Careful Not To Give In To






Careful Not To Give In To
Russia's Nuclear Blackmail

By Dr. Ewa M. Thompson

The World's attention has been riveted on the economic crisis in Japan, with its potential implications for all of Asia. In the meantime, Russia has been lurching into its own major crisis -- also deserving of our attention.

At a meeting in Paris recently devoted to that particular crisis, leaders of the industrialized nations making up the Group of Seven, or G-7, assumed a standby attitude: They stand ready to bail Russia out, should the need arise. Why? It seems that whenever Russia sneezes, the economic leaders of the most powerful Western nations stand at attention. This is a wrong response to covert nuclear blackmail.

After the visit of Anatoly Chubais, chief architect of Russia's economic reforms, to Washington in late May, President Clinton pledged further aid, and his pledge was couched in the language of solicitation for Russian reforms. The president said that financial support for Moscow would "promote stability, structural reforms and growth in Russia." The fledgling Russian democracy was in the balance, and the near-collapse of the ruble and of the Russian stock exchange had to be averted.

Also in May, the International Monetary Fund refused, upon inspection, to release to Russia a $700 million portion of an earlier $10 billion loan, justifying its refusal by a perceived failure to introduce reforms. Under pressure from Western politicians, the IMF relented even though reforms have stalled.

Significantly, the raising of interest rates to 150 percent or even budget slashing (both were undertaken in Russia in late May) did not calm the distrust of international investors who left the Russian market in droves. But a mere promise from the G-7 did. The market recovered a fraction of the 40 percent loss incurred in May, only to fall again when the actual transfer of dollars to Russia was delayed.

Two conclusions can be drawn from this course of events. First, the Russian economy is in greater trouble than the spin masters in Moscow and the West are willing to admit. Second, Russian-Western relations are based on covert nuclear blackmail rather than on partnership.

That the politicians do not speak in these terms is understandable. They are committed to the language of diplomatic niceties. But it is disappointing to see no substantial commentary emerging from the American think tanks or from the press. We have helped Russia many times after the collapse of communism, but we did not gain a friend. Not only is the strategic arms control treaty not ratified, but also the Russian elites are turning increasingly hostile to the United States in particular.

Russia, said Napoleon, is a country of the future -- and always will be. Dr. Andrew Lebman of the University of Pilzen in the Czech Republic observed that American companies go to Russia but they never get out. That is to say, they do not make profits, and abandoning the enterprise after having invested large sums means admitting failure of judgement. Which executive would take on such a burden on him/herself? Such companies get stuck in the mud ever deeper, year after year. Recovery and profitability seem just around the corner. But for one reason or another, the corner always turns out to be a year or two away.

In Russian culture, and that includes the Russian economy, the phenomenon of the Potemkin village has always loomed large. This expression goes back to the 18th century when Russian official Grigori A. Potemkin built cardboard villages (which looked like the real thing from a distance) to impress Empress Catherine the Great. The "Potemkinization" of Russia tempts American companies to go to Russia in good faith, discovering reality when it is too late. In 1997, Val Koromzay, a Russian economy expert at the Organization of Economic Cooperation and Development, admitted that the organization's growth predictions for the Russian economy had been consistently wrong.

"Mea culpa. None of us really knows how to make forecasts for this kind of economy in transition," he said. He observed that a major problem with making predictions was unreliable statistical data produced by Russian bodies. The Russian statistics have their share of Potemkin villages.

What is reality? First, the nonpayment of wages and taxes. The present tax system is make-believe, like so many things in Russia. Moscow devours a lion's share of taxes, which breeds cynicism in the so-called regions of the Russian Federation. These regions are too diverse to yield to a taxation system imposed by Moscow. On June 1, Russia's newly appointed tax chief, Boris Fyodorov, said that in order to boost tax collections, the government must lower taxes.

This is wishful thinking. The president of Tartarstan (one of the autonomous republics within the Russian Federation) said, "this lean cow (meaning Tartarstan) simply won't give any more milk." Many factories in Russia operate on a barter system and do not generate enough cash to pay taxes in any way except as write-offs from government nondeliveries.

The structural problems in Russian industry run too deep for the mythical "tightening of the collection of taxes" to be effective. Yet recently the government used police detachments to facilitate tax collection. An army of Soviet-style militiamen was dispatched by President Boris Yeltsin to milk all the cows in the land. Police intimidation will of course produce short-term results, but in the long run it will thwart productivity.

The lack of revenue means nonpayment of wages to state workers. Like the nonpayment of taxes, it has been blamed on fraud and sabotage. In the Kuzbass area, 50 people went on trial for nonpayment of wages to the Kuzbass miners. Related to the unpaid wages (some people call it 100 percent taxation) is the problem of population relocation. No one knows how to shrink the labor force in the artificial cities of Asian North and move millions of people from Siberia (where they were resettled by Soviet fiat) back to the more productive lands of Central Russia where they could be fed and clothed at less expense.

The recent strikes of miners in the Vorkuta region and in Kuzbass were reminders that the migration eastward ordered by the Soviets has been reversed.

There is more to Russia's woes. The unprecedented criminalization of society thwarts reforms and converts them into another Potemkin village. It has been estimated that two-thirds of the Russian economy is controlled by organized crime. The production of certain commodities, especially luxury items such as caviar, is entirely controlled by the Mafia. In May, a French businesswoman was beaten up and robbed in her room at Moscow's luxury Metropole hotel situated just a few minutes' walk from the Kremlin. Virtually anyone of stature in Russia has a bodyguard.

A Russian sociologist pointed out that this level of criminalization is a byproduct of the vast gulag system whose dehumanized victims were suddenly freed, and whose no less dehumanized executioners suddenly found themselves jobless.

Such intractable problems account for the differences between "reforms" in Russian and reforms in Central Europe where populations have a pro-Western orientation and the Potemkin fantasies are given little credence. Whenever the Russian economy nears collapse, signals come out of Moscow about the grave consequences of instability in Russia. Read: If you do not transfer some of your wealth to us, enemies of the West will get to power in Russia and they will aim our nuclear weapons at you.

Owing largely to the swift action of the G-7 countries, the most recent Russian economic meltdown has been averted, but "the fundamental problems are still there," as one broker put it. Given the nonperformance of the Russian economy, problems can only be compounded in the future, and a reliance on covert nuclear blackmail is likely to continue.

In effect, Russian could live off the wealth of the West for an indefinite period. Russia's problems also will be compounded by the fact that the Russian Federation is not a homogeneous state but a collection of provinces acquired by the force of arms and not entirely assimilated into Russian culture.

Sooner or later, some Asian leader will attempt to evict the Russian imperialists from Siberia, just as the British imperialists had once been evicted from India. So far, the slogan "Asia for the Asians" is not a household word, but conditions exist for its rise in the future. The ingratiating tone of so much commentary on Russia in the American press obscures these possibilities and makes the American public believe that Russia is a potential ally in the increasingly fragmented world. If the problems are not solved by some miraculous leap forward, the forthcoming Russian crisis will assume proportions of which the present crisis will only provide a foretaste.

This article was originally published June 14, 1998 in the Houston Chronicle and is reprinted with the permission of the Author and the Houston Chronicle. Dr. Thompson is a professor of Slavic Studies at Rice University.

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