WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

By Ruslan Grinberg, Scientific Advisor at the Institute of Economics of the Russian Academy of Sciences, Moscow

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• The demise of the Soviet Union 30 years ago was very abrupt and largely unexpected, even by those who set it in motion.
• The economic consequences of its collapse as well as those of fully embracing free market ideology without preserving the benefits of the former system proved catastrophic.
• The current anti-democratic and anti-western backlash in Russia is arguably the result of these policy missteps and could have been avoided, had different policies been pursued at the time.

Thirty years have passed since the collapse of the USSR, and discussion of the event is still going on. I have a feeling that ‘plus’ or ‘minus’ signs are placed depending on how old an assessor is and what her ideas are about life. But there is something else that is very important here: to what extent were the events of that time driven by objective laws and to what extent by human actions? Because at the time of such drastic changes the role of human actions is very important, especially of those people who run the state. Today, many say: if Soviet President Gorbachev had not gone to Foros (Crimea) in the summer of 1991,[1] the Soviet Union might have survived. Others are convinced that it no longer mattered. Who is right?

It is important for us to look not just at what we wanted and what we got, but to understand why it happened the way it did. That is, the lessons, in my view, are more important than the outcomes.

THE FREE MARKET HAS ONLY BENEFITED A FEW – AS IT TYPICALLY DOES

It is a bit easier with the outcomes. The main question here is how and what to compare? I propose taking the most frequently used data on comparison of living standards in different countries - GDP per capita. On this account, even with a caveat to Russia's unprecedented economic decline in the 1990s, things are generally not that bad. Take Austria, which has had average economic performance in the EU over the past 30 years, Poland, a former socialist country which has chosen a capitalist path, and Russia for comparison. In 1991, GDP per capita in Austria was USD 20,000, in Poland USD 6,000 and in Russia USD 7,800. In 2020, Austria had USD 55,000, Poland USD 34,000, and Russia USD 28,000. If you look at these figures, the result is staggering. But if you take into consideration that there is a 16-fold gap between the poorest 10% and the richest 10% of the population in Russia, the benefits of transition become less clear.

And what about the lessons? In my perception everything that happened from 1986 to 1991 occurred at a time of collective insanity or utopian consciousness. A time when the most educated people in the country went to the West for the first time and saw the breadth of consumer choice. They saw there, say, 60 varieties of sausage, while in Russia there was nothing like that. And the recipe seemed so easy: just follow the good western advice. Russians believed that we would retain the benefits of socialism (in particular, security about the future and some sort of justice) but gain freedom and the material abundance of capitalism if directive planning was replaced by a market economy. It seemed that everything could be done quickly. And then we would live like in Luxembourg or Germany. This turned out to be a great illusion. The free market indeed came very quickly, unlike communism, but it only benefited a few – as it typically does.

This is rarely talked about, but is a very important question: why did even the wisest, most advanced, most educated people in the country become victims of this utopian consciousness?

THE FORMER SOVIET REPUBLICS WERE NOT IN A HURRY TO CRAWL BACK TO RUSSIA

In December we marked a significant anniversary - on December 8, 1991, the leaders of three Soviet republics, Russia, Belarus and Ukraine, put an end to the Soviet Union by signing the Belovezh Agreement. And I agree with President Putin, who says that this was the greatest geopolitical catastrophe of the twentieth century. But the fact that it was a catastrophe became clear only later: back in 1991, everyone accepted the demise of the USSR with calm. Why? Utopian consciousness worked. And here I am talking about ordinary people, not political leaders who are willing to do anything for the sake of power. Ordinary citizens thought that Mikhail Gorbachev was no longer in control of the situation and that (the then president of the Russian Federation, still part of the Soviet Union) Boris Yeltsin, on the contrary, was in full control. And if so, all will be well.

By the way, just a couple of days after the Belovezh Agreement was signed, the parliaments quietly approved it, too. It is surprising that an event as significant as the break-up of a superpower caused little or no interest among its inhabitants. I recall the words printed in The New York Times that accurately described the situation: ‘they [B. Yeltsin and his team] couldn't pull the chair out from under M. Gorbachev, they had to pull the whole country.’ And this was a very accurate description, because it was believed that the Soviet republics were not going anywhere and would ‘crawl on their bellies’ back to Russia. There was such a 'crawling theory'. I asked Yegor Gaidar[2] at one of the conferences: ‘You were saying that Russia should become independent, live on its own... But what about the other republics?’ He told me: ‘Don't worry, they are not going anywhere’.

This was also the thinking of many analysts in the West, Kremlinologists and Sovietologists alike: there would emerge a different version of the Soviet Union, without the humiliating dependence of the republics on Moscow. Even the republics themselves thought so at first: at the Alma-Ata conference, which took place a couple of weeks after the Belovezh Agreement had been signed, they were in favour of keeping the single currency, there would be no customs duties, and we would live as equal and good neighbours. Instead of the USSR we will have something like a confederation, and republics will economically compete on equal terms.

True, the Russian leadership had another interesting position which was voiced by the most radical democrats, even more radical than Mr Gaidar. They built on the thesis that ‘the republics are not going anywhere, they will crawl on their bellies’ as follows: ‘And if they don't, all the better. Because how can we build a European-style democracy with semi-feudal regimes in Central Asia?’ They said it will be even better if they start building something of their own, then it will be easier for us to settle down on the ‘sunny side of life’.

Actually, the people of Uzbekistan, Kazakhstan, Kyrgyzstan and the other republics did not think the USSR would collapse. But it was forgotten to ask them, while those in power there thought, of course, that they should have independence and rule on their own.

THE ILLUSION OF ‘FEEDING THE OTHER’

Another reason why people took a rather calm attitude towards the collapse of the USSR was that under the conditions of freedom of speech (allowed by Gorbachev) the totally separatist idea of so-called particularistic chauvinism was gaining popularity in almost all republics. Its essence is that everyone thinks that he/she feeds another and that is why he/she is experiencing economic hardship. A radical part of the former political elite and the intelligentsia were trying hard to convince the citizens of this.

I did not agree with this postulate and even wrote an article ‘Who feeds whom?’ I proceeded from the fact that in a country with a hyper-centralised economy we all feed each other. And when we separate, it won't get better for anyone. Simply, some will get worse, and others will get even worse. I rarely make good predictions, but this one was very accurate: Russia suffered economically after the USSR collapse, but most other republics suffered even more.

WHAT LESSONS CAN BE LEARNED?

It is impossible to convince people not to indulge in utopian expectations. How many people used to berate M. Gorbachev for allegedly stifling the noble attempts to carry out the 'right' reforms of B. Yeltsin and his team? And just a few months later the same people began to scold Gorbachev for letting them lead the country. And here I am talking about scientists, professors, not simple plumbers. For some reason it was thought that we should just believe the ‘young reformers’[3] and they would lead us to paradise. We just have to be patient until the autumn of 1991… Of course, no one thought that inflation would reach 2,600%... But still, we must be patient. And then it turned out that there was no need to be patient anymore, everything had already happened: capitalism in its purest form had been created. And that meant: survive on your own if you can and how you can.

And people began to worry: it turned out that they were fools to have abandoned the previously hated socialist system. That is, they were not worried about having made a mistake during perestroika, but that they started it in vain. And look, the glorification of Stalin has begun again, and the Stalin era itself is now becoming one of the staples of ‘reasonable conservatism’. This completely blocks the civilised development of Russia – as do the current attempts of the ruling elite to restore the truncated USSR as another variant of the imperial state structure. Today, 20% of Russians are for the European way of development while 80% are for the country’s ‘own way’ and isolation from the rest of the world. And what do we have as a result? A world which is almost back to the times of the Cold War and, most importantly, there is no clear understanding of the path to be followed. And once again, new thinking and the restoration of democratic values are required – as they were required 30 years ago.

[1] The participants of the attempted coup-d’état in August 1991 took advantage of Mr. Gorbachev’s absence from Moscow. The coup was defeated, effectively paving the way for the subsequent demise of the USSR.

[2] Yegor Gaidar was the Acting Prime Minister of Russia in the second half of 1992 and the architect of the market reforms.

[3] The team of liberally-minded economists who implemented market reforms in Russia during the 1990s.