Russia in the 1990s: How liberalism failed Russia

Note: This article was originally written on 28/11/2021 and will be published in the upcoming Christmas edition of The Mallard’s print magazine.

By Sam Volkers

Introduction

On the 26th of December this year, it will be exactly thirty years ago that the Soviet-Union dissolved. To many in the West, however, it seems as if not much has changed for Russia. Many westerners are perplexed by the situation in Russia and do not understand why many Russians support Putin’s leadership and do not want their country to undergo liberal reforms. The actual reason for this is not, as some people in the West like to argue, that Russians are simply unfamiliar with liberalism and have some “inherent urge” to be ruled by a strong leader. It is the exact opposite: Russia’s experience with liberalism in the 1990s is precisely the reason why many Russians oppose it. So for us to understand why during the last twenty years Russia has gravitated towards Putin’s strongman leadership, it is important to understand how liberalism failed Russia.

A union in decline

During the 1980s, the Soviet-Union entered a turbulent period. The Soviet-Afghan War and the years of economic stagnation under Brezhnev had led the country into an increasingly worsening economic state, while widespread government corruption and constant leadership crises meant that there was little government effort put into solving these issues or reforming the country to prevent it from collapse.

Although Mikhail Gorbachev, the last leader of the Soviet-Union, would try to reform the country and save the Soviet-Union, his efforts would prove to be in vain, as his Glasnost and Perestroika policies ended up speeding up the process of dissolution. The Perestroika policies largely failed to address the country’s internal economic and political problems, while the Glasnost policies made it easier for the political opposition to criticize the government and mobilize support against the Soviet leadership.

Combined with the collapse of the Eastern Bloc and the mishandling of the Chernobyl disaster, these internal problems would culminate in a failed coup attempt by Communist hardliners against the Gorbachev government in a last-ditch attempt to turn back the reforms and save the old Soviet-Union. After this failed coup, the Soviet-Union would be dissolved on the 26th of December 1991. Out of the ashes of the Soviet-Union, fifteen new countries would arise, one of which was Russia under the leadership of Russia’s first president Boris Yeltsin.

Economic decline: prosperity for some, misery for most

Boris Yeltsin rose to power on the promise that he would turn Russia into a democratic country with a liberal market economy. To achieve this, Yeltsin implemented, on the advice of western advisors such as Jeffrey Sachs, a program of far-reaching economic reforms known as “shock therapy”. This program included reforms such as liberalizing markets, cutting welfare programs, removing price controls, opening up the country to foreign imports, and privatizing state-owned companies and infrastructure (Roy and Steger 2010: 56–57). Although these policies were ostensibly meant to improve the economy and the welfare of ordinary Russians, they achieved the exact opposite.

Inflation caused the worth of the ruble to drop and wages often ended up not being paid on time, decimating the savings and purchasing power of ordinary Russians. For many, these liberal reforms would take away the few things that had provided them with stability under the Soviets (Zubacheva 2020). This would lead to a sharp increase in poverty and a loss of financial security for most Russians. A telling example of this is given by the Russian historian Vladimir Brovkin in one of his lectures when he talks about a visit to his aunt in 1992, who was a well-paid doctor at that time (Brovkin 2018):

“I visited her in ’92 and her savings were 5.000 rubles which was good enough to buy a car at that time. But at the end of ’92, for 5.000 rubles you could buy one chicken. So at the beginning of the year a car, at the end of the year a chicken.”

Yeltsin’s liberal reforms would also lead to a deep class-divide within Russian society. The main source for this was a mishandling of the privatization process. The plan for the privatization of the state-owned companies was that all Russians that worked at a certain company, both workers and managers, would get a voucher that entitled them to a share in that company. This way all Russians would benefit from the privatization process and the Soviet idea of “all shall be workers” would be replaced by the new idea of “all shall be owners”. In practice, however, this plan failed miserably. Most Russians were not told about the value of the shares they were given, and the management of these former state-owned enterprises made ample use of this. Managers would acquire most to all of the shares of their workers either through the legal method of buying the shares at a lower rate than their actual worth or through illegal methods such as intimidation and fraud.

So for the majority of Russians, Yeltsin’s reforms meant poverty and financial insecurity, while only a few business-savvy individuals, often entrepreneurs or ex-Soviet bigwigs, would be able to seize the opportunities and benefit from the new system (Zubacheva 2020). The richest and most influential of these individuals would become known as the oligarchs, who would rig the market in their favor and turn their business empires into monopolies that controlled the Russian economy.

Politics and corruption

These failed economic reforms had severe consequences for the Russian nation. Inflation and wage stagnation would push ordinary Russian families into poverty, while de-industrialization caused a surge in unemployment. However, just like during the Soviet-era, corruption, government incompetence, and general disinterest in solving the nation’s problems, meant that no real solutions were proposed.

Although Yeltsin had promised to deal with the corruption that had thrived in the Soviet system, under his rule it only got worse. The new liberal-elite, crime groups, oligarchs, foreign investors, and the old Soviet-elite would divide the spoils of the nation and run it as their personal fiefdom. These elites would use their connections and power to accumulate large amounts of wealth, which they would then store in offshore tax havens, often by making use of money laundering schemes (Brovkin 2018). Oligarchs such as Boris Berezovsky also used their monopoly power, wealth, and connections to influence Russian politics and lobby politicians to make decisions that benefitted them and their businesses (Miller 2018: 12–14).

These failures led to widespread unrest across Russia and calls for a solution would grow louder each day. Yeltsin would have none of it. Instead, he was hellbent on carrying out further liberal reforms. This, however, would draw him into a conflict with the Russian parliament (at that time known as the Supreme Soviet) which opposed much of his economic reforms. As a response to the opposition from the parliament, Yeltsin would sign a decree he billed “a special regime” that granted him special powers that would last for the period up until a new referendum on new legislative elections, the draft of a new constitution, and public confidence in Yeltsin was held. The parliament responded by initiating an impeachment vote against Yeltsin, but this failed.

The back-and-forth between president Yeltsin and the parliament would culminate in late September 1993, when Yeltsin signed a decree that dissolved parliament and set elections for a new parliament in December. As a response, rebel lawmakers led by the speaker of the parliament Ruslan Khasbulatov and vice-president Aleksandr Rutskoi would barricade themselves inside the parliament building and then voted to impeach Yeltsin and instate Rutskoi as acting president (Kirilenko and Sokolov 2013). Yeltsin however was not fazed by this and ordered the supply of electricity, phone service, and hot water to the parliament building to be cut off. This escalation of the conflict would bring Russia to the brink of civil war, as anti-Yeltsin protesters clashed in the streets with police and pro-Yeltsin protesters, with violence leading to casualties on both sides. The conflict would see a violent end when on October 4th, Yeltsin ordered the military to have its tanks and soldiers shell and storm the parliament building. The rebel lawmakers would be arrested but later released. Three months later, a national referendum was held which approved a new constitution, giving the Russian president enormous powers (Kirilenko and Sokolov 2013), which is the main cause for Putin’s far-reaching power as president today.

Law of the lawless: crime and separatism

It was not just economic misery and political turmoil that plagued the Russian nation and its people. Due to the corrupt, unstable, and often incompetent nature of the new regime, law and order became a thing of the past. Crime, both in its organized and unorganized form, was rampant in the young Russian Federation. As journalist Nikolay Shevchenko explains (Shevchenko 2018):

“The 1990s saw crime skyrocket as brigades of thugs ‘patronized’ cafes, outdoor markets, and small businesses of all sorts. Criminal gangs had a hierarchy that they strictly adhered to, and they were often well connected, sharing their illegal earnings with powerful people in state agencies. The image of a gangster dressed in a black leather jacket remains one of the most enduring symbols of 1990s Russia.”

Organized crime groups would become rich through involvement in illicit activities such as protection rackets, extortion, fraud, and the sale of drugs, weapons, and counterfeit goods, while fighting bloody gang wars over control of these trades in the streets of Russian cities. The business of scams and Ponzi schemes would also thrive during this period, with many Russians becoming its victims.

Another source of violence and terror was the conflict in Chechnya and the neighboring republics. The Chechen Republic of Ichkeria, as the unrecognized republic called itself, was founded by former Soviet air force general and veteran of the Soviet-Afghan War Dzhokhar Dudayev, after he carried out a coup in 1991 against the local Soviet government. Although independent in practice, the Chechen state was not recognized by Russia nor a well-functioning country. Shortly after its founding, the nation would be divided between the mostly secular and nationalistic pro-separatist camp (led by Dudayev), Islamist groups, and local pro-Russian opposition. The country also became a hotbed for crime, with crimes such as arms dealing, petroleum theft, robberies, and kidnappings being part of everyday life.

Although Yeltsin at first did not pay much attention to this problem, seeing how he had more important matters to concern himself with, this would change in late 1994 when he decided to restore order in Chechnya by launching a military invasion. The invasion would fail miserably, however, with rag-tag bands of Chechens destroying hundreds of tanks, armoured vehicles, and their occupants. The war also radicalized many Chechens, turning them to jihad, which would lead to an increase in terrorist attacks in the region and across Russia. In August 1996, after more than 1,5 years of fighting, the Khasavyurt accord would be signed and a battered and beaten Russian army would leave Chechnya.

Yeltsin out, Putin in

After years of economic malaise, political instability, crime, terrorism, and a lost war, the faith of the Russian people in Yeltsin had been almost evaporated. It was no surprise then that Yeltsin’s prospects for the 1996 presidential election were not good. Although Yeltsin would win the election in the end, something which he was according to many only able to do because of foreign interference (Brovkin 2018), it was only with a measly 53,8%. Yeltsin thus managed to hold on to power for another three years, before stepping down on December 31, 1999, making way for the then prime-minister Vladimir Putin to ascend to the presidency.

Vladimir Putin would, after the invasion of Dagestan by Chechen separatists and a series of apartment bombings across Russia, launch a second war against the Chechen republic. This time the war would prove to be successful. This, in combination with Putin’s successful efforts to restore Russia’s economic prosperity, made Putin the savior of Russia in the eyes of many Russians.

Conclusion

Although the image of Putin as the savior of Russia is not as strong now as it was in the early 2000s, it is still alive amongst many Russians. They see the liberal Yeltsin-period of the 90s as a failed experiment that caused misery and pain for most Russians. To understand the situation in Russia now, and in particular, Putin’s enduring grip on both power and the sympathy of large segments of the Russian people, understanding this mindset and the history behind it is of vital importance. Without doing this, it will never be possible for us to understand Russia.

Bibliography

Brovkin, V. (2018). “Russia in the 1990s: Rule of Corrupt Robber Barons” (online lecture), https://www.youtube.com/watch?v=GPKSJalL1ZY. Accessed on 15/11/2021.

Brovkin, V. (2018). “Russia in the 1990s: Failed state, betrayed democracy” (online lecture), https://www.youtube.com/watch?v=bmiF2fpuwp0. Accessed on 28/11/2021.

Kirilenko, A. and Sokolov, M. (2013). “20 Years Ago, Russia Had Its Biggest Political Crisis Since the Bolshevik Revolution”, https://www.theatlantic.com/international/archive/2013/10/20-years-ago-russia-had-its-biggest-political-crisis-since-the-bolshevik-revolution/280237/. Accessed on 28/11/2021.

Miller, C. (2018). Putinomics: Power and Money in Resurgent Russia. Chapel Hill: University of North Carolina Press.

Roy, R.K. and Steger, M. (2010). Neoliberalism: A very short introduction. Oxford: Oxford University Press.

Shevchenko, N. (2018). “Why was it so dangerous to live in Russia in the 90s?”, https://www.rbth.com/history/328320-why-was-dangerous-live-russia-90s. Accessed on 28/11/2021.

Zubacheva, K. (2020). “What was so ‘wild’ about 1990s Russia?”, https://www.rbth.com/history/331652-wild-90s. Accessed on 15/11/2021.