Behind Russia’s Headlines

Against the Current, No. 127, March/April 2007

Hillel Ticktin

[The editors of Against the Current asked Hillel Ticktin, editor of the journal Critique Journal of Socialist Theory and a longtime expert in the political economy of the Soviet Union and post-Soviet Russia, to comment on the recent explosive events in that country, particularly the assassinations of journalist Anna Politkovskaya and the former KGB operative Alexander Litvinenko. What follows is his analysis of the context of Russian developments.]

NEWS ABOUT RUSSIA and the former Soviet Union has been increasingly alarmist. First the press reported an increasing level of internal repression, with rising levels of censorship and curbs on the freedom of speech, then the assassination of bankers and a Forbes journalist, Paul Klebnikov, followed by an apparent Russian threat to the supply of gas to Europe and most recently the blatant killing of a recent KGB defector in London, Alexander Litvinenko, linked to the prominent critical journalist Anna Politkovskaya who had herself been assassinated.

This article tries to put these events in context. It argues that the panicky headlines have mostly to do with the need of the Bush administration and sections of the capitalist class to maintain a Cold War-like atmosphere. On the other hand, from the point of view of socialists, the situation for the working class and the left remains dire.

Background: Failure of the Market

The Soviet ruling group dissolved the USSR in order to establish themselves as a ruling class within capitalism. This involved the dismantling of the central planning apparatus and its replacement with the market and private property. While the conversion process has been successful in allowing the former elite to transform itself into a property-owning class, it has not done so in a stable form.

By most yardsticks the market has failed in the former Soviet Union (FSU), both in terms of its ostensible aims — to raise the standard of living — and as a move to capitalism.  The standard of living of the vast majority remains substantially below what it was in 1986, before the Law on the State Enterprise was passed. From full employment the regime has moved to mass unemployment and mass underemployment. Many in the old intelligentsia, most pensioners, and a considerable number of women have been reduced to paupers.

While a minority of workers who are in the extractive industries are relatively well off, the majority of workers have a lower standard of living than before the shift to the market. Although state property has been largely privatized, the result still falls short of the market. The law of value does not govern, in that the economy still does not operate on the basis of value: Parts of the economy remain under the old system; many workers (though no longer most) continue to work for nothing or next to nothing; and prices for most goods outside international trade remain arbitrary.

The fact that the ruble is now closer to being money, in that it is exchangeable for world currencies and as workers are generally (though not always) paid for their labor power, is a step towards capitalism, as opposed to Stalinism. However, workers are probably not being paid the value of their labor power. It is hard to argue that labor power was “sold” under Stalinism, and that remains partially true today as most workers in enterprise continue to work as they did. In the old system workers had a measure of control over their work process, and that still remains to an extent. Neither the Putin nor the earlier Yeltsin regime managed to get control of the way workers work by changing pay and conditions in order to raise productivity to world levels.

The absence of market supremacy can be seen most graphically in its political form, when the richest man, Khodorkovsky, was jailed for trying to interfere in politics, and his empire (the natural gas giant Yukos — ed.) nationalized. As a result the population is angry, anti-market and discontented with the “transition program.” A detailed technical account of the failure of the market is beyond the scope of this article, however.

Background: Stability

Most modern pro-capitalist theorists argue that a substantial “middle class” is required for stability. The Soviet intelligentsia was the obvious candidate to perform this role but it was wiped out as a social group — partly because their savings were reduced to zero by the massive inflation of January-June 1992, partly because many lost their jobs, and partly because the remainder received absurdly low salaries.

Although the post-Soviet market fundamentalists advising the Russian government insisted on the importance of small and medium size enterprises (SMEs), these have not been a success. Indeed, anyone who is not mystified by capitalism would have known that modern capitalism is dominated by large firms; whether they actually own smaller firms, or control them through acting as suppliers and purchasers or through finance, is a secondary matter. The layer of the population intermediate between worker and ruling class is therefore small and insufficient to act as support for the market.

The ruling group itself is divided into those who adapted to finance capital and those who remain related in one way or another to the state apparatus. The first group, the richest of whom are the oligarchs, owns banks and has property in the extractive industries. Through its financial control it also has shares or outright control over much of industry, but the management of industry remains much as it was in former times and most managers have substantial stakes in their enterprises. The old factory managers were the bulk of the Soviet elite but they have lost out relative to the finance capital elite, particularly as industry remains in dire straits, and consequently have coalesced with the state apparatus to form a bloc in support of Putin.

Putin himself is neither a strong leader nor even the leader of a faction. He has moved away from the oligarchs towards the non-finance capital section of the elite because there was essentially no choice. With the majority of the population highly discontented and with most of the elite opposed to government policy under Yeltsin, the country was disintegrating both physically and economically. The insurrection in Chechnya was only the most incendiary example of the disintegrative process operating in the former Soviet Union. Putin said openly that they had no choice but to suppress Chechnya because otherwise other parts of Russia would also revolt.

The ultimate theoretical reason for the disintegration lies in the failure of the “transition.” Under Stalinism the regime was held together through a process of centrally organized controls. That involved the atomisation of the population, nationalised property, the KGB, and the process of central “planning.” The apparatus of force could only operate in all its forms in the presence of nationalized property. These controls have been largely dissolved. Logically, we would expect that the law of value would replace them. The essential basis of the failure of the market, however, lies in the fact, briefly sketched above, that the old Stalinist relations within the enterprise remain dominant. As a result the law of value (the cornerstone of a capitalist economy) operates only sporadically if at all.

Policy and Conflicts Under Putin

The failure of the market transition has made Russia very unstable, but Vladimir Putin has temporarily pulled it together by using direct force — especially in Chechnya — and through increased centralization and repression. As Putin does not have the same means of repression as under Stalinism, this cannot last indefinitely; but there is no queston that repression and force work and have stabilized the situation, aided by the high price of raw materials. This, however, is a short- to medium-term stabilization.

The economic option taken by the Putin administration was to revert to the previous system — to re-introduce a series of forms of control together with more nationalized property. In reality, the decisions are being taken by a section of the elite around Putin. As the Yeltsin-type economic transition has continued to fail, the finance capitalists, marketers and politicized “oligarchs” like Berezovsky, Khodorkovsky etc. have been progressively dismissed. The latter tried to react against the Putin regime, which then took strong measures against them.

As the whole process by which the finance capitalist elite enriched itself was highly dubious, not to say corrupt, there have been important consequences. In the first place, the “oligarchs” are highly unpopular. In the second place, the other section of the elite strongly resent them. In the third place, they could only establish themselves using corrupt and criminal methods, and they still have those associations and contacts. Any fight between those sections of the elite could, therefore, only be vicious. The elite base for Yeltsin was essentially based on gangsterism, whereas the Putin elite uses the state apparatus.

The West has been associated with the Yeltsin elite. In the Yeltsin period, a number of Western companies acquired stakes in Russian extractive companies at a fraction of their possible world prices. Oil companies such as Royal Dutch Shell and BP fell into this category. The former Soviet Union has enormous reserves in oil, gas and relatively rare metals. The relative backwardness of the Soviet Union meant that its technology was unable to take advantage of the full extent of those reserves. In some cases, as in the case of gas in Siberia, the difficulties associated with exploiting these resources meant that extraction was delayed over long periods of time. Even if the Soviet Union had not ceased to extent, it would have been necessary to invite in Western partners.

At the same time, Russians who were able to establish control over extractive industries were able to export the product to the West and arrange various deals. They were able to arrange for money paid in Western currencies to be left in the West, facilitating a very large and mostly illegal export of capital. In recent years, some of this money has returned to Russia, often to buy up industrial plants and strip their assets.

It is not difficult to see that almost any incumbent of the presidency who was acting in the national interests of the local elite would have had a series of grievances against finance capital, Western business firms and Western banks. In addition he would be faced with the problem of maintaining the integrity of Russia, in the face of its potential disintegration. This would be aggravated by the manifest discontent of the population with the whole process of the introduction of the market.

It is clear that part of the solution is one of diverting resources into investment in manufacturing industry and infrastructure, most of which has been run down or even destroyed. However, this cannot be done by the market, as the process itself will be long-term and largely unprofitable.

The International Monetary Fund (IMF) has itself called for investment in industry, but reinvestment even in the arms industry or the extractive industries has been very limited. The reason for this short-termist approach has everything to do with the nature of finance capital and its dominance. In principle, the direction in which the Putin administration is heading is towards the use of its energy surplus to invest in industry. Whether it will ever get there, given the continued Kremlin infighting, Western pressure, and the instability of the regime is an open question.

With this background, it may be clear why there is an ongoing conflict between the Putin administration and indigenous finance capital, Western finance capital, the big Western oil companies and capital in the West in general. There is, moreover, further conflict over the exploitation of resources in the non-Russian parts of the FSU. While much of Central Asia and the Caucasus, with the exception of Georgia, remains in the Russian sphere of influence, the Ukraine continues to be fought over.

The Ukraine itself has few resources and remains badly damaged by the radioactive fallout from the 1986 Chernobyl disaster. However, its geopolitical situation, running from Russia to the Black Sea, is crucial to Russian political economy. Given the poverty of the Ukraine, the European Union (EU) is reluctant to absorb it and the United States is ambiguous over its ambitions in this area. Western oil companies are attempting to establish their role in Central Asia and the Caucasus and the United States has established air bases. This has raised the hackles of the Russian elite.

The oil and gas issue is posed in the Western media as an attempt by Russia to establish a monopoly over energy, particularly gas, for Europe as a whole, and to use that monopoly as a form of blackmail. This is absurd. When Gazprom, the Russian gas monopoly producer, cut off gas to the Ukraine, it was doing no more than what any supplier would do if not paid. The fact was that the Ukraine was paying less than a quarter of the world price and was refusing to bring it up to that level.

 Clearly a socialist Russia would act very differently — but Russia is not socialist, and we could expect its gas company to act as would a U.S. company in the same circumstances. There was never any threat to any Western company that the gas supply would be cut off, provided they paid. The fact is that Russia needs the money from the sale of gas to the West, and Gazprom gets its main returns in that way, as the internal price is very low.

Clearly in order to establish control over energy, the Russian elite needs to reclaim control from its Western partners as well as from the indigenous oligarchs, who were closely linked to the West. It has done so with the Sakhalin gas project, effectively ousting Royal Dutch Shell in order to make Gazprom the majority partner, and will evidently ensure that the oil and gas profits go to state controlled enterprises.

We should rather try to understand the actions of Gazprom and other Russian oil and gas moves as an attempt by the now dominant section of the Russian ruling group to recast the Russian economy back to its role in the Soviet Union when it dominated the USSR. Modern Russia has fallen far behind China in industrial terms, and it can only compete in the world economy by using its exports of energy, minerals and metals to acquire sufficient surplus to invest in industry itself.

Given the role of finance capital and (as explained above) the limited role of the law of value, the Russian economy can be understood to be acting as an imperialist power, but its imperialism is largely confined to the areas it formerly dominated. In relation to the developed countries it is in an ambiguous position, being a nuclear power with advanced rocket technology, but an underdeveloped country both in terms of industry and finance capital.

The ease with which Britain and the United States rejected attempts by both China and Russia to buy local firms shows that these new actors will not be admitted to the imperialist club, for the time being. This very rejection is impelling Russia to use its role as supplier of energy to Europe to compel the capitalist class in the West to give them better terms. It is galling for the Russian ruling group to be ordered to accept the terms of the World Trade Organization, to allow shares in their pipelines to be sold to the West, but not to be allowed to buy up crucial Western firms in the same way.

Disintegration, Failure and Desperate Acts

At the same time, the group around Putin is unlikely to succeed in its aims, as argued above. In addition, the prices of oil, gas and other raw materials, after the recent sudden rise, are likely to fall over time as has been the consistent pattern in the past. Experts and the oil companies expect a fall — the chairman of BP has spoken of $40 a barrel — the basic reason for the present price upturn has more to do with the Iraq war than anything else; and it is not in the interests of either the U.S. government or the capitalist class to have high oil prices that play to the strength of countries like Iran, Venezuela and Russia.

The short-termist nature of capital in Russia is overwhelming and likely to kill any attempts to reindustrialize the country. At most there will be a relatively short period in which investment will be directed to the infrastructure and manufacturing industry. It is hard to see how Russia can compete in the world market today.

The logic of disintegration is likely to take over and is showing itself in acts of desperation. The recent assassination of a number of Russian personalities — Alexander Litvinenko, Anna Politkovskaya and the possible poisoning of the former Acting Prime Minister Gaidar — points to lack of control of elements of the regime or deliberately decentralised departments of the apparatus. We do not know who killed whom and there is no point in speculating without evidence, but we can say who stands to gain from the assassinations.

It is highly unlikely that Putin would have ordered any of these actions, partly because they are unnecessary from the point of view of the state. Litvinenko (an associate of the exiled oligarch Berezovsky, who represents a threat but has not been touched) was unimportant. Politkovskaya’s reporting on Chechnya played a political role and pro-Russian Chechen leaders did gain by her killing. It is easy to imagine these leaders, installed by Russia, overplaying their hand.

From the point of view of the state in general, however, she was no real threat. The newspaper she worked for, Novaya Gazeta, is an establishment paper which has the Wall Street Journal as an associated newspaper and is backed by Gorbachev’s foundation; Gorbachev supports Putin. Politkovskaya was critical of Russian politics from a liberal standpoint. There are many people like that in Russia who are not killed, unless they have made particular enemies. (This is unlike the state’s attitude toward working-class organizing. I was given direct examples of worker organizers being killed and others beaten up, when I was in Russia.)

Whoever actually killed these people, it is clear that there has been a permanent atmosphere of physical insecurity since the fall of the Soviet Union. The whole privatization process was accompanied by an atmosphere of criminality, where criminality involved the direct use of force. Assassination of competitors and of recalcitrant actual or prospective clients has been a constant feature of post-Stalinism and it has been accompanied by regular political assassinations.

As the direct organization of workers in the workplace by militant workers is actively discouraged up to and including killing of such worker-militants, we have to understand the press reports of assassinations as only the tip of a real iceberg. In the later Soviet Union such organization might have led to incarceration, in the first instance. Since the level of control was so much higher, penalties could start much lower. The use of direct killing is a paradoxical consequence of the limitation of the old system of atomization and hence one more indication of the nature of the process of disintegration.


Given the continued disintegration of Russia, even if the state is currently pulled together by Putin, the obvious suggestion as to who killed Litvinenko is that there are rogue elements of the state apparatus, acting on their own. It is impossible to know, of course, and there is always the possibility that the regime is in such dire straits that anything could happen, but it does not look like that at the moment. Clearly the regime is anti-Marxist and anti-working class, but that is not the same as saying that it is entirely cynical and without any scruples, bourgeois or otherwise, which is not my impression.

From the point of view of the working class, the Putin administration is a section of the elite anxious to ensure its own continued viability. The standard of living of many workers has risen but the level of repression is greater. At the same time, there are continued attempts to raise the prices of transport, housing, and the utilities, all of which were either low cost or free in the USSR. Pensioners, the unemployed, underemployed, and low wage workers are finding it difficult to survive — something which led to the massive demonstrations of January 2005 and the partial retreat by the regime.

If and when the price of energy drops, the situation will become even more unstable. In the medium term, however, anything is possible because there is no long-term solution to the failure of the transition to capitalism other than a rejection of the process and a move towards socialism. Boris Kagarlitsky has spoken of a revival of Marxism and his optimism may be correct, but we have yet to see the beginnings of the formation of the workers as a class. For that we need an injection of real hope that socialism is possible, and that may require action in the West.

ATC 127, March-April 2007