Mohan Guruswamy
October 19, 2004

Most of us in India seem to be still viewing Russia with the filters of the Yeltsin era. For all of that period the economy was in the doldrums and acutely contracting. The politics were chaotic. The President was prone to drunken binges and that compounded a severe heart condition. The military had gone to pieces. The only growth area in Russia was crime and the Russian mafia not only took a commanding place in Russian life but also increasingly began to dominate organized crime in the mother country of organized crime- the USA. The Italian Cosa Nostra seems a genteel bunch compared with the Russian gangs that have muscled in New York, Chicago and other big crime capitals. Russia seemed to have become the metaphor for national moral and economic decay. But for the last five years Russia has been witnessing a quiet resurgence that even an old Russian friend like India seems to be missing. But more on that later. First some history. The economic decline of the Soviet Union began in the Brezhnev era of the 1970's and early 1980's when the economy stagnated for the first time after the revolution. These "years of stagnation" marked the end of almost half a century of unprecedented growth and change, and have come to be known in Russia as the gody zastoya, meaning just that. More interestingly for us Indians, the Russians also refer to this period as the period of senility - marazm. One is not sure if the seeds of the demise of the Soviet Union were sown during this period or if it was much earlier during the Stalinist era or even under great Lenin. But one thing is certain; it was during the gody zastoya that the moral degeneracy of the state reflected in the rampant corruption, cronyism, nepotism and rank inefficiency reached new levels. In a system where the state controlled all means of production and services it inevitably led to shortages. The leading Russian poet of that period, Andrei Voznesensky says all there is to say about life in the Brezhnev era in a poem about queues: I am 41st for Plisetskaya, 33rd for the theatre at Taganka, 45th for the graveyard at Vagankovo, I am 14th for the eye specialist, 21st for Glazunov, the artist, 45th for an abortion (When my turn comes, I'll be in shape), I am 103rd for auto parts (They signed me up when I was born), I am 10,007th for a new car (They signed me up before I was born). Very clearly the Communist train had been derailed. The Russians even had a joke about how three generations of Soviet leaders would have resolved the situation. "Stalin would have shot the engineers, exiled the crew and got someone new to drive it. Khrushchev would have pardoned the crew and put them back to work. Brezhnev would pull down the shades and pretend we're moving!" Yuri Andropov, the urbane and reflective KGB spymaster, who took over after Brezhnev finally died, seemed fully aware of the malaise and more importantly about how far behind the West the Soviet Union actually was. In 1960 after Col. Yuri Gagarin's historic space flight, Nikita Khrushchev had promised the world that the Soviet Union would overtake the West in twenty years. As the long time head of the omniscient KGB, Andropov was more aware than anyone else in Russia that the shades will one day have to go up and if not done carefully would lead to an uncontrollable explosion that would take down everything that was actually achieved under Communism. Yes there were many great achievements, but this is not the time to discuss that, and I'd rather let Comrade Sitaram Yechury expound on them. But Andropov didn't live long after that but not before elevating the relatively young Mikhail Gorbachev into the Politburo. By doing so he was striking the first deathblow to Communism and one must still wonder if he did it with malice aforethought? It was during the late Gorbachev period that I first visited Russia, to see the future. Forty years earlier George Orwell visited the Soviet Union and returned to Britain to exult "I have seen the future and it works!" The Russia I visited in March 1991 wasn't working at all. One afternoon the little corner store near the Indian Embassy in Moscow at Ulitza Obukha, had just one measly loaf of coarse brown bread. The GUM store abutting the Kremlin where the Soviet nomenclatura (equivalent to our "VIP's") shopped had a little more, mostly babushka dolls from which a line of recent Russian despots disgorged each from the belly of the later one. Thus Gorbachev begat Chernyenko, who begat Andropov, who begat Brezhnev, who begat Khrushchev, who begat Stalin, who begat Lenin, who ultimately begat Nicholas! Gorbachev's half-hearted attempts at reform, the much-vaunted Perestroika, and the rising tide of a new political consciousness in Eastern Europe only accelerated the slide. The loss of the east European empire and the salutary lesson administered in Afghanistan, and the venality and monumental corruption of Brezhnev marazm period had left Mikhail Gorbachev with little room to restore order to the command economy. Instead of producing quantities of goods at prices determined by Gosplan, producers circumvented 'the plan" and produced and sold at will in a parallel system working on barter, exchange and misappropriation. They reported what the authorities wanted to hear and did what they were forced to do to exist in the parallel market system that came into being without official sanction. What had happened in China during Mao's Great Leap Forward was now happening in Russia. Thus in effect a large but primitive and increasingly criminal market came to exist in the Gorbachev twilight. Then a botched coup in August 1991 saw Boris Yeltsin clamber atop a T-72 tank of the elite Taman tank division and clench his fist to create an image of defiance that captured the imagination of the Russian people and the world. That defiance promised a new beginning and a revival of a nation whose genius was crushed by a mindless ideology and a kleptocratic bureaucratic elite. In a series of stunning moves Yeltsin dismembered the Soviet Union by engendering a surge of self-serving nationalism and following it up with de-colonization. The Soviet Union disappeared for good on December 25, 1991. The Yeltsin promise soon disappeared in a haze of vodka behind which new crony capitalism thrived. In "The New Russians" Hedrick Smith tells us what the old Russia of Brezhnev and Gorbachev was like. Hedrick Smith in fact has another book, which is just "The Russians" which is about the old Russia of The Readers Digest heydays. In "The Oligarchs" which is about "wealth and power in the new Russia", David Hoffman tells us about what happened in the Yeltsin years when great power and wealth was cornered by a few, very few indeed. What also happened in the waning Yeltsin years was the dramatic emergence of a former KGB agent of the First Directorate and later a minor functionary in the city government of St.Petersburg in the halls of the Kremlin. First as head of the FSB, the successor of his first employer, and then as Prime Minister and to finally become President when Yeltsin retired, finally. Now another new Russia under Vladimir Putin has begun to emerge, but one cannot understand the present resurgence without understanding all the preceding Russia's. II The demise of Communism meant the destruction of the economic system and the introduction of a market economy based on democratic principles. This meant that instead of even the most mundane decisions being made by the State such as what the citizen will consume, what the factories will produce, and what the stores will sell, millions of new decision-makers were making these choices. Prices were freed, but instead of goods re-appearing, prices immediately shot up causing huge hardships to the common people. It would be years before a semblance of stability was restored. But more stunningly the vast public sector, all of Russia's great but inefficient production system, factories, stores, banks, farms, oil and coalfields, power plants, defence and ordnance works, airline, railways, in short everything of economic value other than private property was sold. In theory to the general public, workers and financial institutions. But in reality they were grabbed by a new class of crony capitalists, well-connected political hangers on and former bureaucrats, people who will thrive under any system. These were the Oligarchs. The Oligarchs wanted order, but the kind of order that was good only for them. What's new about that? But some of the Oligarchs began to taken more interest in politics than in their businesses. Business to them seemed to only be a means to political power. Sounds somewhat familiar what? Among the most powerful Oligarchs were Boris Berezovsky, a former researcher with the prestigious Institute of Control Sciences, Vladimir Gusinsky who trained to be a stage director and who once drove a Moscow taxi, and Mikhail Khodorkovsky a former Komsomol or Communist Union of Youth apparatchik. All were adventurers who came to great wealth and power during the Yeltsin years. Berezovsky and Gusinsky came to have extensive interests in media and built TV empires. While Gusinsky restricted himself to his media business, Berezovsky's interests were more varied. Along with a clutch of industrial enterprises he combined a political career also. He was elected to the Duma in the elections that swept Putin to power. Berezovsky was an early supporter of Putin. Gusinsky on the other hand took on Putin and paid for his folly when the banks pulled the plug from under him. He now lives in London, a fugitive from Russian justice. Berezovsky soon after began to feel the prickly sweep of Putin's broom on his back. He too is now a fugitive from Russian justice and is holed up in Paris. Khodorkovsky was last of the politically ambitious oligarchs to go. He became Russia's richest man and controlled Yukos, which in turn controlled a major fraction of Russia's oil production and refining. When Khodorkovsky began to show more political ambition than was to the liking of Putin. The system moved on him. He now languishes in a Moscow jail facing a slew of criminal charges. Yukos is on the verge of dismemberment. The remaining Oligarchs have stuck to the line. One of them Roman Abramovich has bought the Chelsea Football Club in London and has poured a fortune into it to create a champion team. Alas, the English football league seems to be a more difficult place than the Russian marketplace! With the power of the Oligarchs broken, Putin set about in earnest to set right the reforms process that went awry in the Yeltsin years. A strong government not only was able to control inflation and industrial unrest, it also largely curbed the open lawlessness of the Russian mafia and the rampant corruption of the new elite. During a recent visit to Russia one saw evidence of renewed and vigorous economic activity everywhere. The diffidence and hopelessness of the Gorbachev and Yeltsin years have gone. A new and confident Russia is emerging. There will never be another Soviet Union where Comrade Surjit could go to get his cataract removed or that would straddle the world as one of its two super-powers. In its place we now have a Russia increasingly seeking its true destiny as a modern European nation and an active role in the world. Make no mistake; Russia is still a military super-power. It has the natural and human resources, and the technological base to once again take it to the pinnacles of world power. Ironically the biggest challenge to Russia comes not because of paucity of riches but due to falling birth rates. Russia is contracting at a significant rate and by mid century will be much smaller than many Indian states. But then so is Japan and all of the European Union. Among the developed economies only the USA will be growing. But for now the facts speak for themselves. Russian GDP growth has been among the world's fastest growing during the past five years, averaging over 6.5%. It is expected to be 7.9% in 2004. Its GDP this year is expected to cross US$ 540 billion. The gains from investments in the Russian stock market were the second highest in the world since 2001. It has been recording an annual trade surplus of over US$ 50 billion during each of the last five years. This year the current account surplus is expected to be US$36 billion and the trade surplus US$62 billion. All this was predicted when the price of oil was only US$30.4 a barrel. It has crossed US$55.4 this week and is expected to keep rising. Yukos is not expected to be pumping much oil in the near future. Nor is Iraq. And for that matter even Nigeria is doubtful. With the former Texas oil wildcatter George Bush set for another term as US President, high oil prices seem to be making the new world economic order. No wonder President Putin has practically endorsed the Bush candidacy! Russia has good reason to do so. It is the world's second largest producer of oil pumping over 8.4 million barrels a day. It consumes only 2.68 million barrels a day and exports 5.76 million barrels a day at prevailing market prices. The Russian growth has its effects on the CIS economic zone, which exists in its shadow. So much so Russia's growth is only seventh in the region. Ukraine leads with 12.7% followed by Tajikistan (11.1%), Azerbaijan (10.6%), Belarus (10.3%), Georgia (9.4%) and Krygyzstan (9.2%). With a savings rate in excess of 33% of GDP and FDI growing, Russia is on an investment spree. There is evidence of this all over. Everywhere you turn you will see frenetic construction activity. The shops are full and brimming with goods. If Moscow is now spruced up and more orderly, St.Petersburg positively gleams. The fashionable Nevsky Prospekt would compare favorably with any great European high street. Putin has shown the world what an energetic and determined leadership can achieve. Two years ago I was strolling through the Kremlin gardens in the company of by a RAW officer when we suddenly spied President Putin walking by with just a couple of security officers. He was bronzed by the Crimean sun and had the purposeful stride of a prizefighter. A far cry from the SPG smothered physically challenged gerontocrats that rule the roost here. In early 1991 I had a conversation with the then Indian Ambassador in Moscow. He vehemently disagreed with me that the Soviet Union seemed on the verge of imminent collapse. On my return I learnt that our MEA considered such thoughts as heresy. After all what could one expect from Inder Gujral's MEA? During the Vajpayee marazm years our leadership's eyes were all fixed westwards. That's possibly because their hearts and even moneys were there. Now with the MEA under new management we seem to be missing the Russian story once again. Like it or not, the Russians are coming!