A Russian optimist: Interview with Yegor Gaidar

Publication date
Tuesday, 16.05.2000

Padma Desai Yegor Gaidar

Challenge May/Jun 2000


Yegor Gaidar was one of Russia's principal architects of economic reform. In January 1992, as acting prime minister, Gaidar launched fast-paced reform in Russia, in the process freeing most prices, liberalizing foreign trade, and sharply reducing federal budget outlays. By midyear, these reforms were overturned by the Supreme Soviet of the Russian Federation, and Russia's central bank increased the money supply to bail out factories, which suffered because of price decontrols and reductions of subsidies. Gaidar then adopted a voucher-based mass privatization plan, which he oversaw in its initial phase as minister of the economy in 1993 under Prime Minister Viktor Chernomyrdin. After he left the government, he continued to advise Boris Yeltsin.

In a wide-ranging conversation with Padma Desai at Columbia University, just before the election of Vladimir Putin as president, Gaidar discussed the war in Chechnya; Putin's policies, especially concerning reform, and the issues that he thinks are critical to the Russian economy.

Do you think that President Putin will turn authoritarian, even anti-Western, in view of the nationalistic surge related to the war in Chechnya that contributed to his election?

A. Here in the United States and in the West, and even in Russia, the connection between the Chechen war and Putin's victory is misunderstood and oversimplified. What we have now in Russia is not a strong nationalistic wave. It is something else. During eight years of extremely difficult transition, after the collapse of the earlier regime, of the empire and ideology of the past, we are a country that passed through a revolution-largely a peaceful revolution but still a revolution, and revolutions are unsettling. During this period of dynamic and difficult change, we had successive governments that were weak because governments tend to be weak during times of revolutionary change. Those who had a chance to live through the revolution found it trying though romantic. But after every revolution, whether in France or Mexico or Britain, people begin to think, "Well, splendid, but we are tired, we need peace and order, we need a predictable government, we need a government that functions, a government that will deliver on its promises. We need a person who can be tough, who will make decisions and implement them." Such feelings are strong after any revolution. My friend and colleague Vladimir Mau is publishing a book with Oxford University Press on the social and economic theory of revolution. He expressed similar views with regard to the Russian situation as early as five years ago. Russians are tired. They need a government that will take the opportunity and deliver on its promises. Yeltsin was very smart in choosing a person who could make decisions and implement them. In this decision-making process, Chechnya was partly an accident. It was not the reason [for choosing Putin]. Russians are not so enthusiastic about the Chechen war. But their desire to support a functioning government is the most important factor behind Putin's popularity

Q. What brought about the dramatic change in your position on the Chechen war, which you opposed in 1994-96?

A. It was the change that happened with Russian society in general. Russians' attitude about this war differs fr om that about the previous war. This is another story because it is another war. The situation, as it is perceived in Russia, is quite different from what it was in 1994-96. If you look at the polls, you will notice that the best educated, the young, the most articulate groups in Russia strongly support the continuation of the current war. Exactly the same groups strongly opposed the previous war. What was the original situation? It is difficult to understand the difference if you are not familiar with the events. Russians cannot be crazy in being so strongly against that war and so strongly in favor of this one. What happened? The war in 1994-96 was viewed in Russia in approximately the way the Vietnam War was perceived here in the United States. Americans found it difficult to understand why they were there. It was a faraway place involved in a nasty, dirty war, wh ere they sent their sons to die. For Russians, too, the earlier war involved difficult questions about whether people have the right to be sovereign, or whether the principle of self-determination should become subordinate to the overriding demands of the nation-state. But this issue should not be settled on the battlefield. This was the perception of the Russian public in 1994-96. That is why Russians were strongly against the previous war. That is why they practically pushed the Russian authorities to end the war, leaving them no choice but to end it in the summer of 1996. It was exactly the same as here in the United States: America had the resources to continue the war in Vietnam, but it did not have public support.

But here the similarities end and the differences begin. The difference is geography Vietnam is in a splendid location, 20,000 kilometers from here. Americans could withdraw from Vietnam and more or less forget about it. Chechnya is in Russia. After the war, Chechnya started to be an increasingly serious problem for Russia with kidnapping, imprisonment, and selling of people for cash. American friends of Russia and journalists do not understand why the Russian press, so supportive of Chechnya in 1994-96, has given up supporting it. But remember how many Russian journalists were kidnapped in Chechnya in the past three years and sold for money to their employers. Take the example of Elena Masliuk, a reporter for NTV She was extremely pro-Chechen and brought out the suffering of the Chechens, allowing them to express their opinions. She was kidnapped after the war, kept for half a year in horrible conditions, and finally sold to her TV station. Of course, this episode changed the attitude of Russian journalists. But still Russian public opinion remained manageable with the view "Let us keep them at a distance, let us not interfere there, maybe somehow the situation will settle down. Maybe they will be able to stop the kidnapping and even to organize themselves." But the situation changed dramatically when we had a few thousand well-armed and trained people entering Dagestan from Chechnya. Of course, it is very difficult for the American public, which is not even aware of the existence of Dagestan, to understand what the aggression against Dagestan in August meant for Russia. Dagestan is part of our life, part of our country, part of our reality. The Dagestani people do not wish to be enslaved by Chechens. They took up arms, they asked for Russian military support, and then, of course, Russian public opinion changed drastically The issue was no longer the Chechen people's right to selfdetermination. It was the problem of whether Russian citizens should be protected by their own government. It was not simply the problem of pushing the Chechens back to Chechnya from Dagestan, and which other regions would come under attack in the future, but rather of putting an end forever to such a possibility. That brought about the radical change before the current war actually started.

Q Will President Putin be able to hold at bay the anti-Western, anti-American sentiment among the Russian people who feel that the West and the United States misunderstand Russia's policies on Chechnya?

A. First of all, I do not like the changes in Russian public opinion in the past two years toward the United States and the West. And the process started before the Chechnya war. The turning point occurred with the events in Yugoslavia. I tried explaining to many of my American friends, including those in high positions, that the Yugoslav operation will have a serious, long-term effect on the Russian public with regard to the United States and NATO. It was very difficult to explain why because the perception was that Russians have their own domestic worries. They have low living standards and wage arrears. Why should they genuinely worry about Yugoslavia? Again, do you really think that they are so seriously interested in eighteenth-century ties with Yugoslavia and the Orthodox Church? This has very little to do with historical ties and the Orthodox Church. If you ask an ordinary Russian whether he knows the difference between the Karadjordjevic and Obrenovic families and which of the two was sympathetic to the Austrians and which to the Russians, I doubt if he will be able to answer your question.

The problem that really bothered ordinary Russian citizens was Russian security, rather than Yugoslavia. At the time of the decision regarding NATO's eastward expansion, which was not the best possible idea, my colleagues and I tried to ease Russian concerns by offering a variety of arguments: You see, we argued, NATO is a coalition of democratic nations, very predictable, operating within the framework of international law It could not do something unpredictable and drastic, it would not start a war against other nations, it is a defensive organization, and so on. Then, in the spring of 1998, the United States and NATO, outside the United Nations, outside international law, outside their own territory, decided that the Yugoslav regime was bad. Maybe it is bad. I have seen a lot of bad regimes in the world. And then they started the bombardment of Yugoslav cities. So Russians began thinking, "Maybe, sometime in the future, they will decide that our regime is also bad. So what is the guarantee that they will not do in Oriol and Vladimir what they are doing in Novi Sad and Kragujevac?" This fear, of course, does not add to public admiration for the United States and the West, but fuels enthusiasm for expenditure on Russian defense. So that is the real problem. Of course, the Russian public has lost the enthusiasm it had for America and the West in the beginning of the 1990s. A large part of the Russian public, especially the younger and better educated, is suspicious of the United States. On the other hand, they do not want another cold war. A division between Russia and the rest of the world is not popular in Russia. So if Putin responds to public perception and pressures, his policy will be more skeptical of the West, more cautious about the West, more oriented toward Russian national interest but also not unrealistic, not anti-Western. It is entirely against Russian interests to create an anti-American alliance. It is a crazy idea.

Q Does the election in January of Gennadi Seleznov, a Communist, as the speaker of the Duma-the result of an alliance between the Putin-backed Unity bloc and the Communists-- bother you, a liberal reformer?

A. I would not be telling you the truth if I were to say that I was enthusiastic about this alliance. I see a few simple explanations for the alliance and some limitations. The move was clever, tough, cynical, but also wrong. Well, what were the goals that the Unity bloc and the Kremlin were achieving by creating this alliance? First, they were preventing a potential alliance between [Yevgeny] Primakov, also elected a member of the Duma on the basis of the Fatherland-All Russia bloc, and the Communists, an alliance that was discussed in the previous Duma. Second, they installed as speaker of the Duma a politician who was extremely weak politically. He had given up St. Petersburg, his own constituency. He had lost the election in the Moscow region. He is easy to manipulate, easy to work with. Third, Putin's main competitor in the presidential elections is Gennadii Ziuganov, the Communist leader. The source of Ziuganov's support is the traditional protest electorate, those who hate the past eight years and the current regime. The alliance could undercut some of the traditional support for Ziuganov Having made a deal with Putin, Ziuganov has begun his election campaign against this terrible imperialistic regime of Putin-not a very good strategy to start a presidential campaign. Finally, you are delivering cars and dachas to the Communists in the Duma committees, but the key Duma committees are still controlled by people who are easy for the Kremlin to deal with.

So the alliance is pragmatic, very clever. But it was still a mistake from two perspectives. First, strong support of a non-communist electorate is extremely crucial for Putin to win the first round of the presidential election, and the deal with the Communists is not the best possible way to collect support among the non-Communist electorate. Second, the Putin government will have a huge reform agenda to push through the Duma. It is easy to make a deal with the Communists on Seleznov's selection as speaker of the Duma but difficult to make a deal with them on steering legislation on private property and land privatization. The government will have to turn to the factions that were isolated from the deal making. So the deal was tactically very clever, but strategically it raised a lot of questions.

Q Turning to economic reforms, does President Putin favor the introduction of state controls in the economy?

A. There are very few subjects on economic policy on which he is clear. But he has been clearest on his commitment to the protection of private property and his strong opposition to renationalization. With regard to his various economic policy declarations during the presidential campaign, I do not take them too seriously Everywhere, including here, policy declarations in the presidential campaigns are not meant to be carried out. They are meant to signal concern for the electorate and the various groups. I do not think that we will have a really good understanding of Putin's economic policies before he nominates his prime minister for confirmation before the Duma and initiates his legislation.

Q. Do you think that exchange controls can stop capital flight of as much as $20 billion a year from Russia?

A. I am absolutely sure that combating it with exchange controls is not efficient. They give short-term results. In about three months, private foreign exchange earners adapt themselves to the controls and find ways to circumvent them. Capital flight is a key concern in Russia, and its reversal should be the key priority of a sensible Russian government. In that case, three basic problems affecting capital flight-political instability, poor protection of property rights, and a poor tax system need to be dealt with. There is no other way of reversing capital flight.

Q Do you think the extent of money laundering with regard to the Bank of New York scandal was exaggerated in the U.S. press?

A. It was exaggerated. Money laundering and capital flight are two distinct issues. The problem of money laundering is connected with drug money and drug trafficking. That is a much bigger problem in the United States than in Russia. A similar market does not exist for this kind of activity in Russia. If you want to discuss the problem of money laundering seriously, you will have to discuss it with respect to the U.S. economy Capital flight, on the other hand, is a serious Russian problem. From that perspective, it was difficult to comprehend the story of the scandal surrounding the Bank of New York. I have not met a single person with an understanding of Russian problems who is not aware that we have confronted a serious problem of capital flight during the past eight years. It would be difficult to imagine that the prolonged, sizable capital flight from Russia could have taken place outside the world banking system-the big banks, including American banks. So I do not understand the commotion over the Bank of New York scandal.

Q What should be the immediate concern of the Russian government on the reform front?

A. Three issues should be of immediate concern. First, the government must be a functioning government, a government with fewer state employees, who are better paid. It must be prepared to seriously tighten the control of federal agencies over the federal structures in the regions. It must be prepared to remove the influence of the regional governments on the judicial system. If and when courts rule in favor of property rights, their rulings must be implemented, not discussed endlessly. The government must show awareness of the corruption in a few structures that every Russian knows about. It must realize that overregulation of the economy is a source of corruption and an obstacle to creating new enterprises. In other words, it must demonstrate that it is serious about restructuring the state.

Second, the government must deal with the issue of property rights. We need new legislation to support property rights in the country. A land code, which is the first priority, could not be pushed through the Duma for eight years because of the Communist majority. It is now possible, for the first time in Russian history, for the government to adopt normal, civilized legislation relating to the investment climate, agricultural reform, and land mortgages. We need several changes in the basic legislation connected with property rights. The existing laws are not bad; they are good laws that need to be redesigned in light of the experience we have accumulated. We know that property rights should be protected better in Russia than in a functioning market economy with a long tradition of private property. We need to change some articles in the civil code, to remove some compromises that were included there because of Communist pressure. We must improve the protection of property rights by changing the joint stock company law and the contract law relating to affiliated companies. A significant amount of legislation aimed at improving the protection of property rights needs to be adopted.

The third issue relates to tax reform. Focusing on tax reform does not imply that other important items in the reform program, such as social protection of the population, pension reform and budgetary reporting, health-care financing and interbudgetary relationships, should be set aside.

Q. How do you view the role of the international financial institutions, especially the International Monetary Fund, in the process?

A. Those who know British history are aware of the presence in British schools of the boy for the beating. If the Prince of Wales did not do his homework, he would be spanked.

Q. You mean the whipping boy?

A. The IMF is in the situation of the whipping boy. When we discuss the problem of punishing the whipping boy, we need to find out if the Prince of Wales did not do his homework. What happened in 1990 and 1991 in the Soviet Union and Eastern Europe? An enormous, powerful empire disintegrated, leading to anarchy in its trail. The existing institutions stopped functioning and new institutions could not be created overnight. We had a severe economic crisis in the Soviet Union because the past regime, the past system, stopped operating, and new arrangemenu did not work. New states emerged, some of them going to war, as in Yugoslavia. We were lucky to have prevented similar developments in the Soviet Union. These were times of enormous change and challenge affecting the fate of the world. The Soviet Union of the Brezhnev era was more predictable and less dangerous. But what was the response of the West to the new challenge? In the United States, the Bush administration faced presidential elections and opposition from the Senate and the Congress. Germany wrestled with the problem of reunification. Japan was unable to provide leadership as in the past few years. Britain supported us, but it was economically weak. There was lot of discussion, but everyone had problems. Of course, we have the International Monetary Fund. Let the International Monetary Fund resolve these problems. Let us imagine just for a minute that the fund was put in charge of restoring Europe after World War II. The IMF is not bad, but it is an organization that was created to deal with currency crises and then took on the management of budgetary crises. It does not have the decision-making process and procedures and human resources to deal with this enormous problem for which you need political leadership rather than technical expertise to resolve. And so everybody is now wondering: Why is the fund not up to the level of the problem? The story of the whipping boy is still unfinished.

Q. Your friends in the fund must have been very pleased to hear your views.

A. Yes, I had a chance to see my friends in the fund. I feel sorry for some of them who tried hard and have to answer for problems that are not within their competence.

Q Did you expect more material support from the West than you bargained for when you launched the reforms in January 1992?

A. First of all, we did not start the reforms because we were promised support from somebody. We started the process because there was absolutely no other way in a concrete situation. If you take into account how the socialist system actually worked, its actual condition in 1991, how the August coup influenced the day-to-day working of the economic mechanism, then we can discuss the choice of alternative strategies. My book (Days of Defeat and Victory,1999] deals with the practical limitations, actual factors that influenced our decision-making and offered a limited corridor of possible policies. So in speaking of alternative strategies, I do not think about more money or less money. You could put in a lot of money, and mess up the strategy. You could have less money, and come out better. The problem was the absence of a clear, liberalization strategy in terms of which you could define a policy framework in those days.

Q. What would you do differently if you had another chance?

A. That depends on whether I was nominated tsar of Russia or whether I was nominated acting prime minister of the Yeltsin government with the pressures he faced, with the creation of the Commonwealth of Independent States, with the existing state machinery, with the Supreme Soviet [parliament] elected in the Communist days, and with the prevailing constitution devoid of clear division of state powers. If I were nominated the tsar of Russia, I would do everything differently. On the other hand, if I were made acting Russian prime minister, I would handle a lot of technical issues differently. I would not wait until the spring of 1992 to liberalize oil prices. I would not introduce a complicated system of international economic controls in January 1992. I would not try to establish export controls in the autumn of 1992. If you have in mind broader aspects, then I would act approximately the way I did. But I would be surer of undertaking the right measures and less ready to make compromises, knowing well the high price one pays later for compromises.

Q What kind of government do you visualize with Mr. Putin as president?

A. I do not know, and frankly I do not think anyone knows. I doubt if Mr. Putin knows the composition of his cabinet. I know what the economic policy priorities are and which policies have a chance of being successful. I know the legislation that would be supported by this government because I know a few people in the government. I hope it will be a government that pushes economic policies in the right direction.

Q. What about the role of the oligarchs in government formation?

A. I see a number of problems with the Putin presidency, a lot of unpredictability. He does not have a good record in the field of democratic freedoms. He will have to prove his credentials as a genuine democrat. I hope that he will be smart enough to understand that democracy in Russia is a momentous achievement, and its nurturing is strategically important for the country.
The influence of the oligarchs on Putin is a source of speculation. However, I doubt that they will exercise much influence. It is difficult for me to imagine why Putin, unlike Yeltsin, needs the oligarchs around him.

Q. How would you assess Boris Yeltsin's legacy?

A. Of course, he is a historical figure in the Russian political life of this century He was the first popularly elected president of the Russian state in more than a thousand years. He had all the possibilities, sitting in the Kremlin, of using his authority and operating as an autocrat. Instead he chose to build a young democracy. That is his most important political legacy.

Q. Would you give some credit to Mikhail Gorbachev for initiating democratic freedoms in Russia?

A. I will give him credit for initiating democratic reforms in Russia. He is also a historical figure, but he started a process he eventually failed to understand. He rapidly lost control, and he led the Soviet Union and Russia into complete anarchy. I did not recognize my country in December 1991. I know Russia now Russian society and economy have a lot of problems, but Russia is a functioning market economy and a functioning democracy. And that was managed by Yeltsin, not by Gorbachev

Q. Finally, what is your vision of the future Russia?

A. I would like to live in Europe but not leave my own country, and speak Russian.

That is a lovely one liner. Let us have questions ftom the audience.

Questions from the Audience

Q What is the motivation for Russia's union with Belarus, a much weaker economy?

A. Perhaps you know that as the Union of Right Forces, we opposed the current scheme of union with Belarus in the December Duma elections. We firmly believe that preserving the constitution in a young democracy is extremely important. Any union with Belarus will make an already complicated Russian constitution even more complicated and will inevitably increase political pressures inside Russia. If you are seriously talking about a union with Belarus, then you have to understand what type of regime must exist in Belarus. We have [Aliaksander] Lukashenko, who has appointed himself the country's president for another term. We have the only parliament in Europe that is not elected by the people but appointed by Lukashenko. If we proceed with this union, inevitably in a year or two, or five years, the Belarusian people will ask us: "With whom have you formed a union?" It is a bad idea for Russia. Of course, I understand the political motives of those who are not prepared to oppose this union because the Belarusians are close to Russians. The majority of Belarusians speak Russian. But the promise of the idea of a union of Slavic forces is politically not a worthwhile step. We have to explain to the Russian people the reality of the situation.

Q Historically, was there political opposition from the regions or the Duma to your reforms?

A. The reforms encountered a number of problems. Regarding the decontrol of oil prices, the opposition in the Supreme Soviet adopted special legislation in the spring of 1992 prohibiting the government deregulation of oil prices. This decision of the parliament was strongly supported by the regions. The most serious problem in the early days of reform was the absence of a Russian state and a Russian constitution. The existing constitution could not provide answers to the elementary questions of who was responsible for what and whose decisions had a priority. This mess was responsible for the weakness of policy-making between 1991 and 1993.

Q. Contemporaneously, would you suggest that there are sufficiently strong economic interests of a liberal market that would allow you to live in the Russia of your choice?

A. Which economic interests in Russia strongly support the Russia I want to live in? We can see the support of the population based on the sociological polls. The young, under the age of 30, well educated and living in large cities, provided the core electorate for the Union of Right Forces. But the development of Russian society will bring to the forefront those who are young, those not connected with the socialist past, those who are exposed to the international economic and social ties. So we have a reasonable chance.

Q. What was the average Russian's reaction to President Putin's granting full immunity, with all the privileges it entailed, to Yeltsin and his family?

A. To tell you frankly, it was the right move prompting a normal reaction from the Russian people. It was a sensible, pragmatic decision. You have to remember that we are a young democracy, lacking 200 years of democratic experience. Yelstin was the first democratically elected president, and Putin inherited enormous powers granted by the Russian constitution. The president's voluntarily giving up power and bringing upon himself and his family the likelihood of prosecution from his successor would have pushed Russia away from democracy for the next few years if immunity was not granted. In the concrete Russian situation it would be a mistake to copy other models. I think it was the right solution.

Q. What are the chances of a continuation of reforms if, as you suggest, the Russian population is tired of reforms and is therefore looking for a strong man to control the situation?

A. The Russian population is, of course, tired but not of reforms per se. Somehow "reform" has not become a bad word in Russia. It is strange, but it will take enormous efforts to make "reform" and "democracy" bad words in Russia. You will not find a political party that says, we are against democracy and we will restore totalitarian rule. The people are exhausted from the radical changes that affect their way of life. They are tired of big government. These are the inevitable outcomes of the revolution. If the government is strong and efficient and is prepared to deliver changes that do not control people's everyday lives-for instance, agricultural legislation that allows them private plots, creating conditions for further distribution of land, or legislation that allows enterprises to attract investment-it will not create a social collision. These are different from the reforms of the early 1990s that created cataclysmic changes in the day-to-day life of ordinary Russians.

Q In your book-you distinguish between the Communist parties of Eastern Europe and Russia, stating that the Russian Communist Party was imperial and the rest were governed by democratic rules. What are the implications of this distinction for present-day party politics in Russia?

A. The post-Communist Party in Poland is pretty much a normal, social democratic party, whereas the post-Communist Party in Russia is a branch of the national socialists with their antiSemitic slogans. It is evident because the Polish Communist Party never ruled Poland. It was a department of the Communist Party of the Soviet Union. The same situation applies to the Bulgarian and Hungarian Communist parties. After the end of totalitarian rule, after these countries became independent, radical nationalism was closed to them. They had nowhere to go except in the direction of social democracy. In Russia, even during Soviet days, the Communist Party of the Soviet Union was not really a Marxist party, it was an imperial party. And the ideology of the Communist Party of the Russian Federation from the very beginning has been authoritarian and nationalistic. If you read the writing of Mr. Ziuganov, the Communist leader, there is nothing there from Marxism. There is a lot there that resembles the writings of Hitler. It is characteristic of them. Of course, a few members of the Communist Party of the Russian Federation are Marxists and Leninists. There are some who are genuine social democrats, but the bulk of their supporters are people with extreme nationalistic ideas. This is why they are dangerous. If they are less dangerous now, it is not because they have changed but because it is clear that they will not gain power. We have seen the political dynamics of transition in the postsocialist countries. After the initial election, subsequent elections are usually won by the postCommunist parties. Everywhere transition is difficult because of social hardships. Everywhere people have started supporting groups from the previous regimes. Then elections throw up people like [Aleksander] Kwasniewski in Poland and nothing happens. It was evident that this was no less true for Russia. But in Russia, the outcome would not be Mr. Kwasniewski but Mr. Ziuganov and Mr. [Albert] Makashov The most dangerous moment in Russia's transition was the 1996 presidential elections. Now everybody accepts the idea that the Communists will never come to power in Russia. They could be dose to power, behind power, a big fraction in the Duma, a few governors in the regions. But they will never again rule Russia.

Q What is the main danger for the young Russian democracy?

A. The major source of danger is the fact that it is a young, Russian democracy It is not supported by traditions. It needs time and the ability to accumulate traditions, the security for the people that the next president of Russia will not abolish free speech and tell his countrymen that he will rule Russia himself, and to hell with free elections. Russian society now is supportive of preserving democratic freedoms. You could find a lot of people in Russia who are dissatisfied with democracy and who would answer positively when asked whether the government would be more efficient if democratic freedoms were limited. They would not be the majority, but they would be a very significant minority. But then if you asked the same people concrete questions on censorship and the abolition of free elections, they would reject them. This means that democratic freedoms and institutions are still very young and are respected, but we need time to stabilize them.

Q. You explained the change of attitude among the Russian people toward the Chechnya war as including the protection of Russian citizens in Dagestan and the removal of the possible harassment of Russian citizens in the future. I was not sure whether you were in agreement with that policy. What is your opinion of the Russian policy?

A. In general, I think the Russian government is doing what it has to do. It is unpleasant. Every war is dangerous and harmful for a society. This war is dangerous and bad for Russia because it is undermining democratic freedoms, but I do not see any other choice for the Russian government. If I were heading the government, I would perhaps address several concrete and tactical problems differently. But I would not discuss them before an American audience. In 1994-96, I had a clear notion: If I were heading the government then, I would have stopped the fighting and started negotiations, but now I am not in this position. However, I would not give the order for the troops to stop fighting.

Q I am British, and we are nearly over the loss of the empine. Has the average Russian citizen in the street reconciled himself to the fact that Russia is now a second-rate power?

A. We are moving in the right direction. I use the examples of the British and the French empires to explain to our people that we are not the first to go through this process. The problem here is that it was the combination of several features. You know that the loss of the empire was not easy for the British to accept. But the loss of the empire combined with the collapse of all past institutions and the state structures and radical changes in the socioeconomic life of the people makes the Russian situation especially difficult and dangerous.

Q. Given the current events in Chechnya, do you expect Russia to become more assertive in the former Soviet republics in the Caucasus and in Central Asia?

A. Of course not. In no way is it in our national interest. It is unfortunate that Chechnya is inside Russia and not one of the former Soviet republics outside Russia. Otherwise, we would have addressed this problem in December 1991 when we dissolved the Soviet Union. We are extremely interested in the stability of the traps-Caucasian and Central Asian republics. We should not fret over the Balkans because they are far from our sphere of national interest. However, the Traps-Caucasian and Central Asian are in the Russian sphere of influence. But that doesn't mean in any way that Russia is interested in restoring imperial control over these republics. It would be a foolish move in the wrong direction.

Q. It has been almost eight years since the start of privatization in Russia. What is your assessment? What was done well? What was done poorly? What would you have done differently in privatization?

A. My answer is the same, whether I would have to deal with the issue as a tsar or as a prime minister having to deal with the existing legislation, the Supreme Soviet in place, and a series of problems at the start of the process. I have not seen a single postsocialist country in which people are satisfied with privatization. I know of countries in which privatization was accomplished better than in others. For example, I told an audience in Seattle that if I were the tsar of Russia, I would have approached privatization like our Hungarian friends. I think they did a good job of it. But the Hungarians wouldn't agree with me because they think that their privatization did not go well. When I brought this up in Seattle, a Hungarian professor said, of course, they would not agree, it was a terrible privatization because 80 percent of the assets are now in the hands of foreigners. So I do not know a perfect path to privatization after the collapse of socialism. And the Russian approach to privatization was not perfect either.

But in addressing privatization, you look for the possible and least harmful way rather than for the best way. For instance, not everyone knows that the legislation for privatization was elaborated three months before we started work in the government. Not everyone knows that the so-called second variant of privatization, through which 80 percent of Russian enterprises were privatized, was elaborated by the Communist faction in the Supreme Soviet in the spring of 1992. So there were a lot of compromises I would not have accepted if I had had the choice. If you have in mind the highly interesting but different and complicated privatization at the later stage, the so-called loans-for-- share deals, then I must tell you that I had left the government by then. But if you are speaking about the mass privatization of 1992-94, then the choices were to speed up privatization, given the circumstances under the rules we considered unfavorable, or try to stop it. That was the strategic choice. And I was in support of going forward as rapidly as possible even with bad rules, because after the collapse of socialism, it was better to have the property distributed and the property rights traded than to have the mess in property relations that was left from socialism. That was an empirical question that you cannot answer from a theoretical perspective. So when I am trying to understand if I was right or wrong, I compare the civilian sectors of the economy that were privatized with those that were not privatized. It is meaningless to compare the privatized Russian economy with the American economy; rather it is sensible to compare it with the nonprivatized sector of the Russian economy.

So let us take two sectors, beginning with retail trade. We had two trading arrangements, the state retail trade in charge of the big cities and the consumer cooperatives, which, for a variety of historical reasons, were named differently. This massive system was in charge of retail trade in the small cities and the countryside. We privatized the state system, and that was a sound choice. You will notice that in Moscow and St. Petersburg, the goods are of good quality and the service is not bad. As for the cooperatives, they have mostly disappeared. The system just collapsed because it was not privatized.

Take another sector, restaurants and food services, which was also privatized. You will find them vastly improved. Contrast the performance with the hotel industry. Except a few five-star, fancy hotels, the hotels were left with city administrations. One of the worst functioning sectors in Russia is the hotel industry.

Let us take another sector, the oil industry. There are several problems with the privatization of Russian oil companies. The best-run Russian oil company, Surgutneftegaz, is market oriented and efficiently run; it pays all its taxes. The worst-run oil company, Rosneft, is the last, big, nonprivatized state oil company. So the results have to be judged on a practical basis rather than from a theoretical perspective. The decision to proceed with inefficient privatization even with the bad rules was correct.
Q. How would you judge Russia's relations with the Baltic countries?

A. Generally, there are no hard feelings in Russia toward the Baltic states because they have broken out of Russia. Russia accepted that all the previous Soviet republics were to leave the Soviet Union. The problem in the Baltic states is that of the minorities, especially the Russian-speaking minorities. Of course, the Baltic minorities are not only Russians but Ukrainians, Belarusians, and Jews-in a word, everyone who does not speak Estonian, Latvian, and Lithuanian. There was no problem with Lithuania because it accepted the rules protecting minority rights. By contrast, Estonia and Latvia became a source of tension and disappointment in Russian society. I do remember well how these states became independent and our discussions with their leaders beforehand, and their assurances to the leaders of democratic Russia at the time that the rights of the non-Russian citizens would be fully protected. That promise was not fulfilled. I see some progress in Estonia and modest progress in Latvia. I really think that the earlier these independent states understand that the protection of minority rights is important for the efficiency and stability of their democracies rather than for Russian democracy, the better it is for them.

Q I liked your formulation of your wanting to be in Europe without leaving your country while speaking Russian. This is a new definition of European in context and Russian in form. At the same time, you said Russia should not imitate or adopt foreign models. How do you see Russian capitalism or democracy differing from American or European models?

A. The Russian model has to be different because Russia has another history, other problems, and distinct traditions. America had some features of a civil society before independence. It developed into powerful traditions of contract enforcement, rule of law, protection of property rights, and democratic procedures. If someone were to introduce the American constitution and American laws from A to Z in another society, he would fail miserably The American model functions in America because of its history. We do have another history, enormously difficult for creating a market economy and a working democracy We have to keep in mind our history and our problems and not overestimate some aspects that can function efficiently in other societies with a better history.

For instance, we have an inefficient and corrupt bureaucracy Even with the best intentions and efforts of the Russian government, this problem will not be eliminated for some time. You must not think that when regulations are eliminated, the new order will be implemented by perfect civil servants who are always concerned with the interest of the state. Even so, I think that liberal ideas and economic policies of the European variety are absolutely essential for Russia. I say this not because I am an ideological liberal, but because I think they can be adopted under Russian conditions.

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[Author note]

PADMA DESAI is the Gladys and Roland Harriman Professor of Comparative Economic Systems at Columbia University and director of Columbia's Center for Transition Economies. This interview took place before an audience of faculty and students at Columbia University, New York.



Copyright M. E. Sharpe Inc. May/Jun 2000

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