Where did Putin come from?

Putin was a child of the 1990s Russian collapse. The collapse was a child of Lenin

There is an enduring myth, popular on the Left, that the collapse of the Russian economy in the 1990s was caused by the importation of neoliberal ideology pushed by the west which resulted in the unnecessary shock treatment of a very sudden transition to a market economy which then caused the Russian economy to collapse. If that were true then the distortions of the post soviet regime and its mutation into the ghastly Putin ethno-nationalist autocracy can largely be laid at the door of the west, its neoliberal ideologies and the damage it wrought on poor prostrate post-Soviet Russia. None of that is true.

The argument is also put forward that when the Soviet Union collapsed there was another possible road that wasn’t taken. A road where the old Soviet planned economy was allowed to continue functioning for a while, thus avoiding economic collapse, and a gentle market reform process was initiated that would have eventually lead to a mixed economy much like in the west. Down this alternative road the kleptocracy by the robber oligarchs could have been avoided and Russia would now be a successful, prosperous, liberal and stable country and none of the unpleasantness in places like Georgia and Ukraine would have ever happened. This alternative route might have looked a bit like China after 1978. Because of western interference from neoliberals this supposed alternative road was not taken. None of that is true either.

In order to understand why the collapse of the political system in the Soviet Union was always going to lead inevitably to a terrible economic collapse as the planned economy shattered you have to understand how the Soviet planned economy actually worked.

In the Soviet planned economy (and this is true of of all socialist planned economies) all prices were set administratively, that is to say they were not set by the balance of supply and demand in the market place, in fact other than in the illegal black market there were no functioning markets. This means that because real costs were never reflected in the price of anything nobody actually knew how much anything actually cost to make. Managers of enterprises were told what quantity and type of goods to make, what raw materials had been allocated to them, and what price to charge for their products. There was no mechanism for consumers to express their preference in any way that would effect production, only the central planning agency Gosplan could determine what was made and thus what was available in the shops. Managers, and indeed consumers, had no idea how much anything cost to make.

At the same time all the productive assets of the economy were owned by the state, all enterprises, production and distribution units, were state owned, and there were no hard budget restraints at the level of the enterprise. The lack of hard budget restraints is crucial. What this means is that in the planned economy no factory, enterprise, retail outlet, workshop or farm could ever go bankrupt. No matter how much costs of production in reality exceeded the price being charged for finished goods it didn’t matter. An enterprise could continue indefinitely selling goods for less than it cost to make as long as Gosplan told them to do so. Because the most important thing for factory managers was to meet their planning quota, and because the factory could not go bankrupt and didn’t really operate with any budget constraints, there was no reason for managers not to accumulate vast piles of unused raw materials, inventory and labour just in case they might be needed at some point in order to meet the planning quota.

Needless to say this all meant that the Soviet economy was full of the most grotesque inefficiencies and people lived relatively poor lives made up of shoddy goods, queues and shortages – but that’s not the topic here.

Another important aspect of this immensely complex system of centralised control, where nobody knew how much anything cost to make, was that enterprises only received supplies of raw materials and access to retail venues, through which to sell their goods, because the centre told them what to do. All the connections between enterprises were constructed based on a centralised plan, no connections were supposed to happen spontaneously between different bits of the economy. In reality of course that made making anything actually function very difficult, so a sort of parallel system grew up where managers in state companies cut deals between each other in the form of shadow informal economic networking, making a sort of inferior version of the connections that markets might have created. This system was known as Blat, and it involved endless networks of deals and swaps intended to try to keep things going. Money didn’t form much of a part of this shadow informal economy because in a planned economy having a lot of money doesn’t mean you can buy stuff with it. All stuff is in short supply, it’s the stuff that’s important, so if, say, you need some copper cable for your factory then you needed to seek out the manager of copper cable company who was allocated by the centralised plan to supply you, establish over time a good relationship based on favours and bribes (usually in the form of goods or services rather than money) and try to guarantee that your factory was at the top of the queue for the supply of copper cable. Needless to say this system of Blat overlapped with the wider black market which in turn overlapped with organised crime gangs.

Another feature of the Soviet system, common to all planned economies, was that the system favoured big economic units over small ones. It is much easier to issue centralised commands and orders to, say, the shoe manufacturing industry if there are just a few giant shoe factories rather than hundreds of small ones. So the Soviet economy, like all other planned economies, tended towards very large enterprises. There were for example just a few hundred thousand state enterprises in the USSR at its peak compared to millions of businesses at the same time in the USA.

These relatively few huge state factories were distributed around the USSR in ways that mostly did not reflect any sort of calculations about economic costs but rather to make sure that employment and production was spread out in all the various constituent republics of the Soviet Union. These large factories meant that most town were dominated by one big factory and it was through the local state factory that social services, child care, health care and most public services were delivered. For most Soviet citizens, and in most towns, the local state factory was the state and it was the political system.They were run by people who only really answered to the party functionaries, and who had no idea how much it cost to make the things they manufactured, or how much their raw materials actually cost or whether there was actually any real demand for the goods they made.

Another characteristic of the Soviet planned economy, and again this is a common feature of all the various socialist planned economies, was that it very much favoured the capital goods sector over the consumer goods sector. Initially the big push for rapid industrial development in the 1930s and 1940s meant a ruthless focus on things like steel production, coal mining, cement production, machine tools, etc. During Soviet industrialisation because capital goods production was alway ruthlessly prioritised over consumer goods production this meant the Soviet people remained very poor even as their country’s economy grew rapidly. But even when this first phase of rapid industrialisation had ended by the late 1950s the Soviet system still continued to prioritise capital goods. This is partly because of the bureaucratic weight and political power within the party of the bloc known as the ’steel eaters’ (the term used for the bosses of the capital goods sector). Brezhnev came from this group and they always ensured that their sector was heavily favoured in the formulation of the plan, But this emphasis on capital goods it’s also because of a structural reason which is that the customer of the capital goods sector is the plan itself, so working out how much steel or cement is needed was relatively easy for the planners. Consumer goods on the other hand, especially when consumption rises above the purely subsistence level, is much more problematic for the planners. In the planned economy there really is no way that individual consumers can express their preferences as there are no real markets and no way for many different products to dynamically compete for the purchasing power of consumers via product differentiation or innovation. What was in the shops is what people could buy and no matter how much they wanted something different (say flared trousers and floral shirts in the 1960s) there was no way to directly influence what was actually produced. Consumers just hoped that the planners would eventually notice what they wanted and include it in the plan. Planners for their part found working out what consumer goods to produce really quite difficult and fell back on quantity over quality.

This frankly absurd centrally planned economic system had been in operation more or less since the 1930s, and had been in a state of stagnation since the 1970s, so by the time of Gorbachev almost nobody running any part of the economy had ever worked in a world where anybody knew how much stuff actually cost to make or how market based pricing, or hard budget restraint accounting worked.

Now the really tricky thing about running a central planned command economy is how do you make people do what they told to do. The central planning agency drafts a plan and issues a set of immensely detailed binding instructions telling firms and managers what to make, in what quantity, where to make it, what price to sell it at, etc. How do you make sure that everybody actually follows your commands? For a start you can’t have free elections because if a party opposed to planning wins then immediately the command economy will start to dissolve, and you can’t fluctuate between a command economy and a market economy via the electoral cycle. So democracy is out. But the planners also have to stop people from being spontaneously enterprising, from trading, from trying to make a profit, and in turn the planners have to ensure that the millions of detailed planing instructions are actually obeyed. Initially when the command economy was being built by Stalin in the 1930s, after he ditched the semi-market system of the 1920s known as NEP, the way he got people to obey the plan was by terror. If you shoot enough people then everybody will do as they are told. Also a handy byproduct of the terror was the resulting vast pool of slave labour in the Gulags which was the ultimate obedient work force, it went wherever it was told, and did whatever it was ordered to do, and it hardly cost anything to maintain – although the wastage rate was quite high. Eventually of course the semi-stroppy Communist Party itself had to be disciplined in order to obey the plan which involved shooting a lot of people in the party.

By the time of Gorbachev the system had, mostly, left the terror behind, and had evolved into an institutionalised distributed system of control via the all pervasive, all powerful and very extensive party apparatus. It was the party itself that acted as the glue that held the whole system together, that made sure the plan was obeyed. Throughout the state and the economy (and indeed all social institutions) alongside the formal management or political structures was the much more powerful party apparatus with its branches, committee and functionaries everywhere, using it’s dominant position of power to hand out rewards and punishments, making the cogs and gears of the planned economy turn.

Then Gorbachev started his reform program. The two most striking things about Gorbachev was that unlike almost all previous Soviet leaders he really didn’t’ want to shoot people, but also surprisingly he seemed to have no idea how the system in which he had climbed his career actually worked.

Between 1989, when the first nationalist revolts against the centre occurred and the first freely contested elections took place, and the formal dissolution of the Soviet Union at the end of 1991, the entire system of the planned economy quite rapidly dissolved. As Gorbachev increasingly took aim at reducing the power of what he saw as the reform resistant communist party the previously unchallenged authority of the party just ebbed away. Remember that it was the matrix of the party apparatus that was the glue that held the planned economy together, it was the authority of the party that meant that the instructions emanating from Gosplan (the central planning agency) were actually carried out. Now as the party’s authority collapsed managers in the state enterprises were increasingly cut adrift and forced to act under their own initiative. Nothing in their careers had prepared them to do this. They could see their cosy privileged lives and their future careers dissolving and the instructions from Gosplan were becoming ever more erratic and incoherent. Then in April 1991, just a few months before the attempted coup and the subsequent collapse of the USSR, Gosplan itself was abolished. Suddenly the stream of instructions, directives, targets and and quotas that had made the planned economy tick, that had connected all its component bits together, that had linked factories to their suppliers and their customers, just stopped.

The factory managers, who were in a state of confusion and panic, responded by scrabbling about looking for ways to make some money to keep things going, to make money for themselves but also to pay their workers and suppliers, and to continue to fund the social and welfare systems previously administered via the large state factories. They were desperately trying to keep their factories working in a world without central instructions, whilst building links with the rapidly emerging new centres of political power that were chaotically taking shape in the new state of Russia and the various non-Russian republics. In the Soviet system the huge state enterprises were located in such a way as to ensure economic activity was spread out more or less evenly across the USSR. Now not only had the system of central control, that had previously held everything together, collapsed but to make matters worse the left over bits of the system of large state factories were scattered inside a lot of newly independent countries. So not only had the system that had connected factory managers to their suppliers and customers (Gosplan) collapsed and but those suppliers and customers might now actually be another country.

It’s important at this point to understand how money worked in the Soviet planned economy. It didn’t work like money in non-planned mixed economies. In an economy that has a large functioning capitalist economy money has economic power, if you have money you can use it to conjure into existence new economic activity. You can spend it, and thus via the resulting market demand, pull complex chains of production into existence to make the stuff you want. You can also, if you have enough money, buy all the things needed to make stuff, like labour, raw materials and the means of production, and create a new unit of production and start making completely new stuff. Because of the hard budget restraints that operate in a capitalist economy if your new unit of production never manages to make stuff that costs less than you can sell it for then eventually your production unit will go bust and cease to exist, something that doesn’t happen in a planned economy.

In the Soviet system money was really just an accounting tool, it didn’t itself have any economic power, it couldn’t be used to create new economic activity. Even if you had a suitcase full of cash you still couldn’t just buy any of the goods that were in short supply because even if you tried to bribe functionaries to get you to the head of the queue for say a new car, those functionaries also couldn’t really use the cash for much so everybody wanted to be bribed with goods or favours rather than money. This also applied to state enterprise of course, they couldn’t use any saved up cash to buy more raw materials or invest in new productive faculties to expand they business because those things could only be done with the approval of the plan. This meant the USSR had no banking or financial system like the ones that operate in the non-planned economies. The bodies that were labeled as banks were really like giant ATMs and their only real job was to distribute cash so that state enterprise could pay their workers. State enterprises also used money in their bookkeeping as a way to track and manage their economic exchanges with other state enterprises but this was really just money as a form of accounting, economic exchanges between state business could only be authorised via Gosplan and bookkeeping money was just used as way of keeping track of everything.

Workers found it hard to spend their wages because everything was in short supply. In a market economy if demand exceeds supply then prices rise and you get inflation but if all prices are set by the state then prices never change as a result of increased demand but instead you get excess demand chasing too few goods, thus the ubiquitous queues of the Soviet system.

This weird form of neutered money meant that the taxation system was not really like the ones in the capitalist economy. Most Soviet taxation, as well as the endless tweaking of the administratively set prices, was used to try to balance consumer demand against the limits of supply, something that was mostly about ensuring political stability by making workers feel financially better off, or by reducing the more excessive queues by increasing prices. If the Soviet state wanted to do stuff like increase the number of hospitals, or make more tanks, it didn’t really do this via the tax and revenue system, it did it via the state planning agency Gosplan who sent out instructions to build more hospitals and make more tanks and told all the various supplies of raw materials and components to send more supplies to the hospital builders and tank makers.

So let’s consider what happened when the command economy run by the planning agency Gosplan collapsed by looking at an imaginary Soviet state enterprise making refrigerators, let’s call it SovFridge. For decades SovFridge has never had to really consider how much it’s fridges cost to make, never had an in-house commercial accounting system that kept track of costs, never had to employ a commercial auditor to check its books, never worried about competing fridge makers (there were none), never had to negotiate proper contracts for its essential supplies (it was allocated supplies by the planners supplemented by the non-monetary Blat system), never worried about employing lots of unnecessary workers who mostly sat around doing nothing because no matter how inefficient it was it could never go bankrupt, never worried that it’s fridges were very poorly designed and shoddily made (because consumers had no way of punishing the company for making shitty fridges), never needed to have a relationship with any commercial banks with which to arrange credit facilities, never had to manage its cashflow. What SovFridge did do in the town where it was based, and where it was the overwhelmingly biggest employer, was run the local childcare and nursery system, run the local polyclinic that delivered primary health care, and feed a large proportion of the local population both via its canteen and its company shops.

Given the circumstances it’s not surprising that as the Soviet Union collapsed, and along with it the apparatus of the planned economy, production in our imaginary but representative Soviet fridge factory slowed down and then stopped. Raw materials and orders dried up as the USSR broke apart and economic connections to suppliers and customers were severed. In addition a lot of Soviet factories used to get machine tools from the old GDR and now that had vanished after the fall of the wall and so our Soviet fridge maker couldn’t even get spare parts for its machines as the East German factories that made them were all in the process of being shut down and wound up.

Economic dislocation was almost total.

In the chaos of political collapse, the abandonment of planning, and the secession of the republics, the most urgent thing the managers at SovFridge needed was cash. They needed to be able to pay their workers, keep open all the social facilities they ran like the clinic and nursery, and they needed to try to rebuild links with suppliers. Actually for quite a while after the USSR collapsed the Russian government did keep sending the state enterprises supplies of cash. The brand new government of Russia did this by printing money and quite soon this had disastrous consequences – as we shall see – but what’s often overlooked is that throughout the economic collapse of the 1990s unemployment never became as catastrophic as many expected, and it was the endless supplies of cash from the centre that kept workers employed and getting paid.

The supply of cash from central government to the state factories was a bit erratic, just like every other government function, as the chaos of setting up an entirely new Russian government and political system disrupted everything. So the managers of the big state factories scrabbled around to try to find some other sources of cash or credit. As we have seen there wasn’t really a Soviet banking system and soviet financial bodies that acted like banks weren’t in a position to extend any credit (they had no funds and zero experience of risk assessment). The factory managers had to look elsewhere for cash and they pretty soon came across the biggest source of cash which were organised criminal gangs and black-marketeers who had accumulated cash under the old Soviet system and whose activities had quickly expanded as the old system fell apart and the black market had become the only place you could buy anything. In the first stage of the anarchy of the dissolution of the planned economy many criminals and gangsters became embroiled in local partnerships around the stranded economic remnants of the old Soviet system, and as they muscled their way into the factories they brought with them violence, assassination, intimidation and theft on a massive scale. This was the first stage of the creation of the class of oligarchs. Most of the criminal entrepreneurs stayed small in the post Soviet system and ended up with careers in enforcement, protection rackets and security but some managed to climb their way upwards and some are now part of the upper reaches of the oligarch class.

Meanwhile the central government in Russia was struggling to cope with so many new responsibilities and problems. Remember that out of all the republics in the old USSR Russia was the only one not to have its own devolved set of government and party apparatuses. In most of the newly seceded republics the old organs of the state could be taken over by the new ‘national’ leaders but in Russia they had to be set up from scratch, so the Russian parliament and president were brand new institutions, as was the Russian ministry of finance, the Russian central bank, etc. One of the most pressing problems was state revenues. There was no proper taxation system and there was no inherited state budget that itemised what the Russian government needed to spend and on what. The central bank was full of people who had no experience of running a conventional central bank. And the giant state enterprises that littered the country and which had almost ceased to function in the absence of a plan were all crying out for cash deliveries. So the central bank printed money, and printed a lot of it. Because the remnants of the planning system, which had in reality already collapsed, was finally fully abolished almost as soon a Yeltsin took power in 1991, and along with the system of administratively set prices, the result of all that cash chasing almost no goods was a giant surge into hyperinflation which by 1993, just a couple of years after the fall of the USSR, was running at over 800% over year. Everywhere everything was in short supple, there was nothing in the shops, people were literally starving. It was an economic year zero.

There are those that argue that this decision, to stop setting prices administratively, was the cardinal error of the period, that it unleashed economic chaos and caused the giant Russian slump of the 1990s. But that implies that was possible under the circumstances to continue to administratively set prices, however the Russian state could have only controlled prices if it controlled the economy and in reality the entire system of planning, and the party that held the planning system together, had collapsed. To have attempted to perpetuate administrative prices, and thus perpetuate a system where nobody new how much anything really cost, was not only practically impossible (as the government had no apparatus to calculate or impose prices) but it would have only deepened the economic chaos.

Leaving aside the short term disaster of inflation the new Russian leadership faced a much more complex and challenging strategic problem. Just how was a post planning Russian economy supposed to work? There was a general consensus that the planned economy was finished and that what was needed to take its place was some sort of mixed economy similar to what existed in the west with a big private sector, but that implied the existence of lots of private enterprises big and small, and of entrepreneurs to own and run them. Outside of the blackmarket Russia had no existing class of people who knew how how to set up or run a capitalist enterprise, it had hardly any sources of local capital, it had almost no commercial law or lawyers, no system for the regulation of corporate bodies, no real contract law, no banking or credit system, hardly any real property law.

The biggest problem was that on paper the state pretty much owned everything, although it actually controlled almost nothing, and in order for a new private sector to emerge a lot of state assets needed somehow to be transferred to the private sector, and preferably to people who could start rebuilding the economy. But how was that transfer to be made and to who?

One way of creating a private sector, and of importing the necessary skills to run it, would have been to sell off lots of state assets to foreign companies. This was a big problem politically because just a few years before the Soviet Union had been one of the two great powers and letting foreigners come in and take over the place would have been seen as a national capitulation and humiliation. An even bigger problem was everyone really knew that most Soviet assets weren’t in reality worth very much. Taking our imaginary Soviet fridge maker as example, and leaving aside how on earth anyone might have valued the company in order to sell it, what would have happened if it had been sold to say Bosch? The ex-soviet company was massively overstaffed, its work force was not used to the discipline of capitalist mass production and were poorly trained, its plant was out of date and poorly maintained, its manager had no commercial experience or skills, it had no brand value to speak of. In reality what would have happened to most old soviet area giant enterprises if they had been sold to foreign companies is what happened to East German factories. They would have been shut down, there would have mass layoffs, and whole regions of Russia would have seen the complete closure of most of its industry. So a mass sell off to foreigners was off the table.

The privatisation method they came up with in the first Yeltsin Russian government was the voucher scheme. To distribute state property quickly and to win over popular support, the reformers decided to rely mostly on the mechanism of free voucher privatisation. This seemed like a good idea – lets give all the old soviet state assets directly to the people. Voucher privatisation took place between 1992-1994 and roughly 98 percent of the population participated. The vouchers, each corresponding to a share in the national wealth, were distributed equally among the population, including minors. They could be exchanged for shares in the enterprises to be privatised.

Because most people were struggling to make ends meet and find enough to eat these paper vouchers seemed almost worthless, they seemed to bring no benefits. Most state businesses seemed pretty much bankrupt so who would want a share of that, what people wanted was cash and right now. However the vouchers could be sold, and that’s what most people did – they sold their vouchers via the various voucher markets that sprang up. The people who bought them went on to form the core of the oligarch class. From 1992 to 1994, ownership of 15,000 firms was transferred from state control via the voucher program. Although Russia’s initial privatisation legislation attracted widespread popular support given its promise to distribute the national wealth among the general public and ordinary employees of the privatised enterprises, eventually the public felt deceived.

The people who had the money and foresight to buy up the vouchers, and who formed the new class of oligarchs, came from three major sources. One group came from the black-marketeers and criminals who had been accumulating cash. The second group came from the old corrupt nomenklatura (the people who had held key administrative positions in the soviet bureaucracy) who could quickly pile up cash from taking bribes, especially now they had something to spend that cash on, and who needed a way to get rich now they could see their old position of privilege vanishing along with the soviet bureaucracy. The third group came from the embryonic class of entrepreneurs that had formed in the last years of Gorbachov’s rule when certain limited forms of private enterprise were permitted usually in the nominal form of ‘cooperatives’ but which were really the first private companies in Russia since the NEP period in the 1920s. Most of these startup were small but it was possible to make quite a lot of money because the existing economic system left so many economic needs unmet and many of the start ups experienced very rapid growth. Quite a few of these early entrepreneurs came from the ranks of Komsomol the party’s youth wing, Mikhail Khodorkovsky was one of them. Almost no one in the old Soviet system believed in communism or Marxism Leninism anymore but you still had to work your way up in the party system to get anywhere and you started in Komsomol, which during the time of Gorbachov was full of ambitious, and sometimes clever, young people keen to take advantage of the rapid changes that were underway.

What united these three groups was that none of them had remotely believed in the official ideology of the Soviet Union (almost no one did), they didn’t have any sense of national patriotic duty (patriotic ideology had collapsed with the Soviet Union) so none of them were interested in helping rebuild their new nation, they all just wanted to make money and they really had no overarching morality or ethic or interest in life other than the desire to get rich quickly. It’s worth noting at this point that all these people had grown up immersed in an official ideology that portrayed capitalism as just a big swindle, and capitalists as thieves, and with no experience of real business culture or economics to draw on the founders of the oligarch class carried this cynical view of business with them as they remade the economy of Russia. The common experience of all the people who went on to become oligarchs was of getting unbelievably rich almost over night through moving fast, using sharp practices and and being prepared to step outside the law and to swindle. None of them were entrepreneurs in the western sense, none made money through innovation or painstakingly building a business up from scratch. Riches fell into their laps because they moved ruthlessly and quickly. All of them understood that the power of the state had collapsed and along with it the rule of law and so all of them needed muscle to protect them and their businesses so all had close working ties with criminal gangs, thugs and quite often assassins. As these new proto-oligarchs bought up the privatisation vouchers they found themselves taking ownership of vast tracts of the soviet economy which although ramshackle and in a state of disrepair were actually still worth a lot (like the hydrocarbon, mineral, raw materials and timber sectors) and soon they were very, very, very rich.

Meanwhile the drama had shifted to the political arena. As Yeltsin’s economic reforms unfolded and inflation was brought under control the Russian economy continued to contract, living standards continued to decline sharply and unemployment began to increase. The main opposition to the painful reform program came from the Supreme Soviet (the standing legislature) and the Russian Congress of People’s Deputies (the country’s highest legislative body, from which the Supreme Soviet members were drawn) for control over government and government policy. In 1992 the speaker of the Russian Supreme Soviet, Ruslan Khasbulatov, came out in opposition to the reforms, despite claiming to support Yeltsin’s overall goals.

Yeltsin was concerned the constitutional amendments passed in late 1991 (just after the attempted coup against Gorbachov) which gave him extraordinary power to rule by decree were set to expire by the end of 1992 and he demanded that parliament renew his decree powers. Parliament declined to do so. The political struggle between president on the one side, and parliament and the regional governors on the other, ebbed and flowed but eventually in 1993 Yeltsin declared the Congress of People’s Deputies and the Supreme Soviet dissolved, an act that was in contradiction with a number of articles of the Constitution, and sent tanks to bombard the very parliament building Yeltsin had defended at the time of the coup. There was fighting for control of the government buildings and for control of the main TV station. Yeltsin won and had established the dangerous precedent that the Russian President was the most powerful organ of the state and they they could rule by decree.

As the Russian government brought the hyperinflation slowly under control, and beginning in 1995, Boris Yeltsin’s government began privatising what remained of state-owned shares in companies through a loans for shares scheme. As well as helping tackle inflation by offering an alternative way of funding government spending instead of printing money the scheme helped with “fundraising” for Yeltsin’s 1996 reelection campaign. The scheme was primarily overseen by Anatoly Chubais the guy whose has just resigned from his job in the Putin government and left Russia after the invasion of Ukraine. By the end of this second phase of privatisation most of the assets of the Soviet Union were now in the hands of a small number of ruthless and amoral oligarchs who effectively controlled the economy and, because central government was so weak and Yeltsin was sinking into alcoholism and illness, by default the country.

By the late 1990s Russia once again sank into severe economic crisis as the spill over of the Asian financial crisis of 1997 caused a financial crisis in Russia. Yeltsin began to dismiss prime ministers and entire cabinets. Interest rates were hiked to 150%. The first Chechnya war, which Russia effectively lost, costs billions. The oligarchs treated the government like a minor irritant, ignored the plight of the country and just got on accumulating their vast fortunes. The oligarchs controlled the media, the banks, the economy and they owned much of the political system. As Russia defaulted on its loans the country seemed a dysfunctional joke. National humiliation was complete.

As Yeltsin faded it was decided at the last minute to try a younger fresher face to run things – a guy called Vladimire Putin.

Putin had been a middle ranking KGB officer climbing what looked like a secure career ladder. The KGB was perhaps the most functional of the Soviet institutions and, while it might not have been full of true communist believers, like most secret state security organisations it did inculcate in it’s officers a deep commitment to preserving, protecting and defending the nation. These officers also had a quasi-military feeling of comradeship and bonding, and they held conservative, often conspiratorial political views. Putin himself was based in East Germany and witnessed from the inside a Stasi building building being besieged by demonstrators. While the KGB was being transformed into the FSB Putin left to have a very successful political career in the murky political world of post-collapse St Petersburg where he rose rapidly, made a lot of money and began to collect a powerful group of clients and collaborators from the ranks of ex-KGB men and current FSB officers.

When coming from relative obscurity to take over as Yeltsin’s appointed successor as president Putin was faced with a situation of acute state and national weakness. One of the first things he did was stage a series of deadly bomb attacks on apartment buildings which were blamed on Chechnyan terrorists and on the back of resulting public outrage he launched a ruthless second war of conquest in Chechnya. Using the same sort of military tactics repeated again again since then the Russian army used mass bombardment to batter Chechnya into submission killing tens of thousands and reducing cities to rubble. The ‘victory’ increased Putin’s popularity both with the public and within the military. Then in short order he cowed large sections of the media actually seizing control of some parts of the TV system, this was followed by an assault on the political power of the oligarchs, several of whom were expropriated, imprisoned and murdered. The message to the oligarchs was stay out of politics and hand back to the state control of the key energy sectors. Putin’s surrounded himself with the so-called ‘siloviki’, the Russian security men many of whom served in the KGB. These are the people who work for, or who used to work for, the ‘silovye ministerstva’—literally “the ministries of force”—charged with wielding coercion and violence in the name of the state. All told, there are 22 such agencies in today’s Russia. The best known is the Federal Security Service (FSB), the successor to the Soviet-era KGB secret-police and spy agency. Other coercive agencies are associated with the Interior Ministry, various branches of the military, the state prosecutor’s office, the intelligence services, and so on. Whatever their specific institutional affiliation, all siloviki have in common a special type of training that sets them apart from civilians. This training provides the skills, motivation, and mental attitude needed to use ruthless force against other people. The distinguishing feature of enforcement in today’s Russia is that it does not necessarily mean enforcement of law. It means enforcement of power and force, regardless of law and quite often against the law. Putins’s primary goals are too remain in power no matter the cost and remake Russia as a great power. That means an aggressive militarised nationalism which seeks to restore the lands ‘lost’ when the Soviet Union collapsed. In fact Putin’s rule and system of governance is merely contributing to Russia’s continuing weakness and backwardness. Russia is a laggard in the region in terms of its economic growth, ranking 12th in growth since 1999 among the 15 former Soviet republics.

Putin was made by the chaotic collapse of the Soviet Union. That collapse was not caused by the west, except indirectly in the sense that the western liberal democracies with mixed economies are in every sense superior to the autocratic Soviet planned economy. The chaos in Russia in the 1990s after the fall of the planned economy was fundamentally caused by the innate weaknesses and grotesque absurdities of the planned economy. Neoliberal ideologues and economists certainly offered plenty of advice to the Russian leadership at the time, some of it good some quite bad, but it wasn’t westerners who caused the system crisis and collapse in Russia it was the result of a 70 year experiment that began with Lenin and the Bolsheviks.