The Myth of the Russian Market Economy

February 26, 2013 More

Garry Kasparov. Source: Daylife.comIn a column earlier this month, Garry Kasparov named former Russian Deputy Finance Minister Sergei Aleksashenko as one of the so-called “systemic liberals” who helped to establish what he called Putin’s “fascist regime.” A week later, Ekho Moskvy journalist Aleksander Plyushchev confronted Aleksashenko with Kasparov’s accusation. The former finance minister declined to remark on his role in bringing fascism to Russia, but instead argued on another topic Kasparov had brought up – the existence (or not) of both a market economy and democracy in Russia. Here, Kasparov responds.

The Myth of the Russian Market Economy
By Garry Kasparov
February 17, 2013

On February 13, I was surprised to learn that the famous economist and manager Sergei Aleksashenko chose to begin an unexpected controversy with me instead of commenting on the breaking news that, the day before, a court had thrown out his one million ruble lawsuit against former Russian presidential aide Andrei Illarionov. This aide had claimed that Aleksashenko had “played on the state treasury bills market,” when he was first deputy of the Central Bank of Russia before the 1998 default, as had “other insiders – people who worked directly in the government and for the government.”

Leaving my words about his role in forming the current regime on my conscience, Mr. Aleksashenko decided to refute my “unclear words” about the systemic liberals – those who for years have promised the public that we will build a market economy first, and then, only after that, democracy:

“We didn’t promise to do it – we did build a market economy in Russia. In Russia, the main instrument of balance in the economy is price. This is a key feature of a market economy. Russian now has a freely convertible currency. I don’t know what else Garry Kimovich needs to understand what a market economy is… Another thing: in the 1990s, we didn’t only build a market economy, but democracy as well! There were free elections for the State Duma, for governors, and on the local level… I would like to remind you that, before the 2000s, the government didn’t have a majority in the Duma; it had no support. But the ability of the government to pursue policy without a majority in the Duma – this is the very system of checks and balances that forms the basis of a democratic system.”

My chance opponent said that my position on this issue resulted from the fact that I “apparently do not remember Russian history very well – what happened 15-20 years ago.” Luckily, I have no cause as of yet to complain about my memory. But exposing the systemic liberals’ popular myth that Russia has either a market economy or democracy is something that I have had to do repeatedly.

Let me begin with democracy. In my view, it is essential to understand that Putin is not a historical accident or a fatal mistake made by Yeltsin and his entourage. He represents a wholly pre-determined path for the development of Russia – the logical consequence of the attack on the parliament in October 1993. Yes, there were free elections in 1991, and the April 1993 referendum was free, but everything that happened after that tragic October went downhill. The pressure of administrative resources steadily increased – although, to be fair, the elections in the ’90s were simply peachy compared to the ones in 2000, 2004, etc.

It is high time to admit that, after 1993, the government was no longer interested in addressing the issue of free and fair elections. The primary task of the ruling elite became holding onto power at any cost. Let me remind you again of the two alternatives in 1996, when Alexander Korzhakov & Co. tried to abolish presidential elections in general, while Anatoly Chubais & Co. worked to make them “behave” correctly. The organized electoral falsifications that ensured Yeltsin’s victory were later justified as “a necessary price in the battle against the communist evil.”

And yes – Putin’s very appointment as presidential successor in 1999 (to the applause, by the way, of the systemic liberals) is further evidence of the low quality of the democratic institutions that were established in the ’90s.

Sadly, it is inevitable that political life in this country is going to face further degradation: the extremely monopolized economy is leading to the monopolization of the political arena. There is no way to preserve free political competition in conditions of total state economic expansion, even at the regional level.

Aleksashenko’s phantom key thesis stands against this background: we “built a market economy in Russia.” Yes, if you stretch it, we appear to have freely-formed prices and other elements of a market. But, by that measure, you could also argue that there is a market economy in Iran! But if you are talking about a well-functioning contemporary economy such as exists in the developed world, you immediately find yourself with a great many uncomfortable questions.

For example, it would be interesting to know what market (or what office?) the multi-billion price of the company Sibneft, purchased in 2005 by Gazprom, was formed in. Also, who in particular was the seller in this transaction, and who was the buyer? But this is a relatively petty issue.

The most important thing is the guarantee of the inviolability of private property. Does this exist in Russia? Is private property really sacred and inviolable? Or is it still possible to take it away under some kind of fabricated “legal” pretext, with the help of our so-called law enforcement agencies – which is to say, with the help of a hostile takeover? Mr. Aleksashenko ought to ask Mikhail Khodorkovsky and the thousands of other lesser businessmen whose property and freedom were taken from them in the 2000s about the guarantee of the inviolability of private property.

How can you talk about a market economy in a country where there is no independent judiciary, the government can exert uncontrolled force on its citizens, and can also easily confiscate their private property?

And what about competition – is this, in my uninformed opinion, not the basis of a market economy? What is there to argue about if the country has no real, live competition, and everything, including prices, is controlled by monopolies? Or if a close friend of the president, Mr. Gennady Timchenko, gives himself a third of Russia’s oil exports; if Gazprom and Russian Railways and so on rule unchallenged practically everywhere. The constant rise in prices for electricity, fuel, transportation, food, and housing and utility tariffs is mainly due to the insatiable appetite of a bureaucracy that thrives on all levels of Putin’s notorious power vertical. Somehow, the gray “corruption tax” blended in quite organically with the systemic liberals’ beautifully painted landscape of macroeconomic stability.

The quintessence of the “market economy” that Mr. Aleksashenko and his comrades have created is the supremely wasteful Olympic complex in Sochi. The mechanisms of rule in this country have generated theft on a truly cosmic scale – endless cuts, kickbacks, phony budgets, and so on and so forth. Under a real market economy, there would have been an international bidding process. The state would have saved a gigantic amount of money, and the facilities still would have been completed on time.

Sochi is, of course, the quintessence of the Russian “market economy,” but it would be interesting to see what is actually going on, let us say, in Rosnano, which has also received significant budgetary funds. Having just barely woken up from the shocking news about GLONASS from Roskosmos, we cannot wait for the captivating story about the cornucopia of graft that is the science city Skolkovo.

What Mr. Aleksashenko and the systemic liberals are proud of today is nothing more than a stand-in for a market economy. As our unforgettable Prime Minister Chernomyrdin was already lamenting twenty years ago: “We need a market, not a bazaar!” And here is our market, constructed very nicely with its own protective “roof”…

Translation by Kasparov.com.