The Spark

the Voice of
The Communist League of Revolutionary Workers–Internationalist

“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx

The Bureaucracy "Privatizes" Its Own State

Jan 2, 1998

The Russian economy is in a bad way. Even Yeltsin repeated this in his last radio address of 1997, at the same time condemning "privatization at any cost." It was the least he could have said. In Russia, according to the figures supplied by the authorities, approximately 80% of companies have been taken out of the public sector in two waves of privatization: the so-called "privatization for coupons" of June 1992, and then, in July 1994, the so-called "privatization for cash." (The first operation was supposed to make everyone a shareholder, all Russian citizens having received a "coupon," i.e., a personal privatization voucher.)

The "40 million shareholders," which were supposed to be created by the first wave, failed to materialize: the bureaucracy did not intend to share the spoils with anyone. At the local level, company directors kept a firm grip on shares: although employees were nominally shareholders, they did not carry enough weight against the combined forces of both the local bureaucracy and those in charge of the productive machinery. The alliance of these two forces, a traditional one in the former Soviet Union, was recreated in reality and consolidated by law, managers being legally entitled to shares in their companies while municipal authorities took shares in the companies lying under their jurisdiction. This was a very simple process: the local authorities declared that such and such a factory or collective farm was no longer under the authority of the central state but under their authority.

At a higher level, that of the industrial corporations and sectors, the same process was implemented, this time by branch directors and their governing authorities (ministries and bodies which had replaced the former departments of the Communist Party Central Committee).

At the same time, and on the initiative of the main bodies of the Soviet bureaucracy (the official youth organization - Komsomol - the super-ministries, the giants of the economy, the local councils of major cities, etc.), there had been a gradual development of financial structures dependent on them but legally private. Parts of the bureaucracy used the funds of these bodies to traffic in newly legal operations like exchange. They then loaned what they had taken from the state back to the state to help it balance an ailing budget. Obviously these financial structures accumulated considerable sums.

Unable to touch the funds which the main bodies and clans of the bureaucracy had misappropriated and were seeking to invest abroad, the government, in order to obtain fresh money, continually offered higher and higher interest rates, issuing more and more state bonds. In 1996, for example, when inflation was only 25%, the state paid average interest of 100% to holders of treasury bonds. All the more generous with its own bureaucracy because the bureaucracy was putting the sword into it by suffocating the budget and the economy, the Russian state even accompanied certain issues with a convertibility clause: its "lenders" could be repaid by acquiring shares in the public sector.

The government did not dare openly go this far when the sell-off of the heavyweights of the Soviet economy began, but the operations were nevertheless carried out in a scandalous way. The law had provided for auctions, but in practice the awards were decided by decree. Shares in the big privatized companies were handed out like gifts. The closer people were to the government, the better gifts they got.

The "Proxies" of the Bureaucracy

Those who had believed, or pretended to believe, that things could be different, squawked in protest in the Duma and in the press. They accused the top nomenklatura of confiscating the privatizations and the government of having favored its own members.

When three of the last big state-owned corporations (Norilsk, Sviazinvest and Rosneft) were privatized in the spring of 1997, Chubais, now deputy Prime Minister, declared that everything would this time be above board. The clans close to the government - those of Prime Minister Chernomyrdin; Chubais, himself; Berezovski, the former number two of the Security Council; Potanin, a deputy Prime Minister, and others of their ilk - broke the flimsy truce they had agreed on to get Yeltsin re-elected. They accused each other of breaking the rules (accusations they were well placed to make). In the end it was Potanin, an ally of Chubais, who organized the sale, who got the lion’s share. The Financial Times, the British bible of international business circles, despite having seen many similar events in West, wrote that "in any other country [this sale] would have been considered a disgrace." Yeltsin, who had to have been aware of what his immediate associates were concocting, lectured them, insisting that "such scandals will not be repeated." Since there are hardly any big companies left to privatize, he may be able to fulfill his promise.

Thus 38% of shares in Norilsk, the world’s leading producer of aluminum, were sold to private hands, along with 25% of Sviazinvest (telecommunications). Rosneft (Russia’s biggest oil exporter) should soon be privatized to a similar level. It can be seen that the state retains the majority of shares in these three groups. This is not specific to them: the Russian state, while privatizing the giants of the economy, and big companies in general, kept what is called a "controlling packet" of the capital. Referring to the lucky beneficiary of last summer’s privatizations, Le Monde on November 7 spoke of: "Onexim, the biggest ‘private’ group in the country." Why put the word "private" in quotation marks? Because Onexim’s capital comprises a host of public or administrative structures (central, regional or local) and companies controlled by the state, such as the Norilsk group which, even before its privatization, could be seen in the organization chart of the Onexim private holding company.

Onexim is not an exception. The various branches of the state machinery and the top civil service bureaucracy seem to have privatized the companies and groups which had already depended on them, when they were state controlled, in the days of the Soviet Union. In so doing, the bureaucrats have strengthened their grip on what they already controlled, marking it out with respect to the central government and rival clans, who always try to encroach on each other’s territory. Even though other privately owned financial groups have appeared, they reproduce, in the final analysis, this scheme of dependence on a sector of the state apparatus and its bureaucracy.

In an article which appeared two years ago ("The Financial Oligarchy in Russia"), Izvestia recalled that "commercial banks were sometimes created from the head office of a ministry which the director (or his deputy) had taken over," and that the nomenklatura left or appointed people who "were its proxies and trusted representatives" at the head of the main areas of the economy. The author of the article specified that: "whereas the advantages accorded by the Soviet regime (to members of the bureaucracy) were mostly in kind (dachas, cars, consumer goods and access to certain services), they now consist of permission to exercise a commercial activity allowing people to make a quick fortune (which) is the biggest privilege which can be accorded today."

The form - previously mainly material, and now financial - of the privileges accorded has changed, and their scale has visibly changed even more. But they are still by nature concessions and not rights. These privileges still depend on a higher administrative level and, in the last instance, on the state power which grants them, and not on the legal status of a shareholder.

Given this, we can understand why the bureaucracy only cautiously authorized others to take majority share- holdings, and even then not in decisive sectors. While representatives of international capital protest, seeing this as a hindrance to the "free play of the market," the bureaucracy invokes its concern to protect the Russian economy in a period of transformation. In fact, what they are defending are their own interests. At least for the top bureaucrats, the percentage of shares the state holds in privatized companies is important. Indeed, it is decisive for the bureaucracy that the state, which it dominates and which is the source of its power, should retain a "controlling packet" in industrial and financial groups: it thus protects its dominant social position and its income.

A Divided State Apparatus, A Means of Plundering a Disintegrating Economy

In the days of the dictatorship, the economy was controlled by the state but the state was controlled by the bureaucracy. But now the competition between bureaucratic clans, which had formed and were competing against each other before Gorbachev and even before Brezhnev, and who are eager to snatch the best shares of collective privileges away from each other, has finally broken up the state. Originally a consequence of the fighting between bureaucratic clans, the dividing up of the state has for several years now been one of the main things they are fighting over.

In the days of Stalin and his immediate successors, reaching the highest position in the centralized state apparatus was the "royal road" to getting as close as possible to those who decided on the distribution of privileges. But this royal road had its limitations: apart from the supreme head, every head had someone above him. Individual privileges therefore depended on winning the good graces of the person above. Many bureaucrats learned the bitter lesson that those privileges did not belong to them. Not only might a bureaucrat who fell even from the highest summits find himself in Siberia or with a bullet in the back of the neck, he also took all his privileges with him to the bureaucrats’ hell without leaving the slightest share to his descendants.

Even climbing up to the highest rung offered no protection: the late Khrushschev learned this to his cost (not to mention Gorbachev).

But the break-up of the state has opened up other possibilities. One could conquer one’s own summit and thereby guarantee oneself the material benefits which went with this. Power, which had previously seemed to proceed from a single supreme leader, disintegrated to give rise to a nebula of hierarchical authorities. This break-up is reflected in the very diversity of what has been referred to since 1992 as the "state share" in the capital of privatized companies.

Indeed, this term is used to refer both to shares owned by the central state (the Russian state) and to others owned by the regional "state," the municipal "state," large state-controlled structures and sections of this state; in the latter case, this always means a section of the bureaucracy controlling a piece of "its" state which it seeks to protect against its rivals as well as against the central state.

The end of the single-party regime and the abolition of planning are consequences of the weakening and then the break-up of the central state. At the same time, however, the bureaucracy has seen the disappearance of some of its instruments for controlling society and living parasitically off the economy, instruments which could only exist within the framework of a centralized state. A few examples give an idea of how the bureaucracy and its clans have adapted to this new framework as much as they have shaped it.

Moscow Privatized by its Mayor

The Mayor of Moscow, Luzhkov, is among the dozen most important leaders of the Russian bureaucracy. Unknown to the Russian public only six years ago, he began to rise in the mid-eighties when he tied his fate to that of the Yeltsin clan. Yeltsin, a member of Gorbachev’s politburo, had just been appointed head of the Communist Party machinery in the capital, a city with a population of ten million for which Luzhkov was in charge of organizing supplies. In the atmosphere of open struggle between the Kremlin and the people in charge of the regions and republics, the resulting economic disorganization was likely to increase shortages in the capital. And discontent in the Moscow population was likely to tarnish Yeltsin’s image. The rivalry between him and Gorbachev had already begun to emerge. Luzhkov successfully performed his task, helping to make Moscow Yeltsin’s stronghold against Gorbachev. In the attempted coup of August 1991, he stood by Yeltsin. With Gorbachev ousted, Yeltsin rewarded Luzhkov, making him Mayor of Moscow in 1992. One year later, in the political/military confrontation with the Supreme Soviet, Luzhkov renewed his support for Yeltsin.

"He will be rewarded, obtaining the right to privatize Moscow as he sees fit," wrote Le Monde recently, and "the inheritance of state property, privatizations and joint ventures controlled by the town council" will enable Luzhkov to expand his own clan, or his "mafia" as the Russians say. Behind Luzhkov is the enormous municipal administration and a host of clients, protégés and people indebted to him - including those to whom he sells off, at knock-off prices, the former state-owned buildings that the town council has privatized. This clan depends on him and gives him his power - which is not limited to Moscow.

In privatizing Moscow, the town council amassed huge sums (the equivalent of 2 billion dollars in 1996 alone), which enabled Luzhkov to give financial help to 66 of the 89 regions of the country, and more particularly to their governors. In return, many of them provide Luzhkov with the support of the political and economic machinery of their provinces and their clans. For example, immediately after being promoted to Deputy Prime Minister, Nemtsov (former governor of Nizhni-Novgorod) declared that he "did not intend to stand in the way" of Luzhkov, an official candidate for the presidency.

Bureaucratic Mafias and Ordinary Mafias

Luzhkov doesn’t have just a political clan behind him; his "mafia" is similar to that of the Sicilian- American "godfathers." There is nothing surprising about this, and it is not confined to Moscow.

Unlike the capitalist countries where wealth and power derive from private property, the bureaucracy did not succeed until recently in consolidating its control over the means of production by private ownership. Having developed as a parasitic outgrowth of the state apparatus at a time when, thanks to the revolution of 1917, it was the state which controlled the economy, the bureaucracy in a sense imposed its levy collectively on social production, the wealth being distributed hierarchically. In theory, bureaucrats could not personally possess this wealth. Their privileges and income depended on the state; that is, on what the state misappropriated from the state-owned economy. Since bureaucrats had no legal right to state property, they took it illegally. Embezzlement, plundering and theft of collective property by individual bureaucrats emerged at the same time as the bureaucracy.

Throughout the period in which dictatorship was necessary for the consolidation of the bureaucracy’s social power, the dictatorship contained individual greed to a certain extent, or, to be more exact, applied rules to it and imposed supreme arbitration. However, as soon as the regime began to become more flexible under Khrushchev and particularly Brezhnev, hundreds of thousands of bureaucrats became bolder. Corruption became generalized. Products suddenly disappeared from distribution (the famous "deficits") before re-emerging at ten times the official price on the black market. Traffickers organized this black market with the complicity of the authorities. At the same time, prominent figures in the regime were seen with people known as "thieves within the law." These mafia "godfathers" acted "within the law" because they were under complete protection. The closer one came to power, the stronger this association between bureaucrats and gangsters was, becoming almost open in the last years under Brezhnev.

The continuing weakening of the central government under Gorbachev and afterward was the signal for a scramble for state property among the bureaucracy and the mafia with whom they had business relations. Each clan and sub-clan of the bureaucracy had "its" gang. It had to protect what it had stolen from the state, the places where it off-loaded the product of its trafficking, and later the companies which it had "privatized," from other clans.

Nowadays there is a whole host of "specialists" available to do this: former military officers, members of the KGB who want a new line of work, soldiers and mercenaries from the wars in Afghanistan, the Caucasus and Tadzhikistan who make a living from their "skills" in gangs or private security companies. These security companies alone (although they are actually difficult to distinguish from the gangs) are estimated by the Russian Ministry of the Interior to comprise up to half a million men! "The state consists of special bodies of armed men": this assertion can be verified in the disintegrating former Soviet Union in the form of a host of armed bands employed by rival bureaucratic clans. This rivalry is marked out, of course, along the fracture lines where the former Soviet Union disintegrated into legally independent states, or regions like Chechnya which impose de facto independence. But it also exists even within Moscow or Saint Petersburg, where bureaucratic clans do not need territorial bases to be rivals.

Corruption, meanwhile, is hitting an all-time high. Many members of the administration did not have any direct relations with the companies to be privatized, so they "privatize" the issuing of official documents, facilitating the dealings of the bureaucrat-businessmen. In February 1996, Russia’s state prosecutor was imprisoned for illegally transferring tens of millions of dollars abroad on behalf of Russian companies.

The gangsterism of Russian public life is patent and massive. In 1994, the Russian Ministry of the Interior estimated that half of registered companies, i.e. 35,000 companies including 400 banks and 1,500 state companies, were under mafia control. And obviously it is difficult to draw a dividing line between the legal and the criminal economic worlds at a time when the parasitic layers of Russian society are merging more and more.

The singer Kobzon, frequently decorated by Brezhnev and now a deputy in the Duma, which ensures his immunity, and one of Luzhkov’s advisers as well, is barred from entering the United States by the FBI because of his links with organized crime. In Moscow, murders linked to politics and business continue unchecked: the car of the "richest" minister cited previously has been blown up, and dozens of bankers, businessmen and tax inspectors are killed every year. Several times the Moscow town council has been linked to these killings. Moscow concentrates 80% of the country’s financial resources and 50% of foreign investment. Its all-powerful municipal authority helps itself to these investments: it is a 51% shareholder in Pizza Hut, McDonald’s and other foreign companies which had to accept this to gain a foothold in the capital; it owns hotels and companies and plays a part in many commercial transactions. No wonder it becomes a target for envious eyes.

The Moscow and national media, even when they are under the control of bureaucratic leaders who are rivals of Luzhkov, are still accountable to Luzhkov: in this town where property is more expensive than anywhere in the world, the town council, which owns the premises of newspapers and television channels, rents to these media at low prices. This guarantees them the media’s benevolence and an entitlement to the massive sums of money they acquire from publicity.

In 1995, a star television newscaster was murdered. The culprit was not found, but Yeltsin fired two of the mayor’s right hand men, the police chief and the Moscow prosecutor. He accused them of covering up a "merger between the mafia organizations and administrative bodies" in the "capital of crime." Mayors of all the big cities have set up their own clientele system against a background of bureaucratic-gangster privatization. The head of privatization in Saint Petersburg, an ally of Chubais, was murdered at the height of the top-level war over Norilsk and its factories in this city.

As head of one of the most powerful bureaucratic clans in the country, Luzhkov deals with the presidency as an equal. As head of the government of Moscow, he makes a point of marking himself off from the other government (of Russia) which has its seat in Moscow, and is therefore in his stronghold. This is partly a matter of political vanity, of course, but mainly it attests to the current balance of power between groups of people within the state machinery who defend very concrete rival interests. For years, a proposed agreement between Renault and the car manufacturer Moskvich had been marking time because the French state demanded a financial guarantee from its Russian counterpart, while the Moscow town council, which owns Moskvich, did not want to see any other party sticking its nose into a contract worth two billion francs. The Moscow town council and the Kremlin had to reach a mutually beneficial compromise before the deal could be struck.

Gazprom: A State within the State

In the days of the Soviet Union, the gas industry occupied a special place because of the flow of hard currency it brought in by supplying almost all of Europe; and also because of its links with the regions (and the people in charge of them) who were dependent on it for equipping the extraction sites, transporting the gas and supplying it throughout the country. Gazprom, the world’s biggest producer and exporter of gas, is the biggest "heavyweight" of the Russian economy.

Naturally, when Gazprom was partially privatized, its management was handed over to a group of people who, in the days of the Soviet Union, whether in the government, in the energy department of the Central Committee or in the regions, had links with this sector or formed part of what was called the "gas clan." A former Soviet gas minister, Chernomyrdin, was catapulted to its head. In addition to bureaucrats, the shareholders were the state as such, public or semi-public institutions controlled by this clan, and an intermediary group of subordinate companies (manufacturers of pipelines and giant compressors) or banks linked to the sector.

In January 1993, Chernomyrdin replaced Gorbachev as prime minister. This was not only a victory for the Gazprom clan, but also for its networks of influence in the regions, at a time when Yeltsin, who had been supported by the leaders of the regions against Gorbachev, was seeing them turn against him. Represented at the top level of the state by Chernomyrdin, Gazprom obtained new benefits: tax-free export licenses, official tax exemptions and de facto permission not to pay taxes on profits.

In 1997, when Yeltsin appointed Chubais and Nemtsov as deputy Prime Ministers to counterbalance the influence of Chernomyrdin, they announced that Gazprom would have to pay years of tax arrears. Gazprom then offered the regional authorities the chance to acquire a large share of the company’s capital. This was all it took to stop Nemtsov and Chubais going any further. And although they boast that they have finally freed a third of the capital owned by the state in Gazprom from the discretionary control of its president, they are careful not to explain how a man like Chernomyrdin had been able to lay his hands on such a packet of shares.

Of course, privatization is supposed to give the state new weapons to gain the compliance of such companies: is it not the main shareholder of Gazprom and other companies? But this state-owned capital is in the hands of representatives of sections of this state which defend their own interests and not those of the central state.

The fact that the state, the leading shareholder of Gazprom, has renounced intervention in the dealings of what remains, in law, its company, is a matter of power relations within the bureaucracy itself. At the highest level of the central state, each clan leader benefits precisely because he is the head of a clan controlling companies in the same situation as Gazprom.

It is as if Gazprom was privatized not by the state but by its directors, who felt sufficiently strong to be unaccountable to anyone. The International Monetary Fund may well "explain," in a letter to the Prime Minister (published by the Russian press), that Russia has the means to pay its wage or pension arrears if it forces Gazprom and the oil companies to pay their taxes and if it clamps down on its corrupt civil servants. There is little chance that this "recommendation" will have any more effect than the IMF’s previous ones. Who could expect these "civil servants," these bureaucrats, to put a rope around their own necks? We saw what happened when Yeltsin announced he was seizing two refineries belonging to oil companies indebted to the tax office but dependent on the bureaucratic clan leaders Chubais and Berezovski: the decree was never applied.

Aeroflot’s Very Private Flight

Another company called into question by the IMF is Aeroflot. Formerly the biggest airline company in the world, it was carved up into nearly 400 privatized companies by the regions, republics and industrial and financial groups.

Among these companies is Transaero, directed by Berezovski. The head of an economic nebula which involves the press, the car industry, the oil industry, and air transport, and has close relations with the Yeltsin clan, Berezovski has just lost his job as number two of the Security Council after a heavily publicized scandal. Unearthed by a newspaper owned by his rival Chubais, the scandal is as follows: Berezovski, as director of Transaero, and the managing director of Aeroflot, created a company in Switzerland which was used to embezzle the hard currency revenue of Aeroflot based on the share of capital held in it by the Russian state. This investigation was closed almost as soon it was opened: it led to the "godfather" of this trafficking, the deputy managing director of Aeroflot, who is Yeltsin’s own son-in-law.

At the beginning of the eighties, Brezhnev’s son-in-law, who was then Soviet Deputy Minister of the Interior, was accused shortly after Brezhnev’s death of organizing trafficking of hard currency and diamonds and illegal exporting of Uzbek cotton. With the arrival of a rival clan in power, that of political police chief Andropov, he spent years in jail. The Berezovski scandal basically concerns the same mechanisms of power and enrichment. But Berezovski did not end up in prison: such trafficking is common currency these days, covered with the veil of what is permitted by privatizations backed up by state power. For Berezovski is one of the "three strong men of the moment," according to Le Monde in an article published on December 22, 1997 entitled: "Yeltsin’s Illness Reinforces the Power of the Clan Leaders in Moscow." Berezovski owes this power to his immediate proximity with the Kremlin. That is what has enabled him to build an empire in the business world which feeds, in the literal and figurative sense, his clan, which is made up of bureaucrats and traffickers who have a vested interest in supporting their man in the race for supreme power.

The same is true of the other "strong men" of the bureaucracy: Chernomyrdin, Prime Minister and protector of Gazprom; Chubais, the "father of privatizations" linked to the country’s leading financial group, whose rivalry with Berezovski involves constant battles for control of companies which will increase the extent of the winning clan’s influence and therefore its chances for the post-Yeltsin period; Luzhkov, who is counting on the support of a capital that the town council has "privatized." Another supposed rising star, the other deputy Prime Minister, Nemtsov, is said to owe his increasing influence to the same clientele mechanisms. The same goes for wavering stars like Korzhakov, the former number two in the Kremlin and "godfather" of the customs administration, with all that entails in terms of control of revenue generated by the legal and illegal import-export business; or Pavel Grachev, for years Yeltsin’s defence minister, who oversaw countless forms of trafficking in the army.

The Criminal Nature of the Bureaucracy

Someone like Berezovski has no reason to be worried when he sees his sordid deeds openly publicized, or the American business magazine Forbes naming him as one of the godfathers of the Russian mafia. Such accusations apply to nearly all the leaders of the bureaucracy. The mafias, in the strict sense of the term, are just one aspect, a visible and bloody one, of the clan-like nature of struggles for power within the bureaucracy.

Speaking of the political-mafia scandals which surround the most prominent leaders of the bureaucracy, the November 22 issue of The Economist spoke of "cronies capitalism," specifying that it was using this term "to be polite."

A shark of the financial world, the American "raider" George Soros, said not long ago that he refused to risk a single dollar in the former Soviet Union where "gangster capitalism" prevails. This is a view shared by many others, such as the director of the U.S. Chamber of Commerce in Russia, who recently declared that "it is clear that organized crime controls a large part of the Russian economy."

When Paul Tatum, an American businessman whose interests conflicted with those of Luzhkov’s town council, was killed in Moscow, the international press "discovered" the criminal nature of the Russian regime. And it undoubtedly is criminal today, in the ordinary (especially in Russia) sense of the term.

For revolutionaries like ourselves, however, the criminal nature of the bureaucracy lies at an entirely different level. With regard to the interests of the working class, the activity and the very existence of the bureaucracy are what’s criminal. The bureaucracy was criminal when, in its early days, it ousted the working class from the leadership of the country and, in order to guarantee its position, massacred under Stalinist terror the vast majority of the Bolsheviks who had enabled the Russian revolution to triumph and establish the first workers’ state in the world. The bureaucracy’s policy was also criminal in that it gave the Soviet Union the image of a horrendous dictatorship, discrediting in the eyes of the world the communist ideals which it claimed to stand for, demoralizing the most advanced elements of the world working class with its U-turns, its alliances with the most abject regimes and its betrayals of revolutionary workers, giving a free hand to those who massacred them or carrying out the massacres itself.

The bureaucracy perpetrated these countless political crimes to mask the source of its privileges, while it was ruthlessly plundering the wealth produced by the Soviet working class and peasantry. Nowadays, it no longer does this; it no longer needs to disguise its misappropriation of the social surplus product, but openly steals everything it can.

A Quick Portrait of Russia

An adviser to Gorbachev during perestroika, Andrei Grachev published a book at the end of 1997 entitled The Russian Exception - Is Stalin Dead? Seven years after the end of the Soviet Union, he writes, "the economy is still in free-fall. Production has collapsed by 40 to 50%, exceeding even the figures for the Great Depression in the United States after 1929. The standard of living of four-fifths of the population - nearly 120 million people - has fallen by 60 to 80% (...). The volume of investment, meanwhile, has dropped by 70%. Agricultural production has decreased by a third. In sliding onto the slope of de-industrialization and falling further and further behind the advanced countries, (Russia) is drifting toward the status of a Third World country (...). The fall in production and the destruction of whole branches of production have been accompanied by a sudden flight of the capital (which) is obtained from the ‘sale of the century,’ i.e. the intensive exporting - often on the margins of legality - of the country’s wealth." The fruits of this plundering "are placed by the state bureaucracy and the wheeler-dealers of the shadow economy in numbered accounts in tax havens, and invested in real estate in western countries. This is also where the ‘laundered’ capital of the mafia gangs and the billions of the IMF loan state credits end up (...). And in the meantime, the Russian economy is going through a catastrophic crisis of investment, turning into an economy which one might call ‘military’ capitalism."

The Russian daily Izvestia, meanwhile, spoke of "state capitalism" in describing the system of "proxies" of the bureaucracy. "Cronies capitalism" for The Economist, which is too polite to say "gangsters" like others do; "municipal capitalism" for Le Monde in reference to the "Luzhkov system." Some, stressing the generalized chaos, the collapse of the state and the absence of stable and recognized legislation with regard to property - and the tendency of the bureaucrats to appropriate by any means everything they can lay their hands on - refrain from using adjectives and nouns to characterize what is at work in Russia: they simply describe it. There are also those, like Le Nouvel Economiste in May 1996, who, considering the contradictory aspects of the social, economic and political situation of the former Soviet Union, do not hesitate to characterize it as a system which is "neither liberalism nor planning," "half-way between the administered economy and the market economy."

None of this is false, but it falls way short of fully exploring the question. It is necessary not only to apply a label to what is happening but to try to assess the dynamics of events, the class nature of these dynamics, the forces at play and the limits of the changes which have occurred.

For the majority of commentators, it was easier, in the late eighties and early nineties, to speak in unison every time a Russian leader announced the next "introduction of the market." Many applauded because this was in line with what they wanted to hear. But reality is more stubborn than class prejudices.

Eight years later, planning has disappeared, the economy is in ruins and 80% of companies are supposed to be privatized. The result is what we have just described. Instead of a "new start," we have seen a generalized social regression which, for the population, is taking a tragic form. And while a flow of capital has been established between the West and the former Soviet Union, it is flowing from East to West, in the opposite direction to that envisaged by Gorbachev! And above all, it is bleeding the country dry.

At the same time, however, the western tutors of the capitalist development of Russia are the first to observe that the rate of this development has not come up to their expectations, and that the former Soviet Union is far from stabilizing on the basis of capitalism.

And there is no sign of the emergence of a social layer of owners of the means of production detaching themselves, with increasing self-confidence, from the bureaucracy. On the contrary, we see the "shareholders" looking for protectors within the bureaucratic layer dominating the state machinery and society. The privatizing bureaucrats have all the more need of the protection of their state because they do not even enjoy the social legitimacy provided by private property in an established capitalist society.

The bureaucratic clans themselves are still at the stage of opposing each other with several sorts of "private ownership," depending on which cog of the disintegrated state machinery recognizes it and protects this ownership. The "private ownership" of a company is superimposed (and opposed) by that of the central state, that of the town council, and in some cases that of the autonomous Republic or the Territory.

Meanwhile, most of the working classes of the former Soviet Union continue to consider the wealth of the "nouveaux riches" and the property deeds they wave as the fruit of a despoilment.

The bureaucrats have privatized, to their own benefit, most of the former Soviet economy. They seem to have satisfied their long-standing aspiration - to paraphrase Trotsky’s expression - to consolidate their hold over the economy by private property. But it is easier to change the legal forms of property than to overturn the social relations of which they are supposed to be the reflection. And despite the counter-revolution which has been going on for several years, the bureaucrats have great difficulty, even today, in completely freeing themselves from the social relations resulting from the proletarian revolution of October 1917.

The disintegrating bureaucracy has destroyed the planning of the economy. But it is a long way from having succeeded in replacing it with the market economy. In the field of relations between companies in particular, what is still functioning in the economy functions by using the links established under planning (which were already, even in the Soviet period, largely "corrected" by scheming, corruption and hidden relations). Barter between companies - both open barter and barter disguised as "inter-company credit," for which both debtors and creditors know there will never be any repayment - often replaces monetary relations. Payment in kind or in services replaces to a certain extent the wages which are not paid. These are, at the same time, stopgap measures for a monetary system which is not really becoming stabilized.

The directors of former Soviet companies, who are now the "owner" or "main shareholder" of their companies, display economic behavior more like that of bureaucrats than that of the capitalist entrepreneur, to the great annoyance of the International Monetary Fund.

This is clearly a situation of transition between the economy taken over by the state after the great upheaval of 1917 and capitalism. One might wonder how this state of transition can persist for so long, but it is nonetheless persisting.

In any event, the bureaucrats themselves have so little faith in their own privatizations that the only property they consider as really private is the capital they have transferred to Switzerland or elsewhere. They have so little faith in the consolidation of the capitalist "reforms" that they are continuing to plunder the economy, and above all to destroy it, rather than run it on a capitalist basis.

And their judgement - not the judgement that their political leaders develop in their speeches, but the judgement revealed by their real behavior - is manifestly shared by the capitalist world itself.

Since 1990, 150 to 300 billion dollars have apparently been taken out of Russia not only by wealthy Russians but also by the western companies established in the country. What is more, these companies are operating only very cautiously in Russia, especially in the commercial and financial field. In August 1997, Le Monde estimated western investment in Russia at 7 to 8 billion dollars, "as much as in little Hungary," it specified. It only took a sudden storm on the Far East stock markets to scare off five billion of this amount, according to the Russian government.

This reality illustrates not only the greed of a plundering bureaucracy but also the difficulties experienced by the capitalist world, itself in extended crisis, in attempting to modify, from the outside and to its own benefit, the economic system torn to pieces by the bureaucracy, and which the bureaucracy had inherited from a workers’ revolution.

Although the "market reforms" have sown a few seeds of a bourgeois class and reinforced the elements which already existed in the days of the Soviet Union, these are still marginal in relation to the economy as a whole dominated by the bureaucracy. The bureaucracy, because it controls the state - or, more exactly, the pieces of the state of the disintegrated former Soviet Union - has organized the privatizations to its own benefit and has, at the same time, used these privatizations to strengthen its hold over this state, which remains the leading dispenser of privileges and sources of enrichment. In this sense, Izvestia could with some reason speak of "privatization of the state by the state." (To give a concrete social content to this expression, one ought to speak of privatization of the state-run economy by the state bureaucracy.)

Even now that they have, at least formally, legalized their social and economic banditry through privatization, the leading clans of the bureaucracy are engaged in bitter fighting amongst themselves to remain as close as possible to state power.

What is happening before our eyes is indeed a new stage on the already long road of a counter-revolution which the bureaucracy began in the mid-twenties. But it is not the end of this road. And to understand the regression of the whole of society to which this road leads, and to arm those in the former Soviet Union who wish to oppose this in the name of the working class, its interests and its class organization, it is still the analysis of the bureaucratic degeneration of the first workers’ state left behind by Trotsky, his approach, his reasoning and his conclusions, which remain the best tools at our disposal.