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Let me ask you a question. Does Russia really have a capitalist
system? It’s been 30 years since the dissolution of the Soviet Union. In fact,
here on VisualPolitik we have dedicated an entire video to that topic.
I mean, while it’s true that Russia has abandoned communism... Can we really say that
Russia has a free and capitalist market like the United States or Europe? What's more...
To what extent has Russia improved from how it was during the Soviet era?
So VisualPolitik community, I know that in recent months,
everyone wants to talk about Russia's foreign policy: particularly in relation
to Ukraine. But today we're going to delve into what's going on inside Russia.
Because, let's be clear, Russia may be a military power but, as far as the welfare
of its citizens is concerned, this country is far from entering what we call the "developed world".
And some of you will say "Hey! I've been to Moscow and it was on par with any other European city!"
The truth is that Russia is truly vast. And beyond the large cities we can find regions
such as the Republic of Karelia, with a GDP per capita equivalent to that of Libya. Or
North Ossetia, which could be compared to an African country like Djibouti.
The figures are there: Russia is a natural resource giant. They have natural gas and
oil. But its citizens see very little of this wealth. In fact, some even wonder if they were
not better off under communism. Just listen to what Vladimir Putin himself said about it.
(Whoever does not miss the Soviet Union has no heart.
Whoever wants it back has no brain. – Vladimir Putin)
And as for the chapter on "freedom and democracy" it’s best not to say anything.
Anyone who dares to oppose Putin runs the risk of ending up in jail or even being poisoned to
death. And if you don’t believe me, just ask Alexei Navalny or so many other activists.
But you already know all this. Especially if you are veteran members of the VisualPolitik
community. What you probably don't know is the story of how Russia got here. A story that has two
main players: BORIS YELTSIN and VLADIMIR PUTIN. And then there’s this term "siloviki capitalism".
By the end of the video you will understand exactly what this term means.
Because the questions we are asking today are; Why has Russia's transition to capitalism failed?
What has Vladimir Putin done to currently be ruling Russia with an iron fist? Today,
we are going to answer these questions but first let's look at a bit of history.
(THE NEW RUSSIA)
In September 1991 one of the biggest concerts of all time took place in Moscow:
the Monsters of Rock in Russia. The opening act was the local metal band E.S.T. – Electro
Shock Therapy. Then a dream line-up: The Black Crowes, Pantera, Metallica and AC/DC.
Their music had been censored for years by the communist regime. Now they were
playing there, in the middle of Tushino Airfield.
It was clear that things were changing in Russia. And the key figure was Boris Yeltsin. In the first
democratic elections, he managed to win the presidency of the Russian Soviet Socialist
Republic. His role in confronting the coup d'état organized by the Communist Party
and the KGB in August 1991 was decisive in the failure of this uprising. His image on a tank,
addressing the people in defense of democracy, only boosted his popularity.
He was going to use all his popularity, all his political capital to accelerate the change
from a state-controlled economy to a market economy. So what was the problem? The problem
is that the transition to capitalism brings many problems, especially in the short term.
Think of it this way:
the Soviets had controlled prices. Virtually all goods had a price stipulated by the State which,
in many cases, was lower than the market price.
Suddenly, Russia opened up to world trade, with free prices for all
goods. So what happened? The prices of goods skyrocketed from one day to the next. However,
most salaries and pensioners' benefits were still at Soviet-era levels.
The result? Poverty, alcoholism and even infectious diseases. Seared in the memories
of all Russians who lived through that era are those cans of crabmeat sent by NGOs from
Finland and other neighboring countries. But wait a minute because this was not the
only problem! Almost all former communist countries also suffered from inflation during
the 1990s. However, many of them managed to keep their heads above water because they
also increased productivity. That is the case of Poland and the Czech Republic, for example.
However, the Russian economy collapsed. The country's GDP fell by half in a few years.
And all this is partly explained by corruption.
Yeltsin wanted to privatize all State enterprises. But the process
was so flawed that all these companies ended up in the hands of the oligarchs.
You could say that it was a process very similar to that of Ukraine. If you want
to know about that in more detail, I’ll leave you a video link in the description.
But the significant trend was that Russians were getting poorer and poorer. And Yeltsin's
popularity fell to such an extent that, in 1993, only two years after coming to power,
the Russian Congress wanted to put a motion of censure on him. And what do you think good
old Yeltsin did? Well, pay attention. (Yeltsin sends troops to oust armed foes
from parliament; fierce battle rages in capital. NY Times)
The White House in Moscow, the seat of the Russian parliament, was shelled by tanks
sent by Yeltsin. Hundreds were killed. And that is how Yeltsin realized that democracy
is not as pretty as it is painted. Days later he drafted a new Russian constitution to
prevent the parliament from overshadowing him. However, no one in the West raised their voice.
At the time, the President of the United States, Bill Clinton, even said this about
his Russian counterpart. Check it out. ("We can't ever forget that Yeltsin drunk
is better than most of the alternatives sober." - President Bill Clinton said, according to former
Under Secretary of State, Strobe Talbott) And no, this is not a cultural stereotype.
If you went partying with Yeltsin, you would come back sober, because he drank his vodka,
your vodka and that of all your friends. World politics has given us great alcoholics
who will go down in history, but Yeltsin takes the cake. Take a look at this.
(Drunk Boris Yeltsin was found outside White House in underpants trying to hail cab 'because
he wanted some pizza' – DailyMail) In other words: for the West,
Yeltsin was an agreeable drunkard who didn’t cause any problems. But for the Russians,
Yeltsin was a drunkard who was not capable of solving them,
and take note! Because we are not only talking about economic problems.
In 1994, Russia went to war with Chechen separatists. At this point,
you would think that the situation could not get any worse. But that's
the point when Boris Yeltsin said "Hold the vodka!". Let’s take a look at that right now.
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(FROM COLLAPSE TO IMPRESSIVE HEIGHTS) In 1995, Russia's economic situation was still
dismal. So the Yeltsin government came up with a new scheme for the second wave of
privatizations. We are talking about what is known as loans for shares.
The idea was that the oligarchs would lend money to the Russian State in exchange for
taking over the management of the most valuable State enterprises: gas, oil, etc.... If the
State did not pay back the loans on time... these loans would be converted into shares.
What do you think happened? Exactly! The oligarchs took over giant companies at
a bargain price. For example, the kingpin of the Russian oligarchs, Boris Berezovsky, took over the
oil company Sibneft, valued at $3 billion, thanks to a $200 million loan to the Russian State.
But this is just one example. By 1996, Yeltsin had already created
a generation of billionaires who owed him favors. And, believe me,
those billionaires returned the favor. How? with electoral support.
In 1996, Russia had elections. But the bulk of the media were in the hands of these oligarchs.
Yeltsin's main opponent at that time was one GENNADY ZYUGANOV, leader of the Communist Party.
Side note: this gentleman is still the leader of the communist party today,
26 years have already passed since those elections. So you see, lifetime leadership
in Russia is everywhere. End of side note. The point is that the oligarchs supported
Yeltsin unreservedly. And Yeltsin was very happy. How happy? Well, this is how happy.
You can't deny that this man was endearing!
Those were good times for Yeltsin and the oligarchs... but bad times for Russia. In
1998 there was the Russian financial crisis, which we covered in more detail in a video
I’ll link for you in the description. The Russian currency lost 70% of its
value overnight. But the ruble's fall did not stop there. In December 1998 it took
three times as many rubles to buy one dollar as it had in the previous August.
The good thing is that, as you well know, a crisis is synonymous with opportunity. A weak
currency allows a country's companies to become more competitive. And 1998 was a turning point.
The Russian economy was revived and Yeltsin's economic reforms began to work. 1999 was the first
year of a growth trajectory that lasted until the Great Recession broke out worldwide in 2007-08.
Between 1999 and 2008, Russia had an average annual economic growth of 6.9%. The price of
oil played a major role in this. The price of a barrel of Brent crude went from 10 dollars at
the beginning of 1999 to over 50 dollars in 2005 and reached 140 dollars in the summer of 2008.
The person who benefited most from this boom period has a familiar name: Vladimir Putin.
In August 1999 he became Prime Minister and on December 31 became President of
the country. Yeltsin made a deal with Putin as a means of shielding his immunity and,
immediately afterwards, he resigned. A new era had begun for Russia.
(THE SILOVIKI ERA)
Economic growth boosted consumption in Russia. Russians were finally beginning to notice a
difference after leaving Soviet stagnation behind. Putin initially made good decisions.
He chose Andrey Illarionov, a libertarian economist, as his chief economic advisor.
His government simplified and reduced taxes. He made prudent use of the
multibillion-dollar revenues the State was earning from the rising price of crude oil,
which was becoming increasingly important for the country's economy.
Putin completed many of the reforms conceived in the 1990s,
including legislation to improve the judicial system. But all the efforts
to strengthen Russia's legal security came to nothing with the Yukos case.
In 2003, Russia arrested Mikhail Khodorkovsky, at the time the richest man in the country thanks
to the success of Yukos, which had become Russia's leading oil company. A year later,
Yukos was broken up and its assets taken over by Rosneft, a state-owned oil company.
Convicted of tax fraud, Khodorkovsky was imprisoned in Siberia. He spent a decade
in prison until he was pardoned by Putin. Since then he has lived in exile in the United Kingdom.
The Yukos case was the beginning of Putin's war against the oligarchs. Attacking the oligarchs
was a very popular move. People felt that those businessmen had appropriated Russian wealth.
The problem is that Putin did not wage this war to create a truly capitalist economy where there
was competition between businesses. He simply exchanged the old set of oligarchs for another.
From Yeltsin's friends we move on to Putin's friends, better known as the SILOVIKI. And
you’re probably thinking, what is a siloviki? Well, it is a politician
or businessman who comes from the army or from some security agency such as the KGB.
Remember that Putin started his career as a KGB spy. As an example, one of the most important
companies in Russia is the oil company ROSNEFT. Well, since 2012, its CEO has been a certain IGOR
SECHEN, a former KGB spy and Putin's right-hand man during his first years in the Kremlin.
I realise his name probably does not ring a bell. But I'm sure his nickname will
tell you a lot about his character. (Here's How Russia's 'Darth Vader'
Emerged From The Shadows To Become Putin's Oil Czar - Business Insider)
As you can see, crony capitalism reigns in Russia. It is the era of the Siloviki. As was
the case with the Roman emperors, Putin's finger marks the destiny of Russia's nouveau riche.
Any adventurer trying to make a fortune knows that he or she may lose the favor
of the State if they step out of line, if they become too greedy,
or if his or her assets begin to look too attractive to one of the siloviki.
There is the story of Igor Pushkarev. Owner of a large cement company in the Russian Far East,
Pushkarev joined Putin's party and in 2008 was elected mayor of Vladivostok.
In 2016 he challenged Vladimir Miklushevsky, the regional governor, in the party primaries.
Miklushevsky called Putin and as we say in VisualPolitik, no sooner said than done.
(Vladivostok Mayor Charged With Corruption, Abuse Of Office - RFERL)
But, without a doubt, the story that best explains the Russian economy is that of
VLADIMIR YEVTUSHENKOV. This fine gentleman is the owner of Sistema, an investment company.
In 2009 Sistema bought a controlling stake in Bashneft for $2.5 billion.
Bashneft was a medium-sized oil company. But the company grew rapidly and became
one of the largest producers of oil derivatives thanks to its refineries.
So what do you think happened? In 2014 Vladimir was arrested.
The real reason for his arrest was that he refused to sell this oil company to
the giant Rosneft, whose CEO is Putin's friend. When was he released from jail?
When he accepted the sale in exchange for $5.2 billion plus a $2 billion indemnity. Years later,
good old Vladimir has learned his lesson. (“The State has the right to take any decisions
that business might like or not like...There might be some unpleasant consequences for someone;
there were for us. But that's life. Business should work for the good of the State. As
soon as it loses sight of that, something unpleasant always winds up happening.” - Vladimir
Yevtushenkov (Financial Times, 2021) Russia has approached the modernization
of its economy as a matter of technology and not as a strategy of openness to international
markets and legal security. That it has become an authoritarian regime doesn't
help either. And Russia's foreign policy is not helping with the economy either.
So the question is, do you think Putin will be succeeded by one of the siloviki, or do you think
it will be like the USSR and there will come a time when this entire system will collapse?
You can leave me your answer in the comments. And, of course, don't forget that we release new videos
every week. So subscribe to the channel so you don't miss any of our updates. If
you liked this video, LIKE it and we'll see you in the next one, see you soon!