leonov, “Russia’s way to Golgotha”, page 13)
The absence of political authority of Genady Yanayev, as the Vice-President of the USSR, who had spent less than a year on the job, undermined his efforts, as well as those made by his entourage, to prevent the disintegration of the USSR. They proved incapable of using the legal instrument which was, indeed, in their possession.
While the President of the USSR, Mikhail Gorbachev was on holiday, in the evening of August 18th 1991, the Vice-President of USSR, Genady Yanayev, signed an Order on temporary assumption of Presidential duties, formally assuming all powers in the country. Indeed, the text of the Order referred to Mikhail Gorbachev’s illness, which, in view of the authors of the draft Order, provided sufficient basis for the assumption that Mikhail Gorbachev was no longer capable of performing his duties, which, in their view, would be the best substantiation for the decision to transfer his presidential powers to the Vice-President.
However, the aforementioned Order was not the result of Genady Yanaev’s own intention to head, on August 20th 1991, the talks with the leaders of the Union republics on the signing of the new Union Treaty. This was merely a preliminary step towards the next move, aimed at the imposition of a state of emergency, with the view to prevent the signing of the Union Treaty as it was, formulated in a way which was unacceptable to the Soviet leadership.
In accordance with the legal provision contained in Paragraph 12, Article 127.3. of the USSR Constitution, “in the interests of safety of the USSR citizens, the President of the USSR shall warn of the imposition of the state of emergency in individual locations, and, where necessary, impose the same upon request from, or in agreement with, the Presidium of the Supreme Soviet or another high representative of the government of the corresponding Soviet republic. Where such an agreement has not been obtained, the President shall impose the state of emergency, immediately submitting the decision to the Supreme Soviet of the USSR, for approval. The corresponding Decree by the Supreme Soviet of the USSR must be voted by a majority of at least two thirds of the total number of members”.
Of course, to have waited for an approval of the RSFSR leadership before imposing the state of emergency would have been irrational and absurd. Indeed, a group of high officials, who were not headed by Genady Yanayev but rather used his high position as a carrier for their plan, imposed the state of emergency, at four in the morning of August 19th 1991, for a period of up to six months, in the whole of the Soviet Union, transferring all powers of government were to the State Committee for the State of Emergency (Rus. GKCHP).
The State Committee for the State of Emergency (Rus. GKCHP), was created as a body with collective responsibility, without a prominent leader, which right from the outset, sealed its destiny as a body of government. The importance of this action and the uncertainty of its possible consequences for the post-perestroika civil society, torn by controversy, burdened most members of the GKCHP with anxiety about possible personal, legal, political or historical responsibility. Indeed, as it became clear later, the Committee was ridden with inaction, confusion and spiritual weakness. Still, the requirements set by the legal norms of the USSR Constitution were fully met, including the basis for imposition of the state of emergency, whereby a session of the Supreme Soviet Union of the USSR was scheduled for August 26th 1991, with the view to endorse the action taken, aimed at preserving the integrity of the Soviet Union, based on the results of the all-Soviet referendum.
The state of emergency in the Soviet Union, imposed one day before the scheduled signing of the new Union Treaty, suspended the activity of political parties and public organisations, banned meetings, street processions and strikes. The GKCHP organisers failed to see that the veil of secrecy, in circumstances where the reasons and objectives of the state of emergency have not been clearly stated in the media, so that the USSR citizens, and most of all Muscovites, can see them, hear them and understand them, would undermine their plans right from the outset.
The imposed bans impacted on the Glasnost, which had been nurtured by Gorbachev and to which the citizens of the country and especially Muscovites, were now accustomed, turning the liberally-minded, anti-Soviet parts of the electorate against GKCHP and the Vice-President Genady Yanayev, and consequently gave the initiative to the political opposition concentrating around the Supreme Soviet and the President of the RSFSR, which they eagerly took.
In addition to Genady Yanayev, GKCHP also included the Prime Minister of the USSR Cabinet of Ministers Valentyn Pavlov, the President of the KGB in the USSR, Vladimir Krychkov, Minister of Defence of the USSR Dmitri Yazov and the Minister of the Interior of the USSR, Boris Pugo. GKCHP’s action was evidently supported by significant numbers of the armed forces. Army units were brought to Moscow, from the Taman motorized infantry division, from Kantemyrovskaya tank division and the 106th parachute division, although it is not clear why. However, the armed support proved useless as no one seemed to know quite what to do, whom to fight or what to guard and from whom.
Having imposed the state of emergency, none of GKCHP members had the political will to continue in accordance with the legislation which was still in force, and deploy, where necessary, all available instruments of administrative and criminal law and, if opposed, force. Perfectly aware of the openly intentional infringements of the legal norms set by the Soviet constitutional legislation, committed by RSFSR leadership, which without any doubt would have qualified for the application of norms as set out by the criminal law of that very same Soviet republic (RSFSR), the Committee members, indeed, did not break any laws, all the more, they were pathologically afraid to use them. As a result of this three-day-long ground stamping, it was GKCHP that collapsed, its actions presented by the interested parties from the ranks of Boris Yeltsin’s supporters, using the controlled media, as a “coup”, that is to say an illegal attempt to overthrow the government.
Indeed, a very arguable judgement;
if we were to take into account, firstly, the illegal and openly provocative actions of Boris Yeltsin’s team, aimed at quick conclusion to the process of isolation of the “sovereign” Russian Federation, with the view to carry out a non-controlled privatisation of the now, already ‘former’ Soviet industrial companies and groups (concerns); secondly, moving aside the purely demagogical arguments concerning the temporary limitations of civil liberties, resulting from the imposition of the state of emergency, and concentrating on the objective, that is to say, the preservation of the Soviet Union, pursuant to the popular desire expressed in a referendum.
The only thing for which the members of GKCHP could be reproached for by their opponents, based on the slightest of arguments, was the extension, by them, of Mikhail Gorbachev’s “holiday”, by 72 hours, during which time the President of the USSR was allegedly completely isolated, without telephone or radio. Indeed, GKCHP members were incriminated for almost violent imprisonment of the leader of the government with the view to prevent him from making governing decisions. This is a very serious accusation which, supported by adequate evidence, had to lead to a conviction. Indeed, the GKCHP members could not be granted an amnesty as they had to be labelled as conspirators, aiming to take over the government, which is a deed qualified as high treason.
Naturally, this could not happen as the history of the Russian state is indeed full of putsch, coup d’états and revolutions which could not proceed without the blood spilling of dignitaries. The members of GKCHP were no doubt well aware of this. Indeed, such was the death of Prince Alexei, in the ravelin of Peter and Paul fortress, whose conspiracy (again a putsch) against his father, the Emperor Peter I was foiled. Then there was the coup d’état, which was successful thanks to the participation of the Russian Guard (a mini-revolution of the security services), which lead to the mysterious death of the Emperor Peter III, July 16th 1762, and the enthronement of the Anhalt-Zerbst Duchess who later became the Empress Catherine II.
And then in the relatively recent past, on March 11th 1801, the Emperor Paul I was strangled by an officer’s neck-piece, a man who had abolished many of the gentry’s privileges striving to add a relish of equality to Russian civic society. Had the lethal apoplexy stroke not occurred (according to the official cause of death at the time), the conspirators (again the putschists) would surely have been punished the next morning. The Bolshevik revolution in Russia was no exception and on July 18th 1918, in the house of a merchant Nikolai Ipatiev, the blood was spilled of the already former Emperor of Russia, Nikolai II and his heirs.
In other words, if a putsch had been carried out on August 19th 1991 in Russia, the members of GKCHP could never expect amnesty, which indeed did not extend to convictions based on the so called “firing squad articles”, including Article 64 of the Criminal Code of RSFSR, entitled “High Treason” qualifying the act as “conspiracy aimed at taking over the government”. Consequently, if the actions of GKCHP members had elements of the aforementioned crime, they would have no doubt acted in a much more resolute way. Indeed the destiny of Mikhail Gorbachev could easily have been tragic. This is essentially how it all happened in Chilli, September 11th 1973, when the military Junta of Augusto Pinochet executed the democratically elected President of the country, Salvador Aliende.
There is little doubt that the breakup of the Soviet Union could not have happened solely due to objective circumstances, without the significant input of the human factor. On the other hand, should we really look for elements of crime in the actions committed by GKCHP members, trying to convict them of conspiracy aimed at taking over the government when we know that they had already been legally given the power and that they were only trying to save their homeland, the Soviet Union, from destruction! It follows that similar elements could be sought in the provocative actions of the leaders of the opposition to GKCHP who, in addition to everything else they did, hurriedly gave amnesty, avoiding, detailed investigation of the events which took place on August 19th – 21st 1991, blotting out the truth and hiding their power hungry intentions behind pretended mercy.
P.S. “Article 64. High Treason
а) High Treason, that is to say, deeds which are intentionally carried out by citizens of the USSR with the view to cause harm independence, territorial integrity or military might of the USSR: joining the enemy, espionage, disclosure of state or military secrets to a foreign state, … helping a foreign country carry out hostile actions against the USSR as well as conspiracy aimed at taking over the government.
is punished by imprisonment from ten to fifteen years, with confiscation of property and exile from two to five years or without exile, or by death with confiscation of property”.
(Criminal Code of RSFSR)
The formation of GKCHP was most likely, bound to fail, a choreographed and staged spectacle, factually approved, even just by the silence and inertia of the President of the USSR, Mikhail Gorbachev, who was in no way threatened by the whole situation. Indeed, by August 18th 1991, he received a delegation of high Moscow officials at his residence in the Crimea, seeking agreement on the imposition of the state of emergency.
This is how these events were described by Nikolai Leonov, in his Book “Russia’s way to Golgotha”: “The delegation was sent to inform Mikhail Gorbachev about the worsening situation in the country and to obtain his agreement to impose the state of emergency in the country. If Mr. Gorbachev should fail to give his consent, and approval for such a measure, he was going to be asked to temporarily surrender his presidential powers to his deputy, Mr. G Yanayev, consequently giving a silent approval to the measures which would include the “imposition of the state of emergency”. Indeed, the conference was far from friendly. Mr. Gorbachev was not agreeing on anything, not accepting any arguments. But Mr. Gorbachev would not have been himself if his words were decisive and categorical or backed up by actions. He could have had them arrested, as he had sufficient power and force for that. He could also have immediately telephoned the Kremlin and G. Yanayev (all connections were open at the time) and give any instructions to his close allies, requesting cessation of all preparations for the state of emergency, until his return. He could have easily got on the plane and flown back to Moscow, since he knew what was cooking. But he did none of that. The messengers returned to Moscow from Foros in the evening of August 18th, and went straight to the Kremlin, where they were awaited by the principal members of the future GKCHP. The Prime Minister of the USSR at the time, V Pavlov remembered later: “From the report delivered by the comrades it was obvious that Gorbachev had chosen his usual stance – “do it and if you succeed I will be with you. If you fail I will be your enemy who knew nothing about it”. This is further supported by his references to his state of health his best wishes the previous day as well as his words “do what you will”, under the pretext of completion of his cure”. Such behaviour, such political restlessness was well known in Gorbachev’s entourage. All those preaching the myth of “the prisoner of the Foros”, cannot point to a single fact which could substantiate the claim that the guards and staff at the villa were in some way, limiting the President’s freedom or that they refused to carry out his orders. The truth is that such a situation suited Gorbachev as it allowed him to stay aside from the skirmish which was emerging in Moscow. He could calmly observe how the situation developed and then, once the outcome became apparent, try to get close to the winners”. (N Leonov, “Russia’s way to Golgotha”, pages 15-16; page. 28)
The ensuing political spectacle poorly performed by one set of players, accompanied by the broadcast of Tchaikovsky’s ballet “the Swan Lake”, gave inspiration to the others, to go ahead with their own scenario, starting on August 19th 1991, with the address “To the Citizens of Russia”, in which references were made to reactionary forces, who are using violence to prevent the signing of the new Union Treaty. Subsequently, GKCHP and its actions were labelled as illegal whilst all structures of government and coordination were called upon to obey only the RSFSR laws and the Orders issued by the Russian President.
In order to provide the reader with the clearest possible picture of these events, let us once again return to Nikolai Leonov’s book “Russia’s way to Golgotha”: “Russia fell silent awaiting the outcome, thought by history to follow the destiny of its capital city. Galina Starovoitova, one of the most ardent supporters of the “democratic movement”, kept repeating: “The main objective is to win in Moscow and Russia will follow suit”. She was right. Indeed, Moscow is home to all power structures, all financial power and all media are coordinated from there. In the capital, the balance in sympathy, society and passionary energy was clearly on the side of the White House – home of the Russian parliament. And still, as the deputy mayor and the head of the government of Moscow, Y M Luzhkov wrote in his pamphlet entitled “72 hours of agony”, published immediately after the events, he had to admit that the great masses of the Moscow proletariat were more inclined to support GKCHP, than the “democrats”. Once such body, the collective of the Moscow industrial giant, the Likhachev factory, refused to obey the Moscow authorities. All military industrial facilities, of which there are many in the capital, also took an expectant/hostile position in respect of the White House. Mr. Luzhkov remembered one case, when a Moscow district council chairmen, having received an order to start a general strike, added “not to be executed” on the leaflet. Indeed, there were no general strikes in Moscow. All communal services were working as well as shops and public transport. Not to mention the rest of the country”. (N Leonov, “Russia’s way to Golgotha” page 24)
The political spectacle reached its culmination when the President of Russia, Boris Yeltsin, stood on a tank, called upon the surrounding crowd to disobey. This picture, so many times repeated on TV screens, was moving, but it also inspired thoughts. Indeed, something like this had already been seen in Russian history, when on April 4th 1917, Vladimir Ulianov (Lenin) stood on an armoured vehicle and read his theses “On objectives of the proletariat in the present revolution”.
Boris Yeltsin was calling on the people not to obey the authorities of the Soviet Union, to be indomitable in respect of the power structures, like Ulianov (Lenin) relying on the assumption that the “root of the issue in every revolution is power in the state. As long as this issue is not clear there can be no talk of any conscious participation in the revolution, not to mention its leadership”. (V Lenin “On diarchy”, collective works in four volumes, vol 2, page. 129) Indeed, those revolutionaries who do not manage to come by power are always referred to as the putschists by history. It is amazing how two ideologies which are diametrically opposed use identical methods to achieve their political objectives!
History did not forgive political mistakes and indecisiveness either to the provisional government, in 1917, or GKCHP in 1991. Although, from the point of view of legality, both the Provisional Government and GKCHP were sounder than those who overthrew them by replacing the principle of the rule of law by that of historic purpose. It could be said that in both cases, the relative bloodlessness was only preserved in the initial stages of the revolution. Their consequences on the other hand, were the loss of countless lives, territorial integrity of the state, influence in foreign policy and internal stability.
Provoking the President of the USSR, like a bear in the cage, deprived of the wisdom and decisiveness of a real mature statesman, Boris Yeltsin’s team clearly understood that Mikhail Gorbachev’s American and European “friends” would not allow him to use force to preserve the country’s territorial integrity. Mikhail Gorbachev, consequently, demonstrated indecisiveness and the pathological fear of responsibility, constantly observing what the West thought, failing to inspire the members of the team of high officials he lead, with any confidence in his vision, willingly or unwillingly, tactically lead the Soviet Union to destruction. Figuratively speaking, Boris Yeltsin’s team was not even facing a caged bear but rather a stuffed one. The shaking hands of Genady Yanayev, during his television address on August 19th, combined with Mikhail Gorbachev’s incoherence, upon return from his “captivity”, at Moscow airport, on August 21st of that fateful year, bear witness to that.
Once completed, the defeat of GKCHP brought great joy to those who, for the long years, tried to oppose the Soviet Union from abroad. The Great Country imploded as a result of the efforts of reformers, descendants of those who, in 1917, destroyed the Russian Empire. Already on August 24th 1991, the Supreme Soviet of the Soviet Republic of Ukraine adopted the act of independence of Ukraine. On August 25th Belarus followed the same example, 27th August Moldova and on 30th August, Azerbaijan declared independence. The historical ending of the existence of the USSR was shown by the Agreement to create a Commonwealth of Independent States (CIS), signed on December 8th 1991, in the virgin forest of Belovezhskaya, by the Presidents of Russia and the Ukraine and the President of the Supreme Soviet of Belarus, in which it was stated that “the USSR hereby ceases to exist as a subject of international law and geopolitical reality”.
What could possibly have motivated this kind of move by the heads of state, such as Boris Yeltsin, Leonid Kravchuk and Stanislav Shushkeyevitch, other than the strive for the power of government, sustained by the thirst for implementation of their own plans for economic and property reforms, compelling for division of the USSR’s assets?! An answer to that question, to a certain extent, can be found in the statement by a professor of the political economy department of William E. Simon Centre for Strategic and International Research, Paul Craig Roberts, which he made in September 1991, whereby: “The property conflict is at the root of many conflicts in the Soviet Union”. (Collected materials from the conference held in Moscow, in September 1990, by the Caton Institute (USA) entitled “From plan to market”, page 154, article by Paul Craig Roberts entitled “Privatisation as an answer to all problems”)
The aforementioned political leaders signed an agreement which was disastrous for the USSR, completely ignoring the results of the Soviet-wide referendum of March 17th 1991, that is to say the wishes of the majority of the people lead by them, as well as the fact that a referendum is one of the legal concepts of spontaneous (direct) democracy. By taking part in a referendum, each person has the opportunity to influence the issues decided, which are of the utmost importance for the State and its citizens, by expressing his/her will The count of votes produces the result which should not only serve as the guideline for the government but be implemented by the government authorities. Failing to do that, the governmental will of the few officials, even if they are occupying high offices of government, de facto opposes the genuine right of the people, given to them through the history of their land, and through opposing the power of all people, they oppose democracy. The statement “the highest power lies with the general assembly of all citizens” underlines the true character of such an understanding” (T Hobbs “Leviathan; on the matter, form and power of a commonwealth, ecclesial and civil”, page 133), as the power of government always stems from the will of the people rather than the other way round!
With this in mind, the leaders of the former Soviet republic can in no way be considered democrats. Attempting to avoid the burden of responsibility for the breakup of the USSR, they signed a declarative “statement of heads of government”, in which it was stated that it was “the short-sighted policy of the Centre that caused the deep economic and political crisis, breakdown in production, a catastrophic drop in living standards in almost all sections of society”. Bearing in mind the stalling of talks on the signing of the new Union Treaty, the “objective process of leaving the USSR by the republics and their independence has become a reality”. We need to observe, however, that the analysis of legal documents which came into effect before August 19th 1991 leaves us the possibility to imagine that the leadership of the RSFSR, amongst others, did not have any intention of signing the federal version of the new Union Treaty.
The termination of the existence of the USSR was caused by internal controversies which had arisen between the authorities of the USSR and the Soviet republics and then further sustained by active foreign support. As it has already been stated, the President of the USSR, Mikhail Gorbachev, enjoyed the political leadership goodwill from a whole range of leading foreign countries, but at the same time, was seriously limited in his capacity to make decisions aimed at the preservation of the country he ran.
The risk of a state collapse due to such behaviour by its ruler (in the middle of the century the king), was described as far back as 1651, by the then leading philosopher and political intellectual, Thomas Hobbes, in his book “Leviathan: matter, form and power of a commonwealth, ecclesial and civic”: “Nothing made by mortals can be immortal. Still, if men had the use of reason that they claim to have, their commonwealths could at least be safe from perishing by internal diseases. … Here is one. Sometimes a man wanting to obtain a kingdom settles for less power than is necessarily required for the peace and defence of the commonwealth. From this it comes about that, when in the interests of public safety, the sovereign takes up the exercise of the power that he previously forwent, this has the appearance of an unjust act, which disposes many men to rebel if they see an opportunity to do so. … When kings deny themselves some such necessary power, it is sometimes out of ignorance of what is necessary for the office they undertake. In other cases, though, the king is not ignorant about what he needs, but merely hopes to recover that power whenever he wants to. In this he is not thinking well, because those who will hold him to his promises - including promises about how much power he will hold and exercise• - will be supported against him by foreign commonwealths, which for the good of their subjects take every opportunity to weaken the condition of their neighbours.”. (T. Hobbes “Leviathan: matter, form and power of a commonwealth, ecclesial and civic”, pages 220-221)
It is enough to replace the phrase “a man wanting to obtain a kingdom” with “a man wanting to obtain a presidency” to see Mikhail Gorbachev, in the remaining text, who failed to use force committed to him by his position in order to save the multi-national state of which he was in charge from the unconstitutional actions of the leaders of the largest Soviet republic. Furthermore, there was the support of the foreign states aimed at widening the gap between the power structures of the USSR and its constituent republics.
Already in nineteen fifties Britain, a book was published by a military theorist William Jackson, entitled “the Seven Roads to Moscow”, in which he reviewed the seven invasions of Russia from the ancient times: “Military campaigns against Russia were never successful as witnessed by the Swedes, French and Germans. Furthermore, the scale of catastrophe was increased with every subsequent expedition. The only reliable road to Moscow was the one taken by the Vikings, who provided constructive services wished and asked for by the Russian people. We hope though, that no one will attempt to imitate Charles XII, Napoleon or Hitler, and try the military option which, as history has taught us, is bound to fail and may lead to the nuclear annihilation of mankind” .
Analysing the military campaign of the French Emperor Napoleon I in Russia, the famous military writer Carl Clausewitz concluded: “Russia is not a country that can be conquered, that is to say, occupied; neither by the forces currently possessed by contemporary European states, nor by the 500 000 men which Bonaparte committed to that task. Such a country can only be beaten by exploiting its own weaknesses and using its internal dissentions. To reach such weak points in the political being, however, one would need a shock capable of penetrating to the very heart of the country”. (N Yakovlev “CIA against the USSR”, page 277)
During the “cold war” between the USSR and USA, both sides very actively used the historical experience from various types of warfare and small conflicts. Hence already in the first year of the government of the President Lindon Baines Johnson (1964), The State Department received a note from certain K Mangold, an engineer by profession, who had been contracted to work in the USSR during 1934-1936. This event was mentioned in a book by a well-known historian Nikolai Yakovlev, entitled “CIA against the USSR”, published in 1983, stating: “The way this note was treated already shows the level of importance given to the message: duly addressed to the USSR section of the State Department the note found its way to the highest echelons. The wisdom which Mangold wished to share was “In 1917, in Russia, the middle class was relatively weak. Today, there is a large, intellectual middle class, large sections of which are not party members. This part of the population could head a revolution. This middle class will also aspire to democracy with its constitutional guarantees. … We must bring our political interest in line with the interests of these middle classes, rather than with political interests of the “well-to-do” communists. A democratic revolution in Russia would lead to decentralisation and the dismantling of Russian power. Such a revolution would be the surest way to decisively winning the “cold war” without the risk of provoking a nuclear holocaust, which could lead to mass destruction. … However, no general uprising is conceivable as long as millions of ideologically prepared and truly believing communists continue to control the armed forces up to the ranks of major, colonel and even general. A popular revolution will only be possible if those communists could be demoralised and set to fight one another. Ideological demoralisation, on the other hand, could only be carried out using the arguments which are undeniable from their own political philosophy”. (N Yakovlev “CIA against the USSR”, page 277)
This is how our “western friends”, using Marxist and Leninist objective materialism philosophy, convinced yesterday’s communists such as the little experienced, in 1991, Presidents of Russia, Ukraine and Belorussian President of the Supreme Soviet, that the breakup of the Soviet Union was an inevitable, historic reality governing the crumbling of every empire.
As a consequence of this, supposedly objective, historic reality of the death of a state, the very subjective interests of a small group of private individuals came out on top. The Soviet Union broke up and the road was open for deployment of a mechanism of spontaneous privatisation of the largest industrial companies and groups (concerns) – up to now the pride of the USSR and its constituent republics, a privatisation without any meaningful limitations or quotas, accompanied by loud, and false sounding democratic slogans!
2.3. Privatisation after the events of August 1991.
In his book “Privatisation – the Russian way”, which Anatoly Chubais wrote, edited and introduced, the author seems to have overlooked the legislative acts adopted, at the time, by the Supreme Soviet of the RSFSR, which were nothing short of a provocation in respect of the Soviet Union’s Constitution and high government, when he, seven years later wrote about the reforms: “Now it is clear: August 91 needed to happen so that decisive measures could be taken”. (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 40) For Chubais this ‘clarity’ did not arrive when he was editing the book but much earlier, when he was correcting the draft of the RSFSR Law “On privatisation of the state and municipal companies in the RSFSR”, embedding the legal norms which were openly incompliant with the Constitution of the USSR. He must have understood at the time, that such an action would, sooner or later, be met by a response and most likely a sharp reaction, from the USSR government, so based on that, the event of August 91 were far from accidental, and in many respects, a desired reaction, which made it possible to carry out the resulting authoritative-mercenary plans of the Russian pseudo-democrats.
There is no doubt that a decisive implementation of privatisation reforms – Chubais’s way, was not possible in the real sense of the concept, whilst the approaches to the government issues of the Soviet Union and the Russian Federation, although not diametrically opposed, were still conflicting. August 91 brought about not only the gradual removal of the USSR as a subject of international law but also a liquidation of an entire and properly structured state mechanism, which used to issue legislative, normative and sub-legislative acts, which were binding and subject to compulsory implementation on all Soviet territory, by all citizens and officials. This was a government equipped with adequate control and power structures, which could secure the implementation of the aforementioned legislative and statutory acts by everyone, including those highly placed but, at that time, the still little known Yegor Gaidar and Anatoly Chubais.
Indeed, the main achievement of Gaidar and Chubais supporters was the creation of the conditions by which uncontrolled reforms could be implemented, governmentally insufficiently measured in terms of programming and concept and without adequate legal support. From a legal standpoint, the speed of implementation of this process was often achieved not by the implementation of laws but by using sub-legislative acts, such as Orders, issued by the Russian President Boris Yeltsin, drawn up in haste, sometimes in one day, not always in coordination with one another and sometimes even in evident contradiction.
Indeed, when talking about the automatic character of privatisation, Anatoly Chubais wrote: “In an ideal situation, the law on privatisation should be implemented directly, including all necessary legal norms. But even though this was not possible, we strived to automatically apply all subsequent sub-legislative acts”. (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 46)
In less than one month, following the breakup of the USSR (8th December 1991), when, on December 27th 1991, the Order of the Supreme Soviet of the Russian Federation No. 3020-1 “On the separation of state property in the Russian Federation into federal property, state property of the constituent republics, regions, districts and autonomous provinces of the Russian Federation, the cities of Moscow and St Petersburg and municipal property” came out. This was the first attempt of a legislative body, which was already independent from the Soviet Union, to continue the formation of the statutory basis for industrial privatisation, as a logical extension of the RSFSR law “On privatisation of state and municipal companies in the Russian Federation”, of July 3rd 1991.
In early 1992, the Supreme Soviet of the Russian Federation was generally “in a reformist mood”, – wrote Anatoly Chubais (Under the editorship of A Chubais, “Privatisation – the Russian way”, page. 157) Based on this as well as the trustful leniency of the ruling bodies of legislative and representative power, the Russian President Boris Yeltsin immediately seized the initiative for further development of the privatisation legislation and on December 29th 1991 signed the Order No. 341 “On acceleration of the privatisation of state and municipal companies”. This statutory document acknowledged the “basic principles of the privatisation of state and municipal companies in the Russian Federation in 1992”, as developed based on the draft State Privatisation Programme, which came into effect on January 1st 1992. This date marked the beginning of industrial privatisation – Chubais’s way.
The newly-styled Russian reformers were in an obvious hurry as they had no interest in waiting for the lawful implementation of the first draft of the State Privatisation Programme by the Supreme Soviet of the RF, which could have given rise to easily imaginable difficulties for them. Indeed, according to a proposal by Yegor Gaidar, as of January 1st 1992, a scheduled “floating” of wholesale and retail prices for consumer goods was supposed to take place, in strict accordance with the recommendations of foreign specialists with the view to create a market economy However, as a result of such action fully justifiable concerns would have arisen amongst the Deputies of the Supreme Soviet of the Russian Federation, who would tend to uphold the interest of their electorates and impede the adoption of the State Privatisation Programme as put forward by Anatoly Chubais.
In order to provide at least some justification for the haste with which the Order No. 341 of December 29th 1991 was signed, the text itself, underlined the need for further elaboration of the State Privatisation Programme based on the experience gained through privatisation in the first quarter of 1992 as follows: “The Government of the Russian Federation is hereby required to review the State Privatisation Programme for 1992, based on the experience of the first quarter of 1992, By March 1st, with the view to submit it for approval of the Supreme Soviet of the Russian Federation”.
The Deputies of the Supreme Soviet of the Russian Federation did not react in any way, to the fact that the functions which, by the power of the country’s legislation, were entrusted exclusively to them, were now being taken over by the first Russian President, on a plausible pretext, that is to say the head of executive, rather than the legislative power of the country. And all in spite of the Section one, Article 3 of the RSFSR Law “On privatisation of state and municipal companies in the Russian Federation” which stated that “The (Privatisation) Programme shall be presented by the Government of the Russian Federation and approved by the Supreme Soviet of the Russian Federation”.
The short-sightedness of the Deputies, caused by the head-spinning success of “democratic reforms” and the strange feeling of the freedom of Russia, from itself as part of the USSR, combined with the popularity of Boris Yeltsin, allowed the Russian President to take the initiative, this time irrevocably and finally, and formulate the legal basis for the privatisation processes to be carried out in the country.
The presidential Decree No. 341 ordered the Ministry of Information and Press, the All-Russian Broadcasting Company (Russ. VGTRK) “to secure publication of the basic principles of the privatisation programme for state and municipal companies in the Russian Federation in 1992, as well as broad debate and coverage thereof in the media”.
On the back of an extensive PR campaign, the Supreme Soviet of the Russian Federation adopted the Law “On the amendments and additions to the RSFSR Law “On privatisation of state and municipal companies in the RSFSR”, on June 5th 1992. Apart from changing “RSFSR” to “Russian Federation” the new text reflected the numerous provisions from the earlier Decrees by the Russian President Boris Yeltsin. In less than one week, on June 11th 1992, almost half a year from the beginning of privatisation – Chubais way, the legislative body of the country adopted Order No. 2980-1 “On the implementation of the State Privatisation Programme for state and municipal companies in the Russian Federation in 1992”. By this act, the MPs merely acknowledged the fact of the existence of industrial privatisation which was already in full swing throughout the country, coordinated by the rules as developed and implemented by the executive power.
The State Privatisation Programme for 1992 in particular gave the legal basis to numerous provisions of the Presidential Decree No. 66 of January 29th 1992, “On acceleration of the privatisation of state and municipal companies”. The original text of Decree No. 66 and its Supplements set the basic requirements for applications, evaluation of assets subject to privatisation, for the reform of state and municipal companies into open-type stock companies, for privatisation through competition and auction as well as the role of privatisation committees.
With the view to “accelerate the privatisation process and secure the rights of citizens” the Decree of the Russian President No. 322 of April 2nd 1992, “on additional measures aimed at the implementation of basic principles of the Privatisation Programme for State and Municipal companies in the Russian Federation, for 1992” the Government of Russia was ordered to “introduce, in the fourth quarter of 1992, a system of personal privatisation accounts system”. Such a move by the executive power was in full compliance with the provisions of the RSFSR law “On personal privatisation accounts and investments in RSFSR”, which was adopted along with the fundamental legislative act on privatisation of July 3rd 1991.
However, just over four months after the issue of the aforementioned Decree, the Russian President Boris Yeltsin signed another Decree, No 914 of August 14th 1992, “On the implementation of a system of personal privatisation accounts in the Russian Federation”, striking out the sub-legislative act he had previously signed, which found itself in contradiction with the Law mentioned above. The head of the executive power obviously considered incorrectly the freely circulating privatisation cheques (vouchers) as citizen’s personal privatisation accounts, demonstrating either utter inconsistency and thoughtlessness in his actions or complete ignorance of the state of affairs.
Either way, the first Russian President, willingly or unwillingly, demonstrated complete disrespect for the country’s legislation which could never had happened, had Boris Yeltsin and his team been lead by democratic principles rather than just openly bragging about them.
A few months later, on October 9th 1992, in its Order No. 3608-1 “On the progress of the State Programme for privatisation of state and municipal companies in the Russian Federation in 1992”, the Supreme Soviet of the Russian Federation gave the following assessment of the work performed by the executive power:
“– certain sub-legislative acts issued by the Government of the Russian Federation as part of the implementation of the State Privatisation Programme for state and municipal companies in the Russian Federation, in 1992, contain provisions which infringe the Federal Agreement, the RSFSR laws “On companies and entrepreneurship”, “On property in the RSFSR”, “On personal privatisation accounts and investments in the RSFSR”, the Russian Federation Law “On privatisation of the state and municipal companies in the Russian Federation”, the private privatisation accounts and investments replaced by privatisation drafts;
– The Supreme Soviet of the Russian Federation has not been asked to approve an economically substantiated calculation of the nominal value of the privatisation bond, as set by the Government of the Russian Federation at R 10,000;
– the rights of the subjects of the Russian Federation to dispose of their property have been infringed as well as the rights of companies to freely chose their form of economic activity;
– The State Committee of the Russian Federation for management of state property during the preparation of draft Decrees of the President of the Russian Federation as well as other statutory acts pertaining to privatisation did not perform its consultative role with the existing chamber committees and those of the Supreme Soviet of the Russian Federation, to a adequate extent; …
– the ministries and administrations of the Russian Federation set up lists of companies, containing those companies which may not be floated or privatised, in contradiction with the Law of the Russian Federation “On privatisation of the state and municipal companies in the Russian Federation” and the State Privatisation Programme for the state and municipal companies in the Russian Federation in 1992”, infringing on the legal rights and interests of the said companies’ employees;
– insufficient efforts are being made to inform citizens about the manner in which privatisation cheques may be used when buying the shares of the privatised companies”.
The adoption of this legislative act expressing, in mildest terms a critical assessment by this highest legislative body, of the privatisation – Chubais’s way, marked the ending of active participation of the Supreme Soviet of the Russian Federation in the creation of the legal base for the privatisation of industrial companies and groups (concerns) in Russia. Anatoly Chubais described these times as follows: “In the autumn of 1992, when they found themselves surpassed by my privatisation cheques, the Deputies formed a special Committee which was supposed to provide an independent assessment in respect of the Presidential Decree on the cheques. An indeed, some time in February, the Committee submitted a draft Order to the Supreme Soviet for approval, which, de facto, put a halt on mass privatisation. The situation was so hot that I found it hard to address Yeltsin regarding that. He was menaced by impeachment and a referendum was approaching”. (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 159)
The laws of the country were substituted by a number of sub-legislative statutory acts, such as:
– Decree of the President of Russia No. 721 of July 1st 1992, “On measures aimed at organisation of conversion of the state companies, state companies’ voluntary associations into stock companies”;
– Decree of the President of Russia No. 1483 of November 27th 1992, “On prevention of discrimination of privatised companies in respect of state financial support”;
– Decree of the President of Russia No. 8 of January 10th 1993, “On the use of buildings with social, cultural, communal and residential designation owned by the privatised companies”;
– Order of the Government of the Russian Federation No. 213, of March 9th 1993, “On employee privatisation fund establishment protocols” and so on.
The dramatic situation which was created between the Supreme Soviet of the Russian Federation and the Russian President in respect of the legal base for privatisation and legislation, was ultimately the key cause of the conflict, resulting in the tragedy of the Russian parliamentarians, known throughout the world and which occurred on Moscow during the autumn of 1993.
* * *
“In October 1991, when the “aiming for reforms” principle was adopted and the President voiced that slogan, active consultations were started. The main centres of these consultations were the presidential administration and the Supreme Soviet Economic Reform Committee. Messrs Krasavchenko, Filipov, Shumeiko and I played an active part in the talks relative to the setup of the Gaidar government. The reformist nucleus of, not only the first but also the subsequent governments of independent Russia, was marked by an acute lack of skilled people”, – wrote one of Anatoly Chubais’s closest allies, Pyotr Mostovoy. (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 67)
As the columnist Nikolai Leonov, observed in his book “Russia’s way to Golgotha”, the lack of skilled people in the Gaidar government was keenly compensated by the participation of foreign consultants: “Neither A Chubais nor any of his fellow organisers in the privatisation process in Russia (A Kokh, P. Mostovoy, M. Boyko and others) ever mentioned their links with American research centres and state agencies who used to consult with them, advise them and give them recommendations. Many in Russia knew that numerous American “experts” took part in the work of the ‘A Chubais’s machine’, who had access to all information and who worked in government offices; however the “democratic” press timidly turned a blind eye to this impropriety. The revelation came from the USA themselves, much later, in 2000, when the republicans spilled the beans in the course of their presidential campaign. As it turned out, in 1991, when the famous events took place in Russia, the so called Institute of International Development was opened at Harvard University, which was used to run processes in Russia from the faraway American shores. The institute was created as a result of talks lead by Anatoly Chubais and Yegor Gaidar from the Russian side and Andrei Shleifer and Jeffrey Sachs on the American side. Andrei Shleifer, a Moscow born American citizen, who left Russia for America with his parents, as a boy, maintained a long-standing relationship with the American Finance Minister Laurence Summers (during the Clinton presidency), who was his teacher and mentor at Harvard. No wonder Andrei Shleifer became the Director of the Institute for International Development and literally won the state contract worth USD 57 Million for the management of financial assistance to Russia. It suffices to know that it was his teacher, Laurence Summers who at that time coordinated all the assistance in development provided to foreign countries, on behalf of the US government”. (N. Leonov, Russia’s way to Golgotha”, pages. 93-94)
In spite of the active consultative assistance of foreign financial experts, in the field of the capitalist market economy, the basis laid down by the developers for Russian industrial privatisation was far from the capitalist principle of un-deniability of the historic right to ownership as the basic means of production. Here, we are talking about the potential (outstanding) inheritance of the recognised descendents of those industrials, manufacturers, guild merchants, the representatives of the ancient Russian bourgeoisie, whose private property was illegally expropriated (nationalised) after October 1917, and which had successfully been used to date.
And so, Paragraph 4 Article 3 of the RSFSR Law “On privatisation of state and municipal companies in the RSFSR” contained a legal provision which stated:
“The present Law shall not stipulate restoration of ownership rights to any proprietors, heirs or assignees thereof, in respect of any companies which have been nationalised, confiscated or expropriated in any other way against the will of the owners and which are currently owned by the state”.
Other laws, which could have stipulated these rights, were simply not passed!
The existence, in Imperial Russia, of private ownership of factories, plants, mines, manufacturers, and other industrial assets, gave their owners the right to freely own, manage and dispose of such subjects of law as they saw fit, as well as to sell, present, pledge rent them etc. If the owners were to lose their properties, partially or fully, as a result of someone’s illegal (criminal) activities, they, as well as their legal heirs, would have the right to seek restoration for the lost property, as well as restoration of the partially lost rights, for an extended period of time following the corresponding rendering of justice.
Pre-revolutionary civil legislation pointed to exclusivity and independence of ownership rights. Mr. Gabriel Shershenevitch, Professor of the Kazan and Moscow Universities and a well-known Russian scientist of law, wrote in his scientific work entitled “A course in civil law”, which was published in the early XX century: “Exclusivity, means that no one has the right to impede the use of property by the owners or to appropriate any such property, without the owners’ consent, or bypassing such consent, the said property representing the subject of the owners’ right. Independence means full freedom of enjoyment of the ownership rights by the owners, independent of the opinion of any third parties”.
“The right of ownership is indefinite and inheritable, in other words, the relationship between the subjects and the objects of the ownership rights shall be extended until such time as legal circumstances shall appear which would break the said relationship. Such legal circumstances can only appear either by the will of the subjects or as a result of the subjects’ fate, or by the force of law. These principles provide an indication of the timelessness of ownership rights, in contrast to other rights pertaining to material goods, such as the right of pledge or use, which are limited by the concept of a time limit upon conception. Consequently, there is not such concept as fixed term or temporary ownership right”. (G, Shershenevitch, “A course in civil law”, 2001, pages 219-220, page 222)
The Bolshevik revolution nationalised the objects of ownership rights, by declaring the civil laws of Imperial Russia incompliant with the principles of the revolutionary concept of law, depriving the subjects’ of their ownership rights (houses, factories, mines etc), requisitioning (expropriating) their assets for the young Soviet Republic.
However, the right of ownership, as we have already seen, is timeless and hereditary – that is to say inheritable. This right is combined with the obligation of the unspecified, greatest possible majority of people, not to allow any actions due to which the property rights of subjects, pertaining to free use, own and dispose of their property, could be partially or fully removed (regardless of the property type).
Furthermore, as Gabriel Shershenevitch pointed out in the aforementioned dissertation: “the right of ownership is limitless by its essence and concept. It encompasses all aspects of the objects owned, in all respects. Limits to ownership rights are never envisaged as they can only be unambiguously imposed by law or a contract. The right of ownership is unique by its flexibility. Whilst it may be suspended by legal or contractual limitations, it always retakes its original form as soon as the said limits are removed”. (G, Shershenevitch, “A course in civil law”, 2001, pages 219-220, pages 221-222)
The effects which the socialist revolution carried out in Russia had on private property, such as industrial assets, was not legal. Private property for both general and industrial use, belonging to Russian bourgeois was requisitioned not based on law or through the will of legal civil agreements, but on a revolutionary concept of law held by workers, soldiers and peasants. Allowing for some degree of relativity, let us imagine that, in the given circumstances, under the influence of the revolutionary pressure, combined with the use of military violence and spillage of human blood of the class enemy, their ownership rights could be suspended. But let us point out the word “suspended”, rather than abolished, which would have implied the non-timeless character of the rights!
Consequently, as soon as the cause of suspension of the rights were removed, when the high government authority of the Russian Federation officially announced changes to the social and political order, renouncing the methods used in the revolutionary expropriation, supported by “proletarian dictatorship”, the issue of full or partial restoration of the suspended ownership rights of the pre-revolutionary bourgeoisie should have naturally imposed itself. Indeed, pursuant to Articles 1 and 8 of the modern Constitution of the Russian Federation, “Russia is a democratic, federal and constitutional state”, in which “private, municipal and state property, as well as other forms of property, are guaranteed in an equal manner”, and in constitutional states, property rights are eternal!
If, on the other hand, we suppose that, in view of the time passed, the former subjects of property rights are no longer alive, we ought to remember that in addition to its other aspects, property rights are hereditary (inheritable). Based on the assumption that not all those, whose property was nationalised during the revolution, were in a position to express their last will (as testators), once the political regime in Russia was changed, after only 75 years, and, as in any constitutional state, the issue of the restoration of these property rights to inheritors, pursuant to the law, should have been raised.
In particular, let us acknowledge that in a democratic, constitutional state, this issue should have been immediately raised whilst looking for a solution by issuing a corresponding legislative act; in spite of the existence of obvious difficulties which any search for possible solutions for this, a serious issue, would have been burdened. This applies even if any such attempt had been reduced to complex lengthy procedures aimed at some form of compensation, which could only partially satisfy the inheritors of the pre-revolutionary Russian bourgeoisie, who suffered due to the expropriation of their factories, plants and mines. One possible solution involving compensation could easily have been an extension of the privileged buyer status for the inheritors in Russian industrial privatisation, whereby the extent of said privilege could have been calculated individually, for each heir of the pre-revolutionary industrialist or manufacturer, based on the evaluation of the property lost through nationalisation of the industrial assets.
This would have been just, at least because the modern industrial property in Russia, including all its plants, factories and mines, in most cases emanated from the very same nationalised industrial facilities of Russian pre-revolutionary bourgeoisie. And still, during the privatisation of industrial assets and groups following the methods of Anatoly Chubais, “the democratic, federal constitutional state” embodied by the Russian President Boris Yeltsin preferred to empower high officials of the Russian government to distribute the people’s property so that they themselves, the descendents of revolutionary expropriators (“the so-called Gaidarovtsy”) could become the new Russian bourgeoisie.
Everything “worked out marvellously”. In the early XX century, accompanied by his comrades, Arkady Gaidar, motivated by revolutionary concept of justice and the concept of universal equality, disregarded the ownership rights, protected by law, of the Russian bourgeoisie, expropriating their factories, plants and mines, declaring it the property of the people of the Soviet Republic. At the end of XX century, his grandson, Yegor Gaidar, in the recent past Editor of newspapers “The Communist” and “the Pravda” (the official journal of the Soviet Union’s Communist Party), assisted by such descendents of the revolutionary expropriators, ignoring the interests of the people, organised a redistribution of the state industrial assets, virtually free of charge, amongst completely indistinguishable people, who did not have any relationship with the said property (for the genuine owners)..
Without alternatives or compensation, disregarding the social and economic rights of the vast majority of the Russian people, the re-emerging ownership rights pertaining to industrial assets of privatised state industrial manufacturing companies and groups (concerns), in a legal essence, were neither exclusive, independent nor timeless, and indeed, will never again be indisputably hereditary (inheritable).
On the contrary, due to its internal weakness, caused by the absence of an adequate legal base for such acquisition, regardless of the formalist and loyalist position taken by the Russian legislative and executive authorities today, the private ownership rights of certain modern Russian capitalists are rather precarious. In certain political and economic circumstances, it would be sufficient to submit the evaluation approach used in the recent industrial privatisation – Chubais’s way, to a stricter adjusting assessment, in respect of the large mining and oil processing industrial groups (concerns), to provide grounds for yet another redistribution of industrial wealth, including some form of its re-nationalisation.
Practically speaking, this would be a continuation down the road of illegality, from one revolution to another, from expropriation to expropriation, until our civil society first and foremost finds it more appropriate to at least morally condemn those persons responsible for the current disorder and secondly, start to live according to formally written laws which do not infringe on the basic concept of social justice, developing purely through evolution.
However, we cannot seriously anticipate the respect of laws stipulating private ownership rights, without exception, by every proprietor of a large business (oligarch), if we know for sure that the legal and social roots of every one’s private ownership rights are based on illegalities. Consequently, unconditional social stability cannot be taken for granted, based on a blind belief that those who seek to substitute legality with justice will never return, sowing the minds of their fellow citizens with the seeds of a revolutionary concept of justice, based on disrespect for written laws, the legal norms of which sometimes protect, rather than condemn, the already established lawlessness.
Indeed, as the beginnings of the future stem from the past, the illegal past gives rise and forms the beginnings of a lawless future!
Already at the end of XVIII century, the founder of German classical philosophy, Immanuel Kant, formulated the concept of the categorical imperative, stating that a man should always act in accordance with the following rule: “always act according to that maxim whose universality as a law you can at the same time will”, unconditionally, regardless of whether that will, or not, bring you benefits”. (Immanuel Kant “History of political thought”, page 194) In other terms, this means that in respect of other people, a person must act in the same way he would expect others to act towards him/her. A society of such people lives according to just laws, as set by the state authority, these laws, in essence, are not different from the natural rights of every individual – member of the society: the right to decent life and health, the right to civil and personal liberties, the right to private property.
When building capitalism, the founding fathers of the methods used in industrial privatisation in Russia, based their work on the Bolshevik nationalisation carried out in 1917, as a result of which the ownership rights of many wealthy people in Imperial Russia were revoked in blatant illegality. In essence, this was equal to legitimising the results of the illegal revolution of 1917, using the same methods to achieve the objectives, by extension.
There is only one difference: in 1917, the deeds were motivated by political action based on an illusive concept of building of a bright future for the majority of people, through accession to power of the Bolsheviks, on the back of this beautiful intention. In 1991, the adventurous economic farce was based merely on greed for enrichment of a small selected presidential minority, aspiring to become capitalists.
At the end of the 80s, as it was already pointed out, all Russian citizens were legally prevented from owning industrial means of production. The capitalist class simply did not exist in Russia. Furthermore, the descendents of those executed between 1917-1933, in the battlefields of civil war, on the grounds of purposefulness of class struggle, were “diluted” amongst the ranks of overseas political immigration, tortured in prisons and camps, exiled in the post-NEP period of “battle against the kulak” and indeed, had no right even to declare any claims to inheritance. Those who, based on the achievements of their revolutionary ancestry, acceded to power and consolidated on their positions, naturally could do without the inheritors of previous, pre-Bolshevik, Russian bourgeoisie, and their possible claims to restoration of the suspended private property rights pertaining to the means of production, therefore unleashed their mechanism of illegality, creating a brand new, bourgeois elite for Russia.
Many individuals from the new Russian elite, having become capitalists, contrary to the teachings of Immanuel Kant, treated the vast majority of their former and present compatriots in the ways which they, evidently would have not ever liked for either themselves or their heirs. Time will not provide relief for the burden of the past and the illegal personal possession of the industrial companies belonging to the people, by its very nature, will, for a long time to come, remain property that had been acquired illegally, rather than legally, even if some formal and legal disguise had been given, in the form of presidential or governmental sub-legislative acts, or results of illegal privatisation deals.
The awareness of this fact immediately pushed the unexpectedly and unspeakably rich new Russian capitalists to engage in a permanent flirtation games with power, setting their hopes on the continuity of their policies to aim, not at fighting but at forming some kind or reasonable partnership with the captains of large private businesses. The well-founded concern for their future as well as the future of their fortunes, forces the contemporary Russian oligarchs to take part in the financing of the not-so-burdensome social programmes and electoral campaigns of various parties, as well as put forward their loyal supporters, for government service, as influential, “independent” candidates, used to the good life through years of work in the corporate structures of the oligarch-controlled organisations.
Russia’s new, bourgeoisie elite is forced to fight for its influence in high government politics every day and every hour, looking for a way to protect itself, its rights and the rights of its heirs, through adoption of those laws and sub-legislative acts which it requires, striving to give its illegitimate appearance in the world and life as much legal and legislative weight as possible.
Furthermore, and no less important is the effort of the Russian bourgeoisie to consolidate its position by fighting to win the people’s hearts and mind. The simplest and quickest weapon in this fight is the media, capable of efficiently forming and bringing to the consumer any kind of ordered information, including any, and even the most absurd, populist, political and economic advertisement. In this way, even the smallest, near microscopic charitable gesture can be represented as a significant event, almost a civil deed, whilst a conviction passed on some oligarch, as a result of a criminal procedure, whose acts were qualified as an economic crime, suddenly appears as a well organised bureaucratic political persecution which supposedly undermines the fundaments of democracy and liberal thinking in the country.
The root of evil is undoubtedly in the initial lawlessness!
Here is the explanation for the major uncertainty observed in some of the richest contemporary, “new-Russian” bourgeoisie regarding their cloudless tomorrow in their historic fatherland, as well as the main reason for their strive to export a significant part of their capital abroad, as quickly as possible, placing it under protection of foreign legislations. Naturally, once the money is partially laundered abroad, it will eventually find its way back to Russia, however, this will be through foreign companies and under the auspices of foreign investment.
These conclusions will probably be met by the approval by most citizens of modern Russia, particularly those who still remember the industrial privatisation – Chubais’s way, and who understand, even only by their “gut feeling”, that enrichment, at a lightening speed, of the new bourgeois elite as well as impoverishment of tens of millions of Russians, was made possible only thanks to the continuous acute lawlessness which was allowed to thrive at the highest government level.
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There is absolutely no doubt that the primordial causes of many events, which have occurred and which are still occurring in Russia today, can be found in the plots relative to privatisation, mainly in relation to the largest Russian state mining companies and groups (concerns), and never in the privatisation of those facilities, the exploitation of which is relative to the life and work of the people, such as their apartments in residential buildings.
Of course, from the point of view of formality and law, these two forms of privatisation are similar, however, judging by their economic content and political significance, they are different. The difference is present in the ways the privatised wealth is used: in one case, the objective is to maximise profits whilst in the other, it is to provide a solution for the social problems of individuals by giving them private ownership of homes. Even in the cases when, following its privatisation, the apartment is rented out to third parties, by the proprietor, based on a commercial rental agreement, with the view to generating additional income, the purpose of the object remains unchanged. The generation of income in this case is not related to exploitation of the wage labourer, which makes it radically different from, for example, a factory, where the generation of the owner’s income is based on the exploitation of privatised means of production and, possibly natural resources, as well as the work of wage labourers.
By parallel implementation of privatisation of both industrial companies and residential facilities, the Russian reformers of the 90s managed to avoid social tension in the civil society, destructing the people by giving them something closer to their understanding. The principle of “a bird in the hand is better than two in the bush” worked for the vast majority of Russians.
The most powerful of those “birds in the bush”, sitting on oil and ore deposits, were delivered to precise destinations, based not on law but on the authoritarian will of the first Russian President, to those citizens who were selected by him, who consequently were able to reach the heights of the social hierarchy. Meanwhile, the “residential birds” and their communal problems was the destiny left for the remaining millions of Russians. The main issue was that here too, everything was irrevocable and free! Indeed, this made it possible to unite the majority of the Russian people for a long time, who, through their own participation in the “residential” privatisation, indirectly supported the policy of illegal distribution of the country’s former national industry, carried out under the cloak and authorization of Boris Yeltsin.
Of course, it should not be forgotten that, as a result of private ownership of one’s own home, the receiver could solve not only his/her own social and economic problems; his/her concept of legality rose as well, along with his/her capability to find his/her bearings in the surrounding environment independently, based on his/her personal experience of property ownership – however small it may be. In a short period of time, Russia saw the rise of an entire class of small owners, who, through their mere existence, created favourable conditions for further “growth” in a new social class which, relying on larger business, provided it with a necessary lifeline and which was capable of providing active support for the policies implemented by the representatives of the new, capitalist elite.
“If the free mass privatisation can be referred to as a compromise with the majority of the population, such compromise undoubtedly became the most important political and economic solution provided in the course of Russian privatisation” – from the memories of Anatoly Chubais. (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 61)
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As already noted, at the beginning of the 90s in Russia, if we ignore certain insignificant development in cooperative production, there was no capitalist way of producing; there were no capitalists, no private owners of the means of production, who could generate profit by using those means in combination with the labour of wage labourers or accumulation of capital. Such circumstances created the need for an initial accumulation of capital, which lead to the idea of a formally irreversible mass voucher-based privatisation of state and municipal companies which was intended to disguise the real objective of privatisation – Chubais’s way, a pre-allocated distribution of the industrial mining groups (concerns), for the benefit of those selected by the President.
In accordance with the teachings of Karl Marx, the studying of whom was compulsory in higher education, an education system through which many of the authors of the methodology used in Russian industrial privatisation passed, “accumulation of capital is based upon surplus value, the surplus value requires capitalist production which, in turn requires significant financial and labour forces of the owner. In this way the entire process is carried out in a vicious circle from which, the only way out is to assume that the capitalist accumulation has its base in the “initial” accumulation (“the previous accumulation” as A Smith referred to it), an accumulation which is not the result of capitalist production but its starting point. In reality, the methods used for initial accumulation may be anything at all, only not an idyll … the so called initial accumulation is nothing but an historic process of separation of the producer from the means of production. This process appears to be “initial” as it forms a pre-history of capital and related production methods. … In the history of initial accumulation, epochs are made of revolutions which provide the leverage for the upcoming capitalist class”. (K Marx “Das Kapital” part 1, Chapter XXIV, pages 725-728)
It should be noted that the initial accumulation of capital and its concentration in the hands of a few, resulting from the privatisation carried out in Russia representing, above all, the largest companies from the mining sector, was also far from idyllic. It was successfully carried out thanks to the political overturn in August 1991 and September 1993, accompanied by spilling of human blood and impoverishment of many, many millions of Russian people.
In the interview given on July 1st 1998 to a journalist of the “Personality Cult” newspaper, one of the few clever oligarchs, Boris Berezovsky (give or take the pluses and minuses of his views and acts), noted in a few words: “The initial accumulation of capital normally happens on the margins of the law. It is important not to cross the line.. … I can decisively say that none of those who managed to join the Russian business elite broke the law”. (B Berezovsky, “The art of the impossible”, vol 1, page.94)
One cannot disagree with this statement, and my readers can find proof of that on more than one occasion, indeed, from the legal standpoint no infringements of the law were observed in Russia as there was no legislation which would precisely stipulate the process of industrial privatisation and the subsequent reorganisation of business.
As we have already seen, the legislation was substituted by Decrees from the President of Russia, Boris Yeltsin and other sub-legislative acts. Draft Decrees, Orders, letter and telegram directives, regulating the privatisation processes of Russia’s most prominent companies and groups (concerns) in detail, in the offices of Yegor Gaidar and Anatoly Chubais. Indeed one has the impression that the work was never done without direct participation of those who are now referred to as the oligarchs. The Detailed rules for the implementation of privatisation in Russia, figuratively speaking the rules of the game, were set out by a small circle of “players”, that is to say, a small circle of privatises or, in view of the present situation – “private-takers” of the largest, and by far ‘not unprofitable’ state companies and groups (concerns). The multi-million strong remainder of players, the so called “mass”, representing all other citizens of Russia, had to play using a marked deck, in a game in which any hand the main card would always remain in the hands of the chosen allies and aides of Boris Nikolaevitch’s (Yeltsin) “family”.
I would like to draw the readers attention to the fact that, unlike sub-legislative acts, which, amongst others, also contained Presidential Decrees, laws are statutory acts adopted by the highest government authority (at that time the Supreme Soviet of the Russian Federation), with the view to regulating certain social relations and, as such, possessing the highest legal force. In a democratic state, in both presidential and parliamentary republics and even in some constitutional monarchies, such as the United Kingdom, the rule of law and equality of all citizens in respect of law are such obvious concepts that it does not require any additional clarification per se. It is the legislative power that sets the rules for the life and work of people as part of a society (the society being a social group with historic origins and evolution), in the form of their civil rights, as well as the norms of their behaviour as citizens of the country, in the form of their political rights. Such authority provides a formal and legal description of all social and governmental limitations and prohibitions, formulated as laws, creating the conditions in which an individual can freely exercise his/her civil rights, asserting the principle “everything that is not prohibited by law is allowed”!
Regardless of that, the legislative power in the Russian Federation, now independent from the Soviet Union, was limited in its legislative function when it came to the formulation of a set of legal documents, or laws, pertaining to the process of industrial privatisation of state and municipal property.
“The lion’s share” of mandatory legislative documents, pertaining to industrial privatisation, were made up of Presidential Decrees, government Orders and Resolutions as well as resolutions and directives by the State Property Committee of the Russian Federation. This was not right but it did happen!
In this way, the executive power of the state, which was supposed to be guided by the statutory regulations pertaining to industrial privatisation, as passed by the legislative power, in fact wrote its own legal rules, implemented them and controlled the process.
Amazingly however, as early as in 1748, the prominent philosopher and educator, a scientist in law from the period of French Enlightenment, Charles Louis Montesquieu, in his effort to substantiate the concept of the rule of law, the concept of constitutional government, which later was incorporated in the fundaments of the theory of state construction of democratic societies of people in a number of developed countries, wrote in his work “the Spirit of laws”:
“Every state has three forms of power: legislative, executive, coordinating the issues pertaining to international law, and the executive power which deals with the issues relative to civil rights /judiciary/ … For a citizen, political liberty is spiritual serenity, based on his feeling of safety. In order to have such liberty, the government must secure that one citizen is not afraid of another.
If legislative and executive powers shall be united in a single body, or organisation, there shall be no liberty, as one shall be force to save oneself”, as the executive power “starts to create tyrannical laws in order to implement them in an equally tyrannical manner ”. (C Montesquieu, “The spirit of laws”, page 138)
The idea of Charles Louis Montesquieu expressed in the said work consisted in the concept that executive power “must take part in the legislation by the virtue of its right to cancel orders, without which it would soon be deprived of its prerogatives”. (C Montesquieu, “The spirit of laws”, page 145) In our time, this idea could be applied in practice in the form of the widely known right of the President of a country, as embodiment of the executive power of the state, to refuse to sign a law, due to circumstances known to him, although the said law has already been passed by the legislative power, the Parliament.
In the times of Boris Yeltsin’s presidency, however, the executive power of the Russian Federation announced its bourgeois-democratic principles of power division from its high tribune, whilst in fact, in the cases such as industrial privatisation, it used mediocre methods worthy of medieval Asian despotism.
The associates of Russia’s first President understood the concept only too well, so precisely described by Charles Montesquieu all that time ago: “Amongst the basic laws of democracy is that the power to issue laws can only rest with the people”. “The people endowed with the higher authority should do everything that they are capable of doing themselves whilst, what those people cannot do well should be delegated through its plenipotentiaries. However, these plenipotentiaries can only be given their powers by the people. This is the reason why the basic principle of such government is that the people elect their plenipotentiaries, that is to say, government officials”. (C Montesquieu, “The spirit of laws”, page 21, page.18) Indeed, the plenipotentiaries here are members of the Parliament, elected by the people for the sole purpose to make legislation.
“In despotic states, where there are no basic laws, there are also no establishments to protect such laws. … The nature of despotic authority indicates that one individual, enjoying such power, entrusts the execution of such power only to one other individual. A person, whose five senses tell him that he is something, whilst the rest is nothing, is genuinely lazy, ignorant and voluptuous. This is why he does not work. However, if such person delegates work to several other individuals, the delegates shall quarrel, plot against each other, each striving to be the first amongst the slaves, so that the master will be compelled to take government into his own hands once again. This is why it is much simpler to entrust all affairs to the Vizier by giving him all powers. The appointment of a Vizier is therefore the most important fundament of such a state. … The vaster the country, the vaster the “seral” (palace – in Persian) and consequently, the more the master enjoys his delights; correspondingly, the more people there are in those states, the less the master deals with government; the more important the affairs, the less they are debated”. (C Montesquieu, “The spirit of laws”, page 25 – 26)
It is amazing to what extent this description of the principles of despotic government given by Charles Louis Montesquieu, correspond to the Russian Federation at the times of Boris Yeltsin’s Presidency, especially at the time when the industrial privatisation was carried out. This was a time of the total absence of legislative regulation, which was almost entirely substituted with presidential sub-legislative rule making, whilst the only high official was Anatoly Chubais, who successfully played the role of the “privatisation Vizier”, during the single most important year for the future development of the country, in terms of political and economic reforms, the period of removal of state control and privatisation.
And so, it is not possible to claim that the process of industrial privatisation in Russia was carried out in accordance with law, that is to say, pursuant to those laws which were passed by the country’s legislative body – the Parliament. Quite the opposite; they were marked by prominent authoritarian-sub-legislative flavour. Indeed, in many cases, such as the one when privatisation cheques (vouchers) were introduced by a presidential Decree, instead of personal privatisation accounts (books), as stipulated by the law, the sub-legislative acts, implemented illegally, as part of “democratic authoritarianism” and Asiatic despotism practised by the head of state, where such acts were simply contradictory to the existing Russian laws and which, over time, cancelled the existing laws.
On the other hand, the absence of a full set of civil laws, which could set the conditions and schedule for industrial privatisation, automatically implied absence of a well developed mechanism for the implementation of social sanctions for infringements which may be committed during privatisation, embedded in administrative and criminal legislation.
Consequently, whilst it is true that formally, as Boris Berezovsky was right when he claimed that “ none of those who managed to join the Russian business elite broke the law”, we need to remember that in essence, Boris Berezovsky was categorically not right, as there were no laws and consequently there was nothing to infringe. Indeed, there was no need to break any presidential Decrees (sub-legislative acts) as they, sometimes openly, and at other times conspiratorially, supported the immediate and prospective plans aimed at increasing the economic might of the small “newly born” Russian bourgeoisie elite, which made them easy to implement and implementation was indeed demanded by the tens of Millions of other Russians.
Hence, the captains of industry, having “turned out” their capital during the industrial privatisation – Chubais’s way, making themselves the first business elite in Russia, did not have to infringe any formal laws as there was nothing to infringe, since the team of state officials, who came to represent the executive power alongside the first Russian President, ensured such circumstances. Formally there was nothing to punish these people for, indeed privatisation abuses by high state officials were, in most cases, organised in preliminary agreement with the interested private players, for whom they acted without having to resort to changes in the RSFSR Criminal Code adopted as far back as October 27th 1960 as these crimes, in practice, could not be identified as defined in this law:
– “Theft of state or people’s property, through appropriation, embezzlement or abuse of official position” (Article 92);
– “Theft of state or people’s property, through fraud” (Article 93);
– “Theft of state or people’s property of exceptionally large scope” (Article 93, prime 1);
– “Abuse of authority or official position” (Article 170);
– “Exceeding authority or official powers” (Article 171);
– “Receiving bribes” (Article 173);
– “Official forgery” (Article 175).
Particular attention should be given to two of the Articles of the RSFSR Criminal Code, from which the executive power in Russia under the Presidency of Boris Yeltsin predominantly sought to shelter the known players in the industrial privatisation – Chubais’s way, including both high officials and private persons. Both Articles were part of the still valid RSFSR Criminal Code, envisaging maximum terms of imprisonment as a punishment whilst for “exceptionally” serious cases, punishment by the exceptional measure - death: Article 93, prime 1 and Section 2 Article 173:
1) “Theft of state or people’s property of exceptionally large scale, regardless of the methods used in the theft (Articles 89 – 93), – is punishable by imprisonment for a term of eight to fifteen years, with confiscation of property, with or without exile, or by death penalty with confiscation of property”;
2) “Receipt of a bribe by an official, in person or through an intermediary, for the purpose of performing an act in the interest of the bribe provider, which the bribe receiver is in the position to perform due to his/her official position, – punishable by imprisonment for a term from three to ten years, with confiscation of property.
“The same actions, carried out by an official, occupying a post of responsibility … – punishable by imprisonment, with a term from eight to fifteen years, with confiscation of property, and exile upon completion of the prison term, for a term from two to five years, or, in exceptionally serious circumstances, by the death penalty with confiscation of property”.
It was obvious that there was no law enforcement activity in the field of infringements or any type of abuse during the privatisation of the state industrial mining and oil-processing groups (concerns) or other large state-owned companies which came at least as far as the first instance criminal courts.
At the same time, in respect of the infringements committed during the privatisation of small and, much less frequently, medium sized state and municipal companies, although small, enforcement activity was registered. “In only five months during 1993, the Russian Ministry of Interior recorded 2,590 cases of illegal privatisation (appropriation of property with consequent transformation into private entities, participation of officials in the privatisation as private persons etc.) “Of course, this was only the tip of the iceberg”, wrote the doctor of history and Head of the IMEMO RAN sector, Kiril Kholodokovsky. (K Kholodokovsky, article entitled “Russian privatisation: the conflict of interests”, published in “World Economy and International Relations”, No. 1, 1995, page 73)
Undoubtedly, the thinking of the authors of privatisation methodology was simple: a certain level of impunity will stimulate economic activity in the society, boost private property interests, securing a cloudless, confident economic future for the representatives of large business, consequently consolidating the political order, headed and embodied by Boris Yeltsin! At that time, the whole of Russia was essentially, cooking in the privatisation pot and, as every one knows, the best way to secure impunity in the future is to invoke mutual responsibility, especially if the whole country is within the circle of involvement, whereby it is no longer important who privatised and how much, as long as they “privatised”, neither was it important who, “twisted” whom “around his little finger”?!
Naturally, in the mass privatisation process run by Chubais, on a background of undoubted imperfection of both civil and criminal legislation in Russia (which by the way, there was no rush to develop as, like this, it was much easier to organise the illegal passage of the most profitable industrial assets into the private property of those selected by the Russian President, at the same time giving the process just visible hints of legality.
Indeed in such a muddle of seemingly unreasoned reforms, in the “muddy water” of the Russian reality at the time, the contrastingly thoughtful abuses by official position of high officialdom which were allowed against the background of privatisation of the largest state natural resource extracting industrial groups (concerns), indeed seemed less serious, and the real objectives of the privatisation of the “cream of industry” were being achieved a great deal more easily.
It should be pointed out, however, that a genuine “people’s” state does need additional impetus and virtue as it can provide just such an impetus. … It is clear that a monarchy, where the person enforcing the law considers him/herself above those laws, will not have as much need for virtue as a popular government, in which the person enforcing the law feels his/her subordination to such laws as well as responsibility for their implementation. … However, if the laws cease to be respected under the rule of an elected government, the government itself can be considered dead, as the only possible cause for such disrespect is the rot in the republic itself”. (C Montesquieu, “The spirit of laws” page 27)
It ought to be pointed out that by “virtue” in a republic; Charles Louis Montesquieu understood “love for the fatherland that is to say love for equality”. He believed that this virtue was “not Christian and moral, but more political virtue; that it provides the main actuation spring for the republican government”.
“When virtue disappears, ambition takes over all hearts capable of taking it, and every one becomes infected by ambition. The objects of desire are changed: what they loved before they love no more; before there was freedom based on law now they want freedom for illegality; … Before, private property was included in the communal treasury, now; the communal treasury becomes the property of private individuals. The republic becomes one of gain and its power becomes the power of the few and despotism for everyone”, – wrote Charles Louis Montesquieu. C Montesquieu, “The spirit of laws” page 9, page 28)
During the presidency of Boris Yeltsin, republican laws were broken, whilst the regulation of some of the most important social relations were not carried out in accordance with law but based on the provisions of sub-legislative acts by the executive power. One could ask: “Was the rule of the first Russian President virtuous, that is to say did he demonstrate love for the Fatherland which, in the view of Montesquieu, is fundamental for democracy?”
* * *
And so, the process of privatisation of the state and municipal industrial property in Russia was carried out under the auspices of presidential, rather than parliamentary legislation. Having entrusted the authority governing the concept of strategy for the industrial privatisation to Anatoly Chubais, who was never elected to that post by the people, having substituted the legislative rule-making by the Deputies of the Supreme Soviet of the Russian Federation with his Decrees, the President of Russia, Boris Yeltsin tactically undermined the fundaments of the democratic organisation of government authority.
The provisions of Paragraph 2 of the Russian Presidential Decree No. 66, of January 29th, 1992, stipulated: “the President of the State Committee of the Russian Federation for management of state property in national, state-national national- and administrative- territorial units, shall be allowed to issue orders and instructions, within the framework of his competence, pertaining to management and disposal of state property, to be implemented by the corresponding officials of state and municipal companies as well as government agencies”.
Such actions by Boris Yeltsin were clearly in contrast with the general understanding of the essence of power division within a state, demonstrating resemblance with, if not the Bolshevik dictatorship of the proletariat, then definitely a dictatorship of a yesterday’s Bolshevik, whose grasp on power by any means could hardly be called “political virtue” or “love for the Fatherland” in Montesquieu’s sense of the word. It should be noted that Boris Yeltsin was indeed, elected as Russian President, on June 16th 1991, by universal suffrage, which was then part of the Soviet Union, whilst he never actually had a mandate for the broad extension of his powers, particularly where it concerns infringement on the authority of the Supreme Soviet of the Russian Federation, representing the highest legislative body in the country.
A democratic state cannot exist without a reasonable system of ties and counter-weights, needed most of all, in the distribution of power and responsibilities amongst the high authorities and management bodies. This is exactly the purpose of the practical implementation of the division of power. The functional essence of the division of state power into legislative, executive and judicial is that, one power is there to pass laws (in those days, the Supreme Soviet of Russia), the other implements those laws (Russian President and Government) whilst the third carries out justice, determining to what extent actions or inactions of certain individuals are in compliance with the laws (Constitutional and High Courts and the High Arbitration Tribunal of Russia).
It is somehow hard to believe that the authors of the Russian model of industrial privatisation, demagogically spilling out democratic slogans and advertising the theory of power division in government with professional formality, did not even think about its inner, legal content; or perhaps they just refused to think ‘too much’ when considering their power, their property and their money. They appropriated the right to define democracy as well as the methods used to build it in Russia; they decided whether their actions should be subject to any legal or moral limitation. Their maxim became not to live by the laws of society but to force the society to live by Decrees of the President who brought them to power.
It was no accident that the already mentioned Boris Berezovsky said in one of his interviews: “I am mostly concerned by Chubais’ insincerity. The terminology he uses and his actions are completely Bolshevik! Chubais is convinced that he lives by one set of laws whilst the rest of society lives by another. Consenting to that would mean to recognise that managers and subordinates were placed as such by God”. (B Berezovsky, “The Art of the impossible” vol 1, page.94)
P.S. Please note that references to Boris Berezovsky’s conclusions, before and henceforward, were motivated by the high level of information concerning the subject of the present book and focus of the author’s interest. His statements are particularly interesting at least because he, in the words of Paul Khlebnikov, Senior Editor of the Russian edition of Forbs Magazine, “unlike many magnates of Russian business, who inherited their wealth from the old Soviet Union and become empowered millionaires, Boris Berezovsky built his empire alone, from nothing”. (P. Khlebnikov “Godfather of the Kremlin, Boris Berezovsky” page 9)
The precipitation with which industrial privatisation was carried out; the wide scope of the most diverse sectors of the country’s economy; the not always legal inclusion of the largest, by far not critical state companies and groups (concerns), including those on which the country’s defence potential and economic independence depended; the implementation of the privatisation simultaneously, at different levels, such as federal, federation subject and municipal level; the evident equality of all citizens of the country in terms of participation in the privatisation although not in terms of equality of chances to enjoy those privatisation rights, such (in the briefest of terms), are the basic features of the Russian industrial privatisation. (!)
The developers of the privatisation system immediately rejected the Chinese option for the reorganisation of the economy, which was seemingly acceptable for Russia. Anatoly Chubais stated that “the Chinese model represents a revival of economic methods whilst preserving the existing government mechanism: a strong and firm state that carries out economic reforms according to its will and its own plans. In the autumn of 1991, when Mr. Gaidar joined the government, such schemes were not even considered seriously by anybody sensible. How can one have strict state control if government coordination structure has been completely dismantled … What, indeed made up the structure of the USSR government? Initially, the Communist Party with its regional offices, such as raykoms, gorkoms and obkoms . ‘The Party’ does not only mean “Workers of all countries - unite!” The Party is a life support system for the society, a coordinator for day-to-day production, transportation, energy supply … Secondly, the ministries and administrative bodies. Neither of them was in place by November 91. Whilst certain orders of the federal ministries were still somehow being carried out in the summer of 91, by the autumn no one listened to Russian ministers anymore”. (Under the editorship of A Chubais, “Privatisation – the Russian way”, pages 24-25)
Was it worth it then, to destroy this solid state embodied in the Soviet Union? Would it have not been more purposeful to reorganise the government management system gradually, aiming at more rigorous control by the government, of tax collection, implementation of general social policies for citizens, with a reduction to a minimum, of direct intervention by government authorities in the entrepreneurial activities of its citizens whilst they are performing their economic duty.
Indeed, the authors of the methodology for industrial privatisation Chubais’s way understood that the preservation of the USSR would have pushed their schedule for the implementation of economic reforms, as they planned it, to the back, from where, they could never have brought it forth. Based on Article 4 of the USSR Law “On the basic principles of removal of the state control and privatisation of companies”, the Cabinet of Ministers of the USSR would, most likely, not have approved privatisation of those industrial companies and groups (concerns), which were crucial for “state defence and security, environmental protection and public health, as well as ensuring the government monopoly in certain sectors”.
In other words, the state industrial groups (concerns) would have never been passed into private hands, specialising in prospecting, extracting, processing and sale of ore, which amongst other things, is the heritage of the entire, multinational nation which populates the Russian Federation (oil, ferrous and non-ferrous metal ore, precious stones and similar). Privatisation would have not been extended to the design bureaux and laboratories working for the military, mechanical engineering and energy companies, in other words, exactly those companies which in the Soviet Union, operated immaculately and without any innovation and certainly did not need any “new owners”. As a result of that, the private ownership initiative of the citizens, along with the investments received as a result of privatisation, would have been focused on development, first and foremost, in various other sectors of the country’s economy, such as agriculture, the textile industry, the food industry, retail services, communal and residential services for urban areas etc.
However, the foreign specialists, consulting the acting President of the Council of Ministers of the Russian Federation, Yegor Gaidar and his accomplice Anatoly Chubais, were interested in the possibility of establishing a system which would allow the states belonging to the so called ‘developed world’ to set up a system of influence, using the legal instrument of private property, which would affect formulation of both internal and external policies of Russia. The quickest way to do this was to transfer the largest industrial mining groups (concerns), specialising in the extraction of natural ore, the activity of which was crucial for the Russian economy and financing the Russian Federation budgets, to a small group of private individuals who, in the West, were perceived as supporters or in some cases implementers of the overseas democratic principles.
With such an attitude, to imagine that the Soviet Union and its well developed mechanism of state control, persuasion and coercion, the partially preserved ideology based on socialist development, was prepared to follow a reform process similar to that of the Chinese model, naturally was not interesting. Following the breakup of the USSR, the foreign counsellors, these supporters of the global world economy, acting through the government of Yegor Gaidar’s reformers, simply connected Russia to the raw material intake system of the more developed economies. There is a significant amount of evidence to support this claim. The counsellors found it easy to persuade members of the Russian government that only a large private capital would allow democratic roots to ‘take’ in Russia strongly and permanently, which in turn, would allow the Russian President, accompanied by a small number of the country’s biggest capitalists, controlling the most profitable industrial groups, to keep the Russian society on the democratic development tracks.
The first successful merger between Boris Yeltsin’s regime, controlling the country, and a large private company, which had only just formed through the illegally conducted privatisation, happened in the spring/summer of 1996, when money from the comfortably privatised profits of the essentially ‘still’ state mining and oil companies, was directed to finance the electoral campaign of the first Russian President.
“The main conclusion which could be drawn from the presidential elections in 1996 was that the impact of the Russian establishment on voters’ behaviour was so great that it could secure victory even in the most undesirable economic circumstances. B.N. Yeltsin was elected thanks to gigantic efforts and resources spent on intellectual and technological support for the electoral campaign. This was the first such case in the history of Russian politics” a truly elaborate quote from the textbook entitled “Politology”, from the higher education curriculum, published under the editorship of the doctor of legal science, professor Victor Perevalov (Under the editorship of V Perevalov, higher education textbook “Politology”, page 151)
The clearly visible link between the privatisation processes in the beginning of the 90s and presidential elections in 1996, provides a clear answer to the question: why was the privatisation carried out in Russia implemented with such great (by world standards), speed? The issue was power, which once gained, by the reformers in 1991, had to be preserved at all costs in 1996, in conditions which, for most Russians were deplorable, and a result of Mr. Gaidar’s liberalisation of wholesale and retail prices of essential consumer goods. Sadly, today, one can definitely state that in their struggle for the highest power in the country, “the reformers” simply gave away, irrevocably, the largest, most attractive industrial companies and groups in Russia, to, in their view, reliable people, seemingly carrying it out through a widely advertised mass privatisation, accompanied by slogans pertaining to democratic development. All this also applied to the Russian state concern “Norilsk Nickel”.
The financial support for the selected and appointed oligarchs, afforded Boris Yeltsin a victory in the presidential elections on July 3rd 1996. The former Chairman of the Board of Directors of the oil company YUKOS, Mikhail Khodorkovsky thus wrote about these events “The Sysiphal electoral efforts of 1995 – 1996 already indicated that the Russian people would dismiss liberal leaders. How could I, one of the biggest sponsors of the 1996 Presidential campaign, not remember what monstrous efforts would be required to make the Russian people “vote with their hearts””?!”. (M Khodorkovsky, the article entitled “The crisis of liberalism in Russia”, published 29th March 2004, in “Vedomosti”)
There were others amongst the sponsors, to whom the power-lusting Boris Yeltsin, through Anatoly Chubais and his associates, surrendered tens of Russia’s viable, industrial companies and groups, well ahead of the elections, in a preliminary manner, actively using the Kremlin’s administrative resources for privatisation. Some got more whilst others got less. The main thing however, is that everything was carried out exactly how the President of Russia, Boris Yeltsin, wanted it, Boris Yeltsin, who, in the words of Boris Berezovsky, pronounced before a Russian-speaking audience in New York 2000 that he: “simply believed that everyone’s treasure, or treasures, had to be given by him – the Emperor”. (B Berezovsky, “The art of the impossible”, vol 2, page 252)
Slightly earlier, in July 1998, in one of his interviews, Boris Berezovsky stated: “I would like to start by saying that in principle, I do not like words like “family”, “tsar”, “court”, “suite”. Of course, all these words have their historic roots in Russia, indeed Boris Nikolayevich himself, encourages such words, not shying away when he is glorified as the Tsar. I seem to remember that he even called himself Boris I once …” (B Berezovsky, “The art of the impossible”, vol 1, page.95)
Whilst it is clear that Boris Yeltsin was never a Tsar in the literal sense of the word, his generosity in using the state’s (people’s) money was indeed worthy of an Emperor, whereby he helped informally allocate enormous financial resources to the keeping and prosperity of his closest entourage, whom a range of media referred to and still refer to as the “family”.
When talking about the fairness of Russian industrial privatisation, Boris Berezovsky lamented: “Potanin got more. Gusinsky got more in some ways. I am not happy. I claim and reckon that the assets were distributed unfairly. And what can be said about those people who not only did not get, but also lost; their lives becoming harder still?” (B Berezovsky, “The art of the impossible”, vol 1, page.103)
Naturally, not all “family” members got the same from the “parent’s table”, in terms of privatisation gifts from state industrial property. As always, there were favourites. Correspondingly, there were also some self-willed kids who “daddy” used to slap, even throw out, rather than feed, or admit amongst the close oligarchs. Still this story of a now, disgraced oligarch can reveal that as early as October 1994, the President of Russia Boris Yeltsin transferred a range of Russia’s large industrial companies, to the control of Vladimir Potanin, including the Russian state concern Norilsk Nickel, in return for the necessary support, to keep Yeltsin, in Power.
In the 90s, Anatoly Chubais played the role of a ‘go-between’ for the interests of several private individuals and high ranking government officials, who strived to reach yet higher echelons of real power, through the acquisition of more property and large amounts of money. Undoubtedly, the strive for power, the relentless desire to form a new ruling bourgeoisie/capitalist elite as quickly as possible, the financial assertion of their position, was the motor behind their actions, rather than the “barest necessity” to build and consolidate democracy in the country, as this process was officially branded.
“The will for power, determined like the will for food, property, tools, servants (subordinates) and gentry … Stronger will rules weaker will. There is no other causality than that of will to upon will”, wrote Friedrich Nietzsche: “Everything done for a purpose can be referred to the objective of augmenting power”. (F Nietzsche selected works in three volumes, vol 1, “Will for power”, paragraph 658 page 306, paragraph 663 page 309)
In Russia, where at this initial stage in developments there was not any private capital, let alone stock exchange or adequate understanding of economy amongst the population, it would have been possible to organise a rather successful privatisation process for small and medium-sized state or municipal factories, with better legal and economic support and without the need for guaranteed foreign capital. This, however, would not have provided Boris Yeltsin’s political regime with any guarantees for extending his political existence and correspondingly his serious financial sponsors.
The issue here is not democracy per se but rather power, related to the personal authority of Boris Yeltsin and the often, openly selfish claims of his close entourage. This is not surprising. On the contrary, there is a certain worldly principle, observed as early as 1926, by the prominent American philosopher John Dewey, who wrote in his book “Society and its problems”: “people exposed to all kinds of impossible social pressure, influencing their thinking, their plans and their choices. … people are the agents of society. They represent society whilst society acts through them. … In other words, any society agent, regardless of whether he represents that society as an elector or as a state official, performs two roles. This represents a most serious issue for government. Conventionally, when talking about forms of government, we laud the representative forms above all others, which are non-representative. According to our hypothesis, however, all types of government are representative, limited, that is, by the extent to which they are prepared to represent their society’s interests, which extend to the activities of both individuals and groups. There is no controversy here. Indeed, governments are made up of people to whom nothing human is foreign. They also have private interests, interests of competing groups, the interests of the family, group or class to which they themselves belong. Rare are the instances when a person can completely identify him/herself with his/her political function. The best that most people can manage is to place concern for the common well-being above all other personal objectives. … This duality (of interests), which is inherent in every official, leads to an internal conflict between the genuine political objectives on one side, and the non-political ones stemming from the individual’s non-political characteristics”. (J Dewey “Society and its problems”, page 56-57)
As we can see from this extract, John Dewey, as a recognised specialist in the field of social philosophy, does not allow for any exceptions in the behaviour of a state official, who performs his/her duty in either a society built on democratic principles or a society based on, say, autocracy. In other words, the conflict of interests of private persons and the Government is possible in both a democracy and any other form of government.
This clearly visible contradiction between the duties of a state office and private ownership interests was present in the actions of certain; well-known, high ranking state officials from the democratic camp, during the implementation of industrial privatisation in Russia. As an example, one such person is definitely the former First Deputy-Prime Minister of the Russian Federation, Vladimir Potanin.
Amazingly, after only ten years or so, these very same individuals, who got rich during their “excessively heart rending” service to the people and having made themselves some of the best-known capitalists, now away from government work and sitting in the driving seats of the largest private corporations, which were specially arranged for them, are from time to time prepared to talk enthusiastically about the damage corruption causes to the government and to private business.
The social and economic situation for the majority of Russians has seriously worsened as a result of the actions carried out by officials from the first Russian President’s team, who, instead of protecting the economic interests of his electorate, evidently lead by advice of his councillors, bypassing the Law, and based on his Decrees, he irrevocably transferred a range of state industrial facilities, which until yesterday were the people’s socialist property, to private owners. Furthermore, from the high tribune of power it was declared that this was the price of democracy.
Consequently, Russian democracy was, before that time, already generously paid for through the loss of many lives, territories and foreign influences in the solution of international issues, and who now suffered the financial cost, expressed in the sale price of the illegally privatised industrial companies and groups (concerns). The cost of Russian democracy also included speedy divisions in the Russian society. On one hand, there was the class of very rich and simply rich people, on the other, all the rest – simply poor and undeservedly destitute people, who appeared suddenly and unexpectedly from the socially egalitarian world of yesterday.
Any person with even the smallest degree of education will understand the natural chemical-physical principle of preservation of mass, whereby the mass of substances entering a chemical reaction (reagents) will always be equal to the total mass of the substances resulting from the reaction (products). Let us now apply this fundamental natural principle, discovered long time ago by the famous Russian scientist Mikhail Lomonosov, to the “chemical” processes in the Russian industrial privatisation – Chubais’s way. Let us imagine the state and municipal companies and groups (concerns) are conditional reagents, along with tens of millions of Russians who were given the right to participate in the voucher based privatisation. As a result of reaction between conditional reagents, that is to say the execution of the privatisation rights given to Russian people, each one of them is supposed to receive a small share of the privatised state property, the initial distribution of which was supposed to be carried out on an equal basis, between all citizens of the Russian Federation, who all and equally had no money. This is how everything would have happened had the privatisation – Chubais’s way been genuinely public.
At the same time, a large share of the state industrial property was transferred into the hands of twenty or thirty physical individuals, correspondingly, leaving tens of millions of Russian to share the crumbs. This would never have happened without resorting to the administrative and coordination resources of the high officials from the Russian Presidential team. In other words, with the approval of Boris Yeltsin, Anatoly Chubais “made up a formula” the result of which was the privatised former state industrial assets not ending up in the hands of all people, holding an equal share, but appeared at the end of the process as “oligarch cream”, an insignificant quantity of minority shareholders in private companies and a large “privatisation residue”, consisting of tens of millions of impoverished Russians.
We know that anything material taken out at one end of the process, is then added at the other end, that is to say, nothing ever disappears without a trace. So the gist is in the following: the genuinely ‘lightning’ enrichment of some, as a result of the industrial privatisation – Chubais’s way, was only possible due to the similarly ‘lightning’ impoverishment of tens of millions of others. (!)
Whilst privatising industry, the Government, using the most realistic and plausible excuses, left in its ownership, for a period of up to three years, a controlling stake of open type stock companies, which were the product of privatisation of state unitary companies and groups (concerns), with the view to privatising the rest according to their initial system, based on privatisation privileges. However, well before the expiry of that period of three years, the Government suddenly, supposedly having lost all interest in the control stakes held, started transferring them, against a background of the most plausible excuses, to seemingly randomly selected companies.
These controlling companies were, themselves, controlled by the most trusted allies of the first President of Russia, for which they gained free access to any financial, economic or industrial information pertaining to the activity of those companies whose control has been transferred to them and which were currently encompassed by the privatisation programme for industrial companies and groups (concerns). The task given to these controlling companies was simple: without interfering with the business of the controlled open-type stock companies, the controlling companies were to immediately take over the coordination of their financial flows, setting up strict control over the sales of finished products and restricting the companies use of financial organisations (banks) from which the given company was allowed to take credit.
In this way, the profits of the partially privatised open type stock companies, that were formed from the state unitary industrial companies and groups (concerns), were also being privatised, in a simple manner, whilst the controlling stakes in those companies were still in the government’s possession.
In terms of legal form, this was sub-legislative, as it was not based on the country’s laws but rather on authoritarian presidential Decrees. By its content, this was illegal as the future of the country’s (people’s) most viable industrial property was being decided without regard for the economic interests of the people who owned it, control was being lost over the income which was now going to privatised stock companies, profit of which in the past, had served the Government by being channelled into projects of social importance.
Furthermore, as the elections of 1996 approached, the Government suddenly started to take out loans from financial organisations (banks), which were subsidiaries or dependencies of those private companies who were managing the aforementioned controlling stakes of the partially privatised open stock companies. And as far as repayment guarantees were concerned for those short-term loans and interests, the Government could not think of anything better but to rely on the same control stakes of the partially privatised open-type stock companies, without even bothering to obtain a genuinely independent evaluation of these securities.
According to unverifiable, unconfirmed information, in a number of cases, where the given financial organisation (bank) did not have sufficient free funds to credit the Government, the latter offered to use the country’s Central Bank to provide essentially, a reciprocal crediting to the crediting financial institution (bank). Objectively, by doing this, the Government had escaped any economic sense for obtaining the loans, left with only the subjective need, a “bare strive” to provide the best possible, ‘impeccable’ legal justification for transferring the rights pertaining to controlling stakes to private companies. Consequently, it all had a strong resemblance to a simple fraud involving fictional crediting.
Only a short time passed before the Government failed to repay the credits taken out from the financial institutions (banks), which, consequently, rightfully used the deposits provided to resort to the legally required auctions in which the deposited controlling stakes of the privatised companies were to be sold. It is clear that these pseudo-deals were purely a formality to provide legal justification, as potential winners of such auctions, as well as additional conditions of sale, were, beyond any doubt known in advance to the small circle of people who could use such information.
In this way, the ownership rights pertaining to the controlling stakes in the companies, formed as a result of sale of unitary companies and groups (concerns) by the Government, were transferred from the Government to the same private companies (banks) who, before that, for a period of 3 years managed the companies’ financial flows, privatising the companies’ profit well before the completion of the privatisation.
The industrial privatisation – Chubais’s way was initially seen as a mass undertaking, as a distribution of the state property to as big as possible a number of Russian citizens, whilst control of the profit of a few, most viable industrial groups (concerns) was to be given only to those selected by the President – ‘given’ by Boris Yeltsin in person. Indeed, the list of ideological fighters for democracy in Russia did not contain the names of most of Russia’s famous billionaires, who got rich “by a stroke of luck”, in the process of building democracy on the “industrial remains” of developed socialism, right from the outset; indeed they joined the democrats later, at a more convenient time.
Beyond any doubt, the main reason for privatisation of the largest viable industrial companies and groups (concerns) in Russia was to quickly privatise their profits, that is to say, to transfer the right to dispose of the large portion of the result of these legal entities, by the Government, to a few dozen people. According to the strategy of industrial privatisation – Chubais’s way, the rest of Russia’s population was to be kept out of bounds of the active distribution of the former state income. The majority of Russians, having acquired individual shares of the privatised companies, were forced, before just like nowadays, to contain their temper and wait for the mighty owners of the controlling stakes to pronounce their will, in yearly portback election meetings of shareholders, regarding the amount, payment schedule and terms of dividends, based on the securities held.
The principle of mass preservation is clear here: some have received and continue to receive financial sweeteners in enormous quantities, whilst others get only the (wrapping) paper. The Government is left with a half-empty bowl from the former industrial potential of the Soviet Union, which will continue to be emptied as long as the authorities are not ready to halt the outflow of financial sweets beyond its country’s borders.
And so, when the industrial privatisation – Chubais’s way first started, the future capitalists and very rich citizens of Russia, just like the majority of their compatriots, did not have any considerable amounts of their own money. A little later, having acquired the possibility to coordinate the activities of very profitable companies, formed through the sale of the state unitary companies and groups (concerns), through ownership of their controlling stakes, the future Russian oligarchs had now found themselves in the position to decide the destiny of the proceeds, produced by those companies, even through the ownership of those companies was still with the Government.
Hence, privatisation targeted not the property, but the proceeds of its exploitation. The destiny of the profit of those legal entities, which before used to be the Government’s domain, was now decided by individuals, whose investment skills were nothing but a bluff, at the early and perhaps even until the middle of the privatisation process.
When the largest mining and oil-processing companies were formed through the sale of industrial groups (concerns), their profitability was guaranteed as they were holding a licence for the mining of ore, backed by a well-embedded technology and experienced workers, inherited from the Soviet Union. The new owners had only two issues to deal with: firstly, how to legalise their rights pertaining to the acquired production assets after privatisation and secondly, how to manage the proceeds, which were generated by yesterday’s state production with enviable regularity. Thanks to the “authoritarian-democratic” regime, formed during Boris Yeltsin’s Presidency and the enormous government support for the future oligarchs, the new owners had virtually nothing to fear, in view of the scope of the scheduled financial results of the privatised companies.
Before it privatised and sold these, most profitable giants of home industry, already during the time of developed socialism, the Government was routinely directing a large part of these entities' income for the solution of practical problems of social importance, such as building accommodation and social infrastructure in cities and the country, development of fundamental and applied sciences, support for the arts and culture.
The privatisation in itself did not make significant changes to the production and financial situation of the former state industrial companies and groups (concerns), which were already profitable in the times of developed socialism. Now, on the other hand, in the conditions created by developed capitalism, the Government and, consequently, society, could only rely on resources generated through direct and indirect taxation, the amount of which, for the industrial companies extracting natural resources was rather small, compared to the income they generated.
The state management and government mechanism, made up of high officials, voluntarily shunned the receiving of financial benefits, which used to be collected and spent in the interest of the entire Russian nation, and gave it to a group of private individuals, closely connected to those high officials, through their political and economic relations.
The vast majority of Russians were called upon to meet the new owners of the industrial companies and groups (concerns), who according to the first Russian President were more deserving than the rest of the working people with calm and worldly wisdom. Without much complaint, the people allowed themselves to be persuaded that this business speculating minority, which ended up with a rather nice part of the former state industrial property, would show some kind of economic initiative, some wise production management and make investments as well as offer some kind of patronage.
Financial resources which used to be fed, by the centre, to financing solutions for practical social programmes, aimed at improving people’s lives, now made up the core of the capital outflow from Russia to foreign countries, where they are invested in the development of foreign industries, or into exclusive palace-like homes for the new Russian bourgeoisie. And with all that, the captains of the large private businesses are now calling upon the Government to accept the new realities and organise life in the country according to their rules, which in their view are truly democratic and very liberal.
Meanwhile, the majority of Russians continue to “feed” on the generous intellectual material provided by the media, talking about society values in a developed democracy, the need for legality, respect for private property and its owners, without any realistic assessment of the real cost of Russian democracy.
The author is in no way against the fundamental principles of democracy, as sovereignty of the people. On the contrary, democracy is the rule of the people, where all state powers stem from the people’s will. The people have the right to know the real cost of all that creates its life and well-being. The people have the right to know not only the cost in suffering but also the cost in money, which it unknowingly, had to pay for the social and economic order to change, and which it still stands to pay, as it continues to accept the export of capital from the country, measured in billions.
It has long been known that to have many rich people is better than to have many poor. The chemical-physical principle of preservation of mass does not offer any compromise. If capital is leaving Russia, the people of the country to which the capital flows become much better off, the economy of that country is stimulated whilst the Russian people become poorer, at least in regard to the (nominal) amount of the exported capital. Once this process is understood, one begins to understand the real causes of the increase in unresolved social problems and antagonism in the civil population, in spite of one’s being unaccustomed to abandoned children, imposed undeserved poverty of pensioners, rising mortality, unfinished council accommodation, insufficient medicine in hospitals and polyclinics, unjustified increase in communal charges etc.
Some people believe, or they say, that all that is needed is for the private capital formed as a result of the industrial privatisation – Chubais’s way, to be properly taxed, and that the Government can then solve all other problems. Indeed, from the formal and legal point of view, this is exactly how it should have been, had everything in the state industrial privatisation been honest, clear and open.
It would have been better still if the private capital, cultivated on the back of privatisation soil, had been given social designation right from the start; instead of being used just to help, it could become an active element in the solution of the most urgent social problems burdening its people, rather than resolving those of foreign people.
The developers of the methodology used in the Russian industrial privatisation, loudly promised an influx of foreign capital into Russia, in the form of long-term investments into Russia’s economy and not the outflow of Russian capital overseas. However, as up to now everything has been going the opposite way we cannot but suspect that Anatoly Chubais and his supporters were either, mistaken in good faith or that they wilfully presented their fantasies and false calculations as the truth, brought out at a convenient moment to justify their actions. Tormented by patriotism and the fear of possible nationalisation of the illegally “privately-taken” industrial facilities and profits from their exploitation, the owners of substantial private capital in Russia tend to give more credibility to the latter, striving to consolidate their financial and economic position by accumulating foreign assets, through capital exports, as quickly as possible.
In terms of the social philosophy of John Dewey, one can conclude that exposed to the inner personality conflict of the richest people in Russia, who became what they are as a result of the privatisation of the most profitable industrial facilities, the personal interest outweighs the civil responsibility, and in some cases even the official interests; The winner therefore is a relentless greed, supported by arrogant snobbery and a blatant lack of worldly wisdom. But what did industrial privatisation – Chubais’s way, bring to the average (statistically) Russian?
The answer provided is at once very simple, yet impossibly complex, and for many Russians, the primordial question is “What shall we do?” or any number of other alternatives for the same question like “How are we going to live now?”, “How and from where are we going to feed the family?”, “How are we going to pay for communal services?”, “How are we going to pay for children’s education?”, “Where, how and with what are we going to pay our medical bills?” etc..
Once again, the speed of the industrial privatisation in Russia was secured by Boris Yeltsin’s strive to secure a second term in his presidential armchair. Karl Marx once said “money-goods-money”. Here it is more “money-power-money”. In the 90s power in Russia became a commodity, the residual symptoms of that are still visible today and it looks like they will remain so in civil society for some time!
Anatoly Chubais stated: “We had no choice. If we had not auctioned the stake held by the government, the Communists would have won the 1996 elections, and those elections would have been the last in Russia as those guys do not give power away easily. … The concept of private property is not simply a vault of laws or a class of owners with real power. This is 146 Million people who must accept that private property is sacred”. (“Commersant vlast”, No.46 (599) of November 24th 2004, page 43)
Now perfectly clear, the 146 Million Russians should accept that the real power is with the minority, made up of the owners of a large amount of private property, and that private property and consequently the power of the capital is sacred. These are the very values which the Russian President, Boris Yeltsin, through Anatoly Chubais and the Gaidar suite, voluntarily based, not on the law but on lawlessness, gave to a handful of private individuals, by making them oligarchs, by giving them the country’s best industrial companies and groups (concerns).
But this is not rule of the people nor is it a democracy! This would have looked more like some aristocratic republican form of government if the social status of the leading personalities was passed on to one’s heirs, by custom and law, rather than stolen, through illegal acquisition of a part of the people’s property, “behind a curtain of noise” of political and economical changes. In fact, this is a real rule by ochlocracy, a government of a few, who, during the presidency of Boris Yeltsin quickly “popped up” from the crowd, and who became rich and who used their money to, informally but firmly, infuse the various levels of the government, which itself, was blindly supported by the emotions of easily excitable masses, striving to reach the ‘so desired’ but little understood democracy.
Indeed, ‘masses’, because a nation is a society of people, shaped by history and occupying the land, united by shared objectives in respect of their development, based on democratic government whose members are elected from the people and controlled by it. The Russian people elected Boris Yeltsin as the head of the government but the choice to make Russia an oligarch-run presidential republic, in which, apart from the government bodies, a small group of rich private-takers of Russian industry, those who, according to Chubais, will “hold the real power”, will always, in one way or another, take part in the decision making concerning socially important issues – was not theirs.
In a real democracy, the Russian people would not have accepted the authoritarian and voluntaristic rule of the first Russian President, who illegally turned the people’s industrial property into private property of those individuals who he, himself chose to earmark as the future oligarchs. This could only happen in an ochlocracy where instead of the people, it is an emotionally excited mass that rules, which in the 90s, made an idol out of Boris Yeltsin, unwillingly endorsing his illegal actions and which was prepared to blame anyone else, including itself, as long as it is not the idol and as long as that idol is not replaced by another idol.
An oligarch/presidential republic is a forced implementation of the presidential rule elected by the people, accompanied by the informal power of large private capital, obtained illegally, as a result of industrial privatisation – Chubais’s way, and as such, undoubtedly contains not even half the amount of democracy that can be found in say, a constitutional monarchy, such as the United Kingdom. Indeed, the United Kingdom has the Queen and Hereditary Lords, however, its civil society lives according to democratic principles.
“Boris’s rule” in Russia on the other hand, was not a monarchy, did not have aristocracy, but genuine democracy was not there either. Russia, did, however, have the descendents of yesterday’s revolutionary Bolsheviks, who now suddenly became oligarchs and capitalists (owners of the largest industrial facilities), who demanded that their opinion was always respected by the government bodies and the administration.
According to Montesquieu, in an aristocratic republic, “the power of government belongs to … a certain number of families”. In that respect, certain similarities between aristocratic and oligarchic forms of government are visible (the latter in the historic sense of the word). “The aristocratic government, by its nature, has a certain force which democracy does not have. So the nobility represents a class which, based on its prerogatives and its interests, contains the people, and laws, such as they exist, are duly respected. To whatever extent controlling others is an easy task for the nobility, controlling itself is difficult. The nature of this system of government is such that it seemingly subjects the people to laws but at the same time liberates them from themselves”, wrote Charles Louis Montesquieu. (C Montesquieu, “The spirit of laws”, page 26, page 29)
In both aristocratic and oligarchic governments, the representatives of large private businesses strive to force the people to live according to the laws written either, by themselves or their representatives, the laws to which they themselves are not always prepared to adhere to and obey. This double standard, observed long ago, by Charles Louis Montesquieu, unfortunately existed in social relations in Russia, during the presidency of Boris Yeltsin. As confirmation, let us remember Boris Berezovsky’s account: “Chubais is convinced that he lives by one set of laws whilst society lives by another. (B Berezovsky, “The Art of the impossible”vol 1, page.94)
The very style of government of Boris Yeltsin confirms this: the country lived and worked according to decrees and orders, issued by the big leader and his “family”, in the interest of the oligarchs, whose role was to support the extremely weak government with their money. It looks like this was historic fraud. They strived for democracy, seemingly even fought for it, but they were appointed by ochlocracy and oligarchy. They made people inculpate and placed historic condemnation on the communist party only to get the rule of the party for the oligarchs. It is highly likely that oligarchy was the objective of the highly-placed fighters for democracy from the outset and that it was only “common sense timidity” that prevented them from admitting that to the people, at the time when the latter followed them blindly, in all respects.
Russia became poorer and if it was not for the high price of energy and the well developed resource extraction industry, perfected in the times of the Soviet Union, this could have lead to a wide-ranging social catastrophe, possibly extending to the entire Eurasian continent and even the world.
According to the words of Boris Berezovsky, “Yeltsin resolved the main problem of Russia – how to pass from one social model to another. This was all Boris Nikolayevich solved. He did not have a strategy, politic or economic plan. Well, honestly speaking, he did not even pretend to have it”. (B Berezovsky, “The Art of the impossible ”vol 2, page.250)
Having only just managed to take Russia out of socialism and bring it into capitalism, Boris Yeltsin and his close entourage did not move any further. Instead, they started to enrich themselves, consolidating their power and resolving their personal, most frequently elementary everyday problems, no longer distinguishing government interests from their own. How can we talk about building a real democracy, if the situation as it was in Russia, best suited only the mighty ones? This is why Boris Yeltsin did not aspire to anything else and by the year 2000 his role was, generally speaking, completed.
* * *
In June 1993, the Expert Institute of the Russian Union of Industrialists and Entrepreneurs (Russ: RSPP) published a document in which the Institute “argues against unnecessary heist” in the distribution of state property, justifiably pointing out that such behaviour would “impede the normal organisation of companies for operation in market conditions” as well as opening the way for abuses. It was suggested to forestall the privatisation by commercialisation and to have an audit of companies. One of the reasons for this was also to protect the interests of the citizens receiving vouchers”. (K Khodolokovsky, “Russian privatisation: the conflict of interests”, “World Economy and International Relations” journal, No. 1, 1995, page 73)
“Many things were done without due consideration during the privatisation and without regard for the real economic circumstances in the country. In Russia, 20 companies account for more than half of the GDP. If these companies were to become private property, individually and gradually, the state could secure the necessary minimum for each citizen. Without allowing such a drop, pushing every one to freefall”, – said Boris Berezovsky in his interview of December 3rd 1998: “Because the market economy is not a mechanism but a mentality. It is a transition from a situation in which you know that some one cares about you, into a situation in which you understand that you are the only person who can solve your problems. It’s a completely different perception of the world. All of a sudden, millions of people are waking up in another reality. Indeed that is difficult to imagine. It would have been different if the core industry was used to secure the necessary economic minimum for the population. This, to avoid the, hardest of social experiments”. (B Berezovsky, “The art of the impossible”, vol 1, pages 103-104)
The most important aspect in the methodology of industrial privatisation – Chubais’s way was the head-spinning speed with which it was carried out, and which did not leave a chance for the average Russian, to secure the minimum of knowledge and experience, within his still rather short life in his reconstructed country, which would allow him to consciously participate in the privatisation. The rush was suitable to those best informed, closest to power and beyond any doubt, to those demonstrating initiative. Consequently, the heist condemned most of the country’s population, which was still full of socialist ides of equality, to a post-privatisation existence, in the best of cases, as docile hirelings of the new Russian bourgeoisie elite or in the worst of cases, jobless, not necessary to anyone else than themselves..
The speed of privatisation of the industrial companies and groups in Russia is also visible from the titles of certain documents, as well as the sense of certain legal norms contained within the basic documents regulating privatisation.
Pursuant to Article 14 of the RSFSR Law “On privatisation of state and municipal companies in the RSFSR ” all proposals for privatisation of state and municipal companies shall be considered by the RSFSR State Property Committee , its regional office, the management committee for national and state, national- or administrative-territorial entity, within one month of their receipt at the corresponding committee. Once privatisation had been approved a committee was created for the privatisation of the given industrial company or group (concern), setting the deadline for the completion of the privatisation programme which could not exceed six months from the privatisation request date.
So, a maximum six months for everything, including the development of a privatisation plan, for companies such as, a multi-sector state federal industrial group, the Russian state concern “Norilsk Nickel”, composed of six independent large companies and concerns, situated in different parts of the country, the same as for a municipal bakery.
This absurdity was quickly detected by the reformers, and the Russian Federation Law “On privatisation of state and municipal companies in the RSFSR” had already by July 5th 1992, incorporated a clarification in its Article 14, which not only failed to extend the time limits for the preparation of the necessary documents, but shortened them further. As before, the decision as to whether an industrial company or group should be privatised or not had to be taken by a corresponding committee within one month from the moment of registration of the request, and in the case of a positive outcome, a privatisation committee was immediately created to handle the company. However, the time limit set for the preparation of the privatisation plan could not exceed three months from the date of receipt of the application. Of course, the deadline could be extended but only if a corresponding approval was given by the Russian State Property Committee, however, even with that approval, for a maximum period of six months.
So it meant that a whole of three months was given for the preparation of documents required for the privatisation of state and municipal companies, treated, by law in the same way as bakeries, whilst for the rest, only the Russian State Property Committee could allow up to six months. Great!
It seems that the government high ranking officials simply wanted to give the members of the privatisation committee such a difficult task that the latter could not take too much care in the preparation quality of the documents provided in support of privatisation for the selected industrial companies and groups (concerns). We should note that it was for exactly this reason that, when the Russian state concern Norilsk Nickel was being privatised, neither the detailed preparation of the privatisation plan nor the organisation of a market evaluation of the concern assets, received due attention.
Today of course, it is no secret that the real price of most of the largest privatised state industrial companies and groups was much greater than the “inflation-generated” depreciation cost, based upon which the price of these companies and groups was expressed in privatisation programmes. Furthermore, the evaluation of the deposits which had already been fully prospected and already exploited was not included in the estimate, not to mention the absence of some important evaluation criteria, such as the place each company and group occupied on the internal and external market, the existence of established economic relations and guaranteed state orders.
Guided by “Temporary methodology guidelines for the evaluation of the privatised facilities”, established by the aforementioned Decree No. 66 from the President of Russia, of January 29th 1992, the privatisation committees set the initial price for companies, the amount of share capital of stock companies, based only on the evaluation of the given company’s property, which itself was calculated on the depreciation costs (paragraphs 3.1. and 4.1. of the methodology guidelines).
Backing up its requirements with a threat, Paragraph 5.6 of the said methodology guidelines pointed out that: “Non-compliance with the present methodology guidelines by the company’s administration shall lead to the cancellation of the agreement concluded with the appropriate officials”. This, indicative provision was aimed at obtaining a general uniformity in the implementation of the methodology envisaged for privatisation Chubais’s way, which, in the circumstances where the time limits set for privatisation processes were inexplicably shortened, as well as the parallel privatisation of hundreds of state industrial companies and groups (concerns), had a special purpose.
Any comparison between the processes of privatisation of state industrial companies and groups in the Russian Federation and the United Kingdom, at the end of XX century, could, probably, only be used as a recommendation, in view of the absence of a developed economy in Russia at that time, and the availability of sufficient free financial resources in the possession of its citizens.
Nevertheless, let us look at one example of how privatisation was carried out on the islands of the “foggy Albion”, under the Conservative government of Margaret Thatcher. For the sake of accuracy, we will reference the statements by the President of the Property and Law Foundation, the Director of Catalaxy Publications, Boris Pinsker: “(First), companies are selected for privatisation. Then, for each company, a team of qualified managers is appointed, to qualify the relative competitiveness of that company’s product and its need for investment necessary to reach the required level of competitiveness. Potential buyers are identified through research. A realistic price is set for the company, based on the forecast of demand in relation to its products, following its modernisation. The necessary readjustments are carried out, using an appointed team of highly qualified, reputable managers and responsible members of the Board of Directors and only then can they sell it”. (The collected materials from the conference organised by the Caton Institute (USA, held in Moscow in September 1990, entitled “From plan to market”, page 156, article by B Pinsker entitled “Privatisation and politics”)
There is no doubt that using this approach, one would secure not only a much higher level of economic efficiency for the results of the industrial privatisation, but also a much better treatment of the associated social issues, which inevitably accompany privatisation, as the ownership structure of the given industrial company or group (concern) is changed. The developers of the Russian methodology for industrial privatisation, were naturally, aware of this, however they still chose to do everything the other way round.
“We knew that there were strong political forces in Russia, which, riding on slogans implying slow but “good-quality” privatisation, would do everything within their power to halt the process or use it to their clannish, purely egoistic ends”, wrote one of the theoreticians of Russian privatisation, Maxim Boyko. (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 58)
However, the opposite happened; it was the actions of the young reformers, lead by Anatoly Chubais that lead to a purely-egoistic privatisation. Chubais himself stated: “At that time, I did not fully understand what a price we had to pay. I underestimated the feeling of great injustice in people”. (“Commersant POWER”, No. 46 (599) of November 24th 2004, page 43)
What justice can we talk about in relation to privatisation – Chubais’s way?
The only justice ever done was the issue of 146 million privatisation cheques (vouchers) to Russians, following which conditions were created for operation of investment funds for those cheques, most of which – according to the opinion of the developers of Russian privatisation, the deputy president of the State Property Committee, Dmitri Vasilev, “turned out to be nothing more than pyramids”. (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 141)
Dmitri Vasilev further stated, in an article entitled “Organising the business”, and published in “the LAW ” magazine, No. 9 for 1993: “The essence of the business is in the fact that contrary to conventional international practices, our companies first change their ownership structure and only then start work on restructuring and attracting new capital. In all Eastern European countries, this was done the other way around – restructuring first and then privatisation. In our situation, we could not have followed that example due to social and political circumstances; the population could not have waited ten years for that to happen. The exceedingly slow reform process would have inevitably led to a complete discrediting of the very idea of change in the ownership structure”. (“The LAW” magazine, No. 9, September 1993, page 57)
So, in other countries of developed socialism, which also underwent changes in the state, social and economic order, the transition from socialism to capitalism was conducted, economic reforms were carried out and the population was happy that their privatisation was being implemented at a slower rate, but more thoroughly and from an economic perspective, more efficiently, but in Russia, there was no way the same thing could be achieved.
This must be why, as a result of this supposedly uncompromising position of the Russian people, which would supposedly never have approved a privatisation implemented at a slower pace, no other country of the former East European socialist block can “boast” such number of oligarchs and the super rich, nor can they be proud of such great numbers of super poor and destitute fellow-citizens.
Political and economic reforms carried out in Eastern Europe, including privatisation of industrial companies and groups, with all their shortcomings were all in all, more just, more socially oriented and ultimately more transparent from the perspective of social control. We can be sure that none of the high ranking officials from our former socialist neighbour countries, in charge of this process, would have been prepared to place their signature under the following declaration of Anatoly Chubais: “My opponents tell me that the privatisation was incorrect, that it was contrary to the interests of the people. But I did not do it for the people of my generation; I did it for our children. I am convinced that in a generation or two, people will look upon us differently and those who come after us will no longer have that feeling of injustice”. (“Commersant POWER”, No. 46 (599) November 24th 2004, page 43)
The fact that Anatoly Chubais carried out industrial privatisation in Russia in the interests of his children as well as the children of the Russian contemporary super-rich bourgeoisie, ripened on the yeast of privatisation – can now be fully appreciated!
However, there is still hope that future generations of Russians, will still feel the injustice and lawlessness of the industrial privatisation carried out in Russia. That feeling is not going to disappear by itself as long as people continue to have a typically Russian, broader view of things, engaging in a lively analysis and discussion of the events past and present, not in the Parliament but in the kitchens of their tiny flats, on their way to work, on public transport and god knows where else.
* * *
The key aspect of the methodology used in the Russian industrial privatisation was contained in the alternative approaches to the implementation of the privatisation processes, as laid out in section five of the State Privatisation Programme for 1992, the basis of which were privileges envisaged for the members of staff in state companies and groups and associated individuals.
According to the first alternative, the privatisation privileges were as follows:
– Personal privileged (non-voting) shares of the company, set at a proportion of 25% of the company’s equity, resulting from the issue of shares, shall be distributed amongst members of staff, free of charge and simultaneously;
– up to 10% of the equity capital of the sold and privatised company in ordinary (voting) shares were to be sold through subscription, to members of staff, with a 30% discount on their nominal value, payable in instalments within 3 years, with a down payment of at least 15% of the corresponding nominal share capital;
– members of senior management of the sold and privatised company (director, his deputy, chief engineer, chief accountant) pursuant to the terms of their contracts, had the right (option) to acquire ordinary (voting) shares, at nominal value, to a total quantity of 5% of the equity capital.
These privileges were extended to all workers of the sold and privatised state company or group (concern), and associated individuals: retired staff, redundant persons etc. This made this privatisation method more attractive to those people and workers with moderate resources, to whom the fact of irrevocable transfer of even such a small quantity of equity capital (25%) of their company to their private ownership could be presented by the management as a deserved regard for their long, commendable service.
At the same time, the state temporarily kept a controlling stake of the ordinary shares of the company or group being sold and privatised, which, in respect of the amount of privileged (non-voting) shares, would have been 38% of the company’s total equity capital.
Hence, in Article 3 of the Russian Federation Law “On privatisation of state and municipal companies”, in the version of June 5th 1992, there was a very interesting legal provision which said: “The programme (the State Privatisation Programme) may amongst other things, include entities, which may be subject to privatisation pursuant to a decision by the Government of the Russian Federation, of the Russian Federation State Property Management Committee. When privatising companies listed in the said nomenclature, the Government of the Russian Federation, the Russian Federation State Property Management Committee shall have the right to set control stakes in the state capital of the privatised company and keep the said stake for a period of up to three years”.
In some cases, the Government, in its role as a holder of the controlling stakes of ordinary (voting) shares of the privatised companies, resulting from the sale of the state unitary industrial companies and groups (concerns), used the three year period allocated to it to quietly look for suitable candidature of future owners of these control stakes.
To this effect, the appropriate high ranking officials gave the potential future owners, as selected by the members of the first Russian President’s team, time to examine the privatised companies and groups from inside, without any contests or auctions, protractions or public announcements. Pursuant to Presidential Decrees and corresponding authorisations, the authorised representatives of these prospective private owners of the aforementioned controlling stakes started to take the positions of the Government’s authorised representatives, appointed to the management of the privatised legal entities, where they took part in the decisions regarding strategic issues concerning development of business, at the same time, gaining experience in the management of financial flows and placement of finished products of the concerned companies and groups (concerns) being sold.
In the course of three years, the legal entities run in this way, using strictly determined financial institutions (banks), which used various crediting and financial schemes, extracted away all possible “financial extras”, in the form of profits of those companies and groups which had been taken away from the Government. This is how the initial capital was accumulated – a process of utterly illegal privatisation of the profit of open stock companies. What makes the whole affair even more disgusting is that everything was conducted under the pseudo-legal disguise (“cover”) of presidential sub-legislative Decrees. Obviously the government’s high ranking officials at the time found it more convenient to “forget” the fact that the controlling stakes of ordinary shares in the Government possession gave the Government the power of control and a large portion of the profits, generated by the recently privatised companies and groups (concerns).
The selected individuals, allowed to participate in the management of the control stakes, which in a formal and legal sense were still owned by the Government, performed the easy role of acquirers, whilst on the side; they studied the managed businesses, learning to become their fully fledged owners. Undoubtedly, a large part of the financial resources, received through the privatisation of profits of the sold and privatised state companies and industrial groups, was collected in order to finance Boris Yeltsin’s presidential campaign of 1996. For such organisation of a targeted financial down flow, the “heroes of the story” received, like magic, from the “master’s hand”, the aforementioned controlling stakes as their private property. The rank and file workers of the same companies, as well as their managers, remained ignorant and not privy to these profit distribution schemes, involving those companies in the privatisation of which they only participated under the first scheme, as privileged shareholders, naively trusting in their heads of government adherence to democratic principles of equality and openness.
The consciousness of the vast majority of workers of the fully privatised companies and groups, was shaped by the media, using well-prepared PR, in the form of stories, interviews with respectable people, who were all talking about the prospect of receiving decent dividends for their shares, in the near future or about how one can learn to be a small, but proud shareholder. Indeed, a minority shareholder upon whom nothing depended ‘then’ and nothing would depend in the future, however in the moral sense, someone who is an “equal” co-owner of the private company, just like the oligarchs who owned the controlling stake of ordinary shares. The very same company which until yesterday was still, a successful state group in which the parents of the small shareholder also worked, in which he himself, worked all his life and having given the factory almost all his strength and health, he now brought in his children to replace him. However, now, it was already a private company belonging to the new Russian oligarchs.
May I once again draw the reader’s attention to the fact that right from the outset of the industrial privatisation – Chubais’s way, the main objective of its authors was to privatise the profits, rather than the facilities, let us underline it once again, which were viable state companies and groups (concerns).
This, applied, primarily to the most profitable industrial companies and groups (concerns), which specialised in the extraction, processing and sale of natural resources (ore), which were selected to be privatised in accordance with the first benefit scheme, for exactly that reason. Indeed, it is not an accident that most of Russia’s biggest oligarchs were created and bred on the privatisation of the profits from extraction, processing and the sale of oil and associated derivatives, ferrous, non-ferrous and precious metal ore.
As for the not-so-profitable and even loss-generating industrial companies and groups, everything was much more complex. Here, at first, the issue was not privatisation of the profits, as there was either not enough of it, or none at all. In these companies, it was the facilities and intangible assets that were privatised (rights to land notification), through exploitation of which, the new owners would immediately start generating income, trying to make a profit or reach profitability by reorganising the manufacturing technology using the existing industrial base and, subsequently, changing the functional designation of the company.
The main common denominator, though, was that in every scenario, the privatisation of less profitable or even loss-generating industrial companies and groups, the privatisation of profits, for obvious reasons, did not always precede privatisation of the facilities of the most productive and asset-rich organisations. Thousands of medium and small companies came under this category which, were mostly privatised according to the second or third benefit scheme. Indeed, the high ranking government officials did not insist on taking part in the distribution of these controlling stakes, “religiously” renouncing the “industrial small change” to the rest of the Russian people.
Commenting on the three alternative industrial privatisation schemes, the first Deputy President of the Russian State Property Committee, Pyotr Mostovoy, offered this justification: “Of course, the first benefit scheme should in no way be interpreted as some kind of punishment or infringement on the rights of the workers. In most cases it was more like a treasure. Indeed, its application, in the circumstances where the workers did not show initiative, simply stems from the Law. And the Law says that if, employees chose the second benefit scheme, they should have it as they have the right to it. However, if none of the options gets voted, the first scheme is applied. This is clearly stated in this legislative norm”.
At the time of this interview, given to a correspondent of the LAW magazine in 1993, Pyotr Mostovoy probably, had only a general theoretical picture of the possible development of the privatisation processes – Chubais’s way, and this must have been why he drew such an idealistic description of it: “Which benefit scheme will be chosen depends on the specific conditions of the given case. When these schemes were developed, they were, from the very beginning, aimed at coinciding with certain priorities … Let us say, a Director has a good investment opportunity but bad relationship with his employees. He will naturally prefer option one. This option gives the employees fewer voting rights whilst, he can obtain a larger number of shares, through cheque auction, using the five percent fund for managers given through closed subscription, making a handsome profit. Another scenario: the manager has good relationship with both the employees and the investors. In this case, he will prefer the second scheme, as this option allows him to immediately obtain a controlling stake, from which he can later, in agreement with his workers, obtain a significant number of shares for himself. Finally, for companies which have solid teams, all with the same attitude, all having good relations with the employees, the third scheme should be used. The faith of the company is immediately decided by the team, its members receive significant benefits. However, they would also need to provide adequate guarantees”. (The LAW magazine”, No. 9, September 1993 pages 59 – 60)
We note that Pyotr Mostovoy, did not even mention why, say a director, himself or assisted by investors, would need to make a “handsome profit” of shares in the sold and privatised industrial group (concern), if the high ranking government officials had already decided to leave him “empty handed”, having given the said “uncle” the controlling stake “on a gold platter”.
In most cases, the companies and groups (concerns) in Russia switching to private ownership received the first or the second benefit scheme, as they both provided the conditions for privatisation, which were best from the point of view of the Government.
According to the second scheme, all employees of the company to be sold and privatised, had the right to receive up to 51% of the new company’s equity capital, in the form of ordinary (voting) shares – which, indeed represented the company’s controlling stake. Clearly, the second benefit scheme could not secure the financial support for Boris Yeltsin in 1996 elections, as in addition to the controlling wedge of shares, the employees and their management would also obtain all the rights to control income, financial flows and profits, generated by their privatised companies and groups.
A serious battle was starting in Russia’s, young, wild and spontaneously developed stock market, for the shares of smaller but profitable companies. It was aimed at buying up and consolidating such an amount of securities, to a single pair of hands that would allow either full control or a veto (25% + 1 share).
According to the third scheme, a group of employees in the company, assumed the obligation to carry through the privatisation plan for their company, not to allow bankruptcy, and to obtain the consent of the General Assembly of Employees for the conclusion of an appropriate privatisation agreement for a maximum period of up to one year (non-renewable). According to data provided by Pyotr Mostovoy, only some 1.5% of the total number of privatised state and municipal companies went for this option, being compact legal entities without any considerable assets.
In order for the pseudo-democratic, or more accurately, oligarchic order to be established in Russia, the first privatisation benefit scheme was, naturally better. Consequently, playing allure tunes on the strings of democracy, the State Privatisation Programme for 1992, there was a legal provision in accordance with which, the decision entailing selection of either the second or the third privatisation benefit scheme can only be taken by the General Meeting of Employees, by registration, or through a subscription. The decision to ahead would be considered taken if supported by no less than two thirds of the overall number of votes (registrations) by the workers of the given company or group (concern). If no such decision was taken concerning the selection of a benefit scheme, the first scheme would be implemented by default.
At first site – very democratic. Chose what you will. However, if you want to get anything other than the first scheme benefits, you will need two thirds of the total number of employees, including those on holiday, sick leave, shift workers etc - Very adventurous and, of course, very undemocratic.
And still, due to the fact that most state and municipal companies were indeed small or medium-sized compact enterprises, by June 1st 1993, domination of the second benefit scheme was clearly felt in the privatisation processes in Russia, with an average ratio of 74.4% of all privatised companies, against 24.1% of companies voting for the first option, mainly represented by large manufacturing sector groups. Whilst the second privatisation scheme was predominant in quantitative terms however, it was the first scheme that prevailed in terms of volume of available financial resources, numbers of employees and scope of production and services provided.
It is perfectly clear that the first benefit scheme was forcedly applied to the privatisation of the largest state companies and groups (concerns), specialising in the extraction, processing and sale of Russian natural resources, which were endowed with great financial resources and intangible assets, such as mining licenses.
The chances for employees of those companies and groups (concerns) to organise themselves in order to select say, the second privatisation benefit scheme, such as the right to buy a controlling stake of ordinary shares in a mining company formed as a result of sale of the state unitary companies and groups (concerns), were equal to zero. Indeed, in resources-rich companies and groups, the share of each worker would typically, be represented by a large amount of production assets, which determined the amount of equity capital, and consequently the nominal value of shares. If the second privatisation benefit scheme were to be implemented in such situation, the price of a share for the worker would not necessarily be equal to its nominal value, but increased. Furthermore, it is difficult to assess to what extent there had to be good relations between the managers of the privatised companies and groups (concerns) and their staff (which in some cases was several tens of thousands) to allow the managers to persuade two thirds of their employees to vote (sign) for the second privatisation benefit scheme.
When the scheme was being selected for the privatisation of the largest state companies and groups (concerns) in the mining sector of the national economy, it relied, firstly on the speed of the subscription and secondly, on the enormous number of workers, not allowing for the organisation of rapid support for say, the second privatisation benefit scheme. Finally, it relied on the comparatively low purchasing power of the workers as well as on their probable desire to obtain as many shares as possible free of charge, just as was possible under the first privatisation benefit scheme.
Many tens of thousands of workers of the largest profitable state companies and groups (concerns) in the extraction industry, without realising it, accepted the low-pressure choice suggested from above – selecting the first privatisation benefit scheme. Indeed, any other choice was impossible as two thirds of all employees practically means unanimity of all workers subscribed or present at General Meetings of Employees, because up to one third of all workers, as a rule, was on holiday, duty trips or sick leave.
Initially, already in the development phase of Russian industrial privatisation, a conceptual plan was conceived envisaging how a control stake of ordinary shares in the best industrial companies and groups in Russia could be temporarily left in state ownership, based on “free choice” or not just anybody but with the workers themselves. In the end, the workers of the largest industrial companies and groups were subconsciously persuaded that they would definitely not have sufficient funds to purchase control stakes of ordinary shares, whilst their managers would not have the opportunity to organise their workforce to elect the second option or independently find capable investors, which could guarantee a successful outcome of their privatisation efforts. Consequently, all privatisation trump cards were left at the disposal of the head of state, who was indeed, the only one who could rely on Anatoly Chubais’s talent to deliver, throughout Russia, all necessary guarantees for enrichment and undisturbed future existence, to individuals who had been arbitrarily and illegally elected to become oligarchs.
* * *
According to the data from the State Property Committee of the Russian Federation, the country’s industrial privatisation was carried out at a genuinely rapid pace. For instance, on April 1st 1992, 5023 companies and groups were privatised, whilst by June 1st 1993, already 68,387 legal entities were privatised. Then, by June 1sy 1993, 2,048 state companies and groups were sold and reorganised into open-type stock companies, their shares being floated. The total cost of property of the privatised companies at that time (based on completed applications) was set at Rouble 571,033 Million. (The LAW magazine No. 9, September 1993, page 50)
At the same time, alternative views appeared regarding the so called accelerated privatisation of state and municipal companies and groups in Russia. On January 31st 1995, the President of the Legislation Committee of the State of Duma in the Russian Federation, Vladimir Isakov, thus commented the process of privatisation in the parliamentary journal “Sovyetskaya Rossya” “the privatised companies work inefficiently, as change of ownership does not guarantee an increase in efficiency. Such an increase can be achieved by replacement of obsolete equipment, implementation of new technologies, market analysis or management improvements. All these processes are lengthy and require significant investments. Indeed, contrary to expectations…… the privatisation did not bring about foreign investments; indeed their scope has been significantly reduced”, along with a reduction in economic, social, political and the defence capacities of the country.
Vladimir Isakov points particularly to the serious economic damage incurred by the country as a result of the voucher based privatisation: “By October 1992, when the issue of vouchers started, the prices increased 20 times as a result of liberation (compared to 1991, when the voucher fund was assessed). And the corresponding 20-fold reassessment of basic assets was carried out only one year later, in mid 1993. In this way, the overall nominal value of the voucher fund was 20 times lower than the amount of basic assets. The market value of the vouchers was on average R 12.5. By buying out and reselling large quantities of vouchers, cheque investment funds assured the transfer of state property to the new owners for next to nothing. Meanwhile, the state budgets at all levels received only 1 trillion Roubles as a result of the first privatisation phase, which was only a half of what was collected in Hungary”. (A Sukhoparov, “Privatisation: expectations and reality”, an article published in “Dialog” magazine, No. 4 for 1995, page 55)
This was seconded by another MP from the Russian State of Duma, Stepan Supashkin. In his article entitled “From a sick to a healthy mind”, published in “Delovoy Mir” newspaper, No. 3 for 1995, he noted that 40 million shareholders “did not realise the basic objective of privatisation, which was to rise efficiency of the production. The drop in efficiency of the companies which were sold off was 30% against 22% in the state sector. Profitability and return on investment were outweighed by the increases in prices. In 1994, the state budget received only 5% of the anticipated income from privatisation”.
Stepan Supashkin further pointed out that genuine profitability of the industry was – 9.8%, agriculture - 35%, construction – 20.9%. Referring to the “market policies”, the MP Supashkin wrote: “in 1994, Russia lost USD 17 billion in direct budgetary losses, another USD 2 billion exported each month, USD 19 billion (USD 20 billion in potential investments – based on Chinese example, minus USD 1 billion already received by Russia makes USD 19 billion) in lost investments due to the general state of economy and risks related to Russia”. (A Sukhoparov, “Privatisation: expectations and reality”, an article published in “Dialog” magazine, No. 4 for 1995, page 56)
For all this, according to the information provided in Mr. Sulashkin’s article, that is to say, for the industrial privatisation carried out in Russia, Anatoly Chubais received a medal in Washington DC. It follows that the real objective of this illegal privatisation of the Russian industry was something completely different, from what Anatoly Chubais was heard saying!
The developers of Russian privatisation were quick to dismiss the Chinese model, based on the privatisation of primarily loss-making and inefficient companies, with a consequent establishment of small and medium sized companies in their place. Today, we observe what became obvious from year to year, that China’s industrial output, in its development, not only takes giant steps but runs forward, striving to make the country the leader of the developed world. Alas, the investors from both developed and the developing world now prefer to invest long term into the Chinese economy than into Russian industry (again with the exception of mining industries).
In issue number six of Economics and Life weekly for 1885, two experts Messrs Nesterov and Bukhvald, gave a negative appreciation of the consequences of voucher privatisation. According to them, the privatised property was compensated at around 40%, and where voucher capital was not used as means of payment, only 15%, which means that only a symbolic sum was paid for the privatised property, which in 1994 made up one third of the full replacement value of all Russian basic assets. Consequently, an enormous amount of state resources, some 300 trillion Roubles in 1994 prices, was just transferred to the “New owners””, – concluded the authors. (A Sukhoparov, “Privatisation: expectations and reality”, an article published in “Dialog” magazine, No. 4 for 1995, page 57)
According to the data of the Academic Nikolay Moyseyenko, from the Petrovskaya Academy of Sciences and Arts, during the industrial privatisation – Chubais’s way, the largest Russian companies and groups, whose total value was at least USD 200 billion, were sold off for at most USD 7.2 billion. This is a good indicator why an accelerated industrial privatisation, carried out without proper, realistic evaluation of the privatised facilities was “better”. The appearance, in 1994, of over four million unemployed people, officially registered on the labour market, can be considered as a social consequence of privatisation.
To make the picture clearer, we can quote the opinion of the world-famous financier, specialising in speculative operations on stock markets, Mr. George Soros, who, in February 1995 declared, in the world economic forum in Davos that in Russia the mass privatisation led to predatory capitalism. (N Moyseyenko, “The new stage in privatisation and its consequences”, an article published in “Dialog” magazine, No.4, 1995, page 53) A very notable argument summarising the results of the first stage of industrial privatisation in Russia, completed in mid 1994.
Of course, one should note that as far as legal position is concerned everything in Russia was functioning properly at the time as the Public Prosecutor’s Office of the Russian Federation concluded, right from the outset of industrial privatisation, that the very model of privatisation, as put forward by Anatoly Chubais and his team, was incompliant with the law and lacking a proper base. This fact encourages us to believe that one day, Russia will become a country genuinely governed by law, as set out in Article 1 of its Constitution.
Unfortunately, for now one can only hope. Indeed, the President of the Russian Federation, Boris Yeltsin, who, in accordance with Article 80 of the Basic State Law is the “guarantor of the Constitution of the Russian Federation, rights and liberties of each citizen”, did not once obey the Public Prosecutor’s Office, de facto overlooking the blatant illegality of the industrial privatisation. Furthermore, Boris Yeltsin literally set out to remove all barriers from the “path of glory” as the chief coordinator of the Russian privatisation.
Even Anatoly Chubais wrote about it with a degree of irony: “Some situations were amusing. In the autumn of 1992 for instance, when the Public Prosecutor’s Office, after a long silence, came up with this big letter by Stepankov, addressed to the President. The letter was talking about how the privatisation is anti-people that it is full of infringements, that the whole business was carried out incorrectly and that it needs to be stopped, changed, cancelled, banned and pursued! The whole letter was a nonsense. Finally, the result for the opposite of what the author of the letter wanted as the President gave us his support. … Stepankov was sacked. He was replaced by Khazannyk. He was there for three months when I heard that the Prosecutor General has written a letter to the President, regarding privatisation. I am reading it and realise that it repeats Stepankov’s letter word for word. I was hoping that somewhere there will be a stance, such as “‘let us separate legal from illegal in the privatisation”, “let us improve the technology with the view to reducing the illegal”, but no! A full rejection of the process! “Privatisation against the people! Embezzlement! Thievery!” I tried to persuade the author, to talk to him to prove it. Khazannyk was sacked! Iliushenko was appointed in his place. Three or four months later, another letter! And indeed, again a repetition, word for word. This time however, with a noisy campaign in all the media, with a debate in the State of Duma: “A serious letter by the Prosecutor General to the President of Russia, regarding law breaking in privatisation”. The end was indeed the same – Iliushenko was sacked. Is it worth me saying that the same happened to his replacement, Skouratov? He also wrote a letter. And you should see what kind of letters those were!” (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 317)
Continuing the logic of Anatoly Chubais, let us add that Yuri Skuratov was also sacked, absurdly accused of immoral behaviour with two liberal-minded ladies. Indeed, all this is very suspicious and looks more like a set-up, especially if we know that the close entourage of the first Russian President would have been interested in providing at least an apparent substantiation, in the eyes of the public, for yet another sacking of the Prosecutor General.
Today, Anatoly Chubais naturally tries to make it look as if he was ready to talk, whilst the Russian Prosecutor General’s Office did not show due understanding for the privatisation process. In other words, the Prosecutor General’s Office was not prepared to talk to him about separating the illegal from the legal, “within the framework of privatisation”. Needless to say, it is clear how all of this would have happened if we know that essentially the entire industrial privatisation – Chubais’s way was built upon sub-legislative acts, decrees and orders by the high ranking officialdom of executive power, which did not try very hard to provide these sub-legislative documents, issued by them, in an appropriate formal and legal basis.
Unable to find any legal or substantiated arguments, which could possibly be provided as the counterweight to the conclusions of the Prosecutor General of Russia, in respect of the illegal aspects of privatisation which were against people’s interest, not to say thievery, the President Boris Yeltsin simply had the heads of the judiciary removed from their positions. Just like at the dawn of Soviet power, when the main ideologists of proletarian dictatorship used to say “those who are not with us are against us!”
* * *
Soon afterwards, by the end of 1992, the highest state authorities were divided, unquestionably although not formally, into supporters or opponents of the industrial privatisation – Chubais’s way. As confrontation grew the President Boris Yeltsin was, on some occasions, signing his Decrees and Orders contrary to Russian law whilst on other occasions the Supreme Soviet if the RSFSR, in accordance with Paragraph 19, Article 109 of the Russian Constitution, in its previous version, suspended those same sub-legislative acts, sending them instead to the Constitutional Court. This slowed down the privatisation processes; made them longer, further provoking those in power to a final countdown in terms of real state power in the country and consolidation of their position for the future.
Let us remind ourselves that in those days, when in 1991, Boris Yeltsin was being elected to the post of the President of RSFSR, the highest government authority in the republics, at that time still part of the USSR, was the Congress of People’s Deputies, pursuant to Articles 104-106 of the Constitution (the Basic Law) of the RSFSR. So only the Congress of People’s Deputies of the RSFSR had the right to cancel statutory and other laws as passed by the Supreme Soviet of the RSFSR, as well as decrees and orders issued by the President of the RSFSR. The Supreme Soviet of the RSFSR in turn, also had the right to cancel the decrees issued by the President of the RSFSR, although based on an appropriate decision by the RSFSR Constitutional Court.
Obviously, this was not acceptable to radical reformers surrounding the President of Russia, who strived to extend Boris Yeltsin’s power to a maximum, in order to be able to carry out the removal of state control and the privatisation of state industry, according to their own agendas and, as it has been already pointed out, to create the necessary conditions for the privatisation of profits of the most lucrative groups (concerns) from the natural resource extraction sector.
Boris Yeltsin’s term was due to expire in 1996 and already by 1993, his authority as the “liberator” of Russia from Soviet and Communist Party “oppression”, suffered a serious blow, due to the liberation of prices, organised by Yegor Gaidar, which reduced the majority of the country’s population to poverty, as well as forcing the Russian speaking ‘non citizens’ in the Baltic states to fight for their survival.
In these new circumstances, a number of strategic tasks had to be quickly fulfilled by his supporters in order to secure a preservation of government. Firstly, the constitutional power of the President had to be consolidated. Secondly, they had to find a way of obtaining significant financial resources within the country which could be freely used to consolidate the existing Russian President in power, without any obstacles, by securing a renewed term in office in the 1996 elections. Thirdly, they needed to find an enemy on whom all obvious misfortunes of the reforms so far (which could no longer be concealed) could be blamed.
As a solution to the first problem, work was actively being done on a new draft Constitution of the Russian Federation. As far as the second task is concerned, Boris Yeltsin stated doing everything within his power to clear the way for Anatoly Chubais and his accelerated privatisation, anticipating redistribution, in the near future, of the profits of the most lucrative state companies and groups, so that the greatest part would end up in the corresponding informal electoral funds. Solution of the third problem came by itself. The uncompromising position of the Supreme Soviet of the Russian Federation, in respect of the reforms and privatisation processes, identified the institution as a potential enemy in the eyes of Boris Yeltsin’s supporters, of the pseudo-democratic order they had created.
Both the leadership of the Supreme Soviet of the Russian Federation and the President of Russia, from time to time, made statements in the media, openly calling upon people, each trying to get as much support as possible. Supporters of several Supreme Soviet Deputies organised a collection of signatures whereby Russian citizens were asking the Supreme Soviet to declare a national referendum on the following question: “Do you support the move to suspend Boris Yeltsin from his post as the President of the RSFSR”. The Russian President, on the other hand, openly ignoring the norms of the law, as set out in the adequate legislative acts, such as the RSFSR Law “On personal privatisation accounts and investments”, continued to blame the Deputies for all wrong doings.
It became necessary for the Congress of People’s Deputies of the Russian Federation to intervene as a result of a political dead end which occurred between 1992-1993. In the given circumstances, this, highest government authority decided to call a referendum, an instrument of direct participation of the Russian people in the solution of government problems, by issuing, on December 15th 1992, the Order of the VII Congress of People’s Deputies of the Russian Federation, concerning “stabilisation of the constitutional order in the Russian Federation”. Pursuant to the Order, an all-Russian referendum was to be held on April 11th 1993 to decide the basic principles of the new Russian Constitution (Basic Law).
Furthermore, the Congress of People’s Deputies of the Russian Federation ordered the following:
– “Paragraph 19 Article 109 of the Constitution of the Russian Federation, concerning the cancellation of the decrees and orders issued by the President of the Russian Federation by the Supreme Soviet of the Russian Federation; Article 110 concerning the entrusting of the right to assume legislative initiative to the Council of Ministers of the Russian Federation; Article 126-6 of the Constitution of the Russian Federation concerning immediate suspension of powers of the President of the Russian Federation shall not be implemented prior to the results of the referendum on the basic principles of the new Constitution of the Russian Federation”;
– “The Supreme Soviet of the Russian Federation shall not debate the correction submitted as legislative acts, which disturb the legislative balance of the legislative, executive and judicial power”;
– “Upon adoption of the present Order, both the Presidents and the Congress’s Address shall cease to be valid”.
The political truce which never actually lead to peace, continued into spring 1993. Lengthy discussions about what issues, other than those pertaining to approval or disapproval of the basic principles of the new Constitution of the Russian Federation, should be put to referendum finally boiled down to four questions the essence of which was confidence or non-confidence for the first Russian President and support or non-support for the social and economic policies currently implemented in the country:
1) “Do you have confidence in the President of the RF, Boris Yeltsin?”
2) “Do you support the social policies carried out by the President of RF and the Government of RF since 1992?”
3) “Do you consider early elections for the President of the RF necessary?”
4) “Do you consider early elections of the People’s Deputies of the RF necessary?”
This gave rise to a truly grandiose PR campaign which was literally imposed upon the Russian people to vote according to formula: “Yes, Yes, NO, Yes ”, that is to say, those who, in view of the supporters of industrial privatisation – Chubais’s way, and economic reforms – Gaidar’s way, were against the return to the historic past, had to give positive answer to questions one, two and four, in a way, authorising Boris Yeltsin to carry out his “reform” of Russia.
Using a tongue twister to engrave the content of the “formula for success” into the heads of Russians, the executive power did the job and won the referendum vote by a small percentage, on April 25th 1993 whereby the Russians coming to vote finally produced the result necessary for the government officials. In particular, 58.5% and 52.88% respectively gave positive answer to questions one and two, of the just over 69 Million Russian citizens who took part (the registered attendance was 64.5% of the 107 millions Russians eligible to vote), which, in turn made up 40.37 and 36.5 million people. As far as the third and fourth questions were concerned, 32.6% and 41.4% respectively gave a positive answer, which also made up 22.5 and 28.57 millions Russian citizens (N Zenkovitch, “Elite- the most open people”, page 217).
Encouraged by even, these ‘not very encouraging’ results, the first Russian President’s team took a more decisive action, aimed at increasing tension within the opposition, the embodiment of which was the building of the Supreme Soviet of the Russian Federation – the White House, which identified the Supreme Soviet’s ideological diversity.
The confrontation soon passed from voting and discussion to a physical conflict and on Saturday, May 1st 1993, during the celebration of the international Labour Day in Moscow, on Lenin’s Avenue, near Gagarin Square, a clash occurred between the demonstrators and the Moscow OMON . According to the official statement by the Director of Moscow Medical Services, Anatoly Solovyov, “within two hours (12:35-14:35) five hundred and seventy nine people sought medical assistance, including two hundred and fifty one policemen, due to (the large number of attendants in) this traditional yearly parade of workers. A total of four hundred and ninety five people were either brought to the hospital from Gagarin Square, or came by themselves between 1-2 May, whilst another eighty four received medical attention on site”.
The doctor’s statement indicated: “similar events have not been witnessed in Moscow in the last 25 years. Even the events of August 19-21 1991, did not produce as many injuries. The medical staff of the Expert Medical Assistance Centre of the GMU Moscow, the first aid centre and the city hospital performed their work well. Medical assistance was not denied to any of the people who required it”. Still, one of the wounded did succumb to his wounds – a 25 year old policeman Vladimir Tolokneyev, who had been hit by a armoured-vehicle. (Independent People’s Newspaper “Sovyetskaya Rossya”, No. 52 (10915) of May 4th 1993, article entitled “Unseen in quarter of a century”)
It is clear that nowhere in the world, is there such a thing as bloodless battle for power, property or money, fought in “white gloves”, even this, battle for “democracy”, against one’s own people, walking in a ceremonial procession on international Labour Day. This is not a political virtue, as Montesquieu saw it, as a love for the Fatherland and equality; neither is it a virtue in the moral sense.
Trying to somehow understand the logic of the events, one cannot but remember the philosophical heritage of Friedrich Nietzsche who, almost one hundred years ago concluded: “Supremacy of virtue cannot be based only on virtue; those who base themselves on virtue renounce power, lose their will for power”. “The victory of a moral ideal can be reached based on such “immoral” means as, every other victory: by violence, lie, slander, injustice”. (F.Nietzche, selected works in three volumes, vol 1 “Will for Power”, page 130, paragraphs 305 and 306)
Violence, injustice and slander were constantly used throughout the process of privatisation of Russian industrial companies and groups (concerns), as well as in the establishment and initial development of the oligarch-republican form of government, created behind the shadow of pretty democratic slogans, manipulating the relentlessly active crowd, ready for anything as long as they rid themselves of the “Sovietism”.
Following a general rehearsal, in the shape of the events of May 1st 1993, in Moscow, Boris Yeltsin was not going to stop. It was perfectly clear that any more or less significant impedance in the process of consolidation of presidential power could, in view of the speed of polarisation of the civil society, ultimately lead to a loss of power by the ruling elite. This same elite which, in 1991 broke up the Soviet Union, by illegally disregarding the results of the all-Soviet referendum of March 17th 1991, in which 74% of the voters supported the idea of preservation of the Great Soviet state – the USSR.
These people understood that both the referendum results in 1991 and in 1993 came under the same legal category, reflected in Article 1 of the RSFSR Law No. 241-1, “On referendums in RSFSR”, of October 16th 1990 whereby “All decisions confirmed in an all-Russian referendum shall have the highest legal force and as such are not subject to any approvals, and are subject to implementation on the entire territory of the RSFSR”.
Having disregarded the results of the Referendum in 1991, Boris Yeltsin’s team was only too ready to accept the results of the 1993 Referendum, and, now using the letter of the law, as well as dirty political double standard approach, immediately started to use them to support its plans. The confidence expressed by the majority of people, for the policies carried out by the executive power, headed by the first Russian President, was used as a licence – approval for any deeds, as long as they were aimed at consolidation of Boris Nikolayevitch’s personal power.
The sharp rise in the power of the Presidency started from the day of counting of the votes. In the new draft Constitution of the Russian Federation, there was no room for the Congress of People’s Deputies, instead, the President was raised to be the Head of State. Russia was gradually being turned into a fully fledged presidential republic.
Nevertheless, Boris Nikolayevitch (Yeltsin) did not intend to do anything gradually, unprepared to wait for the new Russian Constitution to come into effect. This could significantly slow down his team’s ambitious programme of power consolidation and completion of the first phase of industrial privatisation, concerning most of all, the largest state companies and groups (concerns). As a result of this, the Supreme Soviet of the Russian Federation, which “dared” suspend a range of Presidential Decrees concerning industrial privatisation, by submitting their texts to the Russian Constitutional Court, was immediately branded, without any justification” as the meeting place of the red-brown opponents of the young Russian democracy.
At the end of the spring in 1993, the supporters of the Russian President, Boris Yeltsin, had tasted limitless power, a power that not only no longer respected the force of law but also lost appreciation for the sanctity of human life and health. Such executive power, continuously striving to extend its might, to acquire not simply large, but vast amounts of money, to redistribute state property, could no longer be stopped by the Supreme Soviet of the Russian Federation. The fragile state system of restraint and balance, reflected in Paragraph 13 of Declaration No. 22-1 of June 12th 1990, “On state sovereignty of the RSFSR”, whereby “The division of power into legislative, executive and judicial authority is the most important functional principle of RSFSR as a constitutional state”, was crumbling away.
Revolutionary tendencies were felt in Russian life; the limitless power and “democratic dictatorship” of the former Bolsheviks was felt in the air. The executive power stopped pretending, resorting to harsh brute force at every opportunity, provoking everyone who would not consent.
People who have felt limitless power could not be persuaded by anything relying upon civilised methods. Indeed, that would be like trying to use conventional methods to leash a dog who, having once bitten his master, and managed to escape, suddenly felt his own force in respect of a human and his wild, wolfish freedom. But, in a democracy, man is the master, who has the primordial power whilst all other powers are the result of his will. Following the events of May 1st 1993, it became blatantly clear that there was not even a shadow of democracy in this, “bitten” Russia, only the extreme “capitalist Bolshevism”, (capitalism by objectives and Bolshevism by the methods used) determined to go to the desired end, regardless of the amount of blood and tears shed.
“Power tends to corrupt, and absolute power corrupts absolutely”, wrote the Cambridge professor, Lord John Acton in his letter to Bishop (Mandell) Creighton, April 3rd 1887: “Limitless power eats away conscience, hardens the hearts and deprives it of responsible thought”.
In his book “the Prince”, Nicolo Machiavelli proposed the following reflections to his eminence Lorenzo dei Medici: “you must understand that there are two ways of contending, by law and by force: the first is proper to men; the second to beasts; but because many times the first is insufficient, recourse must be had using the second. It belongs, therefore, to a prince to understand both … A prince, who is wise and prudent, cannot or ought not to keep his word, when the keeping of it is to his prejudice, and the causes for which he promised are no more … he that best impersonates the fox has better success. Nevertheless, it is of great consequence to disguise your inclination, and to play the hypocrite well; and men are so simple in their temper and so submissive to their present necessities, that he that is neat and clean in his collusions shall never want people to practice them upon … A prince, therefore, is not obliged to have all the aforementioned good qualities in reality, but it is necessary to have them in appearance. … to see and hear him, he appears all goodness, integrity, humanity, and religion, which last he ought to pretend to more than ordinarily, because more men do judge by the eye than by the touch; for everybody sees, but few understand; everybody sees how you appear, but few know what in reality you are, and those few dare not oppose the opinion of the multitude, who have the majesty of their prince to defend them”. (N Machiavelli, “the Prince”, pages 96 – 97)
Nicolo Machiavelli expressed these reflections more than five centuries ago; however, they can be easily applied to the policies implemented in the 90s by the Russian President, Boris Yeltsin. However, that being said, let us note that his eminence, Lorenzo dei Medici, was a duke, and a ruler very far from democratic ideals. Boris Yeltsin, on the other hand, was not a duke, nor his eminence, even though in many ways, he acted as Machiavelli advised kings to act. Consequently, he was as far away from democracy, as was his eminence, Lorenzo dei Medici.
A unique culmination of confrontation between the powers was reached with the issue of the Decree by the President of Russia No 1400, of September 21st 1993, whereby the Supreme Soviet of the Russian Federation de facto ceased to represent the highest legislative and representative body appointed by all of the Russian people. By issuing the Decree Russian the executive power started an open confrontation, continuing to blame the legislative body for all misfortunes.
The main cause of such action was that the Supreme Soviet of the Russian Federation had not demonstrated due preparedness to unconditionally and fully support the implementation of the privatisation of Russia’s state and municipal companies and groups (concerns), through authoritarian, forcible sub-legislative methods already approved by the executive power. All other causes were connected to that main issue, in one way or another, with the exception of those which contained some invented ideology, and which were simply “stuck to the ear” in case some of the lawless deeds of the first Russian President required possible justification. The speed of privatisation of state industrial companies and groups (concerns), by the list, the absence of due control over the privatisation processes and evaluation of costs of the privatised facilities and other assets, in principle was not acceptable to many Russian Deputies who genuinely stood in defence of the interests of their people.
Indeed, at that time, not only people’s deputies but also some members of the executive power decisively expressed their disagreement with the privatisation policies as implemented by Anatoly Chubais.
“Yuri Luzhkov was relentlessly fighting against Chubais’s privatisation schemes which he considered thievish. As early as August and September 1993, Yuri Luzhkov and the Deputy Prime Minister, Oleg Liubov, attacked the President of the State Property Committee, Anatoly Chubais stating that “what is done as privatisation is nothing but a crime”. Mr. Luzhkov insisted that privatisation cannot be taken as an “objective per se”; it needs to generate income for municipal budgets. … However, Mr. Chubais also responded by attacking Mr. Luzhkov, saying that privatisation in the capital is carried out against the Russian laws, that is to say not in accordance with Chubais’s plans”, – wrote one of the most famous Russian scientist and historians Roy Medvedev,, in his book “Yuri Luzhkov’s Model for Moscow”. (R. Medvedev, “Yuri Luzhkov’s Model for Moscow”, page 288)
Motivated by perfectly clear selfishly power-hungry intentions, the Russian President’s state officials naturally, could not use those motives as a justification for the illegal acts committed by the representatives of the executive power, so the idea of a red-brown plot popped up, somehow, somewhere, as a plausible disguise for the real motives and intentions of the Kremlin rulers of that time, which were:
– to consolidate power as much as possible, as early as 1993, excluding every form of dissent, above all in legislative authorities, through a rapid implementation of Constitutional reforms and renewed assertion of presidential government, in order to avoid similar problems in the future, namely in the presidential elections in 1996;
– to remove all barriers from the road to authoritarian and forcible transfer of the state’s best industrial facilities to a narrow circle of individuals chosen by the President, to be later called upon, to support his, already swaying, political regime, as financial sponsors, thus creating a class of great capitalist owners of large material wealth based on property rights.
As if they were commanded, the ecstatic mass media started to count the amount of automatic personal and other arms in possession of the guards and volunteers prepared to protect the building of the Supreme Soviet of the Russian Federation, the White House, which, during the last days of September 1993, came under siege of the troops belonging to the Ministry of Interior and police faithful to Boris Yeltsin.
The TV screens started to show propaganda aimed at discrediting the few thousand brave people who managed to break the White House siege, determined to defend the current Constitution of Russia and the still functioning Supreme Soviet of the Russian Federation. Rather than focusing on Presidential Decree No. 1400, the mass media concentrated on the camouflage fatigues of several defenders of the right to live according to Law, on their insignia and chest badges, as if their noble strive to protect true democratic legality could be made criminal by just branding them with clothes.
By the end of September 1993, it became clear to the supporters of the first Russian President, that prolonged talks with the protectors of the White House, faithful to the Constitution, would eventually shatter their long-term reform plans and secret ideas. Furthermore, there was the danger that actions taken by Boris Yeltsin may be construed simply as a coup both inside the country and beyond, not being seen even as a “palm revolution” in some “banana country”. In view of the latter, presenting the unconstitutional effort to remove the elected Supreme Soviet of the Russian Federation from power, using only a presidential Decree and military force, seemed impossible.
Consequently, motivated by their own interests, Boris Yeltisn’s entourage, which for some reason or another, saw themselves as democrats, could surreptitiously or openly, push the President to resort to decisive, dictatorial action. The recourse to such action cannot be denied. Indeed the whole world watched the streets surrounding the White House, on October 2nd - 3rd, awash with blood, whilst the 120mm guns fired anti armour and napalm shells from the tank turrets on the building that was home to the Supreme Soviet of the Russian Federation.
Today, over thirteen years after, the events are not often recalled when talking about Russia’s statehood’s recent history, let alone being taught. Why those events are left without a clear, substantiated, legal, politically-scientific and historic-political assessment appears strange only at a glance. This, of course, is if we do not take account of the officially imposed version about some victory of democracy over a red-brown plot which, for anyone who thinks seems more than just absurd.
This was possibly, a unique case in world history, when one democracy, embodied here by the President of Russia, who was elected by another democracy, that of the Supreme Soviet of the Russian Federation, whose Deputies were elected by universal suffrage of all Russians, fired tank shells on its electors, as an ultimate argument of its doctrine of “democratic development”.
Indeed, can we refer to those who even stood by those people who issued and implemented criminal orders, criminal from the point of view of both human and natural right to coexist in human society, as genuine democrats, if they were capable of firing one shell after another, as if they were on a training target range, on the symbol of supremacy of popular power?
The White House was burned down, the critics of Boris Yeltsin and his team were silenced for some time. Hundreds of people were killed or seriously wounded, whilst fear settled in the corners of the souls of others, as well as resentment for the subsequent, unjust privatisation, which for many years after figured in all sorts of entertainment TV programmes where it was intended by the Government, as some sort of tranquilliser for the Russian psyche.
Let us make a historic comparison although it may not appear correct to everyone. Similar events were recorded in Berlin, where quickly and quietly on the evening of February 27th 1933, the Reichstag building was burned – the symbol of democracy in the German republic. According to the main version, the fire was lit by those who, during the Great Patriotic War fought the multinational, at that time still the united Soviet Nation. German National-Socialists never openly admitted responsibility for burning down the symbol of German parliamentarianism. Their responsibility for many actions directed against the lives and health of the tens of millions of people was proved later, at the Nuremberg trials. However, even the protagonists of national-socialist ideology and practitioners of the establishment of the fascist state did not contemplate openly to fire from tanks, or publicly burn down the building of the highest legislative authority of the country in broad daylight.
For Russia, the nineties were the years of increased criminality in civil society. This too was related to the industrial privatisation of the state property. The distribution of property sometimes lead to veritable wars between individual criminal gangs, during which gangsters disobeyed not only civil laws but also the unofficial, conventional code of conduct normally obeyed by the underworld. Naturally, such lawlessness was bound to be met by harshest public reproach and in an ideal situation, with a proper system of law and order as well as corresponding evidence, by adequate legal investigation.
At the same time one cannot but ask whether it was not the highest executive power that was responsible for starting all this by resorting to military force, when faced with crucial issues in its internal policies, back in 1993? The authorities that used tanks to fire on the Parliament and beat demonstrators in the May 1st parade does not have the moral right to condemn the use of violence in the distribution of property or money, between those who are like one another, used to battle without compromise, a battle for a better life. The immoral behaviour by the authorities is always reflected in the mental state of the entire civil society whether in terms of unprovoked violence or corruption.
By refusing to adhere to the norms and rules of behaviour, as embedded in the Russian Constitution (in its September 21st 1993 version, that is to say the issue date of Decree No. 1400) the country’s President could hardly expect any future irreproachable adherence to Law by the citizens of a country where he was the head of executive power. Following the autumn of 1993, which genuinely shook up the order, causing stress for millions of Russians, many years had to pass before the new generations of citizens could gradually learn to obey the country’s laws, in the same way that they are obeyed by people in civilised countries, without being forced, represented and led by civilised authorities.
One of the authors of the book entitled “Privatisation – the Russian way” Maxim Boyko, said in the conclusion of his chapter: “Looking back now, we can realistically say that the separation of economy from the State at the end of XX century, was the first sizeable event in the history of Russia, which was not carried out using violence and dictate, but as a result of a policy of compromise. Remembering frequent bloody events in the history of Russian government, one cannot but wonder how the country’s property could be redistributed without blood and violence”. (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 66)
Rather cynical, if we remember the real cost of that “bloodless” redistribution. Indeed, a great effort was made to disassociate, in the minds of Russians, the break-up of the Soviet Union and the firing upon the Parliament, with the redistribution of the industrial property, preventing any connection between those events. However, no one can be certain that most Russian citizens, as well the non-citizens who no longer have Russian nationality and who have had a chance to become well acquainted with life in the countries of the so-called “near-abroad”, still remembering the unified and mighty Soviet Union, would agree with the author of this statement, in spite of the propaganda.
In the absence of a working legislative body, before the election of a new one, the first President’s team had to issue many sub-legislative statutory acts, regulating the processes of industrial privatisation.
Only a little time had passed since the White House was burned down, when the President of Russia, Boris Yeltsin, issued his Decree No. 2284, on December 24th 1993, “On the State Privatisation Programme for state and municipal companies in the Russian Federation”, setting a new path for privatisation of state industry, bringing the new Programme into effect as of January 1st 1994..
New regulatory presidential decrees were poured out of the cornucopia as it were: Decree No 2004, of November 24th 1993, “On settlement by privatisation cheques in the process of privatisation”; Decree No 2096, of December 5th, 1993, “On establishment of financial and industrial groups in the Russian Federation” et cetera.
The objective was achieved: all legislative activities, as well as operations concerning development, adoption and implementation of rules pertaining to the privatisation of state and municipal property became the exclusive domain of the people authorised by the first Russian President. The sub-legislative acts, regulating the processes of the privatisation of companies and groups fully replaced the country’s laws. The control over industrial privatisation was, for some time, carried out by the authors and implementers of Chubais’s privatisation model. In such conditions, the ‘virtually uncontrolled’ industrial privatisation started to move ahead even faster, and consequently, as of 1994, Russia started to see, with increasing clarity, a process of stratification in its civil society into a very small class of rich people, and the very large class of the poor.
Still, one must admit, that the political struggle around industrial privatisation and everything related to it did continue after the burning autumn of 1993. The fight for property, for the right to distribute such property was not a joke. Jobs were lost not only by public prosecutors, but also by officials at all levels, who had the necessary information and were not afraid to stand up to Anatoly Chubais and his concept of industrial privatisation.
For example, in January 1995, the media got hold of the official notes of the man who was at the time was still the President of the Russian State Property Committee, Victor Chernomyrdin as well as some other documents, which were also passed to the State of Duma of the Russian Federation, and which concerned the results and future prospects of privatisation. In No. 5 of the Russian weekly “Stock Exchange Gazette ” for 1995, detailed extracts from the said documents were published, giving the consequences of the “quick distribution of property” a rather nasty look, whereby the privatisation “did not have economic but political objectives” whilst “shareholders did not and could not become owners” of the privatised companies.
In some other statements made by Vladimir Polyevanov, there was a call to slow down the process of privatisation and increase Government control over state property, as well as quotes referring to “calls to re-nationalise those private companies which were privatised irregularly, and adoption of appropriate laws. A legality assessment committee was set up to verify the parameters of privatisation of the aluminium and defence facilities”. (A Sukhoparov, “Privatisation: expectations and reality”, an article published in “Dialog” magazine, No. 4 for 1995, page 55, page. 57) Mr. Polevanov was helped to resign soon after that, although he was appointed to another state function of responsibility, though not directly related to industrial privatisation.
According to the Doctor of Historic Sciences and Head of the IMEMO RAN, Kiril Kholodkovsky, as Russian Prime Minister, Victor Chernomyrdin was also “indecisive, about sharing his concerns regarding the too rapid a pace of privatisation, which he compared, in one his statements, to Bolshevik nationalisation”. (K Kholodokovsky, article entitled “Russian privatisation: the conflict of interests”, published in “World Economy and International Relations”, No. 1, 1995, page 73)
This is very encouraging indeed as it indicates that not all of “rich” Russia belongs to Chubais, Gaidar and their followers; there are also real men of government, who took care and still take care of the interests of the Russians!
* * *
Completing the introduction to the book, I would like to quote from an article written by Anatoly Chubais, which was published under the collection “Privatisation – the Russian way”, in which the author, directly addresses members of the special police: “Dear friends, where is the fake auction? Where is the plot? I will thank you if you can give me this information! Let us, for once, catch the plotters! Let us imprison them! Let us tell the country!” (Under the editorship of A Chubais, “Privatisation – the Russian way”, page 318)
Beautiful words! Let us try …, at least to tell!
Indeed, today, more than ever, we need to talk about the privatisation. People need to know as much as possible. They need to think, to discuss and to argue. However, we will not manage to make amends, even if no one goes to prison. It is too late. “The presidential privatisation amnesty” forgave every one without distinction, in advance. Perhaps there would have been no point. Let history judge. People who come after us will judge. It is very important, however, that they should have the correct, and this means under no circumstances single-sided picture of privatisation – Chubais’s way and the post-privatisation period, convenient only for the ruling oligarchic elite and the Russian liberals.
The last twelve weeks of the XX century were a very complicated period for Russia and of great historic importance. Everything happened during that period, democratisation, removal of state control, privatisation, restructuring, financial and economic speculations, populist lies, all kinds of elections and irrepressible rented PR campaigns, unstoppable corruption, and banditism. It was on the back of all of this, as on fertile compost, that germinated and grew Russia’s PRIVATE-capitalism, an oligarchic capitalism which emerged privately, from privately-managed industrial privatisation, which today aspires to play an active role in the formulation of state policies, which, indeed, concern every Russian without exception.
This is why reasonable people absolutely need to think, at least sometimes, about these problems, talk about them and even argue, developing their own stance in life, as citizens of a country aspiring to democracy, ensuring that our Russia’s future, whose roots are still in the recent past, become more predictable, rather than left to an accident, surprising us with its humourless face.