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Part 2 of Aleksandr Buzgalin’s presentation on the Russian economy

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington.

We’re now begin part two of our interview with Aleksandr Buzgalin. He’s a Russian political economist. He teaches at Moscow State University. He is now visiting Amherst, Massachusetts, and he joins us again from the PERI institute there. Thanks for joining us again, Aleksandr.

ALEKSANDR BUZGALIN, POLITICAL ECONOMIST, MOSCOW STATE UNIV.: Thank you for invitation and thank you again. I’m very glad to talk with you colleagues.

JAY: So as we mentioned in the first part of the interview, you were describing Russian capitalism as Jurassic Park capitalism. And as we’ve been going through, you’re going through a PowerPoint presentation, which is something new for us. But it’s interesting—give you a chance to elaborate your argument. And if I have a question or so along the way, I’ll jump in. So pick it up with Jurassic Park.

BUZGALIN: Yes. I said in the beginning that Russia has very specific economic system. And I want to use classic political economy analysis for examining what kind of relations do we have in modern Russian situation, in modern Russian system. And I want to start from very short academic introduction, and then continue with not so short, but, again, academic presentation of main ideas. I do not believe that it’s possible to make only beautiful pictures and explain difficult contradictions through very simple words, so I’m sorry if this chapter will be a little bit boring.

First of all, there are some especially mainstream economists who are thinking that Russia has just normal market economy or capitalist economy. These are, of course, some specific national features. But every country has specific features—France and Britain, United States and Canada—so it’s not something extraordinary. But if we look carefully, what kind of relations do we have (and I will do this later), we understand such qualification is not adequate for Russian reality.

Second variant: different names for our capitalism. I used capitalism’s Jurassic Park, analogy with dinosaur power. But there are other names—Kremlin-style capitalism, bureaucratic, oligarch, criminal capitalism. In some aspects, these categories are adequate for our reality, but let’s look on the essence.

Also, there is very important qualification of our economy as non-finished transformation. And in many aspects it’s true. We are in between different economic systems, and this situation of non-finished transformation creates a lot of specific contradictions.

Also, we have maybe another qualification. And I like this qualification, and it’s my personal view, and I elaborated this and published in [incompr.] economic, that we received mutations of late capitalism. Late capitalism can have different forms, and it can be mutation of these forms, like a mutation of personality after nuclear bombarding or something like that. And in Russia, because of terrible circumstances, inadequate reforms, some another prerequisites (I will explain later what kind), we received this mutation.

So what we have? We have incomplete and very contradictory nature of our capitalism. And there are also explanation of this situation through contradiction between Russian civilization and Russian spiritual features and capitalist principles, principles of liberal capitalist market economy. And there are two [wÉ™rÉ™nts]. One [wÉ™rÉ™nt] is to say that Russian soul is not adequate for capitalism; that’s why we must have another type of economy. And there is another explanation: Russian national features are not adequate for capitalism; that’s why we must have capitalism and change all national specific features of Russia. This is big battle, and typically this is battle between so-called Westerners and slavophiles or Russophiles.

Let’s continue. If you look on Russian capitalism and look on qualifications of this capitalism, we must pad through the historical backgrounds. And I will strongly advise to those who has real interest to this problem, read the book of Fred Weir and David Kotz devoted to the transformation from Gorbachev to Putin Russia. And this is really very essential book with a lot of statistic and so on.

If you look on the main reasons why we received so specific—I can say even individually specific economic system, I will use only three main fundamental reasons to explain this. First is legacy of Soviet past. A lot of negative elements of bureaucratic, authoritarian system and disproportions of our economy still are important and still are the case for our economy.

Then we had in 1990s so-called shock therapy—or in Russia we have another name, shock without therapy: we received shock, and we still are waiting when will be therapy, when we be healthy. But we are still not very healthy, unfortunately.

By the way, my broken nose is not result of shock therapy. It’s the result of my swimming in storm in sea. So it’s not interconnected with these questions.

To be serious, shock therapy was attempt to privatize everything during a few years—really, one year and a half—and to liberate prices during one day. And they really were liberated during one day. And people decided that that’s enough to have a free market economy and private property. But it’s not the case.

I will use only one parallel as comment to the academic presentation. There is typical analogy between planned economy as metro transportation in the city, and market economy as private cars transportation in the city. So everybody understands that to make explosive in the metro is not enough to create transportation by private cars. It’s necessary to have roads, it’s necessary to have normal routes, it’s necessary to have cars, and it’s necessary to have drivers, and it’s necessary to give money for people to buy cars. The same with market. Nobody had money to buy privatized enterprises. Nobody had experience. It was no infrastructure. It was no institutional prerequisites. As a result, we received terrible contradictions and terrible disaster, I can say. In first chapter, I said that it was 50 percent decline of gross national product.

So then we received another, third reason for this specific capitalism Jurassic Park in Russia, and this is a new, modern system of reproduction based on the extraction and export of raw materials—oil, gas, nonferrous metals still. And this creates inefficient model of economic development. And this type of reproduction multiplied contradictions of Soviet past, multiplied contradictions introduced by shock therapy.

If we go further, I will say that very important factor of modern situation is so-called negative convergency of the most terrible features of Soviet past and the most terrible features of capitalism. It was dream of dissident and academician Sakharov and many others that after collapse of the Soviet Union—not collapse, even—after transformation and reforming of Soviet Union, we can have the best features of Soviet system—free-of-charge education, cultural life, fundamental science, social justice, and blah blah blah—I like it, by the way, it’s not blah blah; it’s really very important features—plus—not enthusiasm—plus energy, competition, free market, free individuality, democracy from capitalism. Instead, we received authoritarian bureaucratic operation, we received terrible disproportions from our past, Soviet past, and we received primitive competition, wars between semi-capitalist, semifeudal clans, we received alienation of people, unemployment, and terrible social differentiation and social conflicts. That’s why I’m speaking about mutation of late capitalism as a result of this negative convergency.

What kind of allocation of resources do we have in our economy? Before I describe this, I want to stress that any economic system can be described through type of allocation of resources, market or planned or something else, or combination, first. Second, type of property relations. So, social results, and then model of reproduction. I will use this logic which I teach in my course of comparative economics for analysis of Russian economy.

What we have as model of allocation of resources, we have, still, elements of bureaucratic planning, which transformed towards a shadow-state regulation, not only shadow market, but shadow-state regulation. We have premarket relations like in feudal society. We have very strange market. And the most important feature: we have local corporative regulation. We have huge corporations, this dinosaur, and this dinosaur has power to regulate, to force people to do what they want. And this is key question of our system of allocation of resources.

And if we move to next slide of my presentation, we can see that this is mutation of market adequate for late capitalist system. And this mechanism of corporative regulation has different names in economic theory. For mainstream economics, this is market power—very abstract category, not very developed in mainstream economics. In institutional economics, this is planned system—Galbraith’s idea. In neoinstitutional analysis, this is so-called negotiating (I’m sorry for my barbaric Russian English) strength—the force to negotiate, to push on the person with whom you are so-called negotiating, with whom you are competing. And in Marxist theory, this is a theory of polycentric, local regulation by huge monopolistic corporative structures.

Now let’s move to the property relations. I use different types of dinosaurs on the picture just for fun, but if we be serious, analysis of corporation will show that this is, first of all, more or less, parody on traditional capitalist corporation adequate for the late 20th—maybe not late, but mid-20th century. We are still 50 years behind modern network, high-tech, and so on capitalism.

Then we have ex-Soviet style of patronage machine inside this corporative group, with terrible administrative power of the top elite. Then we have criminal mafia as ruth, as a very important part of domination of ruling forces in these corporation. And, finally, some elements of feudal clan, with internal hierarchy and personal dependence, non-economic alienation, and determination. Similar with—not slavery, but something like slavery in feudal epoch. And this is, of course, not pure feudalism, but some elements of this we have.

And I want to put big question mark for everybody who watching and listening me. Let’s look. Maybe this is just caricature on Western corporation, where in headquarter maybe everything is beautiful and honest, but if you took corporation with all departments in all countries, with very poor workers in Third World, it will be more or less the same dinosaur, like in Russia, but maybe in more beautiful color. I am sorry for this critique. Maybe I’m wrong. It’s—you will give me the answer.

If we look on the structure of this clan corporative group, I will stress that on the top you have top bureaucrats very interconnected with oligarchs. Sometimes these oligarchs can be punished, sometimes not. You see pictures of different persons here, but the most important is unity of oligarch nomenclatura and bureaucratic nomenclatura on the top.

Then we have administration of enterprises and workers and citizens or workers and residents behind. And there, under the pressure of all these stratas, including lobbies in state structures, including criminal ruth, including lobby and mass media and so on and so far, if we try to examine what are the channels of power, of course this is part of the shares, but it’s not key idea, because typically shares of all other shareholders are not consolidated, and only small part of insiders of these nomenclatura people has consolidated piece of shares. And this is key force for control. Also, it’s administrative power, it’s financial control, which is extremely important for Russian economy. And then integration with shadow structures.

One example only. For many corporations which are producing raw materials, there is typical [incompr.] huge corporation, extracting enormous amount of oil or coal or producing steel and so on. But then this huge corporation will sell all these millions of tons of raw materials to small firm which is just intermediate, and this small firm will increase twice the price and sell then these raw materials.

What is the role of the small firm? Very simple. The owner of this firm will be the mother—I don’t know—the brother of the wife of the top director or owner of 15 percent of the shares of big corporation, and really he will receive a small part of dividends from corporation and huge amount of money from this small firm, which is in between corporation-produced resources and consumers of these resources.

We also have different forms of income as a result of such situation. Oligarchs in our country has not only profit as normal, let’s say, capitalists, as normal bourgeoisie; they have very specific types of rent—insider rent, administrative rent—because they divide bribes with top officials from the state. They have a big piece of natural rent, which should go to the people of Russia, but really is in the hands or coming back to the state officials and oligarchs. They have part of the wage of workers, because our labor force is underestimated, tremendously underestimated. They have a lot of illegal incomes, and also utilization or—I don’t know how to explain this. This is tradition which came from the Soviet past, to use corporation for personal benefits of top officials. If a top manager wants to have rest, corporation will trade pay for his training in Bahama Islands with a lot of prostitutes. If top officials wants to have good places for life, corporation will pay for this house for receptions, because it must be for advertising corporation; and so on and so far. That’s why they have a lot of illegal incomes.

We have quasi middle class, which is typically not professors or medicine workers or doctors, teachers, and so on, but this is small part of people who are around of these oligarchs and bourgeoisie, who are like servants of these cons of 21st century.

Also, biggest part of our population still is living and not very good conditions. After 20 years of collapse of the Soviet Union, they have living standards more or less the same like it was in Soviet period, and not for everybody, but for, let’s say, middle part of population. And what does it mean? In 1991, a lot of economists said Soviet system is inefficient, is in terrible crisis. Then what we received? Decline 50 percent, growth because of the good prices on oil and gas, and after 20 years we have hopes that in the future we will be on the level of Soviet Union. That’s—means on the level of inefficient economy in crisis. Good result, isn’t it?

So, type of reproduction I described. Because of this power of clan corporative groups who are parasites on the body of natural resources and social resources of our country, of course we have not intensive but extensive growth or crisis. In 1990s, we had crisis in decline. Into 2000s, we had growth because of fantastic conjecture on market of oil, gas, and so on. In 2008, we had again decline 8 percent. So this is the situation, and this situation can provoke reaction of people, can provoke explosive.

And last slides are just photos from the meetings where 100,000 people came to protest against falsification of elections. And final photo is photo of the evening meeting when—where people came to Pushkinskaya Square in Moscow to protest against result of the presidential elections.

So there is a choice for future Russia—and this is last slide—to be the puppet, the marionette of oligarchs and other alienated forces, or to be creator of new Russia. And we are doing as much as possible to create new Russia. And we’re asking for solidarity—not for money, but for real solidarity, common will, common information, common debates. We are, unfortunately, isolated periphery, and it’s very important for us to be inside mainstream left, mainstream democratic, mainstream opposition. So let’s be in contact. And I can give even my personal email. It’s very simple: Buzgalin (at) mail (dot) ru. You are welcome. Thank you.

JAY: Alright. Well, thanks very much, Aleksandr. So we’re going to do one more segment, which is just me interviewing Aleksandr about some of the points in the PowerPoint. So I hope you join us for that, coming soon on The Real News Network.


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Aleksandr Buzgalin is a Professor of Political Economy at Moscow State University. He is also editor of the independent democratic left magazine Alternatives, and is a coordinator of the Russian social movement Alternatives, author of more then 20 books and hundreds of articles, translated into English, German and many other languages.