World Economy: Russia and Eastern Europe in the 90s

Capitalism kills – concludes study of privatisation era

“’Shock therapy’ sell-offs blamed for 1m deaths” was the stunning headline in the Financial Times of 15 January. Research into the deaths of three million men of working age in the ’former communist countries’ of Eastern Europe in the early ’90s was being published in the medical journal, the Lancet. It had found that “at least one third were victims of mass privatisation, which led to widespread unemployment and social disruption”. The paper continued: “The study adds to a growing body of research …demonstrating how far the economic transition led to widespread suffering through death and physical and mental illness”. One of the scientists, Martin McKee of the London School of Hygeine and Tropical Medicine, condemns the policy of shock therapy as advocated by Jeffrey Sachs (and the Financial Times, if I remember rightly).

I lived in Russia at the time, working for the Committee for a Workers’ International (to which the Socialist Party is affiliated) and strenuously trying to warn workers and young people against the ’voucherisation/privatisation trick’. In a huge propaganda campaign, the government aimed to make workers feel they were going to have a real stake in their enterprises after decades of state ownership with no workers’ control and management and the stultifying one-party dictatorship of Stalinism.

Privatisation looked like a better bet. But, two years ensued in which, as the study mentions, at least a quarter of state factories were privatised (one third by 1993), inflation was reaching Latin American proportions, unemployment, unknown in the planned economy, hit millions of workers who received no benefits, the president, Yeltsin, showed himself to be a new dictator and the economy collapsed by 50%. Of course it killed people!

Alcoholism and poor diet have been historical problems, but, as the report also confirms, the stress of the sudden destruction of everything that had been taken as given before, was a nightmare that was bound to take its toll on the working class in the most horrific of ways. Even the vodka sold on the street was adulterated and deadly.


The people who won out from this process, driving the Russian working class into misery, were a few well-placed party hacks and cronies of the president who grabbed the factories, mines, steel-works, oil and gas concerns to accumulate vast fortunes. Sometimes it was through buying up vouchers from cash-hungry workers for a few roubles each, sometimes through setting up banks and sometimes through sheer gangsterism. It involved not a few daylight killings – of rivals, politicians and journalists – and still does.

Oligarchs who got on the wrong side of the Kremlin, like Khordokovsky and Berezovsky ended up in jail or exile. Others like British politicians’ friend, Derepaska or Potanin or Prokhorov

ended up in Putin’s court camarilla. Others, like Abramovtch, can hold high office in Siberia and spend vast sums on football teams in England!

Most galling in a week when this report of mass human suffering and a million deaths came to light, was to see one of the robber barons – ex London KGB agent, Lebedev – responsible for these crimes talking blithely of indulging his long-held desire to buy up the English Evening Standard. The ‘credit crunch’ has taken his vast wealth down to a mere $2.5bn!

Some of others of his ilk have suffered a blow recently with the collapse in the price of oil and the financial crisis world-wide. It has seen billions wiped off and the state moving in to take a more direct role in their companies. But none of them is going to be on the streets, begging for a piece of bread, as so many of the Russian masses have done and will do, as long as capitalism survives.

Prime minister Putin now says the collapse of the Soviet Union was “the greatest geopolitical catastrophe of the 20th century” but he was not amongst those who opposed the return to capitalism at the time.

Capitalism today

The Chinese regime of today is perhaps the most aware of what the Lancet report warns – that ’break-neck’ market reform means social catastrophe. Hence their attempt at a controlled slow transition. But it is now beset with the additional problem that capitalism as a system is hitting a calamitous world-wide recession. It is a system in crisis and causing mass unemployment and poverty in country after country.

The researchers pointed to Latvia, Lithuania and Estonia along with Russia and Kazahkstan as the worst affected in the early ’90s with a 42% increase in male death rates between 1991 and 1994. Now, these countries are amongst the first to be hit by the new tsunami of capitalist destruction. Russia has seen mass protests in more than 50 cities against the government’s attempts to make workers and middle class people pay for the crisis of their chosen system. Latvia and Lithuania (as well as Bulgaria) have seen street battles between police and angry protesters this week. Estonia has gone, like them, from a high growth rate to a contraction of 3.5% and its government’s popularity is plummeting.

This Sunday’s Observer carries the headline: ’Eastern Europe braced for a ’spring of discontent’. As these new capitalist countries approach the 20th anniversary of the collapse of Stalinism, East European specialist, Dr Jonathan Eyal, warns that the countries in the region are ill-equipped to deal with the global down-turn and risk “social melt-down”.

As workers and students in Eastern Europe begin to identify and follow the example of those in Athens, Paris and Rome, a new era opens up. Millions were killed and maimed under Stalin. More millions have had their lives wrecked by capitalism. Now mass struggle for a genuine democratic socialist alternative is firmly back on the agenda.


In Monday’s Financial Times, Jeffrey Sachs has denied responsibility for the dramatic deterioration in Russian’ health and life expectancy. He says, “I resigned as adviser in 1994 in protest against the rising corruption in Russia and the failure of the west to be at all helpful to the reformers…”. The damage had been done by then!

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January 2009