Can Russia be Saved?
January 3, 1999
Discussion Thread: #s 216 and 218
 Allison Abrams, "Criminal Communism" to "Criminal Capitalism," report on a talk to Kennan Institute for Advanced Russian Studies, Washington DC, by David Satter, a Senior Fellow, Hudson Institute, and Visiting Scholar, School for Advanced International Studies, Johns Hopkins University. (posted on Johnson's Russia List—#2525, December 15, 1998). Attached.
 Anatol Lieven. "U.S. Can't Do Much About the Russian Economy," Newsday, December 29, 1998
 MICHAEL R. GORDON and CELESTINE BOHLEN, "Twilight Cloaks Russia," New York Times, January 3, 1999
The collapse of the Soviet Union in 1991 unleashed a corrosive sense of triumphalism in the western democracies, particularly the United States. Convinced of the virtue of western ideas that were about to sweep the world, scholars, politicians, and a variety of poohbahs rushed to advise the Russian "reformers" on how to re-invent their country (and culture) with our notions of individual liberty, representative government, and a free market economy centered on the concept of private property.
The reformers efforts to clone the West's cultural DNA into Russia's nascent democratic strivings, however well motivated, have failed to take root, however. It is now becoming clear Russia is moving along its own path. Wherever that path may lead in the long term, the depressing portraits painted in Reference #2 and #3 [as well as in Comments #216 and #218] suggest that it may include a trip through chaos in the short term.
My aim is to show why one of reasons for this failure can found in a logically flawed theory of omniscience (i.e., that viable social systems flow out of an argument from design) held by the reformers. I do not believe we will be able to forge a coherent approach to the loose nucs problem until we purge this arrogant attitude from our thinking and dealings with Russia.
Descent in Darkness
Anatol Lieven argues in Newsday [Reference #2] that rapid privatization produced a monstrously corrupt economy. The state sold property at rock bottom prices to a variety of robber barons and buccaneers, most of whom then transferred the profits to the West, without reinvesting in Russia. The emerging economic system is now a mixture of barter and a conspiratorial pricing. The inflow of hard currency from exports of raw materials and some weapons keeps the economy tottering along.
Michael Gordon and Celestine Bohlen echo Lieven's critique in the New York Times [Reference #3], concluding that, "The extravagant hopes that a Western-style capitalism would emerge straight away out of the ruins of the Soviet empire are gone." These hopes were buried in the financial collapse caused by August 17 devaluation of the Ruble. Gross domestic product is falling again, by 5 percent in 1998, with a similar drop predicted for 1999. Half of Russia's business is now conducted in a primitive barter economy, mortality rates are increasing and population is shrinking, and tax collection is plummeting. A mood of bitter disappointment has swept over Russia, and while some Russians blame their situation on inhuman legacy of Communist rule, others are beginning to echo the old slavophile debates of the Czarist era, wondering if Russia should be part of the West.
The Central Role of Lawlessness
Why did the attempt to clone the West's cultural DNA into Russia's nascent free-market democracy degenerate into a corrupt klepto-economy?
Reference #1 addresses this question in a very revealing way.
Allison Abrams describes a recent talk given to the Kennan Institute by David Satter, a Senior Fellow, Hudson Institute, and Visiting Scholar, School for Advanced International Studies, Johns Hopkins University.
Satter said lawlessness is undermining Russia's transformation from Communism into a representative democracy with a market economy. The reason, he argued, is that Russia's economic crisis has its roots in a moral crisis, and that "when the time came to create a new democratic society in Russia, the failure of both the West and Russia to understand the true nature of communism—its denial of universal morality—led instead to the rise of a criminal state."
While I agree that lawlessness in Russia goes to the heart of that country's problems. I do not think blaming it all on the true nature of communism, or abstractions like a denial of universal morality, account for the depth of the lawlessness pervading contemporary Russian society. Moreover, adherence to such a belief could induce one to make the same logical error that the Communists made: namely that a wise elite can have the omniscience to apply a top-down "argument from design" to solve social problems which are caused by bottom-up evolutionary phenomena.
Lawlessness and the rule of brute force had a long history in Russia before the Communists took over and established the Soviet Union. Its roots lie in the arbitrary diktat and despotic powers of the Czar, who was answerable only to God, which was also a universal moral pretension. Russia did not go through the moderating influence of feudal era like other European countries, particularly Great Britain, the birth place of the modern market economy, notions of private property rights, and individual liberty.
The peculiar institution of Feudalism may have been an essential evolutionary precursor to the emergence of our modern law-based society, which is grounded on individual rights and free market economics. Feudalism emerged with the establishment of the legal principle of reciprocal responsibility and obligation between the King and the barons. While the reciprocal legal bonds existed initially for the benefit of a very small elite, they established an interactive (two-way) legal principle that was very different from the one-way principle embodied in the unlimited power of a King or Czar.
This legal principle took on a particularly strong character in the case of England, and it shaped the emergence of the Anglo-Saxon jurisprudence now known as common law.
Over time, the principle of reciprocity gradually spread to larger and larger segments of society, and the vast edifice of common law evolved in response to the growing complexity of these reciprocal relationships. In contrast to the rigidity of a codified law designed by a scholarly or political elite, common law is a mutable concept that builds up on a case by case basis. It grounds its essence on precedent but permits continuous adaptation by resolving conflicts in accordance with changing conditions. The restrictions imposed by the idea of reciprocity provide the environment for evolving instrumentalities to protect individual rights, like contracts or property rights, while maintaining a coherent societal interaction at the macroscopic level of organization.
The point central to the question of a law-based society is that it took hundreds of years for the body of common law to emerge out of the give and take of a continuous intercourse among those being restrained by its prohibitions. In 1400, no one could predict with certainty where the Common Law was headed, although one could be sure some of its precedents would carry forward into the distant future. In its totality, the body of common law is therefore an unpredictable evolutionary synthesis of chance and necessity, shaped by trial-and-error in a continuous competition among millions participants over an extended period of time.
In contrast to their western counterparts, Russia's nobility was always far more dependent on the caprice and arbitrary power of Czar for its well-being. It is well-established that the notion of reciprocal obligation was much less developed in Russia under the Czars than in the West. Consequently, common law (and the cultural norms that flow out of it, like respect for the individual or property rights and, ultimately, the moral ideal of representative government) never really evolved in the Russian culture.
To be sure, Communism extended and deepened the arbitrary character of Russian "law," and many observers, like the Mr. Satter, are now blaming the current lawlessness in Russia on the amoral legacy of communism. But this view, while partially true, vastly oversimplifies and misses the extent to which a culture is synthesized out of a much richer variety of historical threads.
The rule of law, as we know it in the west, is in substantial part a consequence of evolutionary phenomena, like those that drove the mutation of feudalism into republican democracy, which was by no means the inevitable outcome. That history is now rooted deeply in the cultural DNA of our market-based societies. The Russian concept of law is also a product of evolutionary forces, albeit very different ones from those in the west.
The idea that intellectuals (be they Russian or Western) have the omniscience to map our "rule-of-law" DNA into a capitalist market system for Russia is dangerously flawed and doomed to fail for the same reason that communism failed: namely, the irreconcilable contradiction that comes from applying a top-down all-knowing "argument from design" to a process that is fundamentally an unpredictable, bottom-up, historically-based, self-organizing, phenomenon. Indeed, perhaps the best evidence of the power of self-organizing cultural phenomena to overwhelm an "argument from design" can be found in the rapid rise of the Russian mafia.
Satter may be correct when he concludes that the absence of legal and moral rules prepared the way for the creation of a criminal state in Russia. He may be correct that Russia has no hope of saving itself without the rule of law. But his conclusions (at least those stated by Ms. Abrams) beg the question: Where do the laws come from?
By blaming the rampant criminality on amorality of communism, it is easy to introduce ideological blinders that oversimplify the deeper evolutionary nature of a momentous crisis for which there may be no solution other than the natural course of events toward dissolution into smaller, more viable cultural units.
Perhaps the West can find ways to ease the suffering of the Russian people. Perhaps the West can find ways to collaborate with the Russian people to repair the wreckage left over from the Cold War particularly, loose nucs. But to assume we design solutions based on our omniscient notion of universal moral principles is the height of arrogance.
[Disclaimer: In accordance with 17 U.S.C. 107, the following material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only.]
Kennan Institute for Advanced Russian Studies Washington DC NEWS/Meeting Report—Allison Abrams From "Criminal Communism" to "Criminal Capitalism"
"Russia's problem is not economic and it has never been economic it is basically a moral problem and until that problem is solved, no reasonable economic system, no market economy...has a chance of taking root there," remarked David Satter, Senior Fellow, Hudson Institute, and Visiting Scholar, School for Advanced International Studies, Johns Hopkins University, at a Kennan Institute lecture on 9 November 1998. According to Satter, when the time came to create a new democratic society in Russia, the failure of both the West and Russia to understand the true nature of communism—its denial of universal morality—led instead to the rise of a criminal state.
The communist regime systematically abolished normal criteria and promoted the view that universal values did not exist, only class values, noted Satter. The idea that without legal and moral rules it is impossible to create a just society was ignored. The communists maintained that once private property was abolished and production socialized, a classless society would result. In a similar vein, Satter commented, the young reformers of the 1990s argued that once state property was put into private hands, a state based on law, as well as a democratic and prosperous society, would evolve. In Satter's view, it was this lack of legal and moral rules that prepared the way for the creation of a criminal state in Russia.
Satter said that Russia's transition from "criminal communism" to "criminal capitalism" had occurred in three stages: hyperinflation, privatization, and criminalization. Hyperinflation began on 2 January 1992, when the Gaidar government freed virtually all prices, consequently wiping out the life-savings of millions of Russians. According to Satter, this same government also chose to ignore a law passed by the Supreme Soviet calling for the indexation of savings accounts in the event of price liberalization, deeming it the responsibility of the old regime. Yet while the majority of the population was being driven into poverty by inflation, a group of well-connected insiders was becoming very rich.
Satter mentioned several ways in which people with access to the state budget and ties to state officials were able to amass wealth including: establishing and fooling the public into investing in pyramid schemes, speculating in dollars, obtaining lucrative licenses to export raw materials, and appropriating and collecting interest on state credits that were supposed to support industry. Satter asserted that by the time privatization got underway, the country was already divided into haves and have-nots.
This hyperinflation had been briefly preceded by "wild privatization," during which government and party officials began to privatize whatever they could get their hands on, noted Satter. Former government officials who had once been in charge of state resources became the new owners and proceeded to sell off these resources. In addition, an amendment to the law on cooperatives allowed factories to create cooperatives within the framework of the factory, which encouraged massive theft as factory directors were now given the means to establish cooperatives through which to write off and sell factory supplies.
However, according to Satter, the real theft of the state's most valuable enterprises began with money privatization in 1994. At "public" auctions for state property, the bidders for the most desirable enterprises were well-connected to local officials, with the results of these auctions being largely determined in advance. The loans-for-shares program, in which the government exchanged shares of enterprises for loans, greatly benefited the banks empowered by Yeltsin in 1993 to handle government accounts. These banks used government money to make short-term loans at extremely high rates of interest. Then, having made a profit using the government's money, the banks were able to loan it back to the government in exchange for valuable enterprises. This is how the much-talked-about oligarchy came into being and eventually began to dominate the political and economic scene, explained Satter.
Satter then commented on the final stage of the rise of the criminal state in Russia—criminalization. In short, the first cooperatives were established at a time when all property in the Soviet Union belonging to the state was completely unprotected. It was also illegal to have a private security service. Both of these factors made the first Russian businessmen attractive targets for criminals. As the number of independent businessmen grew, the underworld experienced phenomenal growth. With no one to protect them, Russia's new economic elite, composed largely of corrupt insiders, had no choice but to turn to criminal gangs for protection. Eventually, Russian businessmen found gangsters useful in other aspects of business, including curbing the growing epidemic of non-payment of debt.
According to Satter, as these groups became more interwoven, the entire commercial and political apparatus in Russia was poisoned. On a final note, Satter reflected that the only rule in business and political life in Russia continues to be the rule of force and that without the rule of law, Russia has no hope of resurrecting itself.
"The Rise of the Russian Criminal State" sponsored by the Kennan Institute, was presented 9 November 1998 by David Satter, Senior Fellow, Hudson Institute, Indianapolis, and Visiting Scholar, School of Advanced International Studies, Johns Hopkins University. Allison Abrams is Editorial Assistant, Kennan Institute for Advanced Russian Studies.