The Capitalist Transformation of State Socialism: The Making and Breaking of State Socialist...

The Capitalist Transformation of State Socialism

David Lane outlines succinctly yet comprehensively the development and transformation of state socialism. While focusing on Russia and the countries of Eastern Europe, he also engages in a discussion of the Chinese path. In response to the changing social structure and external demands, he outlines different scenarios of reform. He contends that European state socialism did not collapse but was consciously dismantled. He brings out the West’s decisive support of the reform process and Gorbachev’s signi� cant role in tipping the balance of political forces in favour of an emergent ascendant class. In the post-socialist period, he details developments in the economy and politics. He distinguishes different political and economic trajectories of countries of the former USSR, the new member states of the European Union, and China; and he notes the attempts to promote further change through ‘coloured’ revolutions. The book provides a detailed account not only of the unequal impact of transformation on social inequality which has given rise to a privileged business and political class, but also how far the changes have ful� lled the promise of democracy promotion, wealth creation and human development. Finally, in the context of globalization, the author considers possible future political and economic developments for Russia and China. Throughout, the author, a leading expert in the � eld, brings to bear his deep knowledge of socialist countries and draws on his research on the former Soviet Union and visits to nearly all the former state socialist countries, including China.

David Lane has been Professor of Sociology at the University of Birmingham and is currently an Emeritus Fellow of Emmanuel College, University of Cambridge, UK. He has been a visiting professor at Harvard, Cornell, Odense, Kharkov, Sabanci (Istanbul), Shandong (China) and Graz universities.

BASEES/Routledge series on Russian and East European studies Series editor: Richard Sakwa,Department of Politics and International Relations, University of Kent

Editorial Committee: Roy Allison, St Antony’s College, Oxford Birgit Beumers, Department of Theatre, Film and Television Studies, University of Aberystwyth Richard Connolly, Centre for Russian and East European Studies, University of Birmingham Terry Cox, Department of Central and East European Studies, University of Glasgow Peter Duncan, School of Slavonic and East European Studies, University College London Zoe Knox, School of Historical Studies, University of Leicester Rosalind Marsh, Department of European Studies and Modern Languages, University of Bath David Moon, Department of History, University of York Hilary Pilkington, Department of Sociology, University of Manchester Graham Timmins, Department of Politics, University of Birmingham Stephen White, Department of Politics, University of Glasgow

Founding Editorial Committee Member: George Blazyca, Centre for Contemporary European Studies, University of Paisley

This series is published on behalf of BASEES (the British Association for Slavonic and East European Studies). The series comprises original, high-quality, research-level work by both new and established scholars on all aspects of Russian, Soviet, post-Soviet and East European Studies in humanities and social science subjects.

1. Ukraine’s Foreign and Security Policy, 1991–2000

Roman Wolczuk

2. Political Parties in the Russian Regions

Derek S. Hutcheson

3. Local Communities and Post-Communist Transformation

Edited by Simon Smith

4. Repression and Resistance in Communist Europe

J.C. Sharman

5. Political Elites and the New Russia Anton Steen

6. Dostoevsky and the Idea of Russianness

Sarah Hudspith

7. Performing Russia – Folk Revival and Russian Identity

Laura J. Olson

8. Russian Transformations Edited by Leo McCann

9. Soviet Music and Society under Lenin and Stalin

The baton and sickle Edited by Neil Edmunds

10. State Building in Ukraine The Ukranian parliament, 1990–2003 Sarah Whitmore

11. Defending Human Rights in Russia Sergei Kovalyov, dissident and Human Rights Commissioner, 1969–2003 Emma Gilligan

12. Small-Town Russia Postcommunist livelihoods and identities: a portrait of the Intelligentsia in Achit, Bednodemyanovsk and Zubtsov, 1999–2000 Anne White

13. Russian Society and the Orthodox Church Religion in Russia after Communism Zoe Knox

14. Russian Literary Culture in the Camera Age The word as image Stephen Hutchings

15. Between Stalin and Hitler Class war and race war on the Dvina, 1940–46 Geoffrey Swain

16. Literature in Post-Communist Russia and Eastern Europe The Russian, Czech and Slovak fi ction of the changes, 1988–98 Rajendra A. Chitnis

17. The Legacy of Soviet Dissent Dissidents, democratisation and radical nationalism in Russia Robert Horvath

18. Russian and Soviet Film Adaptations of Literature, 1900–2001 Screening the word Edited by Stephen Hutchings and Anat Vernitski

19. Russia as a Great Power Dimensions of security under Putin Edited by Jakob Hedenskog,Vilhelm Konnander, Bertil Nygren,Ingmar Oldberg and Christer Pursiainen

20. Katyn and the Soviet Massacre of 1940 Truth, justice and memory George Sanford

21. Conscience, Dissent and Reform in Soviet Russia Philip Boobbyer

22. The Limits of Russian Democratisation Emergency powers and states of emergency Alexander N. Domrin

23. The Dilemmas of Destalinisation A social and cultural history of reform in the Khrushchev era Edited by Polly Jones

24. News Media and Power in Russia Olessia Koltsova

25. Post-Soviet Civil Society Democratization in Russia and the Baltic States Anders Uhlin

26. The Collapse of Communist Power in Poland Jacqueline Hayden

27. Television, Democracy and Elections in Russia Sarah Oates

28. Russian Constitutionalism Historical and contemporary development Andrey N. Medushevsky

29. Late Stalinist Russia Society between reconstruction and reinvention Edited by Juliane Fürst

30. The Transformation of Urban Space in Post-Soviet Russia Konstantin Axenov, Isolde Bradeand Evgenij Bondarchuk

31. Western Intellectuals and the Soviet Union, 1920–40 From Red Square to the Left Bank Ludmila Stern

32. The Germans of the Soviet Union Irina Mukhina

33. Re-constructing the Post-Soviet Industrial Region The Donbas in transition Edited by Adam Swain

34. Chechnya – Russia’s “War on Terror” John Russell

35. The New Right in the New Europe Czech transformation and right-wing politics, 1989–2006 Seán Hanley

36. Democracy and Myth in Russia and Eastern Europe Edited by Alexander Wöll and Harald Wydra

37. Energy Dependency, Politics and Corruption in the Former Soviet Union Russia’s power, Oligarchs’ profi ts and Ukraine’s missing energy policy, 1995–2006 Margarita M. Balmaceda

38. Peopling the Russian Periphery Borderland colonization in Eurasian history Edited by Nicholas B. Breyfogle, Abby Schrader and Willard Sunderland

39. Russian Legal Culture Before and After Communism Criminal justice, politics and the public sphere Frances Nethercott

40. Political and Social Thought in Post-Communist Russia Axel Kaehne

41. The Demise of the Soviet Communist Party Atsushi Ogushi

42. Russian Policy towards China and Japan The El’tsin and Putin periods Natasha Kuhrt

43. Soviet Karelia Politics, planning and terror in Stalin’s Russia, 1920–1939 Nick Baron

44. Reinventing Poland Economic and political transformation and evolving national identity Edited by Martin Myant and Terry Cox

45. The Russian Revolution in Retreat, 1920–24 Soviet workers and the new communist elite Simon Pirani

46. Democratisation and Gender in Contemporary Russia Suvi Salmenniemi

47. Narrating Post/Communism Colonial discourse and Europe’s borderline civilization Nataša Kovac�evic�

48. Globalization and the State in Central and Eastern Europe The politics of foreign direct investment Jan Drahokoupil

49. Local Politics and Democratisation in Russia Cameron Ross

50. The Emancipation of the Serfs in Russia Peace arbitrators and the development of civil society Roxanne Easley

51. Federalism and Local Politics in Russia Edited by Cameron Ross and Adrian Campbell

52. Transitional Justice in Eastern Europe and the former Soviet Union Reckoning with the communist past Edited by Lavinia Stan

53. The Post-Soviet Russian Media Confl icting signals Edited by Birgit Beumers,Stephen Hutchings andNatalia Rulyova

54. Minority Rights in Central and Eastern Europe Edited by Bernd Rechel

55. Television and Culture in Putin’s Russia: Remote Control Stephen Hutchings and Natalia Rulyova

56. The Making of Modern Lithuania Tomas Balkelis

57. Soviet State and Society Under Nikita Khrushchev Melanie Ilic and Jeremy Smith

58. Communism, Nationalism and Ethnicity in Poland, 1944–1950 Michael Fleming

59. Democratic Elections in Poland, 1991–2007 Frances Millard

60. Critical Theory in Russia and the West Alastair Renfrew andGalin Tihanov

61. Promoting Democracy and Human Rights in Russia European organization and Russia’s socialization Sinikukka Saari

62. The Myth of the Russian Intelligentsia Old intellectuals in the new Russia Inna Kochetkova

63. Russia’s Federal Relations Putin’s reforms and management of the regions Elena A. Chebankova

64. Constitutional Bargaining in Russia, 1990–93 Institutions and uncertainty Edward Morgan-Jones

65. Building Big Business in Russia The impact of informal corporate governance practices Yuko Adachi

66. Russia and Islam State, society and radicalism Roland Dannreuther andLuke March

67. Celebrity and Glamour in Contemporary Russia Shocking chic Edited by Helena Gosciloand Vlad Strukov

68. The Socialist Alternative to Bolshevik Russia The Socialist Revolutionary Party, 1917–1939 Elizabeth White

69. Learning to Labour in Post-Soviet Russia Vocational youth in transition Charles Walker

70. Television and Presidential Power in Putin’s Russia Tina Burrett

71. Political Theory and Community Building in Post-Soviet Russia Edited by Oleg Kharkhordin and Risto Alapuro

72. Disease, Health Care and Government in Late Imperial Russia Life and death on the Volga, 1823–1914 Charlotte E. Henze

73. Khrushchev in the Kremlin Policy and government in the Soviet Union, 1953–1964 Edited by Melanie Ilic and Jeremy Smith

74. Citizens in the Making in Post-Soviet States Olena Nikolayenko

75. The Decline of Regionalism in Putin’s Russia Boundary issues J. Paul Goode

76. The Communist Youth League and the Transformation of the Soviet Union, 1917–1932 Matthias Neumann

77. Putin’s United Russia Party S. P. Roberts

78. The European Union and its Eastern Neighbours Towards a more ambitious partnership? Elena Korosteleva

79. Russia’s Identity in International Relations Images, perceptions, misperceptions Edited by Ray Taras

80. Putin as Celebrity and Cultural Icon Edited by Helena Goscilo

81. Russia – Democracy Versus Modernization A dilemma for Russia and for the world Edited by Vladislav Inozemtsev and Piotr Dutkiewicz

82. Putin’s Preventative Counter-Revolution Post-Soviet authoritarianism and the spectre of Velvet Revolution Robert Horvath

83. The Baltic States from the Soviet Union to the European Union Identity, discourse and power in the post-communist transition of Estonia, Latvia and Lithuania Richard Mole

84. The EU–Russia Borderland New contexts for regional cooperation Edited by Heikki Eskelinen, Ilkka Liikanen and James W. Scott

85. The Economic Sources of Social Order Development in Post-Socialist Eastern Europe Richard Connolly

86. East European Diasporas, Migration and Cosmopolitanism Edited by Ulrike Ziemer and Sean P. Roberts

87. Civil Society in Putin’s Russia Elena Chebankova

88. Post-Communist Poland – Contested Pasts and Future Identities Ewa Ochman

89. Soviet Economic Management under Khrushchev The Sovnarkhoz reform Nataliya Kibita

90. Soviet Consumer Culture in the Brezhnev Era Natalya Chernyshova

91. The Transition to Democracy in Hungary Árpád Göncz and the post-communist Hungarian presidency Dae Soon Kim

92. The Politics of HIV/AIDS in Russia Ulla Pape

93. The Capitalist Transformation of State Socialism The making and breaking of state socialist society, and what followed David Lane

94. Disability in Eastern Europe and the Former Soviet Union History, policy and everyday life Edited by Michael Raselland Elena Iarskaia-Smirnova

95. The Making and Breaking of Soviet Lithuania Memory and modernity in the wake of war Violeta Davoli�té

This page intentionally left blank

The Capitalist Transformation of State Socialism The making and breaking of state socialist society, and what followed

David Lane

First published 2014 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

and by Routledge 711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2014 David Lane

The right of David Lane to be identi� ed as author of this work has been asserted by him in accordance with the Copyright, Designs and Patent Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Trademark notice : Product or corporate names may be trademarks or registered trademarks, and are used only for identi� cation and explanation without intent to infringe.

British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data Lane, David Stuart, author.The capitalist transformation of state socialism : the making and breaking of state socialist society, and what followed / David Lane. pages cm. – (BASEES/Routledge series on Russian and East European Studies ; 93)1. Post-communism–Russia (Federation) 2. Post-communism–Europe, Eastern. 3. Capitalism–Russia (Federation) 4. Capitalism–Europe, Eastern. 5. Communist state. I. Title. II. Series: BASEES/Routledge series on Russian and East European Studies ; 93. HN530.2.A8L34 2013 306.3’42094–dc232013019142

ISBN: 978-0-415-85510-5 (hbk) ISBN: 978-0-203-73985-3 (ebk)

Typeset in Times New Roman by Deer Park Productions

David Lane is Emeritus Fellow of Emmanuel College, Cambridge and previously Professor of Sociology at the University of Birmingham. He is an Academician of the Academy of Social Sciences. His interests are on elites and classes in contempo-rary society and his current research focuses on unemployment in the post socialist states. His recent work includes: Elites and Classes in the Transformation of State Socialism (2012); Rethinking the ‘Coloured Revolutions’ (2010) (editor, with Stephen White); The European Union and World Politics (2009) (editor, with Andrew Gamble); Varieties of Capitalism in Post-Communist Countries (2006) (editor, with Martin Myant); and The Transformation of State Socialism: System Change, Capitalism or Something Else? (2007). His recent articles have been pub-lished in London Progressive Journal , Polis (Moscow), The Political Quarterly , Mir Rossii , New Political Economy , British Journal of Politics and International Relations , European Societies , Journal of Communist Studies and Transition Politics , and Europe-Asia Studies .

Also by David Lane

Elites and Classes in the Transformation of State Socialism , Transaction Books, 2011.

Rethinking the ‘Coloured Revolutions’ (editor and contributor; with Stephen White), Routledge, 2010.

European Union and World Politics (editor and contributor; with Andrew Gamble), Palgrave, 2009.

Migration and Mobility in Europe (editor; with Heinz Fassmann and Max Haller), Edward Elgar, 2009.

The Transformation of State Socialism: System Change, Revolution or Something Else? (editor and contributor), Palgrave, 2007.

Revolution in the Modern World: Social Identities, Globalisation and Modernity (editor and contributor; with John Foran and Andreja Zivkovic), Routledge, 2007.

Varieties of Capitalism in Post-Communist Countries (editor and contributor; with Martin Myant), Palgrave, 2007.

Contents

List of � gures and tables xv Preface and acknowledgements xix

PART I The making of state socialism and the market socialist critique 1

1 Introduction 3

2 Socialism in one country: The Soviet model of modernity 23

3 State socialism in many countries 39

4 The socialist market project 53

5 China: From Maoism to the market 67

6 Perestroika: Taking apart the planned economy 83

7 Perestroika: Undermining the Soviet political system 97

8 Underpinnings of reform: The changing social structure 111

9 Social classes as movers of transformation 127

10 The international context 143

11 The move to capitalism and the alternatives 161

PART II The transformation to something else 173

12 Diverging pathways 175

13 Trajectories of transformation 197

xiv Contents

14 Civil society and the neo-liberal agenda 215

15 Post-socialist states in the world economy 233

16 Varieties of post-socialism 247

17 What capitalism delivered 259

18 The reconstitution of Russia: A new hegemon? 291

19 ‘Coloured’ revolutions: Political coup or people’s revolution? 321

20 What comes next? 347

Index 365

Map of Europe showing the European Union 181

Figures 2.1 Index of wage differentials between manual workers, of� ce

workers and non-manual technical employees in the USSR, 1932–86 32

3.1 Organizing principles of capitalism and state socialism 48 8.1 Average rates of produced national income, Eastern Europe and

USSR, 1981–86 113 8.2 Educational levels of the population in the USSR, RSRSR,

Latvia, Ukraine, Tajikistan, Kyrgyzstan and Uzbekistan, 1959, 1970 and 1979 119

11.1 Value axes of state socialism and reformed state socialism 169 13.1 Economic transformation in all post-socialist countries, 1989,

1995, 2000, 2006, 2010 198 13.2 The extent of the capitalist market: EBRD indicators 1999,

2003, 2009 198 13.3 Political transformations: three groupings of post-socialist

states 200 13.4 Economic and political coordination: NMS, CIS and China 201 13.5 Cumulative FDI in� ows per capita, 1989–2008: major CIS,

NMS and China 202 13.6 Gross national income in European post-socialist countries,

1990–2010 203 13.6A Latvia, Poland, Hungary, Czech Republic and China 203 13.6B Ukraine, Belarus, Russia and China 203 13.7 Gross national income in Kyrgyzstan, Uzbekistan,

Turkmenistan, Kazakhstan and China, 1990–2010 204 13.8 Total revenue of the top 500 companies in USA, Britain, Russia

and China, 2011 208 13.9 Share of foreign-owned banks, 2004, 2007, 2008 209 13.10 Assets of Chinese banks 210

Figures and tables

xvi Figures and tables

13.11 Share of state-owned banks: Belarus, Russia, Ukraine and other post-socialist countries, 2004, 2007, 2008 211

13.12A Domestic credit and mortgage advances (percentage of GDP): Russia, Ukraine, Belarus, 2003–08 212

13.12B Domestic credit (percentage of GDP): Russia, Ukraine, Belarus, Kazakhstan, Hungary and Estonia, 2003–08 212

14.1 Individualistic and collectivist rights 217 14.2 Civil society under established capitalism 218 14.3 Civil society in the state socialist societies as an agent of reform 219 14.3A Initial form of state socialism 219 14.3B Reformers’ intended outcomes 219 14.4 Civil society in the new member states: electoral democracy as

instrument of neo-liberalism 221 14.5 Trade union and political party membership: old members, new

members and non-EU post-socialist countries, 1999/2000 222 14.6 Human rights, voluntary work and GDP indexes: old, new and

non-EU members 223 14.7 Turnout at European elections, old and new members, 2004 224 14.8 USAID Sustainability Index of NGOs, 1997 to 2006: new post-

socialist EU members and non-members 225 15.1 Companies in the top 2000: post-socialist and leading Western

countries, 2009 234 15.2 Production of high-technology manufacture: Russia, China and

other advanced countries, 2010 235 15.3 Structures of exports for USA, UK, China and Russia, by

primary and manufacturing components, 2004–05 236 15.4 High-technology exports, Russia, China, USA and UK, 1998,

2007 237 15.5 Capital � ight: post-socialist countries 238 15.6 Transnationality indexes: Russia, China, USA, UK and other

selected post-communist countries 239 15.7 Research and development: USA, Japan, Germany, UK, China

and Russia 240 15.8 Change in economic output of post-socialist countries, BRIC

and others, 2007–11 243 16.1 Index of coordinated and market coordination, 2001–04 252 16.2 Support for market economy by social class 255 16.3 Opposition to state ownership in Russia and Ukraine, by social

class 255 17.1A Approval of multi-party system, 1991 and 2009 261 17.1B Approval of capitalist system, 1991 and 2009 261 17.2 Economic situation today compared to under communism 262 17.3 Who gained most from the transformation? 263 17.4 Lack of support for the capitalist economy in Ukraine 265 17.5 Lack of support for electoral democracy in Ukraine 266

Figures and tables xvii

17.6A Human Development Indexes: Poland, Hungary, Latvia, Czech Republic and China, 1987–2007 268

17.6B Human Development Indexes: Russia, Belarus, Ukraine, Armenia and China, 1987–2007 269

17.6C Human Development Indexes: Uzbekistan, Azerbaijan, Kazakhstan and China, 1987–2007 269

17.7 Human Development Indicators: post-socialist countries, USA and China, country ranks, 1990, 2009 271

17.8A Income inequality: Gini coef� cients for selected socialist countries, 1987–88, 2004– 273

17.8B Income inequality: Gini coef� cients for top and bottom deciles and post-socialist countries post-2004 273

17.9 Employment ratio (number of employed as percentage of population, aged 15–59) 276

17.10 Annual unemployment rate for selected NMS and CIS, 1993–2010, based on LFS 277

17.11 Mortality for men and women in post-socialist societies, with comparisons, 2009 281

18.1 Private and state ownership of Russian companies 311 19.1 Support for the Orange Revolution, 2005, 2006 326 19.2 Public evaluation of type of political activity: coup, spontane-

ous protest or protection of rights 328 19.3 Outcomes of coloured revolutions 331 19.4 Life expectancy in 2000 and 2005 333 19.5 GDP per capita (PPP, US$) rank minus HDI rank for 2000 and

2005 334 19.6 The character of the Orange Revolution: perceptions of the

Russian public, 2010 337 19.7 Conditioning factors promoting/retarding democracy 340 20.1 Russia and China: competing corporate interests 352

Tables 5.1 Economic enterprises in China, by type of ownership, 2010 74 5.2 Employment by types of enterprise, 2010 75 8.1 Growth of produced national income: Eastern Europe and

USSR, 1951–55 to 1986–87 113 8.2 Economic growth in the capitalist core and state socialist

societies, 1961–88 115 8.3 Type of employment in China, 1965–90 118 12.1 Gross domestic product per capita, 1989: selected socialist

societies, USA and UK 178 13.1 Changes in real income per capita 1989 and 2010: selected

post-socialist states compared to the UK 204

xviii Figures and tables

13.2 Number of foreign af� liates in post-communist countries, with comparisons to other countries 206

13.3A The top � ve Russian companies in the world ranking of the top 500, 2011 207

13.3B The top � ve Chinese companies in the world ranking of the top 500, 2011 207

17.1 Opinions on the Soviet Union: Ukraine and Russia, 2010 264

This book is a sequel to The Rise and Fall of State Socialism , published in 1996. The book has three main themes: the evolution of state socialism in Europe, an analysis of how it was taken apart, and an evaluation of the aftermath. It is an overview of the formation of the socialist state and the consolidation of the world socialist system after the Second World War. At the centre of discussion is the Soviet Union, which was the originator and driving force of the socialist move-ment, and its successor state, the Russian Federation. In this setting, I outline how the Eastern European socialist systems developed and � nally how in facing reform they were dismantled and replaced. I provide a contrast with China, which has adopted a different reform strategy and also led to a transformation. Finally, I re� ect retrospectively on what the experience of capitalism tells us about the nature of state socialism.

I show how and the extent to which the post-socialist states have became cap-italist. I outline the impact of the transformations on three sets of post-socialist states: the new member states of the European Union, and the European members and the Asian members of the Commonwealth of Independent States. In consid-ering alternative policies, I make comparisons throughout the book with China, and I address the question of how a Chinese statist path has differed from that of the Eastern and central European socialist countries. Throughout the book I address the place of the socialist and post-socialist states in the world economic and political order. Finally, I consider what alternatives are open to the post-socialist countries.

Many people and institutions have assisted me in the preparation of this book. I have to thank the Leverhulme Trust and the British Academy for � nancial sup-port over the years for various research projects that have contributed to many of the topics included here. Two anonymous referees made encouraging suggestions and three other readers, Richard Sakwa, Leslie Sklair and Vlad Mykhnenko, read the initial manuscript and made many detailed proposals which have led to improvements. Many others who commented on individual chapters are acknowl-edged in the text.

I also thank the publishers Palgrave Macmillan and Routledge for granting permission to use some parts of previously published text in the journals European Societies and The Journal of Communist and Post-Communist Studies , and in

Preface and acknowledgements

xx Preface and acknowledgements

chapters in The European Union and World Politics (with Andrew Gamble) and Varieties of Capitalism in Post-Communist Countries (with Martin Myant); I also acknowledge permission from Transaction Publishers to draw on work included in Elites and Classes in the Transformation of State Socialism .

David Lane Cambridge

Part I

The making of state socialism and the market socialist critique

Lane-chapter 01.indd 1 9/30/2013 9:05:37 PM

The objective of this book is to set in perspective the socialist project in Europe which began with the Russian Revolution of October 1917 and culminated with the counter-revolution and dissolution of the USSR in December 1991. This quest is not conceived in terms simply of the history of the Soviet Union – though the USSR plays the major role in this book because the evolution of state socialism was dependent on it. It takes into account the expansion of communism to Eastern Europe after the Second World War as well as the rise of communism in China. The causes of disenchantment from the 1960s and the dismemberment of European state socialism 1989–91 are explored. I examine how different coun-tries extricated themselves from state socialism and how it in turn shaped the post-socialist societies.

In Part II, I consider developments in the post-socialist period enabling the scholar to re-examine state socialist society in a new light – a comparison with how these societies have fared under capitalism. The post-Soviet period outlines the major trajectories of change in the quest to build capitalism and to fashion a form of democracy in the European post-Soviet societies. It also takes as a com-parison developments in China.

The book has three main themes: the rise of state socialism on the model of the USSR, an account of how it was dismantled in Europe, and an evaluation of the outcomes of the transformation.

The October Revolution of 1917 gave rise to a model of social, political and economic organization in the form of Soviet Russia which was borrowed exten-sively by a wide range of self-styled communist countries ranging from China to Cuba. The Soviet order provided a challenge to capitalism. In October 1961, Nikita Khrushchev, head of the Communist Party of the Soviet Union, claimed that in conditions of ‘the crisis of world capitalism’, the period of ‘full-scale com-munist construction’ had begun.

By 1980, self-de� ned Marxist-Leninist states accounted for a third of the world’s population and claimed 40 per cent of its industrial production. In Russia, Mongolia, China, Cuba, Yugoslavia, Albania, Vietnam, Laos and Kampuchea the communists had fought their way to power and had defended the new system at great cost. In the USSR alone, over 20 million people perished at the hands of the Germans in the Second World War. Anti-communist wars in Vietnam and Korea

1 Introduction


4 The making of state socialism and the market socialist critique

saw losses on a similar scale. In Vietnam there were over a million military casu-alties and as many civilian ones; in the Korean War 2 million civilian casualties and 1.5 million military deaths have been estimated.

By the mid-1980s, the socialist states had prevailed against enemies which had had superior armaments and resources. State socialism appeared a solid, well-founded system and was a beacon to many (though not all) radicals in the indus-trialized countries and it gave hope to the oppressed in the Third World.

In February 1986, Gorbachev launched his programme, perestroika (recon-struction), for the reform of the Soviet Union. Its consequences were catastrophic for the communist system. With breathtaking speed, by the end of 1989 a major shift in political power had taken place in Eastern Europe. Following the institu-tion of free competitive elections, an anti-communist President came to power in Poland and anti-communist governments in most of the East European countries. The Berlin Wall, a symbol of a divided Europe, was destroyed and the German Democratic Republic was absorbed into the Federal Republic.

By December 1991, the world’s � rst state socialist society, the USSR, was dis-solved into 15 sovereign states. The Communist Party was declared to be illegal and its property sequestrated. The demographic mass of the communist world evaporated: the former European communist countries moved to adopt market economies and institute competitive elections. They aspired to, and are still attempting to create, the forms and processes of the capitalist world. The ‘transi-tion’ to capitalism, markets, electoral democracy and civil society was initiated. In China, Vietnam, Cuba and North Korea the communists still rule but, particularly in the � rst two, marketization and creeping capitalism erode and undermine the traditional communist system.

These events have led to a major reappraisal of the possibility of socialism as a systemic alternative to capitalism and to the feasibility of revolution as a strat-egy of change. Whereas at the beginning of the twentieth century, the sociological and political interpretation of socialist revolutionary practice was optimistic – at least from supporters on the left – at its end, pessimism was widespread. Some have cast doubt on whether the events of October constituted a revolution and others have denied its socialist character. The very nature of the socialist project was (and is) clouded in scepticism and rejection.

The costs of revolution have been negatively evaluated against Stalinist oppres-sion and political coercion and the repression of the Cultural Revolution in China. In Eastern Europe popular discontent was widespread as internal economic growth declined and the large ‘socialist intelligentsia’ sought greater independ-ence. By the end of the twentieth century, the Marxist-Leninist version of state socialism, as a creed, as an aspiration, as well as a system of political rule – an alternative to capitalism – was in retreat.

But state socialism in Europe did not fail completely. Considerable advance-ments socially and economically had been secured, and China had succeeded in transforming the central command system while preserving Communist Party rule. China has risen as an economic and political power and may be considered as an alternative strategy of reform – combining the market with the hegemony of


Introduction 5

the Communist Party. These developments – the rise and dismantling of state socialism, the market socialist alternative – are analysed in the � rst part of this book. In Chapter 11 , I contend that the collapse of state socialism was not inevi-table, and consider how the fall of state socialism could have been prevented.

In 2013, after 20 years or so of transition to capitalism, the time has come for a reappraisal of the state socialist experience. The former Central European state socialist countries and three Baltic states formerly members of the USSR are now members of the European Union, which endorses economically their capitalist, and politically their pluralist democratic, credentials. Other states of the former Soviet Union have lost the institutional features of communist rule, but have made an incomplete transition to capitalism and competitive democracy. In all these states, the question may be posed of the extent to which life is qualitatively better than it was under state socialism.

The People’s Republic of China is also considered: would its model of devel-opment have been viable for the European socialist states? Have the develop-ments there built capitalism in a different form? I outline different models of capitalism and what the reformers delivered to the post-socialist member states of the European Union, as well as the emergence of a new Russia. Whereas many in the state socialist societies rejected communism, we turn to consider the extent to which capitalism has improved life, and how their publics now evaluate these societies. Finally, I discuss scenarios of future developments.

Revolution and socialism State socialism was a consequence of revolution. Socialist revolutions, following that of the Russian October Revolution, are characterized as mass revolutions. They have a high mass participation, a long duration involving fundamental changes in the structure of political authority and the social system, and they involve mass violence. 1 As Theda Skocpol has put it:

Changes in social systems of societies give rise to grievances, social disori-entation, or new class or group interests and potentials for collective mobili-zation. Then there develops a purposive, mass-based movement – coalescing with the aid of ideology and organization – that consciously undertakes to overthrow the existing government and perhaps the entire social order. Finally, the revolutionary movement � ghts it out with the authorities or dom-inant class and, if it wins, undertakes to establish its own authority and program. 2

This de� nition, however, falls short of one other vital component of revolution: the major social, political and economic changes that follow after the insurgents have taken power. 3

The analysis of revolution has concentrated on two major areas. The � rst is the dynamics of the political capture of power: study of the events immediately pre-ceding the uprising, the actual process of political insurrection and the ideology



and organization of the rebels. Second, research has sought to uncover the under-lying conditions and motive forces that explain the success of the insurgents’ political activity and the failure of the incumbents in power. A less developed area of study is the concern of this book: the happenings that follow the seizure of political power – the extent to which the revolutionaries’ social, political and eco-nomic policies have been put into effect. Moreover, the transition to capitalism raises the issue of counter-revolution, 4 which reversed these developments.

It is precisely the aftermath of the October Revolution – with respect to the countries that set out with the goal of creating a communist society and have since failed – which is now of great importance. To what extent did they succeed in building socialism or have we really witnessed an alternative form of industriali-zation? If the former, then the collapse of the state socialist regimes at the end of the 1980s may modify signi� cantly our view of the revolutionary process.

If they indeed were a new socialist order, then mass revolutions, which are usu-ally considered to be irreversible, may themselves be overturned. Was their fall a consequence of inherent causes of structural incompatibilities or contradictions, was it the consequence of intended or unintended political policies, or was it con-tingent on external factors? Another important implication is that if the ‘collapse’ of state socialism was predicated on popular rejection, then it follows that people who have experienced ‘socialism’ do not want it.

An alternative possibility is that state socialism was pushed over by domestic and foreign counter-elites acting on class interest, the consequences of which have only become apparent in the new post-socialist political order.

The ‘transformation’ in turn poses the question as to whether their return (or aspiration to return) to some form of capitalism signals the ‘end of history’ – in the sense that the liberal-democratic capitalist societies of the West represent the ideal of human aspiration. However, the aspiration for capitalism is not the same as the experience of it. With the hindsight of history, we may now discover whether people feel that they were mistaken; whether they regret its passing; and whether the countries in transition from state socialism are any better than what they have replaced. In this context we may also examine the possibilities for a revival of socialism, and consider whether the triumphalism of neo-liberalism over the end of the communist states may be misplaced.

State socialism What, then, is state socialism? From the point of view of comparative politics and sociology, it is a society distinguished by a state-owned, more or less centrally administered economy controlled by a dominant communist party which seeks, on the basis of Marxism-Leninist ideology and through the agency of the state, to mobilize the population to make a classless society.

Its evolution is discussed in more detail in Chapter 2 . While the descriptive elements of this de� nition are widely accepted, the dynamic and goals are widely challenged. First, world system theorists following the reasoning of Immanuel Wallerstein contend that they are in essence a form of modern industrial society, a


Introduction 7

part of the global system, a view shared by Western sociologists such as Anthony Giddens and John Goldthorpe. Second, others adopting a critical Marxist position regard the state socialist societies as a variety of (state) capitalism. These views are examined against the patterns of world trade, the form of asset ownership and the nature of exploitation. The present author rejects the notion that state social-ism was a component part of the capitalist world system or was a type of capital-ism. Third are those who de� ne the reality of state socialism as ‘totalitarianism’ (discussed in Chapter 3 ). This approach is again found to be lacking when ana-lysed against the structure of developed state socialist societies.

In this book it is contended that state socialism was a peculiar type of social formation. State socialist societies were insulated from the world capitalist system and pursued fairly successfully a policy of modernization and industrial develop-ment. I consider different phases in the evolution of communist states, which are con� ated by many commentators. I use the term ‘communist states’ in a descrip-tive sense to apply to states ruled by a self-de� ned communist party. In terms of their own theory, these societies were at the � rst (socialist) stage of communism. Communism (in a theoretical sense) is a mature classless society in which eventu-ally economic abundance would prevail and the state, as an instrument of oppres-sion, would ‘wither away’.

Leninist origins Initially, state socialism arose as a political response to Russian conditions and provided an alternative form of industrialism to capitalism and concurrently a counter-culture to it. Lenin legitimated and led the October Revolution in Russia in 1917. Before him, all Marxists in nineteenth-century Europe regarded Russia as a country emerging from feudalism. It was universally believed that Russia could not carry out a socialist revolution until capitalist society had been built. The orthodox view, underpinned by the idea of the development of the productive forces, was that socialist revolution would come � rst in the advanced countries of the West.

Lenin and the Bolsheviks (the latter were a faction of the Russian Social-Democratic Labour Party led by Lenin) had a different interpretation which legit-imated a seizure of power by the communists and was later used to declare the Soviet Union to be the world’s � rst socialist country.

Lenin added two dimensions to Marxist theory: � rst, a theory of imperialism, and second, the concept of a vanguard communist party. 5 These concepts explain why, in Lenin’s view, the spontaneity theory 6 of working-class revolt would not happen and why a party of a ‘new type’ had to be formed to lead the working class.

Marx and Engels had pointed out that capitalism could not be contained in a few industrial countries; it would spread as a world system of political economy. It ‘creates a world after its own image’. 7 By virtue of its need to make surplus product, it has to expand into new markets and thus all countries are drawn into its net. 8



A repercussion of the supremacy of some countries in the capitalist system is that the working class of the metropolitan countries may become privileged at the expense of the labouring class in the peripheral areas and identify with their own governments in their wars with foreign adversaries. There is then an economic component to the character of national identity which divides the ascendant class, the working class. This explains the tendency to conformism on the part of the Western working class which has more to gain from a compromise with the bour-geoisie than from joining in struggles with oppressed workers abroad. It also explains the nationalism that characterized twentieth-century capitalism: it is an ideology legitimating a form of social identity which unites people on the basis of language and history – and thus obscures and undermines class identity.

Lenin saw implications of these developments which had not been anticipated by Marx. He pointed to the parallel and uneven development of capitalism. 9 The economic and political contradictions are greatest in societies undergoing capital-ist development, for these do not have the stability afforded by the capitalist superstructure. While economic development disrupted the traditional economy and created a working class, the internal bourgeois political formation was weak. Foreign capitalists replaced those of an indigenous kind and therefore the ‘foreign base’ of the bourgeoisie was vulnerable. Moreover, Lenin contended, the strata whose role in bourgeois society was to legitimate it ideologically (the ‘liberal intelligentsia’) had not been nurtured in Russia by capitalism.

An important component of Lenin’s theorizing was that imperialism sanc-tioned revolutionary activity in countries that were undergoing development and were subject to capitalist penetration and exploitation. Imperialism was the high-est stage of capitalism: it was ‘that stage of development in which domination of monopoly and � nance capital has taken shape; in which the export of capital has acquired pronounced importance; in which the division of the world by interna-tional trusts has begun; and in which the partition of all territory of the earth by the greatest capitalist countries has been completed’. 10 Lenin preceded globaliza-tion theorists by analysing the world economy and its political implications in terms of a world economic system.

In Lenin’s view the � rst strike would take place at the weakest link of the capitalist chain. 11 A revolution in Russia would not stop there; world capitalism would no longer be able to contain itself, as it was dependent for survival on the extraction of surplus product from the dependent countries. When such exploita-tion of the periphery ceased, the contradictions of capitalism in the advanced countries would intensify and lead to its internal collapse. The system would crash and the Western working class would no longer have any stake in the pres-ervation of capitalism.

Lenin contextualized Russia in 1917 against the carnage and the dislocation of capitalism caused by the First World War which had ampli� ed the potential for a socialist revolution. In Letters on Tactics (1917), he declared: ‘The bourgeois revolution [of February in Russia] is completed’, and he believed that it could pass rapidly into a socialist one. There would be a ‘telescoping’ of development: a movement from pre-capitalist to socialist society with the revolutionary forces


Introduction 9

led by the working class. Furthermore, a socialist revolution in Russia would dis-rupt the international order of world capitalism both economically and politically and would lead to its collapse in the advanced states.

In April 1917, he pronounced: ‘Any day may come the crash of European imperialism.’ In the summer of 1917, he declared: ‘We stand on the threshold of a world-wide proletarian revolution … If we come out now, we shall have on our side all proletarian Europe.’ 12 Lenin here, by invoking the potential support of the West (in the form of the proletariat), heightened the prospect of success of the insurrection, which strengthened the commitment of his followers to rebel.

A party of a ‘new type’ A second major component in Lenin’s theory of revolution was the need for an organized disciplined party of Marxist revolutionaries – a party of a new type. This party, the Bolshevik faction of the Russian Social-Democratic Labour Party, would provide the revolutionary leadership of the working class.

The revolution, however, in Lenin’s view would not result from the spontane-ous activity of the working class in peripheral countries like Russia. He empha-sized the importance of political leadership in his pamphlet ‘What is to be Done?’, originally published in December 1902. Social-democratic parties in the states of Western Europe were built on a mass trade union membership and sought political power through the ballot box. In Russia, however, right up to February 1917, the bourgeoisie, the working class and peasantry were effectively excluded from par-ticipation in the Tsarist political system. The Duma was a representative rather than an effective legislative body. Under the despotic conditions of autocracy and the absence of rights to free association and combination (assured in many bour-geois societies by civil rights – particularly the vote), a new form of organization of the working class was required.

A party of ‘a new type’ was necessary to lead the working class under condi-tions of Tsarist autocracy. This party, which later became the Communist Party (to distinguish it from reformist social-democracy), was the instrument for inter-preting and acting on the laws of historical materialism. In distinction from the reformist social-democratic parties of Germany and England, the Bolsheviks advocated the formation of a party of Marxists intent on transforming capitalism through revolution. The party had to be ‘an organization of revolutionaries which must consist � rst and foremost of people whose profession is that of a revolu-tionary’. 13

A fundamental objective of the Marxist party was to bring political conscious-ness to the working class. It was Lenin’s conviction that the working class (par-ticularly in the advanced European countries) would not autonomously develop a socialist consciousness – for the ideological apparatus together with the privileges of metropolitan capitalism would corrupt it. As Lenin put it, ‘Class political con-sciousness can be brought to the workers only from the outside . That is, only from outside the economic struggle, from outside the sphere of relations between work-ers and employees.’ 14 ‘False consciousness’ would lead the working class to strive



for the amelioration of conditions within capitalism, rather than to adopt a revolu-tionary stance. Reformist social-democratic parties were part of this ‘false con-sciousness’.

The party epitomized political praxis: it united Marxism as the ideology of the working class with the agency of political struggle. Hence a centralized Marxist political party (known as the Bolsheviks 15 from 1903) was founded under Lenin to lead the working class. Lenin was thereafter subjected to criticism from tradi-tional socialists and Marxist opponents that he was adventurist and not in keeping with Marx’s view that ‘the emancipation of the working-class must be the act of the working class itself’. 16

The Russian revolution As the First World War prolonged its mass killings on the Western and Eastern Fronts, the Bolsheviks fomented an uprising in Russia. On 25 October 1917, 17 the Bolsheviks declared a ‘Provisional Workers’ and Peasants’ Government’ with Lenin at its head. Subsequently, they consolidated their position and declared the ‘dictatorship of the proletariat’. Consequently, Tsarist political and economic institutions were destroyed and replaced (at least at the top) by new people and by Bolshevik institutions: the hegemony of the Bolshevik Party, state-owned prop-erty, central control of the economy. The nascent formations of bourgeois society (parties and associations) were abolished and replaced by collectivities support-ing the new political order. Lenin, however, made it clear that it was ‘not our immediate task to “introduce” socialism, but only to bring social production and the distribution of products at once under the control of the Soviets of Workers’ Deputies’. 18 The revolution was to be the prelude to the socialist revolution on a European scale.

As far as revolutionary strategy is concerned, the Bolshevik movement proved to be a successful vehicle for the seizure of power. It mobilized the uprooted peas-ant army disenchanted with the war, the discontented urban masses – including signi� cant sections of the proletariat – and the disgruntled intelligentsia into a revolutionary force under its leadership. It was not, however, the classic Marxist revolution of the working class. It was rather a revolution in a society under tran-sition from feudalism to capitalism precipitated by collapse consequent on war. 19

The October Revolution was a success in terms of political leadership. Lenin devised the tactics for a successful insurrection and he formulated a legitimating ideology for the seizure of power. But we now know that it was an outcome of a faulty analysis of capitalism. Imperialism truly led to its globalization: but it was not ‘moribund’. It held immense possibilities for the development of the world’s productive forces and for the inclusion of the working class into its fold. October did not precipitate a socialist revolution in Europe.

Whatever the ideals of the Bolsheviks in practice, control by the leadership of the Party and increasingly the state bureaucracy was dominant. The need for political surveillance to guard against real and imagined oppositional forces led to the creation of a comprehensive web of police and security services. These in


Introduction 11

turn matured into important political and economic formations: the police became detached from Party control and accrued considerable economic powers from the forced labour camps which came under their jurisdiction. Political purges, including the murder of leading Bolsheviks, were important features of Stalinist rule. 20 Oppression also became a feature of Soviet society under Stalin: while the exact numbers of victims are unknown, millions of people were moved from their homes and dubbed enemies of the people. 21 We return to these points in Chapter 2 .

This oppressive system was due to a combination of factors. Social revolutions are always accompanied by internal war. The political culture of Russia tradition-ally had not developed controls and checks over administrative rule; the centrali-zation of the Party and its claim to political hegemony provided a legitimation of central control (though not violence). The country was always under external threat – � rst by invasion of foreign forces during the civil war, then by the menace of Hitler’s Germany. The uncompromising personality of Stalin, and the people promoted by him in the process of political mobilization, all contributed to the creation of a regime of oppression.

Nevertheless, Soviet Russia had cut free from the world capitalist system and had to make its own way as a revolutionary power. In Chapter 2 , I detail how the revolution was consolidated and how it spread.

In the years that followed in Soviet Russia the footprint of state socialism was formed. Its distinctive features included public/state ownership rather than pri-vate, an ideological emphasis on equality rather than freedom, an economy organ-ized on a plan, central control and direction rather than through a market, and a collectivist and public form of personal integration rather than an individualist one. Marxism-Leninism gave rise, in my view, to an ‘ethic of communism’ similar in character to Weber’s Protestant ethic of capitalism. State socialism, as it evolved between the two world wars, was a coherent alternative to the capitalist form of industrialization. Soviet socialism was a successful strategy of modernization and was enthusiastically applied in the Eastern European states after the Second World War and also (at least initially) in China and central Asia. Rapid economic growth secured varying degrees of legitimacy and is detailed in Chapter 3 .

Reform After the Second World War, the statist form of socialism experienced dif� culties. The imposition of communist rule in some European countries, as well as faults in the system of planning and socialist governance, gave rise to varying levels of disenchantment. In all the state socialist societies, internal discontent developed below the surface: there were disproportions between the aspirations of many groups and their ful� lment; de� ciencies in the forms of political participation were felt by the new middle classes; a decline in the rate of economic growth concomitant with rising population numbers led to shortages of commodities. In general, the claims of socialist ideology were not being met by the outputs of the communist governments.



These inadequacies of state socialism were not generated solely from the out-side but were an integral part of the system itself, and they promoted movements for political and economic reform. Reform is considered from two perspectives. First, attempts to improve the economy within the framework of moves to market socialism, the objective here being to improve economic ef� ciency by combing markets with planning. These policies involved economic market reform but kept communist political control in place. The market socialist approach by econo-mists such as Oskar Lange is discussed in Chapter 4 as well as its implementation in Yugoslavia and Czechoslovakia.

In Chapter 5 , the development of a form of state-led market socialism in China is discussed. It is contended that the People’s Republic has moved well beyond the parameters of market socialism and, while the Communist Party still forms the legitimate government, it has the character of a state capitalist social formation (with Chinese characteristics). However, the conclusion to be drawn here is that an alternative strategy to neo-liberal capitalism was (and is) possible.

The second reform perspective, which concurrently entailed economic and political transformation, is the subject of Chapters 6 and 7 . Its objective was to bring the USSR into the world economic and political arena. In order to achieve economic reform, Mikhail Gorbachev pursued concurrently radical political and economic policies which effectively dismantled state socialism. He undermined the legitimating ideology of Marxism-Leninism, the hegemony of the Communist Party and the system of central planning.

In the terminal period of the USSR, Gorbachev moved to a radical conception of market socialism. Not only did he introduce the market but he also took apart the political framework of planning and Party control which maintained the state socialist infrastructure. Moreover, his economic reforms failed – output declined, in� ation and unemployment rose, strikes and foreign debt increased. All this ampli� ed the voices for change. The decline in productivity impacted on distri-bution and in turn weakened legitimacy. This attempt to � nd a ‘Third Way’ between capitalism and state socialism failed. It is argued (in Chapter 9 ) that the political forces (both internally and externally) advocating a move to a market economy undermined the institutions and values necessary to maintain a socialist state.

Dismantling state socialism While communism disintegrated � rst in Eastern Europe, the policy of perestroika in the USSR was crucial to the fates of the Eastern European socialist states. Glasnost (openness), democratization, pluralism – all had implications in foreign affairs: notably, governing communist parties had to rule by consent. Gorbachev’s policy, it is contended, reduced the costs of internal dissent. Consequently, in the Eastern European countries the communists were defeated in open political com-petition by nationalist and anti-communist forces. In the USSR, with the eco-nomic failure of perestroika, anti-communist movements assumed a national (and republican) character. Decisive counter-elites, encouraged by the success of the


Introduction 13

Eastern European states, established their own power and the USSR disintegrated in December 1991.

Chapters 8 to 10 consider how and why state socialism disintegrated. A multi-causal systemic analysis is made. The explanation is organized under three main headings: the impact of the changing social structure, a social class interpretation of transition, and the role of exogenous political forces. These endogenous and foreign social forces were precipitating factors. The leadership of the political elite under Mikhail Gorbachev was a crucial instrument of political change. It might be likened to what Joseph Schumpeter called ‘creative destruction’: inno-vation takes place through destroying the old and putting something new in its place. But destruction without renewal spells disaster.

The fall of European state socialism is interpreted as a counter-revolution. Revolution (and counter-revolution) occurs when there is a concurrent breakdown in the functioning of key processes of society and potential insurgents arise with a collective vision of an alternative regime; incumbent elites also lose their nerve and will to continue in the same way. The counter-revolution conducted by the radical reformers successfully dismantled Soviet-type institutions and articulated a market capitalist alternative.

Underlying the disintegration of state socialism, � ve major crises are identi-� ed: in the economy, de� ciencies in resource management; in society, the decay of sentiments of loyalty and solidarity; in the political system, a negative balance of political support and opposition; in the sphere of values, a lack of legitimacy; and � nally, incompatibilities in relations with actors in the external environment. These systemic tensions were not successfully resolved by the Gorbachev leader-ship. Rather his policies exacerbated them and the intended reform of state social-ism led to calamity and dismantling of the institutions of power.

In the process of modernization, state socialist societies move from the fusion of politics and economics to a more pluralist structure. Long-term maturation of the social structure, the growth of an educated professional class with a more ‘market’ orientation (fanned by the Western model of consumerism), gave rise to a pattern of demands that required reform. Inadequate economic growth and fall-ing productivity further weakened regime support.

With the development of the productive forces, the social structure is shaped by an educated urban middle class with higher levels of expectations than the workers and peasants who provided the gravitas of the Stalinist regime. The tradi-tional political support system, based on the manual working class, became a diminishing resource. The new professional classes had not only a demographic density but also a moral one; that is, they had a consciousness of their occupa-tional status and social identity. They were predisposed to accept signi� cant social and political changes, such as the marketizing of their skills. Their image of the West and the believed virtues of a market society had important consequences for regime stability.

In rejecting traditional Marxist explanations of class structure within state socialism, I suggest that two competing forms of social strati� cation coexisted under state socialism (detailed in Chapter 9 ). One is linked to the possession of



intellectual assets and skills which could be valorized in a market system, and the other to the administrative system of political controls, the nomenklatura . The former, de� ned as an acquisition class, played a major role in the critique of state socialism. This class was often legitimated on a nationalist basis, which gave the insurgents a political identity. The attempt by the reform leadership (under Gorbachev) to create a new form of post-Stalinist identity through the recruitment of elements of this class to the political leadership had profoundly destabilizing effects. The second group was a latent capitalist class: when given the opportunity, it turned political control into ownership rights through the privatization of state property.

The leadership under Gorbachev played an essential role. The political reforms brought in by this political elite exacerbated not only the system of economic management but seriously weakened the legitimacy of the hitherto dominant ide-ology of Marxism-Leninism and the institution of the Communist Party. The reforms ‘from the top’, from the political leadership, ampli� ed by the critique of the ‘reform intelligentsia’, undermined the con� dence of the political class. The inadequacies of the bureaucratic system, and its degeneration, led to a public lack of con� dence. When elections were conceded, � rst in Eastern Europe, then in the USSR, the communists were voted out of power.

These structural features are set in a global context, which is the subject of Chapter 10 . In seeking membership of the world economy, the political leadership was no longer prepared to pay the costs of Cold War. I argue that the role of exter-nal powers was crucial to the success of counter-revolution. The core Western powers were able to dictate economically and politically the terms on which the communist societies could join the world community. A policy of entente with the West led to major changes in relations with communist governments in Eastern Europe involving greater independence.

Repercussions followed in the USSR. Potential insurgents had more to gain than they had to lose and they were backed by powerful Western states intent on undermining the communist order. I contend that in the absence of an indigenous bourgeois class (a motivating factor in the evolution of Western parliamentary regimes) its role was taken by external Western interests. The reformers under Gorbachev were dependent for moral, political and economic support on external powers intent on bringing down the political order of state socialism. What was never anticipated by supporters and opponents of state socialism was that the leadership of the USSR under Gorbachev, nurtured and empowered by the Communist Party, would use its position to undermine not only the USSR as a state, but also the social order of state socialism.

The interaction of these systemic and conjunctural factors led to the fall. On 31 December 1991, the Union of Soviet Socialist Republics was dissolved and Russia, a republic of the USSR, became the Russian Federation and was recog-nized as the successor state to the USSR.

Could the disintegration of the USSR and the fall of state socialism have been prevented? (This is a different question from whether it should have been pre-vented.) I argue in Chapter 11 that a ‘within-system’ reform was possible. 22 The state


Introduction 15

socialist system was under no internal or external threat when Gorbachev came to power. The reform leadership brought about conditions for disintegration. A more pluralistic polity could have been attained within the parameters of state socialism and Marxist-Leninist ideology. A gradual introduction of market elements could have led to economic changes on the pattern of those in China.

The transformation In Part II, we turn to the aftermath: to the effects of transformation in the post-socialist states. As the target of transition was the model of leading democratic capitalist states, comparisons are made with them as well as with developments in China.

The assumptions made about the role of social structure, institutions, culture and human agency play an important part not only in the explanation of the for-mation of policy options but also in the consequent ‘outputs’ of the system in transition. Two methodological positions inform the literature on policy-making – system transfer and path-dependency, which are discussed in Chapter 12 .

System transfer is the most popular account of the transformation process in Western academia. Western economists particularly are prone to an ex-ante way of thinking; they assume that the introduction of market mechanisms will bring about certain desirable economic outputs. Transitologists propose that the post-socialist states should replace the defunct institutions of state socialism with those of Western capitalism. The dominant view is that the economic model of neo-liberalism should be copied. This involves the privatization of state property, the marketization and � nancialization of economic processes, and entails replacing administrative procedures by market ones.

Alternative ways of thinking about transformation are more sociological in character and emphasize that developments in societies are path-dependent. Historically determined institutions, values and norms have enduring effects and provide limits to policies.

Study of the transformation process has to distinguish between the normative neo-liberal policies – the intentions of transitologists – and the outcomes of poli-cies, which are also in� uenced by path-dependent factors.

Politically, de-statization involves the creation of autonomous institutions forming civil society: these include political parties and non-governmental organ-izations. Political markets – competitive electoral processes – become arbiters of political decision-making. Civil society organizations have been used to weaken traditional forms of government. In Chapter 14 , I contend that civil society pro-motion is linked to the political and economic interests of its proposers. Class and elite dispositions to civil society in old member states of the European Union are contrasted with those in the former state socialist societies (the new member states). Distinguishing features of civil society promotion are the attempts of political elites to secure legitimacy for particular types of institutions – in the post-socialist societies as a means to secure democratic legitimation in the movement to capitalism.



I show that there is a serious de� ciency with respect to the ef� cacy of civil society associations as agents in the democratizing process. Civil society is also problematic as a form for the articulation and defence of community interests.

Varieties of transformation Within the European societies and the former republics of the USSR, great varia-tion may be observed in the types of change that have taken place. I distinguish between three sets of developmental strategies. First are the countries of central Europe and the former Baltic states of the USSR which have become members of the European Union (EU) – the new member states (NMS). Second are the European societies of the former USSR, Russia, Belarus, Armenia, some of which (such as Ukraine and Georgia) aspire to membership of the EU. Third are the more economically undeveloped societies of the former USSR in central Asia.

Following the fall of the socialist system, the former state socialist societies have developed along different trajectories to become part of, or to exchange with, the capitalist world system. The majority of European new member states of the European Union have made a more successful move to market and electoral democracy. In all the new European Union post-socialist states, a deeper integra-tion into the world economy has occurred. They have become more closely inte-grated into the world system of commerce and production and, stimulated by the free movement of labour in the European Union, have become part of the global division of labour.

They have become integrated into the economies of neighbouring old EU states on the terms of the latter. While they have become integrated with the ‘core’ member states, foreign investment has entailed large-scale foreign ownership of their � nancial, commercial and industrial assets, giving a high level of depend-ency on foreign companies. Foreign ownership of � nancial and non-� nancial companies and tight links with the � nancial systems of the old European Union member states have led to contagion following the economic crisis of 2007. They remain economically dependent members of the European Union. Additionally, they provide a pool of reserve labour for the old member states. These develop-ments are detailed in Chapters 12 and 13 .

The European states of the former USSR, including the large and populous countries of Russia and Ukraine, have had a relatively unsuccessful transition to capitalism. Most have weak pluralistic political structures, with dominant elites and weak civil societies. The Commonwealth of Independent States (CIS) is far less integrated into the world economic system. Its largest economy, Russia, is a hybrid economic system: the energy sector is integrated into the world economy and signi� cant transnational companies are emerging. Transnational companies, however, have relatively low penetration in the CIS; domestic capitalists (‘oli-garchs’) are dominant, though under President Putin the state is being reconsti-tuted to coordinate the economy. Manufacturing and agriculture are local in character and are in decline. These points, with respect to Russia, are elaborated on in Chapter 18 .


Introduction 17

In this context, the CIS has a limited number of choices. Membership of the EU, as an alternative regional bloc sustaining political and economic networks, is not on the agenda. Russia has to trade as best it can with the world market and meet the conditions of global institutions such as the World Trade Organization. Concurrent with pursuing economic exchange with other actors in the world economy (EU, USA, Japan, China, India), it has opportunities as part of a wider Commonwealth of Independent States. The CIS has a market large enough to sustain home industries and it has valuable human and physical resources (cru-cially its reserves of oil, gas and other minerals).

A signi� cant number of countries have adapted to the fall of the European socialist countries by maintaining some institutions of the state socialist era. These include Russia, Belarus and the former Soviet republics of central Asia.

The reasons for this division can be found in the historical legacy. The cultural and political traditions in the central European states (the � rst category above) enable greater opportunity for investment and transfer of goods. A virtuous circle develops – con� dence is given to Western investors who commit capital to these countries and they are further incorporated into the capitalist world system. The higher living standards provide, at least initially, a basis for political stability. Emigration within the European Union also provides opportunities.

The countries of central and Eastern Europe had different histories and tradi-tions. The legacy of ‘communism’ was only one of them and the impact and sig-ni� cance of communism differed greatly between them. The hegemonic Communist Party was embedded to varying degrees in the political structures and support systems and the aspirations of the populations differed signi� cantly for reform. The countries that have made a successful transition to capitalism and electoral democracy have an elite structure more in support of capitalism, and a population more ideologically opposed to communism. These changes have not been without costs. Even in the most successful countries, signi� cant sections of the population have suffered unemployment, greater uncertainty, stress and loss of identity. For many (not all), nostalgia for the bene� ts of state socialism has increased: a retrospective identity with socialism has developed. These develop-ments are documented in Chapter 17 .

When the Soviet Union split up into 15 sovereign states, Russia remained by far the largest in terms of land mass and population, the most powerful in terms of its economic and military power, and the most in� uential in its political leadership and status as a world power. In Chapter 12 , I outline the policies taken by the leadership of President Yeltsin, who de� ned the course of transformation to capi-talism. In Chapter 18 , I consider the consolidation of the new political elites by Presidents Putin and Medvedev. I show the economic weaknesses of Russia and I refute the idea that it poses an economic and military ‘threat’ to the West. I con-tend, however, that Russia under Putin is developing a corporatist ideology embodying concepts of sovereignty and democracy predicated on state leadership which pose an alternative political and economic strategy to the hegemony of neo-liberalism. Developments re� ect the footprint of the history of Russia and the Soviet Union.



Ukraine is one of many states that have had experienced ‘coloured’ revolu-tions. In Chapter 19 , I de� ne the coloured revolutions as a revolutionary coup d’état . The coloured revolutions were conceived by many of their supporters as a means to correct illegitimate transformation outcomes. They expressed opposi-tion to corrupt incumbent elites, concurrent with the promotion of a renewed modernization along Western lines – greater pluralism, strengthening of the market and a Western political alignment. They were led by counter-elites seek-ing power, legitimated by public support and election fraud of the incumbent leaders.

This phenomenon is interpreted as a Western-inspired political movement seeking to further the stalled transformation process by installing leaders with a commitment to Western values and institutions. On the basis of responses in public opinion polls, the research shows that there was a distinct strati� cation of participants and supporters: young people, skilled non-manuals (executives and professionals) were disproportionally in favour of the coloured revolution move-ments, and the older generation, manual industrial and agricultural workers were against. The new incumbents of power installed by these protests neither fur-thered greater democratization nor did they endorse any revolutionary changes as promised by its leaders. This has led to public scepticism and disenchantment.

In Chapter 17 , we turn to consider the consequences of transformation. In the public’s view the changes have fallen short of expectations. There has been a gradual decline in the support for the changes that have taken place. Large num-bers of the population believe that they are worse off than under state socialism. Overwhelmingly the public considers that the major bene� ciaries have been poli-ticians and business people. The Pew Global Attitudes Project sums up public attitudes in its phrase: ‘The End of Communism [is] cheered, but now with reser-vations.’ The quite unrealistic assumptions of many transitologists could never have been ful� lled. Many people, for different reasons, are now disenchanted with the results of radical reform.

Study of the social consequences of reform shows high levels of poverty, unemployment and inequality. The economic depression has exacerbated public dissatisfaction. Even in the Czech Republic and Poland, the countries with the most favourably disposed population to transformation, sizeable majorities view economic conditions as bad. Sociological data shows signi� cant declines in human development, with levels even in 2007 being below the state socialist period. When we consider changes in human development, there has been no convergence to the standards of Western European countries. Only Poland (as well as China and Cuba) has improved its position in the UNDP world ranking of human development.

Citizens of post-socialist countries are again predisposed to consider change. Capitalism has not delivered what many believed was promised: in the post-socialist societies, it has brought power and wealth to political and economic elites, but the mass of the population has perceived a fall in living standards, an erosion of social security, and economic uncertainty, particularly unemployment or the threat of unemployment.


Introduction 19

What comes next? In the � nal chapter, I dwell on future developments. Here the post-socialist states are situated in the context of the global economic system and the world economic crisis that began in 2007. In all the post-socialist states the negative impact of the economic depression has weakened the ideological and economic attraction of globalization in general and the neo-liberal market model of coordination on which it is currently based. National sovereignty, national distinctiveness and state identity are becoming more important organizing principles.

The new member states, it is contended, have little scope for independent action. They are constituent parts of the European Union on which they are eco-nomically and politically dependent. Russian leaders, in particular, have strongly advocated notions of ‘self-determination’ and ‘sovereignty’. 23 The key to success-ful policy is the utilization of economic rents, earned from materials’ export industries, for innovation and renewal.

Following the early economic history of the successful Western countries, when states supported their own industrial development, 24 it is for the government to de� ne the industrial sectors which the country should support. Such turns to statism (a political system that is driven by the state) have led to an anti-states’ rights backlash fuelled by the economic liberalism of the global elites. 25

In Chapter 20 , I argue that Russia is best analysed as a part of a bloc of ‘semi-core’ countries (including China, Brazil, India and Venezuela) and that regional companies and political actors have considerable scope for action independently of the global economy. 26 The most likely alternative political economy is that of national corporatism. Under different political and economic conditions, there might be much popular support for a return to a revitalized form of market social-ism – though I conclude that this is currently unlikely.

As we see in Part I, state socialism succeeded as a mobilizing strategy, it destroyed the power of private capital and it showed that advanced societies could be organized without an economic market. It provided what the successor capital-ist states have not – comprehensive welfare and a full employment economy. The fall of state socialism was a severe setback to the socialist project. I argue, never-theless, that the universalistic goals of socialism are not invalidated by the col-lapse of state socialism. The consequences of transformation in the post-socialist states make a revival more likely.

Notes 1 See Raymond Tanter and Manus Midlarsky, ‘A Theory of Revolution’, Journal of

Con� ict Resolution , 11(3), 1967: 264–80; discussion of mass revolution, p. 265. 2 Theda Skocpol, States and Social Revolutions , Cambridge: Cambridge University

Press, 1979, pp. 14–15. 3 Louis Gottschalk suggests that revolution is a ‘popular movement whereby a signi� -

cant change in the structure of a nation or society is effected. Usually an overthrow of the existing government and the substitution by another comes early in such a move-ment and signi� cant social and economic changes follow’ (Louis Gottschalk, ‘Causes of Revolution’, American Journal of Sociology , 50(5), 1944, p. 4).



4 By counter-revolution I mean the process by which previously discarded classes re-store their power.

5 On Lenin’s thought see N. Harding, Lenin’s Political Thought (2 vols), London: Mac-millan, 1982; Moshe Lewin, Lenin’s Last Struggle , Ann Arbor, MI: University of Michigan Press, 2005; D. Lane, Leninism , Cambridge: Cambridge University Press, 1981; V. I. Lenin, ‘What is to be Done?’, Collected Works , Vol. 5, Moscow, 1961; Len-in, ‘Imperialism, the Highest Form of Capitalism’, Collected Works , Vol. 22, Moscow, 1964; Lenin, ‘The State and Revolution’, Collected Works , Vol. 25, Moscow, 1969.

6 That the working class would autonomously develop class consciousness and sponta-neously bring down capitalism.

7 ‘The Communist Manifesto’, Selected Works , Vol. 1, London: Lawrence and Wishart, 1958, p. 38.

8 A modern version of this theory is to be found in the writings of Immanuel Wallerstein. See The Modern World Economy , Cambridge: Cambridge University Press, 1970. See also Theda Skocpol, ‘Wallerstein’s World Capitalist System: A Theoretical and Historical Critique’, American Journal of Sociology , 82, 1977: 1075–90.

9 See ‘The Development of Capitalism in Russia’, Collected Works , Vol. 3, Moscow, 1960.

10 V. I. Lenin, ‘Imperialism: The Highest Stage of Capitalism’, Collected Works , Vol. 22, Moscow, 1964, ch. 7 .

11 Marx and Engels, in the Preface to the 1882 (Russian) edition of the Communist Mani-festo, had mentioned such a possibility. When discussing the Russian obshchina (vil-lage community), they noted that the Russian revolution could become ‘the signal’ for the revolution in the West. Then, they continued, the common ownership of land (preserved in the obshchina ) ‘may serve as the starting point for communist develop-ment’ (‘Preface to the Russian Edition of 1882 Communist Manifesto’, Selected Works , Vol. 1, p. 24).

12 Cited by E. H. Carr, The Bolshevik Revolution , Vol. 1, New York and London: Macmil-lan, 1950, pp. 94–5.

13 Lenin, ‘What is to be Done?’, 1977 edn, p. 178. 14 Lenin, ‘What is to be Done?’ 15 Its full name was the Russian Social-Democratic Labour Party (Bolsheviks). 16 This quotation may be found in Engels’ preface to the Communist Manifesto, written

in 1888, in Selected Works , p. 28. 17 This date is in the Julian calendar still used by the Orthodox Church; in the Gregorian

calendar, in use in the rest of Europe, the date was 7 November. 18 V. I. Lenin, ‘The Tasks of the Proletariat’, Collected Works , Vol. 24, Moscow, 1964. 19 Detailed accounts of the October Revolution may be found in the following: Sheila

Fitzpatrick, The Russian Revolution , Oxford: Oxford University Press, 2008; Orlan-do Figes, A People’s Tragedy: The Russian Revolution 1917–24 , London: Jonathan Cape, 1996; M. Ferro, October 1917: A Social History of the Russian Revolution , Lon-don: Routledge and Kegan Paul, 1980; E. Acton, Rethinking the Russian Revolution , Cambridge: Cambridge University Press, 1993; I. Deutscher, The Prophet Armed: Trotsky, 1879–1921 , Oxford: Oxford University Press, 1954; S. Fitzpatrick, The Russian Revolution 1917–1932 , Oxford: Oxford University Press, 1983; E. H. Carr, The Russian Revolution from Lenin to Stalin , London: Macmillan, 1980.

20 See particularly, Robert Conquest, The Great Terror: A Reassessment , New York: Macmillan, 1992; Stephen Kotkin, Magnetic Mountain: Stalinism as a Civilization , Berkeley, CA: University of California Press, 1996; David Shearer, Policing Stalin’s Socialism: Repression and Social Order in the Soviet Union, 1924–53 , New Haven, CT: Yale University Press, 2009; S. Swianiewicz, Forced Labor and Economic Develop-ment , Oxford: Oxford University Press, 1965. For further references see Chapter 2 .


Introduction 21

21 For an overview see Martin McCauley, Stalin and Stalinism , Harlow: Longman Pear-son, 2008.

22 Some commentators discuss whether reform was even possible. This is quite a redun-dant question, as the Soviet Union’s history had been one of continual reform, both be-fore and during the Gorbachev period. See the discussion in Stephen F. Cohen, Soviet Fates and Lost Alternatives , New York: Columbia University Press, 2009, ch. 4 .

23 See the discussion in Grani globalizatsii , Moscow, 2003, esp. ch. 9 ; and V. Yu. Surkov, Osnovnye tendentsii i perspektivy razvitiya sovremennoy Rossii , Moscow: Sovremen-naya gumanitarnaya akademiya, 2006.

24 See Ha-Joon Chang, Kicking Away the Ladder , London: Anthem Press, 2002, espe-cially ch. 2 .

25 See for example, Patrick Dunleavy, ‘The Backlash against the State’, Political Insight , 2(1), April 2011: 4–6.

26 For further discussion see H. Kitschelt, P. Lange, G. Marks and J. D. Stephens, ‘Con-vergence and Divergence in Advanced Capitalist Democracies’, in H. Kitschelt, P. Lange, G. Marks and J. D. Stephens (eds), Continuity and Change in Contemporary Capitalism , Cambridge: Cambridge University Press, 1999, pp. 427–60.


State socialism was created in Soviet Russia after the October Revolution. Its institutional forms, ideology and practice were strongly in� uenced by the history and the context in which subsequently the Soviet Union (founded in 1922) devel-oped. Its structures had a formative in� uence on all the countries that later adopted a state socialist formation.

In post-revolutionary Russia, the revolutionary process was not one of ‘putting socialism into practice’. Lenin’s initial quest was to assert political control. As noted in Chapter 1 , his prognosis of the legitimation of a Bolshevik seizure of power in Russia leading to a socialist revolution was based not only on the weak-ness and incompetence of the Russian bourgeoisie but also in a belief that a social-ist revolution in the advanced countries of the West was latent and would be precipitated by a workers’ uprising in Russia. This crucial consequential contin-gency did not happen, however, and the absence of any effective working-class power in the advanced countries of the West has bedevilled the communist move-ment ever since.

In addition to being confronted by the metropolitan capitalist powers, the com-munists in Soviet Russia were challenged by all the accumulated problems of an economically backward autocratic order and by foreign intervention in the civil war. The Communist Party not only had to organize their supporters for revolu-tion, but later – which was not the intention of Lenin in 1917 – to ‘build social-ism’. The revolutionaries who had seized power were not without support but from the very beginning they were a minority. The Bolsheviks received 9 million votes – some 25 per cent of the votes – in elections to the Constituent Assembly in November 1917. There was, as Lenin had noted, a critical mass of support for the new political order. But others were either indifferent or hostile and some never accepted the basis for communist rule.

In this chapter I consider the formation of state socialism which later became a model for other societies. 2 The cultural heritage of Russia, already apparent in Lenin’s theory of the Party (outlined in Chapter 1 ), had a major impact on Bolshevik policies. ‘Socialism’ became de� ned in terms of Russian cultural and economic conditions.

2 Socialism in one country The Soviet model of modernity 1

Lane-chapter 02.indd 23 10/18/2013 7:55:58 AM


The Tsarist heritage The social and political backwardness of Tsarist Russia conditioned the Bolsheviks’ policies. These stemmed from the immense land mass, the inhospita-ble climate and the low level of economic development. Its political and social structure was not of the capitalist type. The productive forces were at a relatively low level of development, very much below that of the European capitalist states. In 1913, for instance, Russian industrial large-scale output was only 6.9 per cent of American gross industrial output. The economy was further weakened by the effects of the First World War, and civil war as well as the effects of the political and economic revolution commanded by the Bolsheviks.

The Bolshevik leaders were confronted with relatively autonomous social forces which de� ed control. The large traditional peasant population was a ‘heavy millstone’ and ‘made the Bolsheviks adjust their policies on every issue’. 3 The mores of the peasant family continued and the new incumbents of power proved incapable of penetrating the family structure. Under the Tsars, there was no divi-sion between state and society: religion had no autonomous sphere of operation and the Orthodox Church, sanctioned by the Tsars, asserted a monopoly over religious organization. A ‘Protestant ethic’ as a spirit of capitalism could not develop autonomously in Russia as part of religious faith. There was no right to combination – political parties were illegal, as were trade unions, and workers’ associations operated under government auspices.

The weakness of civil society, consequent on the absence of capitalism, inher-ited from Tsarism, perpetuated a parochial political culture. That is, following Almond and Verba, there were many political ‘subjects’ but few political partici-pants. The social base on which the Soviet regime developed was largely com-posed of poorly educated people and a large number of illiterates infused with religious superstition. As late as 1937, only 43 per cent of adults (those over 15) were self-de� ned as non-believers and in the census of that year 42 per cent pro-fessed allegiance to the Orthodox Church. 4 The dif� culties of communication were compounded by the low level of literacy and the poor infrastructure such as roads and telephone links. Russia, economically, politically, ideologically and culturally, was unready for socialist revolution. The economic preconditions for socialism or democracy were not present.

Moreover, many factors impelled by the revolution itself created disruption. Revolutions are consequences of polities being unable or unwilling to change gradually. The post-revolutionary years were ones like those following the French Revolution – internal war, oppression and the exercise of terror – but there was also positive state-led economic development. The immediate impact of revolu-tion was civil war, in which the West intervened unsuccessfully against the Bolsheviks. Famine confronted Russia between 1918 and 1920, in 1921 and 1922, 1931–32 and 1932–33. This was a result not just of the leadership’s economic policies, but also of the inclement climate and the failure of harvests. 5 The period from 1920 until 1929 was one of political consolidation in which the institutions and processes of Soviet power were being put in place.


Socialism in one country: The Soviet model of modernity 25

From 1928 to 1940 was an era of internal transformation ‘from above’. Collectivization of agriculture broke the traditional peasant culture and gave the Bolsheviks control over the countryside. They were able to extract economic sur-plus from agriculture to feed the towns – though at considerable initial economic costs. 6 The emigration of many of the intellectual and business classes led to upward mobility of the masses, which ensured loyalty but by the same token such people lacked experience in their new positions. They were uneducated and poorly trained. The inhospitable social and political conditions of Soviet Russia conditioned the outcomes of Bolshevik policies. 7 State socialism was path-dependent as well as being ideologically inspired.

The Soviet planned economy: The theoretical background Could a socialist society be built in such an environment? This is the crux of the Marxist dilemma in the analysis of states of the Soviet type which was posed after the Russian Revolution. Did they succeed in moving to a stage qualitatively higher than capitalism; and if not, what type of society was created?

The answer to these questions depends to some extent on the frame of refer-ence the critic adopts. Supporters of traditional Soviet Marxism and leaders, when they were in power, emphasized the success of directed economic and social development. Western progressive intellectuals at the time, such as the Webbs, 8 hailed the Soviet Union as a ‘new civilisation’. Others, whom we discuss below, considered it to be a form of barbarism.

The advocates of state planning legitimate their views by reference to Marx and Engels. The clearest statement of the Marxist goal of planning under social-ism was made in Socialism: Utopian and Scienti� c : under socialism, ‘socialized production upon a predetermined plan becomes possible … Man, at last the master of his own form of social organization, becomes at the same time the lord over Nature and [becomes] his own master, free.’ 9 In the � rst volume of Capital , Marx postulates a community of free individuals, ‘carrying on their work with the means of production in common, in which the labour-power of all the different individuals is consciously applied as the combined labour-power of a commu-nity’. Under these circumstances, labour-time would be apportioned ‘in accord-ance with a de� nite social plan [to] maintain the proportion between the different kinds of work to be done and the various wants of the community’. 10 Planning then would establish a parity of relationships between what a person contributes to society and what he or she receives from it. While capitalist market relation-ships are based on atomistic competition and the results have no inherent rational-ity, socialist planning could ensure that resources are allocated to meet human needs, rather than to achieve personal pro� t or gain.

Unlike in capitalist societies, where economic units (� rms and corporations) are private and outside democratic control, under state socialism the economy is part of the political process and in principle was answerable to the Party institu-tions and accountable to political institutions. Even if they are not subject to direct



workers’ control, the institutional set-up is quite different from capitalism. Planning is predicated on ful� lling public needs, rather than producing for pro� t.

Advocates of Soviet planning contend that competition generates duplication and waste, whereas cooperation allows for the socialization 11 of production and distribution, which is not only more democratic but also more ef� cient. Individual rewards should be related to the individual’s contribution to society, rather than to the ability of employees (or owners of property) to extract economic rents through their market position. Under capitalism, the use value of a person’s product is replaced by its exchange value as expressed through the market. 12 Thus the market does not secure economic justice. (This is quite obvious when one considers the differentials between banking and other executives and skilled manual and non-manual workers). Moreover, the market cannot calculate social and environmen-tal costs because they do not involve transaction costs. (For example, levels of noise and pollution do not affect the prices of cars. Hence increases in the number of cars raise the level of gross domestic product, while the costs to the environ-ment and ignored.)

Under a socialist system, the state is the major instrument of economic regula-tion and control. A planned society is completely at variance with that of a market society: social control and coordination are not achieved through transactions and the price mechanism; individual success is not measured in terms of income, wealth and pro� t; there is neither competition nor individual or producer calcula-tion of pro� t. Under planning there is one centre which administratively coordi-nates action. Such centralization ensures that economies of scale are achieved and that wasteful competition and transaction costs are eliminated.

Soviet Marxists contended that cooperation is a superior organizing principle to competition. Social control is not based on competitive individualism but cul-turally determined by socialization through the socialist media and educational system. Self-motivation replaces competition operating through the market.

However, these assertions are based on an assumption that a culturally induced social consensus is generated in which self-motivation to work and to cooperate is present in the socialist system. Without such a moral and social consensus, con� icts will arise. In the period of ‘building socialism’ differences between dif-ferent values and motivations – stemming from traditional, ‘capitalist’ and ‘social-ist’ world-views – created signi� cant political and economic problems, as we shall discover in later chapters of this book.

State socialism is an organic type of society. Politics and economics are fused; society is subject to central administrative direction on the one side, but to public control on the other. In Marxist-Leninist theory, this duality is resolved through the procedure of democratic centralism in which the Communist Party is the cru-cial component. Within the Party there was full, open and equal discussion, and the Party leadership was elected. In practice, however, under the conditions in the Soviet Union, procedures were chaotic and leaders were unchecked. Party leader-ship was centralized and members were bound by the Party’s policies. The Party had the task of leading the working class. 13 This duality between democratic participa-tion and central direction, however, led to contradictions, and often institutions



(the security services being the most obvious) were able to operate with little or no forms of democratic control.

In the development of capitalism, civil society enabled the autonomy of the dominant class which through the ownership of property yields political power. An assumption by Marxists supporting the idea of state socialism was that the only alternative to private ownership of property was some form of public owner-ship. While under capitalism owners maximized their own interest, it is not clear just how the interest of ‘public ownership’ can be achieved.

Building the soviet planned economy The advocates of the Soviet type of socialism claimed that it promoted a rational system of planning and coordination. Politics secured human liberation. These principles replaced competition, the market, and the autonomous private units of civil society. Capitalism is � awed in that its rationality is limited to a micro basis. Individuals maximize utility and � rms pursue pro� t. Such striving, however, does not promote social well-being. Soviet Marxists contended that rationality entailed that people were able consciously to plan and decide what kind of society they wish to live in. Central planning – ex-ante organization of the economy – replaces ex-post coordination of capitalist state control. The weakness here is that it is not ‘the people’ who plan but executives through institutions – and executives may not anticipate public needs.

Critics, moreover, have cast doubt not only on the ef� ciency of the system but also on the enormous costs – social and human – of communist development. They have focused mainly on the political and economic inadequacies of the regime of Stalinism: the use of coercion, arbitrary rule, the absence of democratic and property rights, the lack of consumer sovereignty and the failure of the admin-istered economy to operate as ef� ciently as the capitalist market economies of the West. Such critics 14 often bring with them a liberal capitalist perspective and ignore the social advances of state socialism: the universal provision of welfare, social stability and low levels of economic uncertainty given by full employment, the increased defence capacity which allowed the Soviet army to repel the German invaders during the Second World War.

These critical postures may be summarized under three major interpretations of state socialism. The � rst considers that the Russian October Revolution created conditions for the making of a socialist society. In this chapter the organizing principles of state socialism are discussed, along with its structural forms and the policies that were pursued and later followed by other state socialist societies. The second consists of Marxist critiques denying that these societies had moved to a socialist formation but are types of capitalist formations. The best known is state capitalism, discussed below in Chapter 9 . Third is a critique of the impossibility of the Soviet experiment itself – from those who believe that the idea of a Marxist ‘planned economy’ is seriously faulted and that the form of statism introduced led to a totalitarian society epitomized by ‘Stalinism’. Totalitarianism is considered in the next chapter.



Faced with the backwardness inherited from Tsarist Russia, the aftermath of the First World War and the destruction of the civil war, the Bolsheviks became ‘modernizers’. Marxism, which had arisen as a critique of bourgeois society, and the policies that were developed to transcend it, became known as the doctrine of Marxism-Leninism – an ideology of development that provided an intellectual rationale for the policy undertaken under Stalin. 15 Marxism-Leninism developed into a theory of modernization with three major components: state-led industriali-zation, the collectivization of agriculture, and a cultural revolution. These projects are the essence of the policies initially adopted in all state socialist societies. The objectives of the regime were not in terms of the economists’ arguments discussed above – of making an economy more ef� cient than capitalism – but of rapid development of the productive forces.

Priority was given to organizing resources to build the economic basis of an industrial society. Soviet ‘socialism’ was almost synonymous with the develop-ment of the industrial base – the growth of the forces of production. This involved copying the advanced forms of industrial production known in the West, particu-larly the United States – the most advanced capitalist country – and it included the adoption not only of its technology but also of the organization and management of labour, such as Taylorism. 16

But the institutions of Soviet society in which industrialization was carried out were quite different from those of Western capitalism. There was wide-scale public ownership of the means of production (though the produce of collective farms was owned collectively by the farmers); the state directed economic surplus for developmental investment; the out� ow of pro� ts, which occurred when states were dependent on foreign capital, was prevented. This involved administrative direction and control instead of the market mechanism.

Comprehensive central planning was adopted. Distribution and production were controlled by the bodies of central planning. The market and its institutions, such as independent banks, and monetary indicators, such as the rate of interest, were abolished. Demand, operating through the market, played little role in the determination of prices and investment. The economy was supply dominated. The government concentrated resources on rapid industrialization – rather analogous to Western governments under a war economy. The rate of capital investment was high: it favoured heavy industry rather than light, and producer rather than con-sumer goods. There was little investment in agriculture.

Not everything was subject to central command, however, and market forms continued although in an attenuated form. Money continued as a means of exchange and a store of wealth. Employees were paid money wages which they used to purchase goods and services. Even after the collectivization of agriculture, the peasants were allowed to keep a few animals and small plots of land, the pro-duce of which could be legally sold on the collective farm market. This was important not only for the peasants but also in securing a supply of agricultural commodities to the towns which could be purchased at market prices.

The economic effects of Soviet developmental policy were positive and com-pared favourably with capitalist-type economies. Western estimates for annual



rates of economic growth for the period 1928–40 range from 8.8 per cent (Nutter) to 13.6 per cent (Seton); for the more backward areas the � gures were 9.2 per cent (Nutter) to 14.1 per cent (Hodgman). Figures for Western economies in similar periods of economic development were USA 1839–69, 5.6 per cent; Japan 1905–09 to 1930–34, 6.2 per cent; India 1952–62, 7.2 per cent. 17 Estimates by Gerschenkron show that output of Soviet large-scale industry increased at an annual rate of between 15 and 17 per cent between 1928 and 1938; Soviet indus-trial output as a ratio of American output rose as follows: 6.9 per cent in 1913, 27.3 per cent in 1932, 45.1 per cent in 1938. 18 Consequently, defence capacity of the Soviet Union was greatly enhanced and the armed forces had an economic base on which to � ght the Second World War.

In agriculture, the Soviet government failed to achieve a voluntary movement to industrialized and large-scale industrial-type farming. The October Revolution resulted in land reform (nationalization of land by the government abolished the large estates) and an equalization of holdings (it was seized for use by the peas-ants). This gave rise to a large number of peasant farmers with less capital per unit than before the revolution. State farms (that is, large-scale agricultural units under state management), favoured by Lenin, were few in number. On the contrary, in the place of the pre-revolutionary large estates, there was a reversion to small-scale peasant agriculture.

Collectivization of agriculture began in 1929 and was completed by the end of the 1930s. This involved a brutal administrative process in which peasants were dispossessed of most of their stock and rights over most of the land they previ-ously farmed. By 1937, 235,000 collective farms had replaced the 26 million peasant productive household units existing in 1929. Cooperative production of agriculture was organized: peasants were put under the control of collective farm chairpersons who, as agents of the central planners, controlled the product mix and, most important of all, the surplus produce.

The political leadership considered that such a course of action in agricul-ture was necessary for two principal reasons. First, it enabled resources to be channelled to the towns to feed the newly mobilized working class; surplus derived from agriculture rose from 20 per cent in 1913–14 to 36 per cent in 1939. Second, the policy crushed any potential counter-revolutionary groups or support in the countryside. It established urban economic and political power over the village. There were also considerable costs. Many resisted the seizure of their lands; it is often claimed that as many as 5 million peasants who resisted were killed or dispatched to Siberia. Others � ed the country. From the land-owning peasants’ point of view, collectivization was a catastrophe. There was a massive slaughter of livestock. Moreover, serious famines occurred in the Russian Federation, Ukraine and Kazakhstan between 1928 and 1933, with literally millions of people dying of hunger. 19 The famine has become part of the folklore of horror similar to the Great Depression in the West as described by John Steinbeck in The Grapes of Wrath . Other factors also contributed to the famine, such as bad weather and very poor facilities for storage and distribution.



Some commentators consider collectivization to have been a complete failure and argue that prices should have been allowed to rise and the tempo of industri-alization could have been slowed down. However, collectivization has become a feature of state socialism and was adopted later in Eastern Europe and in China. On a comparative basis, the growth of Soviet agriculture compared favourably with Japan and the USA at similar growth periods. According to Western esti-mates cited by Wilber, 20 total Soviet agricultural growth rates averaged 2.2 per cent between 1928 and 1961, and per capita growth rose 1.1 per cent; comparable � gures for the USA (1870 and 1900) were 3.3 per cent and 1.2 per cent, and for Japan (1861–65 to 1891–95) 2 per cent and 0.8 per cent. Others contend that had private farming continued, agricultural production might have been as much as a � fth higher by 1939. 21

Culture and welfare The Bolsheviks pursued a policy of cultural revolution and social development. The objective here was to introduce comprehensive mass social services as well as to capture the minds of the people. In place of the strati� ed system of education inherited from Tsarist Russia, comprehensive and polytechnical education was introduced, with a common syllabus for all pupils. Mass literacy campaigns were instigated. In 1926, the Soviet authorities claimed that 51.1 per cent of the popula-tion aged over nine years was literate and by 1939 the � gure reached 81.2 per cent. 22 This � gure probably errs on the side of charity: according to the census of 1937, of 98 million people aged over nine, 37.3 million (38 per cent) were illiter-ate. 23 Even by 1959, the census showed that by far the largest group of the popula-tion had received only an incomplete secondary education. (Educational developments are further discussed in Chapter 9 .)

Political mobilization was achieved through exposure to the mass media. Propaganda sought to organize loyalties around an image of a supranational USSR – though its values were highly infused with Russian culture. Russian became the language of communication, rather like English in the British Empire. Tsarist titles and honori� c awards were abolished. They were replaced with orders and medals bestowing social and political recognition on servants of the Soviet state, such as the Order of Lenin, Hero of Socialist Labour (Double Hero for per-sistent socialist endeavour). To reward women who had many births (i.e. excelled in reproducing the means of production), the title of Heroine of Socialist Motherhood was awarded. ‘Socialist’ ceremonies of marriage and initiation into the working class were instituted. 24

Public holidays celebrating events socialist and Soviet replaced religious ones – such as the anniversary of the October Revolution and May Day. The objective here was to create a climate of expectancy and change in which people could be mobilized into Soviet society, as well as to destroy old values and to create new forms of symbolic legitimacy for the socialist state. In the early days after the revolution, in order to combat religious superstition anti-Christmas and anti-Easter campaigns were introduced – though these faded away in the 1930s.



A characteristic feature of the USSR and later other communist countries was the atheistic values sponsored by the communist leaders who, especially in the earlier years of their power, took an uncompromising stance to religion and its associated superstitions.

Free rudimentary health and welfare services were introduced comprehen-sively over the whole country. Moreover, compared to other countries at similar levels of development, spectacular advances were made in the � eld of public pro-vision. The number of physicians per thousand of the population rose from 0.17 in 1913 to 0.74 in 1940 and 1.97 in 1961; in India in 1956 the ratio was 0.17, in Japan in 1959–60, 1.09, and in the USA in 1961, 1.28. 25

The administered society The coordinating role of the capitalist market was replaced by state coordination. The logic here is that if coordination is administrative, mechanisms of democratic coordination (parties and parliaments expressing interests) are redundant and have no functional basis. Autonomous social forces (constitutive of a Western-type civil society) were suppressed. The key question then is how the administra-tion is organized and controlled and to whom it is responsible.

The tradition of an autocratic and large state bureaucracy, coupled to the con-sequences of internal war, in� uenced the form of the Soviet administrative system. A monolithic state structure (with no division of powers), derived from the Tsarist bureaucracy, was set up. Soviet administration had a federative character (with national republics, with their own symbols and constitutions, and regions) which was ‘national in form and socialist in content’. Such divisions strengthened national identity and were to have important consequences later in the break-up of the USSR.

Compared to the Tsarist period many new features appeared in the Soviet administrative architecture. In the years following 1917, other more ostensibly ‘socialist’ measures were taken by the government. In addition to the seizure of the landed property of the aristocracy, the personal possessions of the rich were expropriated. An attempt was made to enhance the status of manual labour. Initially, the pay of political commissars in Soviet Russia was reduced to the level of that of the average manual worker, and there was an assumption that wage levelling was an intrinsic part of socialism. Income differentials became much more equal. However, this did not entail the equal distribution of services and commodities: they were disbursed according to the contribution of workers and employees to society – distribution was ‘according to work’, and work was evalu-ated in terms of skill, and its dif� culty and intensity.

Three notable social objectives were achieved in the Soviet Union (and later in the other countries that followed its path). First, wage differentials, even when payment in kind was included, were much lower than in market economies and favoured manual workers. Physicians received the average skilled worker’s wage, for example. There was a remarkable long-term equalization of income – to the advantage of manual labour and to the disadvantage of non-manuals.



Figure 2.1 shows the trend from 1932 to 1986: the average pay for manual workers is shown at 100 with ratios for of� ce workers and non-manual technical employees. Money wages, of course, were not the only determinant of income. Many of the elite, not only politicians but famous authors, musicians and � lm stars, were able to receive better accommodation, 26 access to quality food, and medicine (and for their children, better schools). Such administrative perks were important. However, money wages were the most important component of income and wage ratios are still the best guide we have to relativities. The lower relative pay of the professional class re� ected the desire on the part of the political leader-ship to enhance the position of manual workers at the expense of the non-manu-als; this created a feeling of relative deprivation on the part of the latter. As we shall see in later chapters, this policy had destabilizing effects.

Later, a similar course took place in the socialization of the countries of Eastern Europe after the Second World War. Wesolowski estimated that the differential between the highest and lowest groups of employees had fallen from 200:1 in pre-war Poland to 10:1 in the 1960s. 27 Absolutely and relatively compared to similar occupational statuses in the West, the professional and technical employees were very much worse off in the USSR and other state socialist societies. In compari-son to capitalist countries, the prestige of skilled manual groups rose, and that of unskilled non-manuals declined. For instance, the standard international index (1 being low, 100 being high) of prestige for clerks was 43.4, whereas for the Soviet Union (data for 1969) it was only 29.4; for miners the USSR scored 54.1 and the international index was only 31.5. 28 In later years – particularly from the mid-1970s – partly as a consequence of relative wage equality, the role of illegal and non-monetary payments became greater for commercial and industrial execu-tives. Additionally, one must bear in mind that the professional strata generally fared better with respect to redistributive policies and payments in kind. They had better access to education and foreign travel, although industrial workers also had

0

50

100

150

200

250

300

1932 1940 1950 1960 1970 1986

Workers TechnStaff OfficeWks

Figure 2.1 Index of wage differentials between manual workers, of� ce workers and non-manual technical employees in the USSR, 1932–86 .



privileges – access to goods sold in the enterprise, and to housing and social ser-vices � nanced from enterprise funds.

At the other end of the scale, poverty continued, especially for people who had an incomplete labour record, and they had lower than average pensions; disabled people and single-parent families also were also likely to be poor.

The second achievement was that structural unemployment was averted; social policy had one of its goals the maintenance of a fully employed labour force. This had the consequence of reducing considerably the amount of poverty. The advo-cates of state socialism pointed to the absence of a reserve army of labour, which gave the working class security of living standards. Women increasingly became an important part of the labour market. This gave women greater independence and there were usually two income earners in the family. Probably the most important cause of this high level of labour utilization was the high rate of indus-trial development.

Third, welfare (education, health) and state bene� ts (pensions) and subsidies (for housing and food) became signi� cant components of the standard of living. The educational system was adapted to make it more appropriate to a socialistic system. Previous forms of strati� cation of education into different types of schools were abolished and a comprehensive type of polytechnical education was set up with a common syllabus for all pupils.

Subsidies for utilities (gas, electricity, housing) were introduced: for instance, the cost of accommodation was less than 5 per cent of earned income. Public goods were highly subsidized in the USSR and cheaper than in market societies. For example, in 1982, apartment rent in Moscow required 12 hours’ work (based on the average wage), while in Washington DC it required 51 hours and in London 28 hours; a bus fare in Moscow required three minutes of (average) labour time, seven minutes in Washington DC and 11 minutes in London. 29 Hotel rooms, elec-tricity, gas, local telephone, cinema and theatre were cheaper in Moscow in terms of labour time than in DC. Medical care and education were universally available and provided from public funds.

The market was substantially weakened as a distributive mechanism and replaced by administrative redistribution. On the other hand, consumer goods were much more expensive and it would have taken several years’ work to buy a car, for which there was a very small market. This gave rise to considerable prob-lems, as is shown below.

Moreover, Soviet society disappointed many egalitarian socialists. Distribution was according to desert – to work performance – not to need. There was an une-qual distribution of commodities and services and status differentiation distin-guished different social groups.

Research has shown that, with some notable exceptions, the ranking of the desirability of jobs followed a similar scale as that in the capitalist West, though the income relativities did not. The exceptions were the position of groups of manual workers (such as miners) who were ranked higher, and farmers (in prac-tice, peasants in collective farms) who had less prestige. 30 Even though the money incomes of professional workers such as physicians, lawyers and artists were



severely depressed and were not more than the wage of the average skilled indus-trial manual worker, their status ratings remained relatively untouched. 31

The Soviet notion of socialism By 1936, the political leadership of the USSR declared that socialism, the � rst stage of communism, had been completed. The level of productive forces had been enhanced as a result of the � ve-year plans. The class relations of production had been secured by the nationalization and state control of property. According to Soviet theorists, class relations had transcended those of capitalism: no classes based on ownership of property existed. From an economic point of view, produc-tion was not for ‘exchange’ but for ‘use’ and capital accumulation was not the consequence of a class of individuals exploiting the workforce through the extrac-tion of surplus and investing it in capital. The state was the agent of investment, and the mechanisms of planning had superseded the market. Consequently, the state exercised considerable in� uence over the distribution of income. The domi-nation of the state has been theorized by some as a form of dictatorship, or ‘total-itarianism’ (to which we return in Chapter 3 ) or ‘bureaucratic state capitalism’ ( Chapter 9 ).

Soviet Marxists would concede that the system was not communist. There remained a state apparatus: the Party, police and ‘ideological state apparatuses’ operated to constrain the population. As in capitalist societies, the state’s role was to defend society from external foes and it managed resources for industrial devel-opment. Marxism-Leninism added another dimension to socialism: it became a developmental ideology, society was mobilized by the Communist Party and the advance to a communist mode of production was to be achieved through state ownership and management.

During the inter-war period, there is considerable evidence to show that there was a substantial amount of popular support for the Soviet regime. The Harvard research project on Soviet refugees (which would be likely to underestimate pos-itive views rather than amplify them) showed that the younger and better educated were the more supportive of the regime. 32 (This was to change in the 1980s, 33 when the young and highly educated were the most dissatis� ed with it – discussed below in Chapters 8 and 9 .) Such support was not limited to the Soviet Union. In 1939 and 1942, Stalin was Time magazine’s Man of the Year. He is credited in 2013 by many in the Russian Federation as a heroic defender of the country.

All processes of socio-economic change have costs. The British industrial revolution led to the destruction of craft industries and rural life. The rural population was deprived of common land; the expansion of British interests abroad led to the rise of the slave trade and the destruction of local industry in India and the suppression of indigenous peoples. There was famine in Ireland and the emigration of its population. Industrialization was accompanied by depression and unemployment. In all the British colonies (except New Zealand) there were legal restrictions on the rights of native peoples – racism was insti-tutionalized.



The costs of communist power were also great. Whether they are greater than the bene� ts is a matter of political controversy. However, Western ‘progressive’ intellectuals, such as the Webbs, 34 hailed the Soviet Union as a ‘new civilisation’.

Stalinism The downside was the high level of political repression under the Stalinist regimes. Its critics have focused on the political and economic inadequacies of the regime of Stalinism: the use of brutal coercion, arbitrary rule, the absence of democratic and property rights, the lack of consumer sovereignty and the failure of the administered economy to operate as ef� ciently as the capitalist market economies of the West.

The critique is summed up by one of the Webbs’ contemporaries, John Maynard Keynes, who also was a visitor to the Soviet Union: ‘Red Russia holds too much which is detestable … I am not ready for a creed which does not care how much it destroys the liberty and security of daily life, which uses deliberately the weap-ons of persecution, destruction and international strife.’ 35 This approach is codi-� ed into the anti-communist ideology of totalitarianism detailed below.

It was under Stalin that the character of Soviet power was established, and crit-ics have relied on the pejorative aspects of ‘Stalinism’ to address its character. This approach focuses on the repressive methods, the dictatorial rule and the vio-lence utilized under Stalin. The Soviet regime deported literally millions of people to work camps (gulags) during the 1930s and 1950s; a regime of terror was insti-tuted in which purges of communists and others thought to be disloyal to the regime were imprisoned or executed (numbers are usually cited in millions). 36 These included nationalities who were (or thought to be) opposed to Soviet power and were subjected to deportation and forced labour. 37 Others, such as the Polish of� cers captured during the invasion of Poland imprisoned at Katyn and other camps, were shot. 38 In addition were the hardships and deaths caused as a conse-quence of industrialization and collectivization.

These brutal policies have to be interpreted as a component of the Soviet regime; they were to some extent contingent on (but not justi� ed by) the political and economic situation facing an isolated country under threat of internal war and invasion.

On the other side, Stalin is widely revered in contemporary Russia and regarded as a saviour of the country from the ravages of the German invasion of 1941: in 2013, Volgograd was renamed Stalingrad in honour of the victory there of the Soviet army in January 1943. The defeat of Hitler’s army was not achieved by one man; the industrialization of the USSR as well as the capability of the system of socialist planning were decisive factors in the victory over the Axis powers.

The political heritage of Tsarist Russia – its dictatorial form of rule and reli-ance on repression, the lack of a democratic culture in the Bolshevik Party which did not restrain its leadership, the psychological disposition towards violence and paranoia of the Stalinist leadership, the threat of invasion and an internal war – all contributed to the crimes perpetuated by the regime. These crimes contravened



the socialist ideal, they were not a consequence of it. It is highly suspect meth-odologically to attribute the atrocities of Stalinism to be ‘caused’ or motivated by Marxism-Leninism or by the doctrine of socialism. Under different conditions, socialism could have been built in the Soviet Union without such human costs.

Notes 1 My thanks to R. W. Davies for some pertinent comments on an earlier draft of this

chapter. 2 There are many histories and commentaries on the formation of the USSR. For a

history to 1929, see the multi-volume E. H. Carr, A History of Soviet Russia , New York and London: Macmillan, 1950 onwards. For a shorter economic history, see Alec Nove, An Economic History of the USSR , Harmondsworth and New York: Penguin; Archie Brown, The Rise and Fall of Communism , London: Vintage Books, 2009; Stefan Hedlund, Invisible Hands: Russian Experience and Social Science , Cambridge: Cambridge University Press, 2011. On the October Revolution, see S. Fitzpatrick, The Russian Revolution 1917–1932 , Oxford: Oxford University Press, 1983; Robert Service, A History of Twentieth Century Russia , London: Allen Lane, 1997; Philip Hanson, The Rise and Fall of the Soviet Economy: An Economic History of the USSR from 1945 , London: Longman, 2003; C. K. Wilber, The Soviet Model and Underdeveloped Countries , Chapel Hill: University of North Carolina Press, 1969; V. M. Zubok, A Failed Empire: The Soviet Union in the Cold War from Stalin to Gorbachev , Chapel Hill: University of North Carolina Press, 2007; J. Arch Getty and Oleg V. Naumov, The Road to Terror: Stalin and the Self-destruction of the Bolsheviks , New Haven, CT: Yale University Press, 2002; Hans-Jurgen Wagener (ed.), Economic Thought in Communist and Post-Communist Europe , London: Routledge, 1998; Robert Service, The Penguin History of Modern Russia: From Tsarism to the Twenty-� rst Century , Harmondsworth: Penguin, 2009; Robert Conquest, The Great Terror: A Reassessment , London: Pimlico, 2008; Ronald Suny, The Soviet Experiment , Oxford: Oxford University Press, 1998; Paul Gregory, The Political Economy of Stalinism , Cambridge: Cambridge University Press, 2004; Stephen Kotkin, Magnetic Mountain: Stalinism as a Civilization , Berkeley, CA: University of California Press, 1997.

3 See Roger Pethybridge, The Social Prelude to Stalinism , London: Macmillan, 1974, p. 15. 4 Yu. A. Polyakov, V. B. Zhuromskaya and I. I. Kiselev, ‘Polveka molchaniya’, Sotsio-

logicheskie issledovaniya , 7, 1990, p. 69. 5 Mark Tauger, Natural Disaster and Human Action in the Soviet Famine of 1931–33 ,

Pittsburgh University Press (Carl Beck Papers), 2001; R. W. Davies and S. G. Wheat-croft, The Years of Hunger: Soviet Agriculture, 1931–1933 , Basingstoke and New York: Palgrave, 2004.

6 Robert Allen, Farm to Factory: A Reinterpretion of the Soviet Industrial Revolution , Princeton, NJ: Princeton University Press, 2004.

7 See discussion in Eric Hobsbawm, The Age of Extremes: The Short Twentieth Century, 1914–91 , London: Michael Joseph, 1994.

8 Sidney and Beatrice Webb, Soviet Communism: A New Civilisation , Vol. 2, New York: Scribners, 1938. Earlier editions had had a question mark following ‘ Civilisation ’.

9 K. Marx and F. Engels, Socialism: Utopian and Scienti� c , Selected Works , Vol. 2, Moscow: Foreign Language Publishing House, 1952, p. 142.

10 K. Marx, Capital , Vol. 1, Moscow: Foreign Languages Publishing House, 1958, pp. 78–9. Later in that chapter Marx discusses the need for society to be ‘consciously regulated … in accordance with a settled plan’ (p. 80).

11 For example, the communal provision of heating in a block of apartments does away with the need for individual apartments to be metered, measured and invoiced.

12 See discussion by Marx in Capital , Vol. 1, p. 88.



13 See David Lane, Leninism , Cambridge: Cambridge University Press, 1981. 14 Gerald Easter, Reconstructing the State: Personal Networks and Elite Identity in the

Soviet Union , Cambridge: Cambridge University Press, 2000; Gregory, The Political Economy of Stalinism .

15 For a more detailed account see Lane, Leninism . 16 Taylorism is the theory of scienti� c management. It involves the study of the work

process and its division into separate compartments. Employees are taught to econo-mize on effort and are usually paid on a piecework basis. The organization of work is hierarchical.

17 Data cited by Wilber, The Soviet Model , p. 192. Nutter and Hodgman were American economists who regularly reported to the American Joint Economic Committee. Seton is an English economist specializing in Soviet economics. Hodgman’s index was 67 per cent of the of� cial Soviet index, Nutter’s only 40 per cent. Hence the data cited here are relatively conservative estimates. For full details see Wilber, The Soviet Model , pp. 190–2; Paul Gregory, Before Command: The Russian Economy From Emancipation to Stalin , Princeton, NJ: Princeton University Press, 1994. For a comparative picture see Angus Maddison, The World Economy: A Millennial Perspective , Paris: OECD, 2001.

18 A. Gerschenkron, ‘The Rate of Growth in Russia’, Journal of Economic History , 7, 1947, Supplement, p. 166.

19 See Davies and Wheatcroft, The Years of Hunger , ch. 13 . 20 Wilber, The Soviet Model , p. 182. See also Gregory, Before Command . 21 Robert Allen, Farm to Factory: A Reinterpretation of the Soviet Industrial Revolution ,

Princeton, NJ: Princeton University Press, 2004. 22 NKP, Narodnoe obrazovanie v SSSR , Moscow, 1957, p. 733. 23 Calculated on census data published in Polyakov et al ., ‘Polveka Molchaniya’, p. 67. 24 See C. Lane, The Rites of Rulers: Ritual in Industrial Society , Cambridge: Cambridge

University Press, 1981. 25 Data based on Soviet and Western sources, cited in Wilber, p. 166. 26 Relative to the West, such advantages were relatively modest. Soviet � lm stars, for

example, would have lived in a nice comfortable two-bedroom apartment in central Moscow – incomparable to Sunset Boulevard. They also had access to state-provided chauffeured cars, good hospitals and holiday homes (though they did not own them).

27 W. Wesolowski, ‘Changes in the Class Structure in Poland’, in J. Szczepanski (ed.), Empirical Sociology in Poland , Warsaw: Scienti� c Publishers, 1966, pp. 7–35.

28 Blanka Vavakova, ‘Social Differentiation and Collective Consciousness’, in Pierre Kende and Zdenek Strmiska, Equality and Inequality in Eastern Europe , Leamington Spa, New York and Hamburg: Berg, 1987, p. 273. This source has other comparative data for Poland and Czechoslovakia.

29 Keith Bush, Radio Liberty Research, data cited in David Lane, Soviet Economy and Society , London: Blackwell, 1985, pp. 59–60.

30 Anticipating the spread of the system to other countries, the position of priests depended on the country: in Poland they suffered a slight decline, in Czechoslovakia a considerable fall.

31 See details in David Lane, The End of Social Inequality , London: Allen and Unwin, 1982, ch. 3 ; and Kende and Strmiska, Equality and Inequality in Eastern Europe .

32 See � ndings in A. Inkeles and R. A. Bauer, The Soviet Citizen , New York and London: Oxford University Press, 1959.

33 James R. Millar, ‘History, Method and the Problem of Bias’, in Frederic J. Fleron and Erik P. Hoffmann, Post Communist Studies and Political Science , Boulder, CO and Oxford: Westview Press, 1993, p. 184.

34 Sidney and Beatrice Webb, Soviet Communism . 35 J. M. Keynes, A Short View of Russia , London: Hogarth Press, 1925, p. 13. 36 See Service, A History of Twentieth Century Russia ; Mark Kramer (ed.), The Black Book

of Communism , Cambridge, MA: Harvard University Press, 1999; Kotkin, Magnetic



Mountain ; Graeme J. Gill, Stalinism , New York: Palgrave Macmillan, 1998; Paul R. Gregory and Valery Lazarev (eds), The Economics of Forced Labor: The Soviet Gulag , Stanford, CA: Hoover Institute Press, 2003.

37 See Getty and Naumov, The Road to Terror ; Oleg Khlevniuk, The History of the Gulag , New Haven, CT: Yale University Press, 2004.

38 Anna M. Cienciala, Wojcich Wojciech, Katyn: A Crime Without Punishment , New Haven, CT: Yale University Press, 2007.


After the Second World War, the USSR emerged as a strong, internationally pow-erful state. Whatever weaknesses were latent in the Soviet form of organization and rule, they were not then obvious. Indeed, the industrial developments of the inter-war period in the context of state planning were universally respected and considered to be a success. Furthermore, the Allied victory over the Axis powers, in which the USSR played a major part, enhanced its standing and political secu-rity. In the West, Stalin was revered as a great war leader. He was Time magazine’s Man of the Year in 1939, and in 1942 (an honour later shared by Yuri Andropov (joint with Ronald Reagan) in 1983, Gorbachev in 1987 and 1989, and Vladimir Putin in 2007). Economic and social planning, with the state having an important role, became popular in many countries, particularly those governed by social-democratic parties in Europe. International politics became bi-polar: the USSR leading the communist powers and the USA the capitalist West.

Soviet socialism now appeared in the West as a major challenge to the suprem-acy of the Western states, and Soviet political forms were either exported or con-sciously copied by countries that came to form the world communist movement. 1 One might distinguish between three different initial phases in which ruling com-munist powers evolved. 2 First, autonomous internal revolutions with a more or less popular revolutionary movement led by an explicit Marxist-Leninist party. 3 Russia and China are the prime examples considered in this book. Second, the imposition of communist rule following occupation by a major existing commu-nist power. Most of the Eastern European socialist states (formally termed ‘peo-ple’s republics’) set up between 1946 and 1949 � t into this category. 4 Third, internal political or military coups which bring to power leaders who initially are populist or democratic and later declare themselves to be Marxist or Leninist. 5 There are also combinations of the above: a populist movement aided or impelled by a dominant Marxist-Leninist movement. 6

While the rise of the Eastern European communist states was closely linked to the power of the Soviet Union and followed the post-war imposition of a pro-Soviet government, by far the majority of countries (and certainly the largest ones) constituting Marxist-Leninist regimes had their own spontaneous revolu-tions. The communists fought their own way to power and have to be seen as

3 State socialism in many countries



originating from internal political and social tensions, rather than being the con-sequence of exogenous forces.

By 1980, there were 16 communist states which were the core of the ‘world socialist system’, as it was triumphantly termed by their political leaders. It is claimed that these countries accounted for one-third of the world’s population and 40 per cent of its industrial production. In 1979, however, only three of these countries were at levels approximate to the Western European capitalist states: USSR (US$4,110 per capita income per annum), and two other small European societies – Czechoslovakia ($5,290), and the most developed of all, the German Democratic Republic (DDR) ($6,430). These states also included some of the world’s poorest: Laos ($90), Vietnam ($170) and China ($260). 7

In addition to these explicitly Marxist-Leninist states, there were a number of states of ‘socialist orientation’. These are distinguished by having accepted the hegemony of the USSR and some elements of Marxist-Leninist ideology. 8

With the notable exception of the European Republics of the Soviet Union (such as the Baltic Republics and the Russian Federation) and some of the Eastern European states (such as the German Democratic Republic, Czechoslovakia and Hungary), the socialist bloc at the height of its power was made up of poor Third World countries, with large peasant populations. Of the societies in which the com-munists came to power of their own accord, all shared socio-economic similarities with Russia in 1917: they were all at an early stage of industrial development and had a small relatively undeveloped capitalist class. By the 1950s, the Soviet Union was the second world power in terms of its military capability and economic strength. It headed the communist common market, the Council for Mutual Economic Assistance (Comecon), and the military alliance of the Warsaw Treaty Organization.

The European Soviet socialist bloc The Western powers initially after the Second World War did not treat the Eastern European people’s democracies or the People’s Republic of China as hostile states. The former were under the direct tutelage of the Soviet Union whose armed forces were concurrently a liberating and an occupying force. They had a legitimacy given them by the Allies’ agreement, signed at Yalta, in which ‘spheres of in� uence’ were agreed between the major parties the (USSR, the USA and Britain) � ghting against the Axis powers in the war. The countries of the West too had internal differences and problems. A course for Germany had to be settled by the Allies, and the British and French still had to work out their positions with regard to their colonial empires. The USA was undoubtedly the major world capitalist power in economic, military and political terms, but until the founding of NATO in 1949 there was no institu-tional basis on which a major offensive could be mounted against the emerging Eastern European bloc of communist states. The Western world was tired of war, and social reconstruction was the main objective of the Western European states, most of which were headed by social-democratic or reformist governments.

Indigenous communist parties in Western Europe also had considerable popu-lar backing and had sizeable parliamentary parties in France, Italy and Finland.


State socialism in many countries 41

The political right was discredited by association with fascism and world war. Anti-communist views were held by the political elites but they were countered by strong left-wing political forces and general respect for the Soviet suffering and supreme military efforts in the Second World War. The conditions favoured the rise of an alternative power bloc to the Western powers.

The military power of, and effective occupation by, the Soviet Union was the other major factor that secured the internal political orientation and economic development of the East European states; although, like the Soviet Union follow-ing 1917, they had little economic help from the capitalist powers (aid was offered under the Marshall Plan in 1948, but it was declined).

Under these conditions the Soviet Union was able to dictate the terms to the Eastern European states under its auspices. The Soviet form of polity and econ-omy was built, sometimes with popular support – in countries such as Yugoslavia and Albania – but often with reluctance or even disapproval, in countries such as Hungary and Poland. The previous character (political culture and institutions) of the Eastern European states in� uenced the structure and process of the system of state socialism but the distinctive imprint of Soviet institutions, though not politi-cal culture, became apparent in the 1950s. 9

The organizing principles of capitalism were disavowed by the political lead-ership installed in these countries and the state socialist form of societal organiza-tion was adopted. Industrialization, collectivization and cultural revolution followed the pattern of the USSR. The ‘world of the comrades’ was based ideo-logically on a class outlook, on collective and fraternal public organizations and on the teleological goal of building communism. Property was brought under state ownership. Parties supporting the communist line were hegemonic. Central planning replaced the market. Private � nancial and non-� nancial companies were nationalized and shareholders lost their assets. New socialist enterprises were formed. Parties opposing a communist approach were banned, but the level of repression, as in the Soviet Union under Stalin, was less. A formal electoral system was in place but was an ineffective form of electoral democracy. The means of mass communication were brought under government control and had to support the policies of the communist parties. As in the Soviet Union, the state controlled a wide range of social functions (educational, health and recreational). Foreign policy was aligned to that of the USSR. These developments led to the rise of anti-communist sentiments by the leaders of Western states, particularly the USA.

Meanwhile, communism was taking different forms in other parts of the world. Autonomous communist movements came to power in Cuba and China as well as Vietnam. Only the rise of communism in China can be considered here, and in Chapter 5 I discuss more recent developments in China.

The rise of communism in China The rise of communism in China is notable on many counts. In its revolutionary phase, communism arose as a movement with a rural and peasant base. In its



period of development, it � rst copied the model of socialist modernization pio-neered in the USSR, then adopted a radical course of Maoism, which rejected many of the features of the model of state socialism as it had developed under Stalin. After the death of Mao Zedong there was a major change of course. China explicitly recognized the limitations of the Soviet paradigm of development, rejected the revolutionary course adopted by Mao and led the movement for eco-nomic reform towards markets and participation in the capitalist world economic order. 10 Whether the Chinese model can be copied in other societies can be appraised both in the context of the peculiarities of the Chinese road to socialism and in terms of the economic and political results. I outline � rst the period of revolution culminating in the Cultural Revolution. Second, I turn to the economic reforms and the introduction of economic markets. Third, I generalize the Chinese experience and argue that China is better described as state capitalist.

The communist revolutionary movement in China arose in a country that was economically centuries behind the level even of Russia in 1917. From the time of Peter the Great (1672–1725) Russia had been copying European technology and had been in close contact with European culture; it had a prominent intelligentsia, and by 1917 modern forms of manufacturing industry and communications had already been implanted. In contrast, in 1949, China was one of the world’s poorest countries. There was only a rudimentary railway system, no large-scale public works and industrial employment was on a very small scale: ‘by far the greater part of the country carried on, as for the last 2,000 years, an early iron-age econ-omy’. 11 The urban working class and bourgeoisie were extremely small and the country had a predominantly peasant and enormously large population. It was among these that Mao Zedong was to organize not only a political party but an army to establish communist power in 1949.

Like the countries of Eastern Europe, the Chinese communists came to power following war and military occupation. But there was one important difference compared to the revolutionary struggle in Russia and Eastern Europe. The com-munists had fought a protracted military campaign for more than 20 years before the Chinese People’s Republic was formed. The Communist Party existed since 1927 as a revolutionary guerrilla army with a peasant base in the countryside. By 1945 the Communist Party of China claimed a membership of 1,210,000.

The communists were leaders of a struggle for national liberation and had sup-port from many of the entrepreneurs, executives and professional classes. Unlike in Poland, where communism was associated with an unpopular neighbouring foreign power (the USSR), in China socialism developed under Mao in opposition to foreign oppressors – it was a movement for national liberation. The relationship to opposing classes initially was less confrontational than in Russia after 1917. The Constitution of 1954 guaranteed the right of some individuals to private own-ership. The national bourgeoisie was recognized as part of `the people’, of the ‘democratic dictatorship’ based on the alliance of the ‘working class, peasantry and the urban petty bourgeoisie’. Public ownership of the means of production was also implemented much more gradually than in Eastern Europe. Between 1949 and 1952 only the businesses of capitalists supporting the Kuomintang were



nationalized. Small-scale entrepreneurs were absorbed into state ownership as ‘private-state’ enterprises and owners received compensation for their property and were encouraged to continue their work. The communist leaders showed a more � exible and conciliatory approach than those in Europe. China was already developing socialism with ‘Chinese characteristics’.

Economic policy After taking power, the Chinese communists consciously copied the policies and organizational forms of the Soviet Union. 12 The slogan during the First Five Year Plan (1953–57) was ‘Learn from the Soviet Union’. Comprehensive economic development with an emphasis on heavy industry was favoured and the Soviet Union helped � nancially and with personnel in the early industrialization drive. The economy was centrally organized as in the Soviet Union, and management was hierarchical under branch ministries. Monetary incentives followed the pat-tern of the Soviet Union, people being paid ‘according to their work’ and labour was graded and paid according to level of skill and type of industry. Bonus and piecework schemes were introduced in the period 1953 to 1957. As in the USSR, the role of trade unions was to promote ef� ciency to implement economic plans and to administer social security services.

Social policy followed a similar course to that of Stalin’s Russia: comprehen-sive education, mass literacy and mass health care were introduced. However, there was one important difference from the European socialist countries: the pro-vision of social services was limited to the urban areas and to permanent workers in state industry. The peasantry was largely excluded from such provision, as they had been in the early years of the Soviet Union where those in collective farms were dependent on the farms for their welfare.

Policy in agriculture also had parallels with the Soviet Union. There were three steps. First, a land reform destroyed the land-owning classes and gave the land to the peasants who subsequently worked it in small plots. Second, collectivization weakened the rich peasants and was then regarded as a precondition for large-scale agricultural production with intensive factory-type farming. While a consid-erable part of the peasantry was alienated in Russia and collectivization was a violent process, in China it was more gradual. Initially, a policy of piecemeal and voluntary collectivization was envisaged. The Common Programme had stated that ‘the People’s government … shall guide the peasants step by step to organise various forms of mutual aid, [and] labour and production cooperation according to the principle of free choice and mutual bene� ts’. 13 This did not succeed, how-ever, as the yield of grain was low and hoarding of grain was widespread. The third step, as in the Soviet Union, was rapid and forced collectivization. By 1956, 83 per cent of all peasant households had joined ‘advanced cooperatives’.

From the mid-1950s policy radically departed from dependence on the Soviet model. This is a second phase of socialist development; it was a response to de� -ciencies in the Soviet model as applied to China and involves one of the earliest critiques by a communist government of the Soviet model of development. I turn



to policies in Chapter 5 . At this point I summarize the Chinese form of socialism as it developed in the � rst ten years of power.

The Chinese communists effectively identi� ed with traditional Chinese soci-ety. Unlike in the USSR and European states, a distinctive character of the Chinese revolution was the degree to which the communists integrated non-proletarian social groups into the revolutionary movement. A national liberation movement was based not only on the peasantry but also included the petty bour-geoisie. The Chinese communists succeeded in the national (and concurrently revolutionary) struggle against the Japanese and the Kuomintang and estab-lished the legitimacy of a communist state. The revolution was a popular synthe-sis of a national and a social revolution. Mao was able to secure a base in society; the Party and army had deep roots in Chinese society. The Chinese adopted a comprehensive form of mobilization of the masses which transcended that of the Soviet Union. The concept of a mass line involving participation ‘from below’ was different from the Russian revolutionary process. This was due to the need to secure peasant support during a guerrilla war. Participation, how-ever, like that in the Soviet Union, had the character of audience participation, and decision-making was centralized under the leadership of the communists. In the immediate period of revolutionary transformation there was less of a stress on rewards according to work and the Party recognized the need to compensate previous bourgeois groups. However, the educational and social services were limited to the towns and industry – the peasantry was largely excluded from such provision.

De� ciencies were seen in the Soviet model from a revolutionary and socialist perspective. The Chinese communists were a con� dent, popular mass movement who had forged their own identity as a revolutionary movement. In Chapter 5 , I outline how the Chinese leadership moved away from the Soviet model of state socialism, but here we turn to consider how scholars and Western leaders inter-preted the rise of state socialism.

A ‘totalitarian’ state? The high level of state control and ownership, as well as the spread of the com-munist system, led some to see the Soviet Union as a major threat to the capitalist system and to Western values. Soviet-type systems became labelled as ‘totalitar-ian’. Western critics focused on the absence of a division between state and soci-ety which has led to a particularly autocratic and despotic type of society: a politically organized society, a totalitarian state.

For writers such as Erich Fromm and Hannah Arendt, the major political move-ments of the twentieth century – fascism and Leninist Marxism – were not mere aberrations and marginal developments but were subjects of the subordination of the individual under conditions of modern tyranny. The term totalitarianism was popularized by two American academics, Carl Friedrich and Zbigniew Brzezinski. 14 The essential characteristics of societies of the Soviet type were de� ned as ‘a system of autocratic rule for realizing totalist intentions under



modern technical and political conditions’. 15 Hannah Arendt, in generalizing about the human condition under communism and fascism, emphasized ‘the per-manent domination of each individual in each and every sphere of life’. 16 Other writers, such as Herbert Marcuse and C. Wright Mills, have also drawn attention to totalitarian tendencies within capitalist society. Mills complained about the massi� cation effect of media leaving people with no individual autonomy and a ‘power elite’ devoid of democratic control. 17

By the 1970s, however, after the defeat of explicitly fascist regimes in the Second World War and the reform of Stalinist ones by leaders such as Khrushchev, totalitarianism went out of intellectual favour. ‘Totalitarianism’ was regarded at best as an outmoded ideological relic. The entry by Herbert J. Spiro in the International Encyclopedia of the Social Sciences 18 suggested that the term had become ‘an anti-Communist slogan in the cold war’. But in the 1980s a revival and development of the concept occurred. Not only Western writers such as Adam Westoby and Claude Lefort 19 but also reformers in Eastern Europe and the Soviet Union turned to ‘totalitarianism’ to de� ne the kernel of the system created by Stalin. 20 Reformers and critics of the regime ampli� ed the crimes of Stalin (and Mao Zedong) as exemplary features of the socialist states. At the same time some scholars sought to update the approach by recognizing features which have developed since the 1960s.

Westoby, in generalizing about communism as a world movement, considers ‘the most general characteristic of communism (sometimes, it seems, the only one) [to be] “Leninism”’. 21 A major characteristic of the movement is ‘the ten-dency to pursue and accumulate power for its own sake, independently of social wishes which it might satisfy’. It sets ‘the acquisition and retention of power, and especially state power, above satisfying the desires from which support springs’. 22 The essence of totalitarian regimes is the absence of civil society consequent on domination over society by the state.

Jeffrey Goldfarb de� nes the term as ‘the cultural form necessary for modern tyranny … The projects of totalization and absolute command emanate from totalitarian culture.’ 23 This approach signals an important difference to the para-digm developed by Arendt and political scientists such as Friedrich and Brzezinski. Physical repression and terror, as instrumentalities of domination, are replaced by ‘newspeak’ which is the ‘linguistic equivalent of the master idea of the of� cial ideology’. 24 This is ‘a fundamental cultural instrument of totalitarianism’. 25 Cultural control is ubiquitous.

A major part of Goldfarb’s work is to emphasize cultural resistance to totali-tarianism and ways of transcending it. As cultural control is regarded as the major component of totalitarianism, true resistance to it has the character of an alterna-tive critical culture. ‘Post-totalitarianism’, which evolved in Eastern Europe and the Soviet Union, includes the ‘whole complex of totalitarian culture and the dis-tinctive post-totalitarian voices and actions of resistance’. 26 Here totalitarianism could be broken down by marginal and marginalized intellectuals through the formation of sub-cultures – the assertion of human rights, youth sub-culture, the peace movement, jazz, and the formation of secondary associations on the basis



of common interests. The growth of such a ‘second society’ would hasten the fall of totalitarianism.

Since the fall of communism and the inclusion of the post-socialist European states in the European Union, ideas of ‘totalitarianism’ have reached new heights of political acceptability. The ideology of the European Union and the Organization for Security and Cooperation in Europe consider Nazism and Stalinism as two forms of totalitarianism. Since 2009, the European Day of Remembrance for Victims of Stalinism and Nazism has been declared by the European Union. Stalinism has been reinvented as an equivalent of Hitler’s fascism. A problem with this equation is that the USSR did not have a policy of national superiority nor one of extermination of nations. It was itself subject to Hitler’s holocaust.

Whatever its merits in bringing attention to the pervasive use of force and political control in modern society, the totalitarian approach is � awed. It con� ates the striving of Marxist-Leninist states to exert total control with the actual divi-sion between state and society. Martin Mali (Z), for instance, shifts the goal posts when he de� nes totalitarianism as the ‘aspiration’ for total control over the popu-lation. 27 ‘Intensions’ or ‘aspirations’ of political elites are not only ambiguous but strip the idea of totalitarianism of any analytical rigour. By way of analogy, would the democratic ‘intentions’ of dictators make their rule democratic?

Whereas in totalitarianism, the dynamics of modern society lead to the growth and strengthening of the tentacles of universal control by a political elite, the view taken by the author is quite the opposite: as societies modernize, they become more structurally differentiated, which precludes omnipotent political control. 28 It is also questionable whether Marxism-Leninism has ever been the comprehensive (as contrasted to a nominal) dominant ideology in the socialist societies of Eastern Europe and whether the Party-state ever in practice comprehensively penetrated society.

Societal demands and opposition to state centralized control increased consid-erably as these societies modernized. No distinctions are made between the differ-ent stages of development of Marxist-Leninist states: hence revolutionary, developmental and industrialized phases are all con� ated. Many of these points are conceded by the emphasis on the formation of sub-cultures leading to counter-cultures, emphasized by Goldfarb. Moreover, such developments are evidence of differentiation. The developmental phases (discussed in Chapter 8 ), bringing about new occupational groups and higher educational levels (which in turn create new demands and change within-system political priorities), are ignored.

The approach cannot explain political change. If the ‘totalitarian state’ is all-powerful, how can it be changed from within? As Richard Pipes has pointed out, people adopting such a perspective did not expect communist states to be disman-tled: ‘Professor Merle Fainsod concluded his in� uential How Russia is Ruled … with the unquali� ed assertion that totalitarian regimes died only when power was wrenched from them – in other words, that they were immune to self-destruction.’ 29 As the society is held together by force, it is not susceptible to a legitimacy crisis – for it has no autonomous sets of values on which it can be judged. By de� nition, totalitarianism implies that not only open dissent but even group strati� cation is



not able to develop, hence the triggers for change cannot be found in society. As Friedrich and Brzezinski conclude:

Our entire analysis of totalitarianism suggests that it is improbable that … a ‘revolution’ will be undertaken, let alone succeed … When the characteristic techniques of a terroristic police and of mass propaganda are added to the monopoly of weapons that all modern governments enjoy, the prospects of a revolutionary overthrow becomes practically nil. 30

The rise of national secessionist movements in the USSR would not be seen to arise out of the structural and cultural forms of state socialism and therefore could not pose a threat to the stability of the regime. Indeed, in discussing national movements, they are dismissed as ‘hopeless resistance to totalitarianism’ 31 . From this point of view, signi� cant social and political change can only occur through exogenous forces.

The outlook adopted by theorists of totalitarianism is not useful to further our understanding of either the various reform movements that characterized the pol-itics of the more developed Marxist-Leninist states, or the ways its leaders abdi-cated their political and economic power – which will be discussed in Chapter 7 . Even in the Goldfarb version, something more than opposition to pollution and the formation of jazz bands is required to account for the fall of a ‘totalitarian state’. Paradoxically, it was forced industrialization and development that brought in its train more sophisticated, differentiated and demanding strata (the ‘socialist intelligentsia’) which questioned the centralized system of management and con-trol, and in doing so, perhaps ironically in this context, utilized ‘totalitarianism’ as a counter-ideology to undermine the political order. The changing social structure created an intelligentsia that not only had a demographic density but also had a moral one in the sense of being able to form alternative sub-cultures and counter-cultures. Such developments formed the basis of an ascendant class (discussed in Chapter 9 ) which supported a move to the market and later to privatization.

The totalitarian approach shaped thinking about the possibilities of changes in a number of ways. First, it provided a political model of the socialist system and a delegitimizing ideology. Second, it focused on the power of the ruling elites (rather than classes) and posed the primary goal of replacing them. Third, it emphasized and legitimated the role of exogenous powers as instruments of polit-ical change.

Organizing principles of state socialism and capitalism The forms taken by the state socialism that unfolded in Soviet Russia, China and the Eastern European socialist countries can hardly be said to have ful� lled the goals of socialism as conceived of by West European theorists. But it cannot be equated with Hitler’s fascism. As a social system, it developed a different form of organizing principles from the capitalist states of the West, and these bore a certain af� nity to some of the values of socialism. All societies have to devise processes



and institutions to ensure ef� ciency, effectiveness, control, integration and grati� -cation. The competing organizing principles of capitalism and state socialism are shown in Figure 3.1 .

In the � rst column are de� ned the functions that all societies must perform. In the middle column are the familiar principles of capitalism, which are one way of carrying them out. People have rights to private property and rights as individuals, ‘freedom’ is a major societal goal, and the market is dominant in the economy. Coordination in politics is achieved through competitive electoral democracy, and in economics through a competitive market system. Personal grati� cation is largely (though not solely) achieved through consumption.

In the third column, state socialism is shown to legitimate property in state ownership, with equality rather than freedom as a motivating principle, planning and administration rather than the market as the main forms of economic organi-zation; central control under the Party (and state bureaucracy) secured coordina-tion; social solidarity and personal integration were to be achieved through collectivist and public rather than pluralist associations; politics (rather than an autonomous legal system) determined the application of rules. Labour rather than the consumption ethic was a major form in which personal grati� cation was to be achieved – in popular terms, the work collective replaces the shopping mall.

State socialism was a coherent alternative organizational form of industrialism (or modernity) to capitalism. State socialism may be considered to be a structure of state and society appropriate for a transition from feudalism where the bour-geoisie is weak. The origins of dictatorships and parliamentary-type democracies are closely linked to the presence (or absence) of an ascendant bourgeoisie.

RESOURCE CAPITALISM STATE SOCIALISM

Property Private Public\state

Goals Freedom Equality

Efficiency Competition State planning

Markets

Coordination Competitive Administrative control

markets

Electoral

democracy

Solidarity Pluralist Collectivist

Autonomous civil State-led civil society

society

Rule application Law Politics

Integration Private Public

Gratification Consumption Labour

Figure 3.1 Organizing principles of capitalism and state socialism .



As Barrington Moore in his work on the origins of dictatorship and democracy has put it, ‘No bourgeois, no democracy.’ 32 Moore, of course, is concerned with modern parliamentary-type ‘bourgeois democracies’. It is untrue to assert that all forms of democracy are dependent on the formation of a propertied market class. Socialists would argue that private property is inimical to democracy, and that only a socialist society can provide the preconditions for it.

The bourgeoisie has a stake in the institutionalization of private property, on which legal rational norms are based. Furthermore, a parliamentary-type of democracy is dependent on a private entrepreneurial class because its interests are furthered by limited state and representative parliamentary-type institutions. These were neither present in pre-1917 Russia nor in pre-communist China (nor in the British Chinese colony of Hong Kong). The state therefore became a domi-nant force in the development of the productive forces; in the USSR, it carried on a tradition of the Tsars. The ideology of socialism underwent a mutation: it legiti-mated the creation of industrialism and a modern society. (The role of class is discussed in Chapter 9 .)

A modernization paradigm In a different ideological context Gabriel Almond has de� ned � ve challenges which have to be solved in any developing or modernizing state: these are iden-tity, legitimacy, penetration, participation and distribution. 33 Identity has to do with the units to which people believe they belong; the state, social class and nation are the most important forms of identity here. To rule, all governments have to enjoy the con� dence of their subjects: obedience turns might into right; ideology is the main instrument of legitimacy in modern states. Penetration is the ability of politics to cope with the complex organizational structures and forms of division of labour. Participation is the other dimension to penetration: it provides forms of involvement in politics by the public in, or exposure to, decision-mak-ing. Distribution involves the ability of the polity to allocate resources between sectors, social groups and individuals; distribution is the ‘output’ aspect of gov-ernment.

The Soviet Union under Stalin developed a ‘Soviet’ identity for all citizens of the USSR and also cultivated traditional vernacular identities in the republics and regions. People were able to identify either with an all-union Soviet identity or with a parochial national one (i.e. Russian, Ukrainian, Latvian, Armenian – rather like in Britain, where one can be both British and English, or just Scottish). As will be seen in Chapter 8 , people had a developed national self-identi� cation in some of the republics. These individual forms of identi� cation became mobilized (during the social upheaval caused by perestroika) into a collective identity and were a source of legitimation for the states that were formed when the USSR broke up. The ethnically unitary people’s and socialist republics of Eastern Europe also encouraged the development of national identities around their national states.

Legitimacy was promoted by the ideology of Marxism-Leninism. This was a doctrine that identi� ed an external class enemy (the capitalist West), promoted



social solidarity based on the working class (in the sense of all who labour), and legitimated the communist political leadership and its policies. Penetration was secured by the organizational means of the Communist Party, by the state bureau-cracy and by various organizations such as the trade unions. The mass media was pervasive and relayed government policy and ideology. Participation was ensured by the Communist Party, the Young Communist League, the soviets (parliaments), trade unions and various ‘social organizations’ (such as friendship societies and sports clubs). Such participation was not of a liberal democratic kind associated with autonomous groups in civil society but controlled organizations that fur-thered social networks and ensured a kind of audience participation for the masses. Distribution was secured through the state’s control of investment and the institu-tion of public welfare services.

Even though this system was not ‘socialist’ in an ideologically respectable form, state socialism acted as a powerful tool to integrate the socially and geo-graphically mobile population into a newly industrialized society. While the ‘Protestant ethic’ of Calvin provided a legitimation for the formation of capital-ism, the ‘communist ethic’ formulated by Lenin, Stalin and Mao did likewise for the advancement of industrialism under state socialism. Marxism-Leninism may be likened to a developmental ethic. It acted as a culture with its own organiza-tional forms. Those who contend that state socialism was a kind of ‘civilizational incompetence’ 34 confuse cultural forms taken by global capitalism (which they usually advocate) with modernization. State socialism provided a systemic alter-native to capitalism – a developmental form of modernization and modernity. It was widely regarded as a viable model of state-directed development and many of its characteristic systemic features were adopted by other countries.

However, it had its critics, who deplored the repression entailed by the coer-cive control of the communists. The centrally administered economy also drew a critique from a socialist point of view – market socialism. In China too, the communist leadership sought an alternative path to that of Soviet state socialism. The Chinese, however, considered that the European way was not suf� ciently revolutionary and socialist. These counterpoints are considered in the next two chapters.

Notes 1 For a concise overview of the world communist movement see S. White, J. Gardner,

G. Schop� in and T. Saich, Communist and Post-Communist Political Systems , London: Macmillan, 1990; B. Szajkowski (ed.), Marxist Governments: A World Survey , London: Macmillan, 1981 (a three-volume survey of communist states, with chapters on each country); G. White, R. Murray and C. White (eds), Revolutionary Socialist Development in the Third World , Brighton: Wheatsheaf, 1983.

2 For an excellent discussion of this topic see Leslie Holmes, Politics in the Communist World , Oxford: Clarendon Press, 1986, ch. 2 .

3 Communists fought their way to power against internal (and sometimes external) enemies in the following countries: Russia (1917) (USSR) (including Tuva), Mongolia (1924), Albania (1944), Yugoslavia (1945), Republic of North Vietnam (1945) (later formed into the Socialist Republic of Vietnam in 1976), the People’s Republic of



China in 1949; the People’s Democratic Republic of Laos and the People’s Republic of Kampuchea were both formed in 1975.

4 They include Bulgaria (1946), Rumania (1947), Poland (1947), Hungary and the German Democratic Republic in (1949). The Baltic States were incorporated into the USSR during the Second World War. The Democratic People’s Republic of Korea was founded in 1948 following the partition of Korea after the Second World War.

5 The Republic of Cuba in 1959 and Zimbabwe in 1980 are prominent examples. 6 Examples here are Czechoslovakia (1948) and Nicaragua (1979). 7 World Bank, World Development Report , New York, 1981, cited by S. White, J. Gardner

and G. Schop� in, Communist Political Systems , London: Macmillan, 1982, Table 1.1 . 8 They included Afghanistan, Angola, Congo (Brazzaville), Mozambique, Ethiopia,

Madagascar and Yemen. Other states more vaguely linked to Marxism-Leninism and having an allegiance to the USSR included Nicaragua, Zimbabwe, Benin and Grenada. By 1980, in Africa, of the 50 independent states, seven were self-de� ned as Marxist-Leninist. For an overview see David and Marina Ottaway, Afrocommunism , New York: Holmes and Meier, 1981. For an interesting interpretation of socialism and underdevelopment see Ken Post and Phil Wright, Socialism and Development , London: Routledge, 1989. For other accounts see White et al ., Revolutionary Socialist Development .

9 Martin Myant and Jan Drahokoupil, Transition Economies , Hoboken, NJ: Wiley, 2011, Section 1.

10 On communism in China see R. C. Thornton, China: A Political History, 1917–1980 , Boulder, CO: Westview, 1982; David Shambaugh, China’s Communist Party , Berkeley, CA: University of California Press, 2008; J. I. Watson, Class and Strati� cation in Post Revolutionary China , Cambridge: Cambridge University Press, 1984; Chaohua Wang, One China, Many Paths , New York: Verso 2003; Hui Wang, China’s New Order: Society, Politics and Economics in Transition , Cambridge, MA: Harvard University Press, 2006; Hui Wang, The End of Revolution: China and the Limits of Modernity , New York: Verso, 2011; Mary Elizabeth Gallagher, Contagious Capitalism , Princeton, NJ: Princeton University Press, 2001.

11 T. J. Hughes and D. E. T. Luard, The Economic Development of Communist China 1949–1960 , London: RIIA, 1961, p. 16.

12 F. Schurmann, Ideology and Organization in Communist China , Berkeley, CA: Univer-sity of California Press, 1968, pp. 239–50.

13 Hughes and Luard, The Economic Development of Communist China , p. 148. 14 See particularly their in� uential Totalitarian Dictatorship and Autocracy , New York:

Praeger, 1966. 15 C. J. Friedrich, M. Curtis and B. R. Barber, Totalitarianism in Perspective: Three Views ,

New York: Praeger, 1969, p. 136. Friedrich and Brzezinski’s descriptive de� nition (in Totalitarian Dictatorship and Autocracy ) stressed the following features of a totalitarian society: an of� cial ideology; a single mass party; terroristic police control of the population; a party monopoly of control over effective mass communications and the armed forces; and central direction and control of the entire economy and corporate entities.

16 Hannah Arendt, The Origins of Totalitarianism , New York: Harcourt Brace, 1966, p. 326. 17 See C. Wright Mills, The Power Elite , New York: Oxford University Press, 1959,

pp. 302–4. 18 Herbert J. Spiro, ‘Totalitarianism’, International Encyclopedia of the Social Sciences ,

Vol. 19, New York: Macmillan, 1968, p. 112. 19 Adam Westoby, The Evolution of Communism , Cambridge: Polity, 1989; Claude Lefort,

The Political Forms of Modern Society: Bureaucracy, Democracy, Totalitarianism , Cambridge: Polity, 1986.

20 A similar ‘updating’ has been attempted by Johann P. Arnason, The Future that Failed , London: Routledge, 1993.

21 Westoby, The Evolution of Communism , p. 2.



22 Westoby, The Evolution of Communism , pp. 7, 8. 23 Jeffrey C. Goldfarb, Beyond Glasnost: The Post-Totalitarian Mind , University of

Chicago Press, 1989, p. 4. 24 Goldfarb, Beyond Glasnost , p. 48. 25 Goldfarb, Beyond Glasnost , p. 39. 26 Goldfarb, Beyond Glasnost , p. 107. 27 Z, ‘To the Stalin Mausoleum’, Daedalus , 119(1), 1990: 300–1. This leaves the societal

form unde� ned. 28 David Lane, Politics and Society in the USSR , London: Martin Robertson, 1978,

pp. 323–4. 29 Richard Pipes, Communism: The Vanished Specter , Oxford University Press, 1994, p. 31. 30 Friedrich and Brzezinski, Totalitarian Dictatorship and Autocracy , p. 375. 31 Friedrich and Brzezinski, Totalitarian Dictatorship and Autocracy , p. 282. 32 Barrington Moore Jr, Social Origins of Dictatorship and Democracy , London: Allen

Lane, 1967, p. 418. 33 Gabriel A. Almond and G. Bingham Powell Jr, Comparative Politics , Boston, MA:

Little, Brown, 1966. 34 P. Sztompka, ‘Civilizational Incompetence: The Trap of Post-Communist Societies’,

Zeitschrift für Soziologie , 22(2), 1993: 85–95.


The policies discussed in the previous chapter were considered by the Soviet leadership to have secured the development of the economic and social infra-structure of a socialist society. The state socialist economy consisted of a non-capitalist form of investment and production which was planned, and a market form of distribution. Though many goods and services were allocated admin-istratively (e.g. medical and educational services, housing), a market was needed to distribute the thousands of commodities and services that make up a modern economy. Money bought goods and services on the market. And money was distributed according to the quantity and quality of labour expended at work. 1

Advocates of the state socialist model argued that, from a Marxist point of view, there were no antagonistic contradictions in Soviet-type societies because their class basis had been abolished through state ownership and control of prop-erty. They conceded that many ‘non-antagonistic’ contradictions continued – par-ticularly between manual and non-manual labour and between town and country, and antagonisms based on gender, national and ethnic origin remained. These differences, linked to the division of labour and an historically determined con-sciousness of identity, gave rise to variation in lifestyles, access to valued goods and services (such as education), and inequalities in political in� uence. The advo-cates of state socialism believed that these contradictions would wither away with the maturation of the economy and further social development.

Early in the 1970s, however, in the European socialist societies, a more pes-simistic outlook appeared which cast doubt on whether the system itself would be able to transcend the ‘non-antagonistic contradictions’ obvious in the soci-ety. We noted in Chapter 2 the positive aspects of the ‘developmental’ model of state socialism; in the European socialist societies, produced national income growth averaged 7 per cent between 1966 and 1970 and 7.4 per cent between 1971 and 1975 (see details in Chapter 8 , Table 8.1 ). Other more neg-ative features had become apparent as state socialism had evolved. Disproportions arose between the aspirations and their realization by many groups of the population. This included disappointment with the level of polit-ical participation on the part of new professional classes. The economy was increasingly failing to meet the rising levels of expectations on the part of

4 The socialist market project



many people – economic growth fell to an average of 2.6 per cent between 1981 and 1986. Communist ideology, which people believed had promised a society of abundance and equality, was delivering, but it was not delivering enough.

These disproportions and the social groups that had been formed under state socialism became reference points for the reform movements that sought a greater role for competitive markets in both politics and economics. Here the different reform strategies that have sought to revise the system of state planning and Party control are considered. Such criticisms not only focus on drawbacks and inef� -ciencies of the economic aspects of planning but also, when radicalized, bring about major systemic transformation.

Reforms originated from within the state and Party apparatus. They were led from above by a faction of the political elite and addressed two major prob-lems: the bureaucratization of the system of planning and its economic inade-quacies manifested in falling rates of growth and productivity. (These are discussed in more detail in Chapter 8 .) What these reforms share is a legitima-tion of markets and a shift away from central planning, which was a cardinal feature in the formation of state socialism. 2 They all, in one way or another, advocate a theory of market socialism that sought to combine market elements with state planning or, in its radicalized form, a transition to a capitalist market economy. 3

The ‘within-system’ reforms were responses by members of the economic and political elites to what they considered to be dysfunctions in the planning system. They do not identify any social or political actors (such as social classes) or insti-tutional forces that would lead to transformation.

We consider the reform movement in three different settings, all of which pre-ceded the changes introduced by Gorbachev, and which led to the fall of the Soviet Union. The � rst major set of revisions occurred in Yugoslavia, under Tito. Following a revolution after the Second World War, the Soviet system as it devel-oped under Stalin was enthusiastically copied and Yugoslavia adopted the major institutional forms of the Soviet state. However, changes were enacted initially on political grounds and involved a reform that sought to resolve the contradictions inherent in the command system by emphasizing the development of new forms of socialism. Second, the Czechoslovak reform movement of the late 1960s pre-dated many of the political reforms of perestroika carried out by Gorbachev in the USSR in the late 1980s. These combined not only political and economic reforms but also sought changes in Czechoslovakia’s international orientations. Third, the changes in China after the Cultural Revolution have led to economic but not polit-ical reform. As Chinese reforms have proved to be more enduring and successful, these are considered in more detail in the next chapter and carry the story up to the present day. In Chapters 6 and 7 , I show how the USSR adopted elements of the market which provided a catalyst for the fall of state socialism in Eastern Europe. Before considering the ways that market reforms proceeded in these societies, we turn to consider the ideological and economic assumptions on which state social-ism and market socialism are predicated.


The socialist market project 55

State socialism versus market socialism Marxists and many socialists regard ‘the market’ as an intrinsic component of the capitalist mode of production. Production of services and commodities for exchange take place through the market mechanism and enables surplus value to be extracted to give pro� t. This approach de� nes capitalism as an organic system based on a property-class-market nexus. State socialism not only abolished the ownership relations of capitalism by replacing private property with public prop-erty; the market was also largely (but not completely) replaced by an administra-tive allocation of resources – the planned economy. Administrative forms allocated resources on the basis of a plan, rather than as the consequences of atomistic decisions coordinated through a market. The economic and political systems were fused in the planning process; through administrative allocation the Communist Party was able to promote its priorities.

Money, prices and exchange continued, however, in the period of transition to communism. Prices in the retail market were administratively � xed, and money paid to employees (on administratively determined wage scales) was used for purchases – a pseudo-market. As the productive forces under socialism were developed, it was believed that the need for markets would decline, money would become super� uous and direct exchange of products would take place. Increasingly, market prices would be replaced by the free availability of goods and services. This traditional state socialist position argued that the property-mar-ket-class nexus is organic in nature. Under socialism, class and administrative relationships replace the property-market-class nexus of capitalism. The logic of this position is that if markets are adopted (in a socialist system) in an allocative sense (i.e. by replacing state planning) they will undermine socialist society in a distributive sense. Some people will accrue greater wealth than others, which in turn will lead to the growth of a property-owning class. Furthermore, capitalist markets have an irrational logic – the sum of individual preferences of individuals does not constitute the collective good. Market-determined income may not re� ect a fair contribution to society.

Not all Marxists or socialists have accepted this form of reasoning and contend that markets per se are not incompatible with socialism. Rather they have called for a disaggregation of the market from other aspects of capitalism. Such revision-ists have argued that markets take different forms in different modes of production and thus the essence of capitalism is the property–class relationship. The technical aspects of markets make them appropriate instruments even under socialism. Private property, in the sense of ownership relations derived from ownership of assets, is the de� ning characteristic of the class nature of capitalism. Markets have economic functions which apply to all economic systems. They further contend that markets are politically neutral and should be utilized under socialism – the � rst stage of the communist mode of production – as long as scarcity of resources continues.

The assumption of socialist market reformers is that the economic aspects of markets can be separated out from a capitalist market society and operate



successfully with other organizing principles. The traditional state socialist argu-ment is that this is not possible.

Oskar Lange’s version of the market under socialism Theorists as early as the 1930s had distinguished between a socialist and a capital-ist market. The most in� uential one was a Polish economist, Oskar Lange. He argued that capitalist economics enabled one ‘to grasp the phenomena of the eve-ryday life of a capitalist economy’. Bourgeois economists, he pointed out, provide a ‘scienti� c basis for rational measures to be taken in the current administration of the capitalist economy’. 4 Economists such as Paul Samuelson regard markets as ‘a form of economic organization in which individual consumers and business interact … to determine the central problems of economic organization’. 5 In this sense, markets are an economic mechanism of exchange.

Lange went on to argue that the ‘institutional … cornerstone’ of the Marxist analysis of capitalism is the division of society into two antagonistic classes; it is particularly valuable as a theory of ‘economic evolution’. Bourgeois economists, however, are not concerned with this division; the concept of capitalism is irrele-vant in nearly all modern economic analysis. But the principles of economic theory worked out under capitalism are applicable to all exchange economies because ‘the nature of the economic process in the capitalist system is not sub-stantially different from the nature of the economic process in any type of exchange economy’. 6 In Lange’s views, a ‘theory of equilibrium … can also serve as a basis for the current administration of a socialist economy … Marshallian economics offers more for the current administration of the economic system of Soviet Russia than Marxian economics does’. 7 The justi� cation is that the alloca-tion of capital and the distribution of goods and services can take place more ef� ciently than it can under administrative allocation. These are the assumptions that provide the rationale for the use of the market and equilibrium theory in gen-eral in a socialist economy.

Market socialism is subject to many different interpretations, however, espe-cially in terms of institutional practice. 8 There are two main approaches. The � rst is to regard it as an alternative to state socialism; the market would replace the institutions of state planning and the directing role of the Communist Party. The government would have a coordinating role with respect to investment and in other ways would operate as governments do under capitalism. The context would be one of public ownership of material assets. 9 The assumption here is that the directing role of the Party-state, which has economic and political drawbacks, is replaced by the market as a coordinating body. An important consequence is that the allocation of resources and decisions about investment are made by the market.

The second version is to utilize the market in the context of public ownership and central planning – to combine a market, in the sense of prices reconciling demand and supply, with central planning. The advantage claimed is for a more precise economic form of calculation combined with none of the disadvantages of the capitalist environment of private ownership and exploitation. Politically,



given the existence of planning and Party control organs under state socialism, this position suggests a way forward from state socialism to market socialism. It is conceded that a political institution is necessary to allocate investment and also to ensure the continuation of public property. Hence one might distinguish here between allocation and distribution; planning would continue to take macro deci-sions concerning the major forms of investment and the market would operate more at the micro level to determine distribution prices of commodities and labour.

Turning to reformers of state socialism, they argued that all advanced indus-trial systems to further ef� ciency must adopt processes such as the division of labour and markets. Their absence has led to what a Hungarian economist, Janos Kornai, has called the ‘shortage economy’. 10 Planning leads enterprises to hoard labour, as they have no need to compete and the state � nances the wage fund. This leads to an arti� cially created ‘shortage of labour’. For Kornai, the effects of the labour shortage are the loosening of labour discipline, the deterioration of work quality and the lessening of workers’ diligence. A number of other asser-tions are made by this school of thought, and are not necessarily correct. The security of employment under socialism (people rarely lost their jobs) gives rise to irresponsibility in anyone susceptible to it. Absenteeism exacerbates the short-age. Output becomes erratic and supply of commodities and services falls short of demand. Shortage characterizes the wholesale market. Shortage of supplies, materials and services in turn leads to slackness on the job, creating ‘storming’ when they become available. The ef� ciency of the economy is seriously under-mined. Labour productivity falls. Innovation is not encouraged. Economic growth declines. This has serious consequences for social stability and national security, for the economy is unable to meet the population’s aspirations for a rising stand-ard of living.

There is no reason to suppose, they argue, that markets could not operate in the context of planning and a welfare state. The crucial element of regulation under state socialism is that markets work in the context of economic enterprises that are public property and operate under the hegemony of the Party. 11 Market socialism implied that a suf� cient condition for the maintenance of a socialist system was the abolition of private property, which destroyed the basis of the capitalist ruling class. The market was a politically neutral institution that could be utilized in many different property contexts. Hence the property-class nexus is the essence of socialism as well as capitalism: the difference being that under capitalism the ruling class is the bourgeoisie and under socialism it is the work-ing class (in practice the Communist Party). The market socialist critique was based not on any class analysis but on an institutional ‘malfunctioning’ of the planned economy.

Before appraising the dif� culties with this approach, I consider the ways and the context in which these ideas were adopted in the evolution of socialism in Yugoslavia and Czechoslovakia – well before the introduction of markets in the USSR under Gorbachev. Here the ways in which the political leadership initiated reforms and their political background are outlined.



Socialist federal republic of Yugoslavia As in Russia and China, the Yugoslav communists came to power through their own efforts following a successful partisan struggle against the German occupa-tion during the Second World War. 12 Marshal Josef Broz Tito declared his govern-ment in 1943, and his guerrilla movement had considerable support; at the end of the Second World War, the Communist Party of Yugoslavia claimed 240,000 members and grew to nearly half a million in 1948. The country was made up of four nationalities: the Serbs (nearly 50 per cent of the population), Croatians (around a quarter), Slovenes (about 10 per cent) and Macedonians (around 5 per cent). National differences were correlated with different religious groupings – the Serbs being Orthodox, the Slovenes and Croatians Catholic; approximately 5 per cent of the population were Muslims and located as enclaves among the Serbian and Slovene populations. Croatia and Slovenia are situated in the west of the country and are much more developed industrially, and richer. Serbia, Macedonia and Montenegro are more rural and underdeveloped. Whereas the Croats look to the West, particularly to Austria and Germany (whom many of them backed during the Second World War), the Serbs’ traditional allies lie with the Orthodox Russians and Greeks.

Initially, following the end of the Second World War, the Yugoslavs followed the course adopted in the USSR. Property was nationalized and collectivization of agriculture took place. However, unlike in the Soviet Union, in the 1950s work-ers’ control was introduced and in 1951 the economy was decentralized. In 1952 the Communist Party changed its name to the League of Communists of Yugoslavia and declared that the administrative control of the Party over industry had been replaced by political guidance. This signalled a move to allow market forces in the economy.

Under Tito three principles were enunciated which distinguished Yugoslav communism from that which had developed in the Soviet Union: decentralization of administration, self-management, and, in foreign affairs, non-alignment. The � rst was expeditious in a country with different national traditions and communi-ties and the last two legitimated Yugoslavia’s internal and foreign policy. The centralized state administration, characteristic of the Soviet political and eco-nomic system, was replaced by devolution of political controls to the locality. Rather than a centralized form of nationalized state ownership, the Yugoslav com-munists developed ideas of municipalization and self-governing communes. Such forms of decentralization and the greater role given (at least in theory) to the masses, it was argued, was a return to Marxism. The centralized forms of Party and government administrative control of state socialism as developed in the USSR was conceived to be a ‘deviation’ from Marxism; workers’ self-manage-ment was advocated as a more legitimate form of socialism.

Decentralization was particularly appropriate in a state with many different and potentially con� icting nationalities. However, decentralization of power and decision-making to lower bodies leads to problems of exchange between them. If administrative means are not used to allocate resources, then the market is the



obvious mechanism to perform this function. The operation of the market as a form of economic coordination was revived and market mechanisms were to operate in the context of state ownership of the means of production with state control of a much decentralized kind. More speci� cally, state economic enter-prises were allowed to set prices and to trade on the market, keeping a proportion of their pro� ts. The country also entered the world economy; the dinar was made convertible and trade was organized according to the principles of comparative advantage. This was the � rst practical implementation of the ideas of ‘market socialism’.

In the post-Second World War period, while Yugoslavia was a much more lib-eral society than other countries in the Eastern bloc, there was little concern with individual political rights, and political censorship was still strong. There was no move to pluralism in the Western sense of competing political parties and ideolo-gies. Electoral forms of coordination would have undermined the leading role of the Party. The hegemony of the Party was retained; the Programme of the League of Yugoslav Communists adopted in 1959 endorsed class struggle, and the role of the Party as the ‘ideological vanguard and organizer’. Political opponents were not tolerated lightly. Self-management and decentralization, though they certainly enhanced participation on the part of the masses, took place within the framework put in place by the League of Yugoslav Communists.

These policies, moreover, were not merely inspired by considerations of eco-nomic ef� ciency. There were major political differences between Tito and Stalin (and his supporters in the other Eastern European countries). The Yugoslavs had been excluded in 1948 from the Cominform (the association of communist states headed by the USSR). Consequently, Yugoslavia was relatively isolated in the world community. Tito needed to distance himself and his country from Stalin to gain legitimacy in the eyes of the capitalist countries. He did this by entering the international division of labour and sought to strengthen political links with, and acceptance by, the Western countries.

The economic reforms led to an economic system quite different from that of the Soviet Union. The objective was to overcome the lack of incentives, to resolve the disproportions between supply and demand and to curb the ‘expectations gap’ presented by systemic shortages of consumer supplies through the price system mediated by the market. There are no ‘shortages’ in a free market. Concurrently, Yugoslavia was able to open a window to the advanced economies of the West. In 1961 import controls were lifted and by 1966 the country had joined GATT (General Agreement on Tariffs and Trade). Yugoslavia was exposed to the world economy. By 1964, subsidies were withdrawn from many goods and a general price liberalization occurred. Central control over investment was also relaxed. From 1967, foreign capital could be invested up to a maximum of 49 per cent of the assets of a company. This opened up the economy, and economic, political and social links with the West increased.

In the late 1960s and 1970s the effects of these reforms were to import many of the characteristics of Western economies – in� ation, for example: prices dou-bled between 1970 and 1974. Unemployment rose from 290,000 in 1971 to



410,000 in 1974; the emigration of some million workers to Western Europe occurred during this period. There was an open border for tourists and workers alike. Income differentials increased and in� ation led to strikes. Foreign debt rose.

A free market always bene� ts the strong, who can compete, and penalizes the weak. The decentralization and easing of central controls promoted the richer republics at the cost of the poorer. The League of Communists maintained its hegemony, though this was being undermined. In 1971, in Croatia, local national-ist sentiments were voiced both by the press and by nationalist organizations. These demanded greater devolution (particularly a greater share of foreign cur-rency earnings) and even Croatian independence. The republic’s Party leadership was split on the issue.

While increasingly the power of the League was relinquished over the econ-omy, it maintained its political monopoly and competing political parties were not allowed. The communists attempted to maintain their political hegemony over the economy, not only through the institutions of the Party but also through economic controls over major investment, the rate of interest and the money supply. Local self-management, however, strengthened local elites, which legitimated their political claims on ethnic national foundations.

In 1980, Tito died. The tensions between republics and political factions were exacerbated. Gradually, the political elites who had come to power with Tito were pushed out by younger opponents having a base in the republics. 13 Republican elites asserted their in� uence and central powers waned. But at this time, there was no strong independent anti -communist movement. Rather, politics took a regional basis and was linked to local elites which were dominated by the tech-nocratic and cultural intelligentsia who sought a move not only to the market (which would give them economic privileges) but also to a pluralist and bour-geois polity. These groups came to power after 1989 and led to the break-up of Yugoslavia.

The implications of the Yugoslav experience for the theory of market socialism are three-fold. First, a division between economy and polity may be secured maintaining a communist state within a market economy. Second, the market itself, especially when linked to the global economy, would appear to generate its own political interests which undermine the communist state and lead eventually to political reforms; claims of richer regions for greater sovereignty were already present under Tito. Economic interests were often couched in national form. Finally, these developments coalesce into movements that threaten the hegemony of the communist state. A crucial factor in undermining the ‘socialist market’ economy is the linkages with the external (capitalist) market economy. The world economy brings with it the world division of labour, and exogenous mar-kets in� uence internal � nancial priorities, the distribution of investment and the levels of employment, and thereby limit, if not undermine, the socialist objectives of government. It must be borne in mind that the Yugoslav economy was rather small and the country was isolated from the socialist bloc dominated by the USSR; it was also ideologically opposed by China. The country had a very restricted eco-nomic and political space.



Czechoslovak socialist republic Czechoslovakia and the German Democratic Republic were the most industrial-ized countries in the Soviet bloc. Czechoslovakia had copied the Soviet model in the years following the end of the Second World War. By 1953, 84 per cent of national income originated from enterprises under state ownership and by 1959 the collectivization of agriculture was completed. Policy had been successful and the economy experienced high rates of growth. In 1960, industrial output grew by 11.9 per cent, but thereafter followed a consistent decline: in 1963, growth was negative and fell to minus 0.6 per cent. The average increase in national income between 1960 and 1965 was only 1.8 per cent. As the most advanced industrial society of the Eastern bloc, their reformers argued that the system of central plan-ning was at fault.

Following relaxations of the Khrushchev period, reform of the economic planning mechanism was advocated by leading Party and government of� cials – particularly Oto Sik, head of the Institute of Economics in the Czechoslovak Academy of Sciences. The old system, it was contended, was inef� cient in the use of materials and labour. It did not direct investment to industries requiring mod-ernization; it was unable to determine the assortment and quality of consumer goods required.

The Czech reformers went beyond the limits imposed in Yugoslavia. The objective was not just an economic reform but a thoroughgoing reform of the political and economic system. Economic reform, it was argued, could not be carried out if there was not a reform of the political system. It was contended that over-centralization of the administration was a consequence of a command econ-omy in which the state apparatus (of Party and government) was an integral part. This had to be weakened or dismantled to enable economic and market reforms to work themselves out. The basis of the critique of the reform movement was economic, though it had important political implications 14 – particularly the call for severely restricting the power of the ruling Communist Party.

Sik insisted that under the socialist market there could be no form of ‘capital-ist pro� t-seeking’ because there was ‘no private pro� t and no private person can appropriate the income and make a pro� t on the exploitation of the labour of others’. 15 The market under socialism was a mechanism that ‘harmonizes group and social economic interest’. Under capitalism, markets operate in the context of a capitalist class; whereas under socialism, Sik argued that it re� ected ‘the general interests of the whole society’. 16 This is a clear statement of the assumptions of market socialism adumbrated in the introduction to this chapter: socialism as a social formation is based on class and ownership relations, not market ones.

In practice, the proposed reforms were ambiguous and limited: market control over capital and investment was not envisaged, at least, not initially. Enterprises were to be given greater autonomy and would have to compete with other � rms (including foreign ones). Prices would be determined by market forces. Wages and salaries would also be dependent on the ‘market position’ of various groups of



workers, which would lead to greater income differentiation. Managerial and technical personnel, as well as the professions, would be likely to gain as a result of these changes. They have greater market clout. Manual workers would lose the advantages they enjoyed in the distribution of income. The differentials noted in Chapter 2 would be signi� cantly increased to the advantage of non-manuals and executives. Market relations would be introduced to in� uence distribution, rather than asset allocation.

The more realistic reformers, however, acknowledged that ‘the market’ is not a neutral ‘invisible hand’. Markets do not operate altruistically and are acknowl-edged to have imperfections. First, market participants lack knowledge, which may lead to distortions based on the asymmetric access to information and inter-ests of parties involved. Second, agents in exchange relationships are not equal. If they compete, the stronger player wins, competition leads to oligopoly then monopoly. Third, actors in maximizing their personal interests are not altruistic and, because of market imperfections, powerful ones may exploit their market position. Regulation by institutions or through laws is often introduced to curb these practices – in other words, the regulators (rather than the market) ensure that public interests are promoted over the (rational) self-interests of individualistic market players. The conclusion we may draw here is that in the actual operation of economic markets distortions often occur, and state or other forms of regulation have to be adopted.

Many of the market reformers, moreover, adhered to the second version of market socialism that I de� ned above and advocated the continuation of central planning. The balance between investment and consumption, between social con-sumption (education and social services) and personal consumption, and between the major forms of capital investment and research, would continue to be con-trolled by the government, which would also play an important role in de� ning the levels of credit, money supply, prices and wage policy. Some prices and regional policy would remain within the orbit of central control. Ambiguity was rife.

The Czech reformers did not limit reforms to the economic mechanism. They promised radical political change. Economic reform, it was contended, could not be carried out without a reform of the political system. Over-centralization of the administration was a consequence of a politically controlled command economy. Here we move from the market as an economic mechanism to a form of regula-tion. The market could not work if politics intervened. Allocation of resources by plan con� icted with market forces. For example, banks would not be able to limit the credit of enterprises, if Party secretaries – in securing full employment – were able to tell bank managers to give credits to the enterprise. Similarly, factory man-agers could not widen wage differentials if Party and trade union chiefs could intercede to prop up the wages of the low paid and oppose higher salaries for executives.

Ef� ciency would not be achieved, it was further contended, if worker lay-offs were prevented for reasons of political stability and social policy. Party control had to be weakened or dismantled to enable economic reforms to work them-selves out.



One might question whether the reformers here needed political reforms to carry out economic reforms. The role of all political systems (including capital-ism) is to oversee and, if necessary, to mitigate the political and social effects of market activity. To consider the above example: planners would need to consider whether the costs (including social ones) would be greater if a factory closed than if it were subsidized to continue; they could also consider alternative projects for the threatened enterprises. The extension of bank credit (Kornai’s ‘soft budget constraints’), even under conditions of enterprise loss, might be preferable to a company closing, which would lead to even greater social costs. Restricting excessive salaries is justi� able on economic grounds if they are constituted from surpluses (economic rents) and on social and political grounds if they lead to gen-eral social resentment (as with banker’s bonuses under � nancialized capitalism). As noted earlier, market relations are often unequal and strong parties might exploit weak ones to secure excessive pro� ts. Markets (under capitalism) are embedded in legal and administrative systems that may legitimate wage differen-tials having absolutely no economic justi� cation (such as severance ‘packages’ for dismissed incompetent business executives).

What is ‘economically ef� cient’ cannot be measured solely in terms of the consequences of the economic activity of separate enterprises. ‘Market’ choices may not lead to development or to innovation and they may lead to short-term rather than long-term bene� ts. The role of politics in providing a collective social and economic context is an advantage of socialism, of a planned system, not a disadvantage as suggested by the economic reformers.

The Prague Spring of 1968 The Prague Spring of 1968 led to many of these liberal market reforms being put into practice. Politically, a form of socialist political pluralism was allowed – and here there were major differences from Yugoslavia and, as we shall see in the next chapter, from China. The introduction of political pluralism was justi� ed because it was claimed that there were no antagonistic con� icts in socialist society. In 1960, a constitution had been adopted that declared that Czechoslovakia had completed the socialist stage of development and had entered the epoch of the construction of communism, giving no basis for class con� ict. The Czech reformers took this argument a stage further. The time had come for the Communist Party to lose its hegemonic character. After all, if there were no ‘antagonistic classes’, how could the Party legitimate its ‘leading role’, with no threats to socialism from any opposing class?

Thus the leading role of the Party was undermined by the reformers, some of whom advocated a multiple-party system working under the guidance of the Communist Party. The political system would be the legitimate expression of interests based on the division of labour, on regional attachments and issue politics, as well as promotional associations. It was conceded that the political authority of the Communist Party would be necessary to aggregate these interests for the good of society as a whole. Hence the Party could still be said to hegemonic, but in



quite a different way from that under traditional state socialism. Under the leader-ship of Alexander Dubcek, political reforms were enacted: interests would be allowed – though under a single rather than a competing multi-party system – and the government and judiciary would have autonomy; a free press would be allowed and censorship was abolished. These conditions operated for a brief period in 1967 and 1968.

Most important of all were the implications for foreign affairs. Czechoslovakia, it was argued, should look to the West, not only to the economic market but also to enlarge the country’s international political networks – particularly to Western Europe – and to review its role in the Warsaw Pact. These proposals, together with the threatened weakening of the Party and its political control, ensured the downfall of the Dubcek government. On 20 August 1968, the Warsaw Pact countries invaded Czechoslovakia. They argued, under what has become known as the ‘Brezhnev doctrine’, that the interests of the socialist bloc were threatened by the reforms. The market would undermine the economic linkages and an orientation to the West would weaken their military capability. Dubcek was deposed and replaced by Gustav Husak, who rejected the reform programme. Censorship was reimposed. Allegiance was reaf� rmed to the Warsaw Pact and to Comecon (the Council for Mutual Economic Assistance). ‘Normalization’ replaced reform.

From the point of view of market socialism, the experience of Czechoslovakia is open to two interpretations. Optimistic market socialists would claim that ‘market socialism’ was not put into practice. The timing of the reforms and impli-cations of international realignment cut short the experiment. But others point to the faults of an economic model. Economic ‘autonomy’ impacts on politics both domestically and in international affairs. Market socialism, they would contend, leads to market relations undermining socialist values and norms.

My own view rests rather with the pessimists; economies cannot be ‘autono-mous’ from politics. Even the Obama administration nationalized companies that were ‘too big to fail’, and the European Union’s common agricultural policy, as well as capitalist governments’ subsidies to failing companies, are part of the way that the market in practice operates. There is no such thing as a really existing ‘free market’. But market socialism could operate in the context of state regulation with a benevolent approach to the welfare state as well as the maintenance of a full employment policy. A necessary condition for its success-ful operation is a considerable stake by the state in the ownership and effective control of corporate property. The failure of the Czech movement to market socialism was contingent on the failure of the political leadership to consider the international implications of a rupture in relations with the USSR, which fol-lowed their plans for a move away from the Soviet-dominated economic and political framework.

After 1968, Czechoslovakia was no longer at the forefront of reform move-ments. The mantle was taken up in a most unexpected country: the People’s Republic of China.



Notes 1 Here I follow Ernest Mandel, Marxist Economic Theory , London: Merlin Press, 1971,

p. 571. 2 For an overview see Gilbert Rozman (ed.), Dismantling Communism: Common

Causes and Regional Variations , Baltimore, MD: Johns Hopkins University Press, 1992; Victor Nee and David Stark, Remaking the Economic Institutions of Socialism: China and Eastern Europe , Palo Alto, CA: Stanford University Press, 1989; Bela Greskovits, The Political Economy of Protest and Patience: East European and Latin American Transformations Compared , Budapest: Central European University Press, 1998.

3 For an overview that contextualizes planning and the market, see Robin Blackburn, ‘Fin de Siècle: Socialism after the Crash’, New Left Review , No. 185, 1991: 5–66; Pat Devine outlines a leftist critique and proposes including democratic institutions in planning, in Democracy and Planning , Cambridge: Polity Press, 1988; Dic Lo, Alternatives to Neoliberal Globalisation , Basingstoke: Palgrave, 2012, ch. 8 ; A. Nove, The Economics of Feasible Socialism Revisited , London: Allen and Unwin, 1991; Pranab K. Bardhan and John E. Roemer, Market Socialism: The Current Debate , Oxford: Oxford University Press, 1993; Christopher Pierson, Socialism After Communism: The New Market Socialism , Cambridge: Polity Press, 1995; Anders Aslund (ed.), Market Socialism or the Restoration of Capitalism? , Cambridge: Cambridge University Press, 1992; Nee and Stark, Remaking the Economic Institutions of Socialism . For a defence of planning see Ernest Mandel, ‘In Defence of Socialist Planning’, New Left Review , No. 159, 1986, and ‘The Myth of the Socialist Market’, New Left Review , No. 169, 1988; D. M. Nuti, ‘Market Socialism: The model that might have been but never was’, in Aslund, Market Socialism or the Restoration of Capitalism? ; David Miller, Market, State and Community , Oxford: Clarendon Press, 1990; Greskovits, The Political Economy of Protest and Change ; David Schweickart, After Capitalism , Lanham, MD: Rowman & Little� eld, 2002; Johanna Bockman, Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism , Palo Alto, CA: Stanford University Press, 2011.

4 Oskar Lange, ‘Marxian Economics and Modern Economic Theory’, Review of Eco-nomic Studies , June 1935: 68–87, p. 72.

5 P. A. Samuelson and W. D. Nordhaus, Economics , New York: McGraw-Hill, 1985, p. 234.

6 Lange, ‘Marxian Economics’, p. 81. 7 Lange, ‘Marxian Economics’, fn. p. 72. 8 See Pierson, Socialism After Communism . 9 Just how ‘public’ or ‘collective’ ownership is organized is a matter of debate; see Pierson,

Socialism After Communism , ch. 4 . 10 J. Kornai, Economics of Shortage , Amsterdam: North Holland Publishers, 1980. 11 Kornai, of course, would not limit reform to the economic mechanism, but would

introduce private property as well, as I document later. 12 For Yugoslav socialism see R. Remington, ‘Yugoslavia’, in T. Rakowska Harmstone

(ed.), Communism in Eastern Europe , 2nd edn, Manchester University Press, 1984; Fred Singleton, ‘Yugoslavia’, in B. Szajkowski (ed.), Marxist Governments , London: Macmillan, 1981; Martin Schrenk, Cyrus Ardalan and Nawal A. El Tatawy, Yugosla-via: Self Management Socialism and the Challenges of Development , World Bank, 1979; Harold Lydall, Yugoslav Socialism: Theory and Practice , Oxford: Clarendon Press, 1984; Ellen T. Comisso, Workers’ Control under Plan and Market , New Haven, CT: Yale University Press, 1979.

13 See Jim Seroka, ‘Yugoslavia and the Successor States’, in S. White, J. Batt and P. G. Lewis (eds), Developments in East European Politics , London: Macmillan, 1993, pp. 103–4.



14 For background on Czechoslovakia see H. G. Skilling, ‘Czechoslovak Political Culture: Pluralism in an International Context’, in A. Brown (ed.), Political Culture and Communist Studies , London: Macmillan, 1984; D. Paul, Czechoslovakia , Boulder, CO: Westview Press, 1981; Z. Suda, Zealots and Rebels: A History of the Communist Party of Czechoslovakia , Stanford: HIP, 1980; Otto Ulc, ‘Czechoslovakia’, in Rakowska-Harmstone, Communism in Eastern Europe .

15 Otto Sik, Market and Plan under Socialism , New York: IASP, 1967, p. 362. 16 Sik, Market and Plan under Socialism , p. 355.


Like the European socialist countries, the Chinese communists after seizing power copied many of the features of the USSR as they had developed under Stalin. However, unlike the European countries, the Chinese communists had a stronger identity and con� dence.

The source of Chinese reforms under Mao Zedong originated both from inter-nal political struggles and as a consequence of con� ict with the USSR. Internally, the Maoist leadership was confronted by what it considered to be the strengthen-ing of a ‘new class’ of bureaucrats who were moving policy towards capitalism. Their power was derived from the economic structures copied from the USSR which had, under Khrushchev, already moved in the direction of capitalism. The incumbent leadership was able to utilize this critique against the established eco-nomic elites in China.

The Chinese leaders resented the hegemony exercised by the USSR, and they adopted a more independent line which required respect from the international communist movement. In the late 1950s, relations between the two countries were severely strained and the USSR ceased all economic and political assistance. Hence the Chinese reforms that were introduced under Mao Zedong had an inter-national as well as a domestic component. The ‘Chinese way’ was an indication to the communist movement (particularly in the Third World) and to unaligned countries that China deserved recognition as a major communist world power. Two major departures were made from the state socialist model: � rst, a leftist Marxist critique of the ‘Soviet’ paradigm of state socialism, and second, a signi� -cant move to markets. Both are described in this chapter. Unlike the movements in Yugoslavia and Czechoslovakia, the Chinese market reforms took root and here we consider them up to the present day. In the next two chapters we turn to the reforms in the USSR.

The Maoist critique of Soviet socialism The Chinese leadership under Chairman Mao promoted a leftist critique of Soviet policy which differed in six major ways from Soviet state socialism. First, plan-ning priorities were revised. Greater attention was given to agriculture and light industry. In 1958 the policy of the Great Leap Forward envisaged very high targets

5 China From Maoism to the market 1



in labour-intensive workshops, in the countryside as well as in urban areas. The abundant supply of labour would be utilized in production enterprises with little capital. This was a rational policy in a country with a great shortage of capital and a surplus of labour. The gestation period of investment was short and returns were rapid. The objective was to catch up with the United Kingdom in 15 years. The effect here was to raise incomes and consumption, in contrast to the austerity of Soviet planning under Stalin, which Mao referred to as ‘draining the pond to catch the � sh’. 2 In its economic aspects, the policy was well suited to utilize the small-scale, labour-intensive and primitive industry of traditional China. This approach signalled a move away from the introduction of the advanced technology (of the day) entailed by the Soviet model. Mao advocated the use of intermediate and ‘native’ technology. Decentralization and ‘self-reliance’ replaced dependence on foreign technology and ‘learning from the Soviet Union’.

Second, the system of management and incentives was fundamentally reap-praised. The centralized form of management under ministries was repudiated. 3 In place of one-man management, control was placed under local Party committees. Political expertise rather than technical skill was advocated in management. Popular mobilization of the masses under a revolutionary party replaced the bureaucratic centralism thought to be endemic in the Soviet form of administra-tion. This idea of the ‘mass line’ was something peculiar to Mao’s policy. It emphasized the fact that development and ‘building communism’ had a human component; it depended on people’s attitudes and motivation which could be in� uenced by cultural revolution.

Third, Mao was the � rst socialist leader to point to the contradictions that were derived from the structures and processes of the early socialist formation. Here he echoed the ideas of state capitalism, which are considered in more detail in Chapter 9 . A reversion to capitalism, it was claimed, can take place through a degenerate socialist leadership becoming a bourgeois class through its command of bureaucratic position and exploitation of the masses. A state-owned economy could embody its own ‘state capitalist’ class. He argued that this is what had occurred in the USSR under Khrushchev. The political base of the ‘new bourgeois elements’ was its control of the Party-state machine. A new capitalist class, it was asserted, could arise out of the state economy: the administrative cadres and the intelligentsia were the basis of this new exploiting class. Under Khrushchev in the Soviet Union, Mao claimed, revisionism legitimated the privilege and power of this new class. (Mao no doubt had in mind such strata in China.) To combat such degeneration, recognition had to be made of the continuation of class struggle under socialism. This viewpoint legitimated replacing (violently if necessary) the incumbent political and economic elites.

Fourth, the socialist revolution had to continue during the period of transition. Economic policy moved away from the use of material incentives to a greater emphasis on ideological imperatives and ‘greater reliance was placed on the revo-lutionary fervour of the masses’. 4 Material incentives, it was claimed, had led to the growth of individualism and egoism. With regard to motivation towards work, putting ‘politics in command’ meant ‘� rst of all the awakening of enthusiasm’,


China: From Maoism to the market 69

and emphasis was placed on emulation campaigns intended to develop ‘collectiv-ist attitudes and behaviour’. Honori� c rather than material rewards were advo-cated. This policy implemented the traditional socialist opposition to prices as signals, and money as incentives and markets as determinants of production and consumption. It also opposed any economic and political linkages with econo-mies that worked on these principles. China embarked on a policy of isolation from both the major world power blocs. In these respects, at this time, the Chinese communist leadership adopted many of the points made by the critics of market socialism, and the political leadership was particularly critical of developments in Yugoslavia, which was subjected to ridicule.

Fifth, institutional forms were introduced to ful� l these principles. In the vil-lages ‘communes’ were started. Production brigades were organized that could handle the building of waterworks and small-scale industries. Consumption in kind accounted for 70 per cent of members’ income. In many of the communes, food was provided collectively and was free of charge – though this only lasted for a brief period. In 1964, a ‘socialist education’ campaign took place which was seen as part of the ideological struggle against the ‘bourgeois outlook’ that had contaminated Soviet communism. The aim here, as in the Great Proletarian Cultural Revolution which began in 1966, was to indoctrinate youth with a mili-tant revolutionary consciousness.

Finally, the Cultural Revolution was devised as a strategy that sought to imple-ment the new revolutionary goals of the Maoist leadership. This was considered to be the continuation of the socialist revolution.

The great cultural revolution Stuart Schram de� nes its two general aims as ‘to change the structure of power in society, and to carry out an irreversible transformation in the patterns of thought and behaviour of the Chinese people’. 5 This entailed an ideological and political campaign against hostile groups – bureaucrats and intellectuals – to prevent any tendency to drift away from socialism. Direct action was undertaken by Mao’s supporters. These were located in the army and among the Red Guards – militant youth and students (of non-intelligentsia origin). A decisive shift took place in 1964 when the army became the ‘dominant force in Chinese society and the arbi-ter of ideological orthodoxy’. 6 In 1967, ‘revolutionary committees’ were estab-lished composed of members of the People’s Liberation Army, new revolutionary activists (the Red Guards) and Party and government personnel. They were charged with supplanting the existing Party and government organizations.

Revolutionary committees were instituted in industry. These abolished the old form of hierarchical management. The educational system was fundamentally changed. Elitist and specialist types of study were discontinued. Education was to be socialist and predicated on ‘serving the people’. Resources were shifted to the countryside in order to make education available to the rural masses, rather than the more privileged townspeople. Learning was oriented towards vocational train-ing. The teaching of medical auxiliaries in the form of ‘barefoot doctors’, it was



contended, was an appropriate policy for an underdeveloped country, rather than the training of specialists in advanced medicine. A greater stress was put on com-munist values, on serving the people, rather than on personal achievement. 7

Important changes took place in the role of the Communist Party. The authority of the Party was replaced by the masses led by Chairman Mao. The Leninist idea of the Party spreading ‘consciousness’ among the masses was replaced by an ide-ology of ‘learning from the masses’ – a continuation of the policy instituted during the guerrilla war. Politically, this policy undermined the political and economic elites. The Constitution recognized Mao as ‘the great leader of the people of all nationalities in the entire country’. In 1975, the Constitution declared that ‘Marxism-Leninism-Mao Zedong thought is the theoretical basis guiding the thinking of our nation’. Mao’s position was unassailable.

The Cultural Revolution has to be interpreted in the context of the type of soci-ety in which the Communist Party took power. The Chinese Party had a signi� -cant base among the working class but it was relatively small. In Russia in 1917, 60 per cent of Party members were manual workers, whereas in China, the com-munists had mass support in the countryside from peasants whose culture was parochial. The Cultural Revolution was intended to bring about a transformation of the political culture. It sought to root out traditional practices encapsulated in the campaign against the ‘four olds’ (ideas, culture, customs and habits) and was an instrument of modernization. It must be seen in the wider perspective of achieving modernity: of inculcating initiative, of mobilizing an extremely back-ward peasant population through collectivist pressure.

Consequences of Maoism Internal and international politics must be taken into account too. Mao asserted the power of his supporters in the political class against possible contenders located in the government bureaucracy and Party apparatus. In international affairs, the Cultural Revolution provided a political legitimation for China’s lead-ership in its struggle with the USSR. In a Marxist sense, the emphasis was put on the relations to the means of production. The class in control could create not only the material forces of socialism (as suggested by Stalin) but also the political culture; through its control of the means of production it could establish a superstructure of a socialist type.

The Chinese model had a great appeal to radicals in the West and also had in� uence in the Third World in the late 1960s and 1970s. It appeared as a socialist alternative; it was idealistic rather than technocratic, as in the Eastern European countries and the USSR. It held out hope for the elimination of poverty, privilege and bureaucratic control, which seemed endemic to both capitalism and the European socialist bloc. It also had a rhetoric of idealism and egalitarianism. While it is dif� cult to make an accurate appraisal of the pluses and minuses of development, social indicators showed real improvements in the standards of life: life expectancy rose from 40 years in 1950 to 61 in 1970, illiteracy fell from 70–80 per cent of the population in 1950 to 55–60 per cent in 1960. 8



But the period of the Great Leap Forward of 1958 to 1959 was one of chaos and famine: it has been con� dently estimated that 10 million people died of hunger in those years (other estimates are as high as 25 million and 40 million). 9 For the period between 1950 and 1976, Western press estimates of deaths from famine and persecution have been put at 80 million. Bands of Red Guards undoubtedly acted in an arbitrary and violent fashion; massacres took place of people suspected of coming from the landlord or ruling classes. It is now widely held that Mao’s policy was mistaken – it created unwarranted deaths and retarded development. However, Mao has never been of� cially exposed as a wrongdoer in China as Stalin was in the USSR. The ruling communists have minimized the faults of their previous history to prevent themselves (and communist institutions) being implicated. In the preamble of the 1982 Constitution, the four Basic Principles of the state are constituted as: the leading role of the Communist Party of China, adherence to the socialist road, upholding the people’s democratic dic-tatorship, and the guiding role of Marxism-Leninism and Mao Zedong Thought.

After the death of Mao, however, his policy was repudiated by the new leader-ship and replaced by yet another form of revision and control. China turned from being the instigator of a ‘people-backed’ pattern of development to one that copied extensively from the economic practice of the advanced capitalist states: the country entered the system of world trade and enthusiastically adopted market mechanisms.

China’s market reforms The internal political dynamic of the Cultural Revolution entailed an attack on the elites located in the government apparatus; however, unlike in Soviet Russia under Stalin, where the opposition was physically annihilated, Mao Zedong purged his enemies and banished them to physical labour in the countryside. Deng Xiaoping, for example, during the Cultural Revolution worked as a lathe operator at a tractor repair shop. They in turn later resisted Maoism and provided the impe-tus to reform after Mao’s death in 1976 and the subsequent imprisonment of Mao’s remaining supporters in the ‘Gang of Four’.

In 1975, Chinese Premier Zhou Enlai announced a new developmental strat-egy. Four ‘modernizations’ distinguished the post-Cultural Revolution period: industry, agriculture, science and technology, and the military. 10 Policy involved a depoliticization of economic management. The Maoist principle of ‘politics in command’ was renounced; there was a re-emphasis on material rather than ideo-logical incentives. The command-type administrative system was maintained but decentralized. It was conceded that a degeneration of the political leadership under Mao had led to a declining rate of economic growth and popular dissatisfac-tion with the standard of living.

A signi� cant shift to a market economy took place. In agriculture, effective pri-vatization in the form of ‘leasing’ of land was allowed. Collective farms were split up into small family plots and were managed as family farms, which were encour-aged to trade on the market. Of even greater importance, small-scale industrial



production was encouraged in the rural sector. Pro� t retention was allowed in state industry, though right up to 1991 there was no policy to privatize enterprises. The state banks were given a greater role in the issue of credit and an ‘open door’ policy was pursued with respect to world trade. 11

The changes were reminiscent of the Yugoslav reforms: there was a shift to greater independence of economic enterprises, which remained nationalized though they were able to retain pro� ts and were to have greater initiative over their own funds – including the level of investment, � xing of prices and payments to their own employees. The state was to continue with overall macro planning. Allocative distribution of investment remained largely with the planners. The idea was, in the words of reformer Chen Yun, ‘to set free the market bird inside the cage of central planning’. In this policy the leadership may have been in� uenced by the other south-east Asian economies (the four dragons – Hong Kong, South Korea, Taiwan and Singapore), which had all pursued successful economic reforms under authoritarian rule.

The state’s direct productive role was maintained but signi� cantly reduced: the non-state sector in industry (accounting for under a � fth of industrial output in 1978) rose to 45 per cent in 1990 12 and to 61 per cent in 1992. This increase took place in the rural sector where quasi-private industries were set up after the de-collectivization of agriculture. In 1988, for example, there were 18.882 million rural enterprises. 13 By the late 1980s only a third of construction employment remained in the state sector, and this allowed a boom in rural house construction. In transportation and communication, the government maintained a monopoly. In retail trade, by the late 1980s, fewer than 40 per cent of retail sales were transacted in the state sector. 14 Distributive allocation had clearly shifted to the market. From 1979, the state banks were given the right to allocate and regulate credit. They became more pro� t-oriented and monitored the activity of borrowers. In this way � nancial and economic criteria became more important in industry. However, economic control was not lost by the government, as the planning mechanism still had considerable power and the banks were state owned and controlled. Allocation was subject to government planning, and distribution to the market.

The conclusion to be drawn here is that the market was given a legitimate and important place under state socialism in China and the consequences of greater differentials between sectors of the economy and between different groups of employees were acceptable to the communist leadership. Not only was the market recognized as an internal distributive institution, the international market was acknowledged as bene� cial.

Policies of market reforms Policy encouraged foreign trade and foreign capital through loans, direct invest-ment or joint ventures. Special economic zones were set up to stimulate the invest-ment of foreign entrepreneurs. The monopoly of foreign trade held by the Ministry of Foreign Economic Relations and Trade was broken. The yuan moved towards open convertibility with foreign currency. (By 1990, the internal auction rate of



the dollar approximated the black market rate.) 15 However, the government still controlled the rate of exchange. By the late 1980s, more than 5,000 independent foreign trade corporations had the authority to engage in international transac-tions, 16 and by 1988, 50 per cent of foreign exchange earnings could be kept by producers. This led to production enterprises receiving higher prices for exported goods, and boosted trade. This process also widened differences between enter-prises and it meant that (at least some of) the pro� ts earned would be pocketed by the management or entrepreneurial personnel. This was the source of increasing economic and social differentials.

Foreign investment and the internationalization of the economy were also of considerable bene� t. Between 1979 and 1991, China received $80 billion in foreign capital and imported $24.6 billion in foreign technologies. By 1991, China had moved to eleventh place in the ranking of world trading nations; in 1978, exports accounted for only 4.65 per cent of Chinese GNP, while by 1992, they had risen to 19.5 per cent. 17 The economic effects of these moves were positive: industrial and agricultural output increased considerably; gross domes-tic product in China rose at an annual rate of 8.8 per cent between 1979 and 1990 18 and continued at a remarkable average rate of 10.5 per cent between 1991 and 2010. 19 The creation of special economic zones encouraged foreign invest-ment especially from Hong Kong and expatriate Chinese. As a consequence of these internal and external changes, incomes rose and greater differentiation took place, to the advantage of richer peasants in the countryside (who bene� ted from the pro� ts of rural enterprises) and entrepreneurs, managers and skilled and technocratic strata in the urban areas. (Income differentials are discussed further in Chapter 17 .)

From 1985, the government pursued a policy that liberalized banking and encouraged the formation of � nancial markets. White and Bowles point out that policy-makers and of� cials ‘became increasingly absorbed into an international discourse on � nancial systems and � nancial liberalization … [and] by � nancial experts and international institutions such as the World Bank and International Monetary Fund, which became increasingly in� uential elements in the Chinese policy-making process in the mid-1980s’. 20 The banks, which crucially remained under state ownership (and regulation), moved towards greater � nancial auton-omy, and the � nancial market developed to include investment companies and insurance of� ces, which provided the infrastructure for the � nancial system. They did not, however, adopt the speculative and � nancialization processes of the lead-ing Western � nancial institutions.

The economic reforms were instituted at the edges of the economy, through instituting private farming, village enterprises and individual entrepreneurship, and promoting special economic zones. 21 Criticisms that the marketization was leading to in� ation and unjusti� ed inequality led the 1989 student movement to call for making ‘the planned economy … primary and the market adjustment … secondary’. 22 However, the government persevered with marketization and the 1990s saw further movement to market reforms, with China joining the World Trade Organization in 2001. Privatization has increased. By 2012, state ownership



is still important, and often takes the form of state-owned corporations. The distri-bution of various types of ownership in shown in Table 5.1 .

The picture we have here is one of a very mixed economy. By far the most typical enterprise is that of the small farm-holding (the ‘domestic funded’ and ‘private’). The state, collective and cooperative units are still signi� cant but over-whelmed by private limited liability � rms, shareholding corporations and enter-prises with foreign investments. These data give no idea of the size of units. An estimate of the importance of state enterprises is given by employment shown in Table 5.2 . Clearly, non-state employment is predominant in manufacturing, but not in other branches of the economy. Foreign investment is also far less in quan-tity than other sources of investment. (We return to this topic in Chapter 13 .) In 2010, from the state budget was raised 14,677 million yuan, domestic (bank) loans came to 47,258, foreign investment only 4,986, self-raised funds 197,099 and ‘others’ 46,942. 23

Economic reform has been successful in China. A domestic market for agricul-tural and rural industrial production and for the exchange of commodities and in � nance has been introduced. In the mid-1970s, GDP was around $200 per head; by 2010, it had risen to some $4,000. Economic growth has increased signi� -cantly during the reform period and industrial and agricultural output has risen noticeably. I will discuss such developments comparatively in later chapters. The share of the non-state sector has increased dramatically and so has foreign trade. Between 1976 and 2010, China’s share of world trade rose from about 2 per cent to 9 per cent. China has converged economically with the Western advanced cap-italist states: her share of global GDP rose from around 1 per cent in 1980 to 15 per cent in 2011, while that of the USA fell from 25 per cent to 19 per cent between the two dates. 24 However, China is still a relatively poor country: its gross national income per head (at purchasing power parity) was only $7,476 in 2011, compared to $43,017 in the United States. 25

China has enjoyed advantages in international affairs which the Soviet Union did not – only in November 2011 was Russia’s membership of WTO approved by the Council. China was not considered a rival to the West in the way the Soviet Union was; indeed, the country had been regarded by the USA as a counter-weight to the

Table 5.1 Economic enterprises in China, by type of ownership, 2010 (10,000 units)

Total Domestic funded

State-owned enterprises **

Collective owned

Cooperative units

Joint ownership

651 630 15.3 19.23 7.18 1.3

Limited liability Shareholding corporations *

Private Funds from Hong Kong, Macao, Taiwan

Enterprises with foreign investments

77.33 11.92 468.39 9.9 11.82

Source: China Statistical Yearbook 2011 , pp. 28–9. * Registered capital raised through stocks. ** Non-corporation units where entire assets are owned by the state.



USSR during China’s split with Khrushchev. What China’s experience has shown is that even before the USSR began its perestroika reforms, a state-led form of allo-cation could successfully be coupled to market forms of distribution – without a full-scale transition to a privatized economy and competitive electoral politics.

The lack of political reform Reform in the economy, however, was not paralleled in the political system. The struggle continued between the traditional political leaders – those steeped ideo-logically in ideas of class politics, state control and planning, as well as the chiefs of government-run industry – and the reformers. The Chinese political leadership under Deng Xiaoping supported a move to the market in the economy, privatiza-tion in agricultures and participation in the world market. He was recognized by Time magazine in 1985 as their Man of the Year for his work in embracing free market reforms. But the economy did not move to an open market economy with full-scale privatization of industrial assets.

While the government reformers allowed economic market reforms, they resisted ‘radical’ political reform in the sense of a pluralism of groups, political par-ties and competitive elections. In 1978 and 1979 pressures for economic and politi-cal reform came from below, from the ‘democratic movement’ where some argued that democracy was a ‘� fth modernization’. 26 However, the movement was repressed by the authorities. Later, in 1986, further demands were made for a system of checks and balances, for competitive elections, for the abolition of censorship in art and literature, and opposition was voiced to the doctrine of Marxism-Leninism. 27 Such views had some support among the political leadership, particularly in the � gure of Hu Yaobang. But they were resolutely repudiated by the leadership under Deng Xiaoping. The hegemony of the Communist Party continued.

The Tiananmen Square incident (4 June 1989), in which demonstrating stu-dents were forcibly ejected, some were killed and others imprisoned, demon-strated the limits of the political reform process. 28 China maintained a single-party system and the movement to pluralization and to autonomous groupings in a civil society has been blunted. Tiananmen Square, however, indicated that considera-ble opposition existed to communist political hegemony. This was fuelled not only by the growth of the urban intelligentsia but also by the bene� ciaries of market reforms.

In other areas, a relaxation of Party hegemony has occurred. Intellectual life is more pluralistic and Chinese people in the twenty-� rst century enjoy the rights of

Table 5.2 Employment by types of enterprise, 2010 (10,000)

State owned Urban collective owned Other units

All enterprises 6,516 597 5,937Manufacturing 416 134 3,086

Source: China Statistical Yearbook 2011 , Table 4–5, p. 114.



foreign travel; and literally hundreds of thousands of Chinese students study at Western universities.

Incremental market reform has been a successful economic policy and it has occurred independently of radical political reform. The Communist Party has pre-served its monopoly of political organization. Marxist ‘revisionists’ who have advocated the introduction of the market in the context of state ownership and a Party-led planning system would seem to be justi� ed in their arguments that market reforms can coexist with a political system led by the Communist Party.

The received wisdom of a generation of Western advisers who claimed that economic reform was impossible without political reform is also shown to be mistaken. Democratic reform in a Western sense has not materialized: there is no competition of political parties, and individual rights as understood in a pluralist society have not been attained. Whether there has been a ‘within-system’ political change in the composition of the Communist Party is another matter, which will be discussed below.

Political factors have been important in maintaining stability: the political class is strongly ensconced in power in China. The legacy of the revolutionary generation which fought its way to power still conditions the views of the political leadership (unlike in the Eastern European countries where a post-revolutionary generation had entered politics). The army, though declining in in� uence, is an important part of the political class and remains in support of the traditional polit-ical leadership.

The social base of political reform is also weaker than in the European states. In 1979, only 18.9 per cent of the Chinese population was urban (compared to 65.7 per cent in the USSR in 1986 and 61.2 per cent in Poland); 24.6 per cent of the labour force was in the non-agricultural sector (81 per cent and 73 per cent in the USSR and Poland in 1987 and 1988 respectively). In China in 1982, only 1 per cent of the population had received higher education, compared to 13.9 per cent in the USSR in 1989 and 5.7 per cent in Poland in 1981. 29 The growth of the pri-vate sector initially developed in the countryside rather than in the towns. The peasants in China have had less to lose from the decline in government transfers than in other socialist societies, for they were not included in the social welfare bene� t services.

All these factors have led to an economic reform without formal political reform in China. But the political elites (unlike in the European socialist coun-tries) were able to put on a show of unity in policy and ideology; they have effec-tive means of political control at their disposal and they have the will to maintain boundaries. Authoritarian governments in many countries, particularly in East Asia, pursue market economic reforms in the context of dictatorial rule. The anal-ogy, however, may not be appropriate under state socialism, for marketization if linked to privatization gives rise to an economic class whose interests may not be secured by the traditional political class.

Authoritarian capitalist governments, however, do not challenge property rela-tions – rather, they secure them concurrently by securing preferential transfers to themselves and to their supporters. The Communist Party in China has already



conceded considerable power to the economic class; its effective control over the economy is being eroded.

While the earlier reforms were generally widely supported, since the 1990s there has been a restructuring along neo-liberal lines: in the late of 1990s state-owned enterprises have been restructured and market reforms have involved reli-ance on payment for services in education, medical service and housing. The rise of a property-owning capitalist stratum has greatly increased inequality, which is as great as in the USA (see Chapter 17 , Figure 17.8 ). In the twenty-� rst century, the dynamic of development clearly lies with private enterprise and has support among the intellectual class. By 2012, the socio-economic structure had changed considerably. The urban population was very much larger: it rose from 36.2 per cent of the population in 2000 to 49.9 per cent in 2010, 30 and the number of pri-vately owned urban enterprises has increased enormously. The number of people with higher educational quali� cations has risen dramatically. According to the census, in 1982, there were 416 persons per 100,000 with junior college or above education; the number rose to 1,422 in 1990, and more than doubled to 3,611 in 2000. 31

Finally, it must be questioned as to whether the political hegemony of the Party (steeped in Marxism-Leninism) will continue when a new cohort of leaders takes command. The implications of this analysis are that it will not. 32 This does not imply that the state will relinquish its centralized political direction, nor does it mean that electoral democratization is inevitable, but it entails that such direction will be increasingly in� uenced by those with a capitalist (rather than socialist or Leninist) ideological orientation. The idea that a kind of Maoist ‘guerrilla-style policy-making’ has been adapted to a form of modernizing indus-trial society (suggested by Heilmann and Perry) 33 is highly suspect and applies a way of thinking quite out of place in the China of the twenty-� rst century. Lenin’s 1902 condemnation of the ‘spontaneity’ of the masses in favour of Party hegemony has to be contextualized in the politics of revolution in a pre-modern society. In the management of the modern Chinese economy, such a way of thinking is out of place.

Chinese socialism with capitalist characteristics The development of the private sector has led to the creation and strengthening of the business class and the intelligentsia. As Minxin Pei has cogently argued, these developments weaken the communist party-state by transferring resources away from its control. 34 A number of actual and potential political situations arise out of these developments.

First, business people have been absorbed into the Communist Party, thereby preserving party hegemony in a new economic and political context. Western commentators, such as Bruce Dickson, contend that the new political formation will not support democratization, 35 as it might challenge the market inequalities that are currently accepted by the Party. Dickson brings out the theoretical incom-patibility between what the Party has stood for and its embeddedness in the



Chinese economy, on the one hand, and on the other, the logic of autonomy required for a privatized market economy to operate effectively. He contends that the regime may successfully integrate the new social forces unleashed by the reforms into the political order. The new entrepreneurial class, he argues, is essen-tially a ‘non-critical’ component of civil society and does not seek a politically autonomous role. It does not need one as its interests are serviced by the current Party leadership. He envisages the entrepreneurial class as a component in a cor-poratist constellation of political forces. Party policy of the inclusion of these strata will further their integration into the political system, which will maintain the hegemony of the Party. Hence a ‘transformation’ of Chinese society will be successfully completed without Party and state collapse, as experienced in Central and Eastern Europe. ‘The evolutionary forces … will serve to undermine the foundations of [a Leninist political] system, rather than prop it up.’ 36

In this scenario, the Party’s socialist policy is subverted by business, but the leadership (and those who bene� t from it) adapts to circumstances to maintain its future dominance. 37 The view here envisages a type of corporatism in which the Party is politically hegemonic, and exchanges with private business and other interests such as the armed forces. Dickson argues that workers and peasants interests are ‘largely abandoned’ by the Party, which pursues pro-growth policies which favour urban elites. While the Party has over 80 million members, the grassroots membership of farmers and workers lack power, which has been taken by the economic and professional elites. 38 Moving towards a more socialist policy – greater welfare rights, the enforcement of legislation in protection of workers – might lead to resistance from the bourgeois classes and threaten politi-cal stability. In this context the society modernizes on what would appear to be more of the Western pattern of capitalism.

David Shambaugh 39 contends that the Chinese Communist Party has emerged from atrophy and is adapting to current demands to ensure its revival and future dominance. A corporate state (either capitalist or socialist) can be contained within the leadership of the Communist Party.

A similar scenario is illustrated by Mary Gallagher, 40 who argues that foreign direct investment in China does not strengthen civil society, as ownership and control of assets accrue to foreigners. Consequently, the Communist Party can strengthen its position against a weak civil society. Both these positions conclude (though for different reasons) that economic liberalization may not lead to democratization in the Western sense of electoral democracy.

A second possibility is a move to the ‘Singapore model’, which emphasizes the rule of law but not democratization. 41 Similar views are shared by the self-styled ‘New Left’ in China, which emphasizes the need for a strong state rather than democracy. 42 Minxin Pei, who considers that China is trapped in partial economic reforms and is mired in corruption, comes to similar conclusions: China will remain in its present state without a further transformation into a full market econ-omy or democratic policy. 43 The upshot here is that authoritarian governments (both socialist and capitalist) can survive and adapt to the social consequences of economic development.



A third outcome is suggested by Bruce Gilley, who argues that because the Party has not reformed it will be challenged by other marginalized elites (such as the military or business), which will lead a democratic transformation. 44 This is an expression of the ‘modernization’ thesis by which political democracy will follow when the necessary conditions of economic and social development have been achieved. 45 But these conditions might lead to a different outcome if the army were to reinstate a more socialist regime.

A fourth possibility is that economic well-being has forti� ed the political status quo but the growing tensions created by economic reform and the increase in inequality might lead to a backlash against market reforms 46 and the re-establish-ment of a more planned system – a move back to socialism. The argument here is that the Party and the military have lost power to the rising capitalist class and (possibly prompted by public protest) may seize it back. The rise of a rich busi-ness class, causing resentment and increasing unemployment, leading to popular discontent, might provide a political base for such a movement. Bo Xilai, who lost his position in 2012, is said to be an advocate of this approach – he defended state-owned industries and urged state intervention to save small businesses. 47

In the next chapter, we see that in the USSR, the radical reformers weakened the socialist framework so much that it was unable to withstand political demands for a move to capitalism. I would make a distinction between a form of state ownership that operates under the hegemony of a dominant communist or workers’ party and one where the state (capitalist) businesses are hegemonic. In the former, the politi-cal apparatus dominates over the economic and appropriates and allocates surplus. Such was the case in the USSR before Gorbachev’s perestroika. In China, the intro-duction of the market has been successful economically and the formal apparatuses of communist power have continued. But the reforms have undermined the ability of the state as a distributive agency and have generated political groups that will undoubtedly undermine the socialist infrastructure. China has passed the cross-roads and is well on the way to capitalism. Rather than ‘market socialism’, the reforms have delivered state capitalism with Chinese characteristics.

In China, privatization has led to the rise of a bourgeoisie that is able to secure surplus product from the industries they control (and increasingly own). The � nancialization of education, health and other state services also strengthens these elements.

Yet another attempt to forge markets into a planning frame took place in the USSR under Mikhail Gorbachev. His policy of a Third Way, between capitalism and state socialism, failed. Just how it failed is the topic of the next two chapters.

Notes 1 My thanks to Jeanne Wilson for comments on an earlier draft of this chapter. 2 G. White, ‘Chinese Development Strategy after Mao’, in G. White, R. Murray and

C. White (eds), Revolutionary Socialist Development in the Third World , London: Wheatsheaf, 1983, p. 157.

3 F. Schurmann, Ideology and Organization in Communist China , Berkeley, CA: University of California Press, 1968, p. 267.



4 Charles Hoffmann, ‘Work Incentives in Communist China’, Industrial Relations , 3(2), 1964, p. 93.

5 Stuart R. Schram (ed.), Authority, Participation and Cultural Change in China , Cambridge: Cambridge University Press, 1973, p. 85.

6 Stuart R. Schram, The Political Thought of Mao Tse-Tung , London: Penguin, 1969, p. 105. 7 J. Gardner and W. Idema, ‘China’s Educational Revolution’, in S. R. Schram, Authority,

Participation and Cultural Change in China , p. 259. 8 Nick Eberstadt, The Poverty of Communism , New Brunswick and Oxford: Transaction,

1988, pp. 267, 131, 281. In a detailed study Eberstadt documents the decline of health and conditions during the Great Leap Forward. He points out that other similar countries also had improvements without the costs experienced by China.

9 Eberstadt, The Poverty of Communism , gives the lower � gure at p. 114; Jurgen Domes, The Government and Politics of the PRC , Boulder, CO: Westview Press, 1985, gives the latter.

10 G. White, ‘Chinese Development Strategy after Mao’, in G. White et al ., Revolutionary Socialist Development in the Third World ; Chaohua Wang (ed.), One China, Many Paths , London: Verso, 2005; Hui Wang, China’s New Order: Society, Politics and Economics in Transition , Cambridge, MA: Harvard University Press, 2006.

11 Gordon White and Paul Bowles, ‘The Political Economy of Financial Reform in China’, Journal of Communist Studies and Transition Politics , 10(1), 1994, p. 81.

12 Nicholas R. Lardy, ‘China: Sustaining Development’, in Gilbert Rozman (ed.), Dismantling Communism: Common Causes and Regional Variations , Baltimore, MD: Johns Hopkins University Press, 1992, p. 208.

13 Lardy in Rozman, Dismantling Communism , p. 208. 14 Lardy in Rozman, Dismantling Communism , p. 219. 15 Lardy in Rozman, Dismantling Communism , p. 214. See also Barry Naughton, The

Chinese Economy: Transitions and Growth , Cambridge, MA: MIT Press, 2007. 16 Lardy in Rozman, Dismantling Communism , p. 209. 17 Figures cited in Minxin Pei, From Reform to Revolution , Cambridge, MA: Harvard

University Press, 1994, p. 63. 18 Pei, From Reform to Revolution , p. 21. 19 China Statistical Yearbook 2011 , Beijing: National Bureau of Statistics, p. 5. 20 White and Bowles, ‘The Political Economy of Financial Reform in China’, p. 89. 21 R. Coase and N. Wang, How China Became Capitalist , Basingstoke and New York:

Palgrave, 2012, p. 104. 22 For details see Coase and Wang, How China Became Capitalist , ch. 5 . 23 China Statistical Yearbook 2011 , Table 5-5, p. 148. 24 Data cited by Martin Wolf, Financial Times (London), 16 May 2012. 25 Human Development Report 2011 , New York and Basingstoke: Palgrave Macmillan,

2012, Table 1, pp. 127–8. 26 See Nina P. Halpern, ‘Economic Reform and Democratization in Communist Systems:

The Case of China’, Studies in Comparative Communism , 22(2/3), 1989, pp. 144–5. 27 See David Bachman, ‘Institutions, Factions, Conservatism, and Leadership Change in

China: The Case of Hu Yaobang’, in Ray Taras (ed.), Leadership Change in Communist States , Boston: Unwin Hyman, 1989, p. 94.

28 Joseph Fewsmith, China Since Tiananmen , Cambridge University Press, 2008. 29 Pei, From Reform to Revolution , p. 58. 30 China Statistical Yearbook 2011 , Table 1-2. 31 China Statistical Yearbook 2003 , Beijing: National Bureau of Statistics, pp. 99–100. 32 Mary Elizabeth Gallagher, Contagious Capitalism , Princeton, NJ: Princeton University

Press, 2001; Bruce Gilley, China’s Democratic Future , New York: Columbia University Press, 2004.

33 This is the general line of a collection by S. Heilmann and E. J. Perry (eds), Mao’s Invisible Hand: The Political Foundations of Adaptive Governance in China , Cambridge, MA: Harvard University Asia Center, 2011.



34 Pei, From Reform to Revolution , pp. 71–2. See also Minxin Pei, China’s Trapped Transition: The Limits of Developmental Autocracy , Cambridge, MA: Harvard University Press, 2006.

35 Bruce J. Dickson, Wealth into Power: The Communist Party’s Embrace of China’s Private Sector , Cambridge: Cambridge University Press, 2008.

36 Bruce J. Dickson, Red Capitalists in China: The Party, Private Entrepreneurs, and Prospects for Political Change , Cambridge: Cambridge University Press, 2003, p. 164.

37 See also David Shambaugh, China’s Communist Party , Berkeley, CA: University of California Press, 2008.

38 Dickson, Wealth into Power , p. 247. 39 Shambaugh, China’s Communist Party . 40 Gallagher, Contagious Capitalism . 41 This is detailed in Suisheng Zhao (ed.), Debating Political Reform in China: Rule of

Law vs. Democratization , Armonk, NY: M.E. Sharpe, 2006. 42 Recent works by these writers include Wang (ed.), One China, Many Paths ; Zhao (ed.)

China and Democracy . 43 Pei, China’s Trapped Transition . 44 Gilley, China’s Democratic Future . 45 For example, Shaohua Hu, Explaining Chinese Democratization , Westport, CT and

London: Praeger, 2000; Larry Diamond, Developing Democracy: Toward Consolidation , Baltimore, MD: Johns Hopkins University Press, 1999.

46 Fewsmith, China Since Tiananmen . 47 Ben Parankulangara, Morning Star (London), 7 May 2012.


Whereas in the 1960s in China, doubts were being expressed about the adminis-trative command system, in the USSR the leadership was con� dent that the Soviet model of development was essentially sound. In October 1961, Khrushchev intro-duced a new Programme of the CPSU which was adopted by the 22nd Congress of the Communist Party. It re� ected the optimism of the political leadership. With con� dence Khrushchev claimed that the USSR and the socialist world would tri-umph given the cumulative ‘crisis of world capitalism’. Within ten years, it was asserted, the Soviet economy would catch up and even surpass the levels of the United States. He endorsed the advantages of state ownership, central planning and Communist Party leadership based on Leninist principles. The 1961 pro-gramme marked, in its own words, the beginning of a period of ‘full scale com-munist construction’. This was a period of con� dence, even assertiveness, on the part of the Soviet leadership.

However, by the 1970s, targets for economic growth and labour productivity were consistently unful� lled. Such shortfalls led the political leadership to con-sider reforms of the system of economic planning. Two approaches to reform crystallized: � rst, the more conservative ‘reform of the economic mechanism’ and second, a more radical proposal for the development of markets. 1 The latter cul-minated in Mikhail Gorbachev’s ill-fated programme of perestroika. In this chap-ter, I summarize the changes that took place in the economic system and led to its dissolution. In the next chapter, the political organism is considered.

Within-system reform of the economic mechanism Prior to Gorbachev’s policies, reform of the economic mechanism entailed keep-ing the Soviet administrative command system intact and improving the planning process: that is, devising a more accurate form of administrative economic calcu-lation. In this approach, the following features of the planned economy were to remain unchallenged: the de� nition of economic priorities by the political leader-ship and their execution by the government planning agencies and ministries; central planning through Gosplan; the maintenance of a full-employment econ-omy; a wage policy involving relatively modest differentials; and economic enter-prises driven by the ful� lment of plans. The market would have no role in

6 Perestroika Taking apart the planned economy



determining the level of investment, and only a limited part in determining the level of consumption.

Reforms in this context were essentially of the supply side and involved the improvement of economic management. The formation of ‘production associa-tions’, which brought together numerous producers, it was hoped, would lead to economies of scale. Many of the moderate reformers considered that modern data analysis processes would enable more accurate economic calculation to be made. Policy up to the early 1980s, however, was piecemeal rather than comprehensive. Bonuses were introduced to stimulate the ful� lment (and overful� lment) of con-tracts and to improve labour productivity. Wholesale prices were, to some extent, brought in line with real costs of production. Regional differentials were intro-duced for fuel and other commodities whose prices differed by region. Economic ministries were allowed to keep some of the earned pro� ts. To improve labour productivity, various ‘experiments’ were introduced to encourage enterprises to shed labour. Methods here included, the ‘Shchekino experiment’ in which plants were given a stable wages fund for a � ve-year period, with which they were able to allocate wages according to their economic needs. 2 Furthermore, workers were organized by ‘brigades’ and were able to redistribute the income given to com-plete a speci� ed product, according to their own preferences. It was hoped that such methods would lead to the shedding of excess labour and to higher levels of labour productivity – and the movement of such workers to places of labour shortage.

These policies, which were adopted under Brezhnev (in the late 1970s and early 1980s), were not considered to be completely successful. Four main reasons are usually put forward, not all of which are convincing. First, central planning requires an enormous amount of information, which is not always available and is often out of date; it also requires the simultaneous solution of extremely compli-cated equations to ensure that demand, output and price are equilibrated. Central planning, at least as it had developed, was not able to cope with the management of a complex economy. In the 1980s, for example, it has been estimated that the administration had to cope with 10 quadrillion (10,000,000,000,000) units of eco-nomic and political information per year. 3 Imbalances and distortions caused waste, incompatible relations between money and goods and led to shortages or suppressed in� ation. Second, critics argued that a supply-dominated economy has a built-in tendency to supply what the centre wants to supply, rather than what consumers would prefer. Third, the political context ensured that when reforms began to bite they did not undermine those policies guaranteed by the Soviet state – particularly full employment, a not too arduous work environment (for manage-ment and employees) and a welfare state. Finally, the operation of the economic system did not calculate accurately relative scarcities (for example, insuf� cient holiday hotels, and unsold gramophone records) and thus optimum economic decision-making was not achieved. Following the reasoning outlined above, a move to the market was advocated.

But such reasoning is contentious. It is important to distinguish between what is a fundamental fault of the planning system and what were contingent factors at


Perestroika: Taking apart the planned economy 85

the time. The Soviet system found it dif� cult to cope centrally with the growing complexity of the economy. But this calls for ways of dealing with the complex-ity. Transnational corporations and institutions of modern states (such as the US military) also have to contend with increasing complexity, and they do so through the use of computers as well as the decentralization of decision-making. While a planned economy may not provide ‘what consumers would prefer’, the same may be said of market economies. Market economies do not ful� l all citizens’ wants – for housing, for education, and most important of all, for employment; citizens would also ‘prefer’ to have an in� ation-free economy and constant prices. Markets under capitalism also have problems of overproduction, as the mountains of agri-cultural surpluses (or payment to farmers not to produce) consequent on the European Union’s common agricultural policy testify. In the long run, the plan-ning system can adjust output to the wants of consumers. Capitalist transnational companies face similar problems and do not resolve them internally by introduc-ing market relationships. State-owned corporations could be managed in a similar way. The coordination of such large � rms can be performed ef� ciently through organization and planning. The modern corporation is organized hierarchically, not through a market mechanism.

Reliance on the marketization and monetarization of goods and services also has its own costs – increased invoicing, pricing, auditing and accounting. Such costs do not arise when there is availability free at the point of consumption, as in the provision of public goods such as education, waste collection and (in the UK) health service provision. The consequences of ‘market ef� ciency’ (laying off employees) may have detrimental social costs – higher levels of crime, alcohol-ism, ill-health and suicide. While one might concede that markets may lead to gains in ef� ciency narrowly de� ned, planning encourages economies of scale, as in, for example, the ‘socialization’ of communal heating. Moreover, state coordi-nation overcomes the irrational consequences of market competition – which regularly leads to economic crises under capitalism.

However, under the in� uence of liberal Western economists and the apparent superiority of Western market capitalism, in the USSR a more radical group of economists and critics put forward views that moved signi� cantly in the direction of the market. Such proposals included the formation of ‘market equilibrium prices’, freedom for enterprises to choose customers and suppliers, and a shift to competition and consumer sovereignty. Many economists called for abandoning ‘administrative methods of management’ in favour of the introduction of a market mechanism and the decentralization of decision-making. 4

Initially, these views were marginal and did not enjoy a great deal of support. Following the lines of argument we noted in Chapter 4 , it was widely believed that the introduction of the market was tantamount to the reintroduction of capitalism: public property, economic planning and Party/state control were inter-dependent. A signi� cant shift to allow the market to drive economic allocation and distribution would certainly undermine the position of the political and economic elite, and possibly lead to unemployment and higher income differen-tials to the detriment of the working class. What I have described above as the



property-class-market theory (see Chapter 4 ) dominated the world-view of the political leadership.

Under Andropov and Chernenko (between 1982 and 1985), modest reforms were introduced within the parameters of the centrally administered command economy. Measures were launched to promote ‘labour discipline’, anti-corruption campaigns were started and curbs were put on the sale and consumption of vodka. These essentially were palliatives. Unlike the early market reforms in China, the within-system Soviet reformers were reluctant to rely on market reforms. To par-aphrase a Chinese saying, ‘The Soviet comrades did not set free the market bird within the cage of central planning.’

Perestroika: a new paradigm of state socialism 5 Mikhail Gorbachev was to bring in his own version of market reforms, which moved decisively in the direction of market capitalism. They led to the disman-tling of the system of planning and Party control.

Almost a quarter of a century after Khrushchev had boasted of his conviction that the Soviet bloc would outstrip the economic level of capitalism, on 25 February 1986, Gorbachev presided over another version of the Party Programme. After praising previous achievements, Gorbachev launched into a critique of Soviet practice. He criticized the state system and the bureaucratic nature of con-trol: ‘The forms of production relations, the system of running and managing the economy … took shape … in conditions of extensive development. Gradually they become obsolete, they began to lose their role as incentives and here and there they turned into impediments.’ He noted contradictions between productive forces and production relations, between socialist property and the economic forms of its implementation, ‘between goods and money’ and between ‘the com-bination of centralization and independence of economic organization’.

The thinking of the leadership under Gorbachev involved a movement away from administrative methods of control of the economy to greater reliance on the market, prices and competition. Ideologically, Gorbachev turned away from Marxism-Leninism. Compared to the objectives of Khrushchev’s Programme of 1961, there is no mention in the Revised Party Programme, adopted in 1986, of increased public consumption, of the withering away of the state, of the decline of money as an instru-ment of exchange and store of wealth. Claims for an advance to a communist society were no longer made. Over the next � ve years, the organizing principles of state socialism were publicly questioned and � nally discarded. There occurred a conscious process of dismantling the institutions of state socialism.

In the period 1986 to 1989, the reform policy of perestroika was born. It was a venture to reconstruct the communist system as it had developed from the time of Stalin and attempted a major recasting of the organizing principles, though not (at least initially) formally the fundamental institutions, of Soviet society. Perestroika may be translated as a restructuring, or radical reform; with the passage of time, it came to mean revolutionary transformation. Perestroika was a comprehensive policy of change.



Reforms had occurred under Khrushchev, Kosygin and Brezhnev, but they were piecemeal rather than systemic; they assumed that the underlying structures were essentially sound and insured fundamental social and political harmony; they needed improvement rather than radical reform. Underlying the process of perestroika is a major theoretical political reappraisal of social relations in the USSR and more generally of the form that state socialism had taken.

There emerged a critique of political power that focused on various forms of incompatibilities, tensions and con� icts generated in society. A rede� nition took place of the nature of contradictions under socialism. Previously it was thought that contradictions under socialism could be resolved peacefully, with mutual goodwill, through common understanding and good leadership. But it was now argued by reform-oriented sociologists, such as Tatiana Zaslavskaya, 6 that contradictions within socialist society do not originate from the relics left from capitalism but are created by the structure of state socialism itself which generates group and class interests. Such interests gave rise to antagonisms between groups. These antagonisms, it was insisted, were at the heart of the malaise of Soviet soci-ety and they accounted for the deceleration of economic growth and the lack of dynamism.

The political leadership under Brezhnev, it was further argued, had itself been a source of contradiction in that it perpetuated bureaucratic forms that acted as a brake on the development of the productive forces. Production relations (the system of economic management and political control) were in con� ict with the potentialities of the productive forces and they led to ‘stagnation’, to the retarda-tion of economic development’, to corruption, to a decline of socialist morality, and to public apathy and alienation. These views conceded many of the points taken by the reformers in Yugoslavia, Czechoslovakia and China described above: the contention that the traditional planning mechanisms and forms of political control were obsolete.

From state socialism to ‘humane democratic socialism’ Other leading academics and policy commentators advocated greater public involvement in societal affairs and to secure them they called for major shifts in the organization of the communist state. Boris Kurashvili (a member of the Institute of State and Law) and Georgi Shakhnazarov (a leading political scientist) argued for political pluralism within a one-party state and for contested elections. Fedor Burlatski (an in� uential journalist and political commentator) went much further in urging market relations and competitive elections. 7 We discuss political changes further in the next chapter.

From the beginning of 1988, these radical views were forcibly argued by Gorbachev and became Party policy. At the February 1988 Plenum of the Central Committee, Soviet society was de� ned by Gorbachev in terms not only of a ‘plu-rality’ of opinions but also of opposing ‘interests and views’. Various vested inter-ests and groups at the heart of the political system, it was contended, had prevented development; they were a brake or a fetter on the development of the productive



forces. They were legitimated by the cult of personality under Brezhnev and administered by the apparatus of government and Party.

The reform leadership under Gorbachev argued that to break out of the vicious circle of complacency, decline and stagnation, the mechanisms that per-petuated them had to be replaced and those individuals and vested interests who had bene� ted had to be removed. This position involved the recognition of endemic con� ict under state socialism and mechanisms had to be arranged that allowed for the articulation, aggregation and resolution of different interests. While earlier, reformers in the European socialist states had acted in a piecemeal fashion, now policies went very much further than the economic reforms carried out in China. They came to subvert completely the planning system and the guiding role of a dominant Communist Party, 8 as it had previously been accepted by the orthodox leadership. The ideology of Marxism-Leninism was seriously undermined.

According to the radical reform strategy, the contradictions inherent in the more complex economy and more mature society would be resolved by a mod-ernization of the traditional structures and processes of Soviet communism. Gorbachev’s version of socialism was vague and similar in style and content to that of reformist social-democracy associated with the ideas of New Labour and Tony Blair in the UK. The Party’s Programme Statement, adopted at the 28th Party Congress in 1990, was subtitled ‘Towards a Humane, Democratic Socialism’. The following extract taken from this document epitomizes its outlook:

The CPSU is a Party with a socialist option and a communist outlook. We regard this prospect as the natural, historical thrust of the development of civilization. Its social ideal absorbs the humanist principles of human culture, the age-old striving for a better life and social justice. In our understanding, humane democratic socialism means a society in which:

humankind is the aim of social development; living and working conditions for people are worthy of contemporary civilization; man’s alienation from political power and the material and spiritual values created by him are overcome and his active involvement in social pro-cesses is assured; the transformation of working people into the masters of production, the strong motivation of highly productive labour, and the best conditions for the progress of production forces and the rational use of nature are ensured on the basis of diverse forms of ownership and economic management; social justice and the social protection of working people are guaranteed – the sovereign will of the people is the sole source of power; the state, which is subordinate to society, guarantees the protection of the rights, freedoms, honour and dignity of people regardless of social posi-tion, sex, age, national af� liation or religion;



there is free competition and cooperation between all socio-political forces operating within the frame-work of the law.

This is a society which consistently advocates peaceful and equitable coopera-tion among the peoples and respect for the rights of every people to determine their own fate.

There is no mention here of Marxism, class or class struggle, the hegemony of the Party, consciousness, exploitation, money, the state or the transition to com-munism. On a world scale, no mention is made of any external threat posed by capitalism. The intended outcome was to be an ideological, moral, political and economic form of society qualitatively different from Stalinism which would become once more a beacon for socialist, social democratic and humanitarian movements in the late twentieth century.

The hope was that the Soviet Union would ‘re-join civilization’ in its spiritual home in Europe, and the West should have no fears of communist expansion or aggression. For this to be attained, a transformation would have to take place in Soviet foreign policy, which would withdraw from confrontation with the West; perhaps most important of all, the USSR’s socialist allies in Eastern Europe and the Third World would have to govern by consent or lose power. The socialist states would have greater involvement in the world economy.

These ideas had a great deal of support from a wide range of political com-mentators. In the UK, they ranged from Marxists such as Vanessa Redgrave of the Workers’ Revolutionary Party, the Euro-Communists in the Communist Party of Britain, and even neo-liberal politicians, such as Margaret Thatcher.

The initial perestroika strategy Turning from the theoretical underpinnings, perestroika (at least at it developed ini-tially) was an attitude or approach to politics and society. It involved � ve major strategies. First was a greater role for money and economic calculation and the acceptance of limited market relations. Second, the political process would be democ-ratized, with an acceptability of a ‘plurality of opinions’, and a quasi-electoral system in which the Party had to rule with consent and through the revitalized system of Soviets (elected parliaments). Third was a policy of glasnost, which involved greater access to information and public criticism. Fourth, adjudication of rules, hitherto the prerogative of the Party, was to be the role of a legally constituted state or rechtstaat . Fifth, there would be a major shift in foreign policy in which the USSR sought an accommodation with, and a place in, the world economic and political community.

As articulated by Gorbachev in the mid-1980s, the reform programme did not involve privatization of public assets nor did it include the rights of people to form independent political parties. As initially articulated, discourse involved a reformed type of state socialism – a form of market socialism – in which the com-munist state was formulated to retain overwhelming power.

An underlying assumption of the perestroika policy was that if self interest was allowed to take its course, higher levels of economic and political ef� ciency



would be achieved. It may apply to individuals who should be given initiative and rewarded for what they do, to institutions (enterprises should be given greater independence over production and rewarded or penalized for their efforts), even to regions of the country that were encouraged to manage their own affairs (hence later the legitimation of claims for separatism and sovereignty in the republics). An important shift took place in the organizing principles of Soviet society: it turned from an administered model of the public interest determined centrally by ‘the authorities’ (presumed to be the embodiment of the working class in the Party) to individuals and groups being allowed to express their own interests which are aggregated through a market. Remember the tenets of Adam Smith? ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.’ 9

Such developments were given a guarded welcome by the governments of the West; some were sceptical and viewed the tactics as an attempt by the communists to gain respectability and time to revive world communism. Under President Bush, advisers cautioned that perestroika could make the USSR a ‘more competi-tive superpower’, and the less confrontational policy might ‘divide the Western alliance’. 10 Doubts were expressed by the governments of the leading Western states, such as the USA and Great Britain, and they demanded a clear commitment to markets, privatization of the means of production and an open political system with electoral competition between political parties.

Substantial changes were also advocated for the communist states of Eastern Europe. Western policy moved from one of ‘containment’ to one of ‘integration … into the international system’. 11 Here the governments of the West were able to bring pressure to bear from the outside on the character of the reform movement, a topic to which we shall return in Chapter 10 . The reforms were borne on the currents of events and went much further than originally advocated by Gorbachev.

Gorbachev’s initial reform strategy

Initially, the reforms envisaged by Gorbachev were economic in character: ‘accel-eration’ ( uskorenie ) of the economic mechanism was the goal and few political changes were envisaged. There were two major parts to the reforms: � rst, the development of market forces and encouragement of different types of enterprise, and second, the reform of the economic administration. This policy could well be considered a form of market socialism.

The objectives of the reforms were to reduce the ‘overcentralization’ of the economic mechanism, to use prices and money through the market as incentives for producers, workers and consumers, and to retain the bene� ts of planning – rational forms of investment and a full employment economy.

The economic reforms envisaged may be summarized as follows: the growth and legitimation of market transactions; an increase in private and cooperative trade; greater authority to production units; and the adoption of the accounting prin-ciple of khozraschet (units had to balance their income and expenditure, without state subsidy). These measures involve a lessening of the powers of the economic



ministries and central control, more uncertainty for managers and workers, and greater use of money as a stimulus. The economic enterprise was given greater autonomy over its own affairs – within the con� nes of a plan given by the central authorities. But prices, except in the cooperative and private initiative sector, were not (yet) to be subject to the forces of supply and demand but � xed administratively. This was intended to preclude a massive price in� ation.

The reforms involved weakening the power of the industrial ministries which were considered to be a major ‘brake’ on development. This included the develop-ment of other forms of property and market relationships. ‘Cooperatives’ (effec-tively small businesses working for pro� t) were encouraged and given rights to decide over what produce to sell and buy and to � x their own prices.

The reform of the economic administration was a much more signi� cant aspect of the reform policy. The aim here was to limit the power of the centralized ministries – and moved Gorbachev into the political realm. His policy involved two major changes. First, the powers of the ministries were curbed: ‘� nancial autonomy’ was given to production enterprises to encourage ‘economic’ rather than ‘administrative’ relations. Second, the central bureaucracy was reduced and greater autonomy was devolved to the republics. Between 1985 and 1988 the number of staff in apparatuses of ministries, committees and departments had declined by 543,000: a reduction of 33.5 per cent. Nine all-Union ministries 12 and departments were closed down by March 1989, and in June of that year Prime Minister Ryzhkov announced that the economic Union-republican ministries were to be abolished and their activities transferred to the governments of the republics.

Thus began the dismantling of the apparatus of state socialism. Developments were much more radical than were anticipated when Gorbachev’s policy was launched.

The reform leadership seriously weakened the Union government (the federal government of the USSR): he shifted economic power to the market and to the republics. This had unintended consequences. The latter began to adopt policies at variance with those of the USSR government. At the end of 1990 and the begin-ning of 1991, republican and local Soviets decreed that the assets in their territory belonged to them.

Reform in the economy also operated at the level of the enterprise. In order to reduce the detailed administrative control of enterprises, ‘economic’ criteria were used and the principle of khozraschet was adopted. This is the idea of autonomous � nancial accounting, each accounting unit having to balance its own books. The proposal was to allocate to enterprises realistic targets for output, increases in labour productivity and product quality. The objective was to increase economic ef� ciency by encouraging and rewarding increases in productivity at the point of production. The implications here were that enterprises not paying their way would be closed.

Gorbachev considered that one of the chief causes of failure to carry out reforms in the past was the lack of involvement of the workers. Samoupravlenie (self-management) gave to the employees more in� uence in controlling the



enterprise – sharing in its achievements and suffering its losses. In an attempt to strengthen the links between employees and the enterprise, it was agreed in October 1988 that shares could be sold to members of enterprises (if sanctioned by the gov-ernment). It was argued that this would overcome alienation of working people from the bureaucratic statist system and would draw personal savings into production.

Individual ownership of shares was also legitimated as one element of a social-ist market. This development, however, while strengthening self-interest at the micro level, undermined collective interest at the macro level. The assumption behind the policy was that individual ownership provided incentives and commit-ment of labour, rather than social collective ownership. It was another step in undoing the planning system. An alternative might have been to strengthen trade union and Party collectives in the enterprise or, more radically, the leadership could have introduced measures of workers’ control.

In the � rst few years of reform, while the ministries and planning apparatuses were weakened, many of the features of the centrally planned system were retained. The market did not determine, except in a marginal way, the direction and rate of investment. Prices were for the most part still set administratively. It was intended that the State Committee on Prices would eventually only control some 10 per cent of production prices: though these would be strategic ones and would exert a major in� uence over the cost structure of the whole economy. In theory, the negative effects of the market would not be allowed to occur – at least not in any extreme form. Gorbachev, when asked about unemployment, categori-cally said that it would not be countenanced as a form of discipline for labour. The bankruptcy of enterprises and the laying off of workers was not contemplated without the agreement of the trade union council or committee. These statements were rhetoric. In reality, policy undermined the traditional socialist system.

In agriculture, there was no move to abolish collective or state farms, though leasing and family contracts within the collective farm were encouraged. While wholesale and retail trade was encouraged on a cooperative basis, there was no call for large-scale privatization. Cooperatives were encouraged with rights to decide over what produce to sell and buy. By the beginning of 1991, the number of cooperatives producing goods and offering services had risen to 260,000 and provided employment for 6.2 million people (out of a total workforce of 118.6 million). The move to private enterprise was modest quantitatively, but signi� cant politically and ideologically. It marked an important shift to a market in which individual choice, rather than collective wisdom, was to determine what should be produced.

The radicalization of the reform programme Many of the reformers advising Gorbachev, moreover, regarded the whole system of central planning to be obsolete. Taking a lead from traditional market Western economists, command or planned economies, it was believed, could not provide effective labour incentives, ef� cient allocation of resources and a proper stimulus to innovation. This was a major thrust not for reforms but for the move to a market



economy. 13 The calculations necessary for economic ef� ciency, it was contended, could not be achieved under central planning. 14

The market under socialism was gradually given a new respectability by eco-nomic reformers such as Leonid Abalkin, Abel Aganbegyan and Grigory Yavlinsky. In January 1986, leading Soviet sociologist Professor Rutkevitch advocated in the Party journal ( Voprosy Istorii KPSS ) that subsidies for theatres and libraries should be reduced, that charges should be introduced for certain types of educational courses, and that people should be required to pay for the provision of medical and welfare services beyond a certain minimum. The ration-ale was that this would ‘increase the incentive for labour activity for personnel and collectivities’. Aganbegyan advocated a greater use of the market system, and most labour economists in the USSR favoured reducing the labour force at the expense of full employment.

The in� uential Politburo member Alexander Yakovlev (Party chief of ideol-ogy), in a speech in 1988, pointed out:

The development of the socialist market is one of the roads leading the com-bining of interests and to the shaping of the ideology of the good socialist manager … The market is made socialist or capitalist not by the movement of commodities, capital or even the workforce, but by the social context of the processes which accompany it … The dividing line … lies in de� ning the place of people in society and whether they are using the market for the ulti-mate goals of society or as a source of pro� t.

Here Yakovlev is distinguishing between a ‘capitalist’ and a ‘socialist’ market. The latter is constrained by the ownership of the major productive forces by the state, by the political hegemony of the Communist Party and by the prohibition of the extraction of pro� t.

Behind such rhetorical posturing of spokesmen such as Yakovlev lay a political agenda. On the basis of interviews with top of� cials in the Soviet system, Ellman and Kontorovich write:

… economists were peddling market myths, ignoring any possible ill effects of their proposals (as did the designers of the reforms …). Market and democracy emerged in their writings as � awless arrangements unrecog-nizable to anyone who has seen the real thing. Some of these authors were almost certainly seeking the destruction of the Soviet system � rst and fore-most. We know that the younger generation of economists who came into the government right after the collapse considered the rapid destruction of the old institutions as almost the chief bene� t of their policies. The same motivation must have operated for some of them when they were still the opinion makers. 15

Events led to renouncing the hegemony of the Communist Party, and pro� t became the hallmark of the market. Perestroika led to the fall of the planned economy.



There was no spontaneous collapse. Changes were willed by the political leader-ship under Gorbachev.

The katastroika 16 of economic reform The Soviet leadership followed the lead of the earlier reformers in Czechoslovakia, Hungary and China by adopting market mechanisms. Whereas in the latter two countries, the reforms were well considered and kept within the shell of plan-ning, in the USSR, the economic effects of perestroika were disastrous. The reforms demolished the old system but failed to introduce effective new mecha-nisms. The number of people administering the economy, for example, fell from 646,000 in 1985 to 58,000 in 1989. 17 What the reformers lacked was any under-standing of bene� ts that might arise independently of the market. They ignored the role of the institutions in which markets (under capitalism) are embedded. The management of resources collapsed, production declined, in� ation and unemployment rose. 18

In 1990, gross national product in the USSR declined by 1.5 per cent; in 1991, it fell by 15 per cent. Price in� ation in the late 1980s rose signi� cantly: from an average of 5.7 per cent for the period 1981–85 to 7.4 per cent in 1987, 8.4 per cent in 1988 and 10 per cent in 1990. In 1991, it reached three � gures, with estimated rates of in� ation from 140 per cent to 300 per cent per month. The value of the ruble plummeted: dollars and cigarettes (Western) became a medium of exchange. People’s savings became worthless. Exports declined by 12 per cent; the earning of foreign currency fell. In a period of � ve years, the net foreign debt had risen six-fold – from $10 billion to $67 billion. There was a signi� cant fall in the employed industrial workforce, which declined from 31.3 million in 1986 to 29.7 million in 1989. 19 In 1991, Western estimates put the rate of unemployment (which had been negligible previously) at 10 per cent. 20 There was considerable resistance by those adversely affected by the changes. In 1989, by of� cial � gures, 44 million working days were lost through strikes. In the urban areas, there was a noteworthy growth of private business and the rise of a new stratum of ‘ruble mil-lionaires’. 21

The collapse of the economy strengthened calls from radical reformers for a more rapid move to the ‘market’ and from others for a reversion to traditional methods. The upshot of the reforms was that the structure of state socialism was broken by 1989. 22 Gorbachev’s radical critics called for more reform, for systemic change: for privatization, for the dismantling of the market; in short – to move from state socialism to capitalism.

Perestroika led not to economic renewal but to self-destruction: when the old system of central planning was destroyed, uncertainty and ambiguity took its place. When confronted with economic failures the response was more ‘reform’, which created more uncertainty and chaos. In 1985, Gorbachev wagered on ‘acceleration’; in 1986, ‘perestroika’; thereafter, the reforms escalated in intensity and scope: in 1988, ‘economic decentralization’ occurred; and, most important of all, in 1989, ‘liberalization’.



Economically, the stated objectives were not consistent: they claimed simulta-neously to strengthen the powers of the plan, to increase the initiative and inde-pendence of enterprises and to weaken the industrial ministries and Party apparatus. The contradiction here lies in the fact that ministries and the Party planning apparatuses were integral components of the planning process. There was a signi� cant gap between the rhetoric of ‘reform’, which was couched in marginal changes within the context of socialism, and the actual developments, which initially introduced marginal changes but then cumulatively dismantled the planned economic system.

These changes were paralleled in the political system, which is the subject of the next chapter.

Notes 1 On early reforms see J. S. Berliner, ‘Managing the USSR Economy: Alternative

Models’, Problems of Communism , 32(1), 1983; M. Ellman, Socialist Planning , Cambridge: Cambridge University Press, 1989; A. Hewett (ed.), Reforming the Soviet Economy: Equality Versus Ef� ciency , Washington DC: Brookings Institution, 1988; A. Nove, The Economics of Feasible Socialism , London: Allen and Unwin, 1983; A. Nove, An Economic History of the USSR , London: Penguin, 1992. For an overview of the USSR and Eastern Europe, see Martin Myant and Jan Drakhokoupil, Transition Economies , Hoboken, NJ: John Wiley, 2011.

2 See Peter Rutland, ‘The Shchekino Method and the Struggle to Raise Labour Productivity’, Soviet Studies , 36(3), 1984: 345–65. On labour and productivity see David Lane, Soviet Labour and the Ethic of Communism: Full Employment and the Labour Process in the USSR , Boulder, CO: Westview Press and Brighton: Wheatsheaf, 1987.

3 Data cited in Patrick Flaherty, ‘Perestroika and the Neo-Liberal Project’, in Ralph Miliband and Leo Panitch (eds), The Socialist Register 1991 , London: Merlin Press, 1991, p. 130.

4 See the report by T. Zaslavskaya and the account by P. Hanson, ‘The Novosibirsk Report: Comment’, Survey , 28(1), 1984: 83–108.

5 For more detailed discussions see Mikhail Gorbachev, Perestroika: New Thinking for Our Country and the World , London: Collins, 1987; R. Sakwa, Gorbachev and his Reforms, 1985–1990 , New York: Prentice Hall, 1991; B. Kagarlitsky, The Dialectic of Change , London: Verso, 1990; Archie Brown, The Gorbachev Factor , Oxford University Press, 1991; Archie Brown, Seven Years that Changed the World , Oxford University Press, 2007; Stephen F. Cohen, Soviet Fates and Lost Alternatives , New York: Columbia University Press, 2009 and 2011; Stephen White, Gorbachev and After , Cambridge University Press, 1991; Robert T. Huber and Donald R. Kelley, Perestroika-Era Politics: The New Soviet Legislature and Gorbachev’s Political Reforms , Armonk, NY: M.E. Sharpe, 1991. On economic reform see P. Sutela, The Russian Market Economy , Helsinki: Kikimora Publications, 2003.

6 T. Zaslavskaya, The Second Socialist Revolution: An Alternative Soviet Strategy , London: IB Taurus, 1990. For an overview of Soviet Marxist developments see James P. Scanlan, ‘From Samizdat to Perestroika’, in Raymond Taras, The Road to Disillusion , Armonk, NY: M.E. Sharpe, 1992, pp. 19–40.

7 See Stephen F. Cohen and Katrina vanden Heuvel (eds), Voices of Glasnost , New York: W.W. Norton, 1989.

8 The ‘leading role’ of the Communist Party was removed from the Constitution of the USSR in March 1990.

9 Adam Smith, The Wealth of Nations , Harmondsworth: Penguin, 1974, p. 44.



10 Raymond L. Garthoff, The Great Transition: American-Soviet Relations at the End of the Cold War , Washington, DC: Brookings Institution, 1994, p. 377.

11 Garthoff, The Great Transition , p. 377. 12 An all-Union ministry was one controlled from a Moscow-based ministry and which

operated throughout the whole of the USSR. Unlike Union-republican ministries, which worked through subordinate units located in the republics, republican ministries were organized in the republics and subordinate economically and politically to the republics of the USSR.

13 On the interdependence of motivational commitments and other sub-systems, see David Lane, Soviet Labour and the Ethic of Communism , p. 231. For other accounts see Anders Aslund, How Russia Became a Market Economy , Washington DC: Brookings Institution, 1995; Anders Aslund, How Capitalism was Built , Cambridge: Cambridge University Press, 2007; Michael Ellman and V. Kontorovich (eds), The Destruction of the Soviet Economic System , Armonk, NY: M.E. Sharpe, 1998.

14 Michael Ellman and Vladimir Kontorovich, ‘Overview’, in Michael Ellman and Vladimir Kontorovich (eds), The Disintegration of the Soviet Economic System , London: Routledge, 1992, p. 13.

15 Michael Ellman and Vladimir Kontorovich, The End of the Soviet System: What we learn from the Insiders , Warsaw: World Congress, ICCEES, 1995, pp. 27–8.

16 Taken from ‘catastrophe’, in which a play has an unexpected and unsavoury ending. 17 Narodnoe khozyaystvo SSSR v 1989g , Moscow: Goskomstat, 1989, p. 50. 18 See K. Murphy, A. Shleifer and R. Vishny, ‘The Transition to a Market Economy:

Pitfalls of Partial Reform’, Quarterly Journal of Economics , 107(3), 1992: 889–906. 19 Narodnoe khozyaystvo SSSR v 1989g , p. 48. 20 On the fall in living standards and the failure of perestroika see William Moskoff,

Hard Times: Impoverishment and Protest in the Perestroika Years , Armonk, NY: M.E. Sharpe, 1993.

21 On the growth of a wealthy class see O. Kryshtanovskaya, ‘The New Business Elite’, in David Lane (ed.), Russia in Flux , Cheltenham: Edward Elgar, 1992; and on poverty and income distribution see A. McAuley, ‘Poverty and Underprivileged Groups’, in Lane, Russia in Flux .

22 Linda Cook describes the resistance, but underestimates the systemic changes secured by Gorbachev; see her ‘Brezhnev’s “Social Contract” and Gorbachev’s Reforms’, Soviet Studies , 44(1), 1992: 37–57.


In Chapter 6 , I described the ways in which the unfolding of Gorbachev’s eco-nomic policy was portrayed initially as reform of state socialism, whereas in prac-tice policy led to its replacement by the market. The same ambiguity is revealed by Gorbachev’s policy to reform the political system. His stated intention was not to undermine the principles of state socialism. At a speech to the Central Committee on 18 February 1988, Gorbachev reiterated: ‘We are not departing by one step from socialism, from Marxism-Leninism’. The stated objective was for a more open political system to operate within the hegemony of a responsive and responsible Communist Party. At the outset, it was not intended by Gorbachev to legitimate a multi-party system which, it was recognized, would lead to dissention and to the rise of national parties, which would demand greater independence for the regions and republics and would undermine the central powers of the USSR.

Laws were to guarantee civil rights to citizens and to de� ne the legal operation of the state. As Gorbachev said at the 19th Party Conference in June 1988, ‘the process of the consistent democratization of Soviet society should complete the creation of a socialist state governed by the rule of law’. Such laws, of course, would be passed under the leadership of the Communist Party. While the indi-vidual has rights, citizens would be constrained by Soviet legal codes.

Dependence on political reform The actual development of perestroika, however, led to signi� cant changes in the political system. Echoing the views of the Czech reformers, noted in Chapter 4 , as well as most Western commentators of the time, Gorbachev argued that economic reform was dependent on political reform. This is causally related because the Soviet Union was an ‘administered economy’. Effective control of the economy was located in industrial ministries headed by ministers and operating on a bureaucratic basis.

The main point, comrades, is that at a certain stage, the political system … was subjected to serious deformations … The command-administrative methods of management that developed in those years had a pernicious effect on various aspects of the development of our society. It is in this ossi� ed

7 Perestroika Undermining the Soviet political system



system of power, in its form of command and structure of control mecha-nisms, that the fundamental problems of restructuring are grounded today. 1

Gorbachev here drew attention to what he believed was a major political weak-ness inherent in the structure of Soviet state socialism. Rather than politics being in command in a strong state, on the contrary, it was contended, economic inter-ests were hegemonic and the Party’s regulatory power was weak. The industrial ministerial elite, by virtue of its operational control of the economy, had secured strategic control. Unlike under modern capitalism, where the economy is largely autonomous from the state, a distinctive feature of state socialism was that the state bureaucracy was master of the economy. 2 This linkage of politics and eco-nomics has created an endemic problem of Soviet politics – how can political (Party) leaders control the economy and its rulers, the industrial ministers. Stalin resorted to purges at considerable costs, which later leaders could not contem-plate. In order to strengthen their authority, � rst Khrushchev and then Gorbachev launched their respective policies of reform. Both failed – though in different ways.

The leadership argued that the policy of ‘acceleration’ of the economy could only be implemented if the political obstacles to economic reform were removed. The reform leadership of Gorbachev was confronted with the power of the indus-trial ministries, which had developed into self-regulating bodies with a tendency to inertia and resistance to outside control. Gorbachev is said to have quoted John Stuart Mill’s opinion of the Russian Empire: ‘The Tsar himself is powerless against the bureaucratic bodies: he can send any of them to Siberia, but he cannot govern without them, or against their will. On every decree of his they have a tacit veto, by merely refraining from carrying it into effect’ (this quotation is attributed to Gorbachev on his meeting with Soviet writers in June 1986).

It is in this context that democratization of the apparatus was intended to break up the control of these administrative elites and vested interests. Greater decen-tralization, an enhanced role to the market and a movement of decision-making downward as in khozraschet (see Chapter 6 ), are economic devices that may be used to limit the power of the bureaucracy. In addition, Gorbachev envisaged greater democratization and ‘openness’ (glasnost), which entailed answerability of of� cials to public demands, greater participation on the part of the public and the acceptance of a pluralism of opinions, and a quasi-electoral system in which the Party had to justify its policy and its leaders had to run for public of� ce. All this could ostensibly be achieved within the existing shell of Soviet state socialism.

However, Gorbachev’s policies undermined many of the organizing principles underpinning the state structure. He allowed a shift in authority from the Party to the Soviets (the elected parliaments) in the USSR, and (most important of all) in the republics and regions. Perestroika as envisaged by Gorbachev represented a reformed type of Soviet communism; in his words he wanted ‘more socialism’ and ‘more democracy’. In fact, policy led to a signi� cant weakening of the state apparatus and the Party’s hegemonic role, though he claimed that the reforms would maintain the ‘socialistic’ character of the USSR.


Perestroika: Undermining the Soviet political system 99

Gorbachev enacted measures that effectively weakened the centrally organized command economy. He also destroyed the authority of the Communist Party. This was a consequence of shifting power to the Soviets and the rise of competing political groups. At the beginning of his rule, Gorbachev accepted the practice of the Soviets as conduits through which Party policy would be channelled. He believed that with correct political leadership the Party could maintain its hegem-ony and legitimate its rule. The Party would maintain a monopoly of political organization and in this way would ensure a socialist context for market socialism to thrive. But the Party’s power was seriously undermined in September 1988 when the apparatus of the Secretariat was effectively disbanded. Gorbachev’s intention here was to undermine opposition to his reforms from within the Party elite. At the 19th Party Conference in July 1988, Gorbachev ruled out the creation of a multi-party system and the formation of ‘opposition parties’. However, he was overtaken by events.

Radicalization of politics A consequence of glasnost and the growing assertiveness of the local Soviets led to the formation of political groups, which turned into proto-parties. Reformers in the Party argued for a rede� nition of the Party’s role. The leadership con-ceded, and the ‘leading role’ of the Party was deleted from the Soviet Constitution and the formation of other parties and social organizations was allowed. In March 1990, the Constitution of the USSR was changed by the Supreme Soviet of the USSR: the Party’s monopoly of power was broken. The political backbone of the communist system was consciously dismantled. This was not a spontane-ous collapse.

By the beginning of the 1990s, perestroika had gone much further than the political leaders around Gorbachev had publicly contemplated and its critics in the West had supposed was possible. The Party had relinquished its constitutional monopoly of political power and the Constitution had recognized the rights of other parties to compete for political authority. Marxist-Leninist ideology and its guardian, the party of a ‘new type’, had been marginalized, then discarded. The underlying legitimacy of the Soviet system had been destroyed.

Economically the reforms introduced by perestroika had failed. The economy had been dislocated. The centralized command economy had been effectively taken apart and nothing had been put in its place. As detailed in Chapter 6 , gross national product fell, productivity declined, price in� ation rose, the ruble lost its value, unemployment and foreign debt increased, and the country was plagued by strikes. Though initially, in 1986, Gorbachev was not confronted by a popular political crisis, with time the effects of his policy gave rise to widespread criticism at home. 3 His wager on securing ‘acceleration’ of the economy through his reform programme had failed dismally.

Unlike in China, where economic reform led to economic growth and personal prosperity, in Russia, chaos, uncertainty, decline and personal ruin for the citizens were consequences of the economic reforms. Also, in contrast to China, the economic



reforms were paralleled by signi� cant changes in the structure of the polity, which would lead to internal con� ict, and consequently to the secession of republics from, and the break-up of, the USSR. A consequence was an ideological and polit-ical collapse of state socialism in its European home.

Ironically perhaps, while Gorbachev’s popularity and support fell precipitously at home, he could remain consoled by the knowledge that in the West he was still revered: in 1987, he had been Time magazine’s Man of the Year, and in 1989 he was given the accolade of Man of the Decade.

From perestroika to political katastroika Gorbachev’s mobilizing principles were rent with contradictions: between market and plan, between administrative and popular control, between the forces gener-ated by civil society and the dominant party, between demands for private prop-erty and state ownership. As the clamour ampli� ed for a market economy, so did its rami� cations with respect to other forms of social organization and the motiva-tional attributes of a market society. The reformers again heeded Adam Smith who, writing 200 years before perestroika, had said: ‘A person who can acquire no property, can have no other interest but to eat as much, and to labour as little as possible.’ 4 Private ownership is the capitalist bedfellow of the market and came onto the policy agenda.

A major political contradiction between the leading role of the Communist Party and the elected Soviets became evident. Who was to govern and control the government: the Party or the soviets? As the latter were elected on a republican and regional basis, their role was potentially disruptive of central control and undermined the government of the USSR. These initial changes – in ideology and political practice – were put into effect by the Gorbachev leadership. Unlike in the Eastern European states, they were not a consequence of direct public pressure. They were articulated within the political and economic apparat. The movements for radical reform that became prominent in Eastern Europe capitalized on the policy and ideological stance taken by the political leadership in Moscow. Perestroika destabilized the Eastern European communist-led states.

As Archie Brown, the leading Western authority on Gorbachev, has explained, 5 Gorbachev himself was the principal actor in the dismantling of the Soviet system and in the creation of a post-communist pluralist democratic one. While most of the Soviet leadership sought some form of change, other possible contenders for power (e.g. Grishin) had neither the will nor the mindset to bring about radical changes. Brown contends that Gorbachev not only had the vision but also the political, organizational and leadership qualities to implement a shift to the market and to democracy.

The policy of glasnost legitimated a critique of Stalinism which in turn ques-tioned the structure of the Communist Party and its leadership. Soviet writers, in attempting to attribute de� ciencies to the ‘administrative command system’, at � rst sought to locate the sources of decline in the personal inadequacy of lead-ers. This followed a tradition going back to Khrushchev’s critique of the ‘cult of



personality’ of Stalin. Gorbachev widened this to include the administrative appa-ratus, particularly the government ministries. Privilege and corruption and the malfunctioning of the welfare state were disclosed. Critics were able to expose these de� ciencies as a consequence of Marxism-Leninism. Such criticisms in turn had the effect of destroying the myths created about the legitimacy of leadership under socialism and destabilized the social and political order. The incorporation of the Baltic states into the USSR (never recognized by the USA) became a cause of their nationalist movements. In 1988, in Latvia, demonstrators’ slogans demanded ‘No Occupation’, and ‘The Independence of Latvia is Lenin’s National Policy’.

The rise of regional powers In the same year, republics and regions demanded greater independence from the USSR. These included control over the enterprises in their areas, and claims were made for the formation of republican ministries of foreign affairs. Bear in mind that the USSR Constitution had given the right to the republics to secede, the republics had their own parliaments and governments, and the administration was ‘national in form’. The Communist Party of the Soviet Union and the USSR min-istries that provided unity to the system had been mortally weakened. In the late 1980s, the reform movement, legitimated in terms of a ‘plurality’ of opinions, succeeded in characterizing the Soviet model of development as ‘totalitarian’, with all its negative features, and linked Stalinism to fascism.

Democratization gave rise to an authentic pluralism of opinions and interests, which led to demands for different parties to articulate grievances and policies. After the Party’s ‘leading role’ was deleted from the Constitution of the USSR, the Party’s own apparatus was seriously weakened. The political changes here were led from above by a faction around Gorbachev. In turn, the collapse of the Party as a ruling power led to a shift in authority to the Soviets.

Ellman and Kontorovich, on the basis of interviews with top of� cials from the previous administration, point out:

The failure of the centre to protect its own of� cials in the localities from sharp criticism from the local media and local politicians and sometimes even public humiliation was another important factor weakening the Union. Since the local of� cials could no longer rely on support from the centre, they natu-rally had to try and gain local support. This meant in many cases compromis-ing with that local nationalism that they had previously … denounced. This gave a major boost to the disintegration of the USSR. 6

Here again we note not a spontaneous ‘collapse’ but a dismantling of Soviet insti-tutions as a consequence of leadership policy.

Power shifted from the centre to the republics. Democratization took an insti-tutional form, with the spontaneous formation of political associations and proto-parties – in the Russian Republic alone in 1990, 20 parties were formed; by 1991,



the number had grown to 100, and there were some 11,000 ‘unsponsored’ organi-zations in the USSR. Moreover, in the elections that took place in the republics in 1990 and 1991, people voted for deputies many of whom sought to disband the communist system.

Once the right had been conceded for contested elections, anti-communist forces gained strength and governments hostile to the Union were elected in the Baltic states, the Caucasus, Moldavia and Ukraine; and Russia’s two leading cities (Leningrad and Moscow) had anti-communist executives. The Supreme Soviet of the RSFSR became dominated by radical reformers and, in the � rst ever popular election for a President, the Russian Republic elected a previous com-munist leader, now turned anti-communist and populist, Boris Nikolaevich Yeltsin.

These developments re� ected major con� icts in ideology and aspirations among the governing elites about how reform should proceed. The political lead-ership in the republics – now constituted largely from politicians with authority in their Supreme Soviets – sought independence and the dissolution of the USSR. Nationalism became a unifying ideology of dissent. This was a view, however, not widely shared in Russia; in the referendum held in March 1991, 71 per cent of those voting were in favour of the preservation of the Union. (This excludes the Baltic and Caucasian republics.) In the Ukraine in March 1991, 8.8 million voted against the Union, whereas 22.1 million voted in favour; but by December 1991, 90.3 per cent then favoured self-determination of the Republic. 7

The move to capitalism The failure of perestroika to lead to economic improvement, and the rapid desta-bilization of society led to open con� ict between the supporters of the traditional system and the reformers. Divisions also appeared in the ranks of the reformers themselves – between the insurgent forces of radical reform and the defenders of a reformed state socialism. There were three main groupings. First were the tradi-tionalists, like Ligachev, dubbed ‘conservatives’ (in the sense that they wished to conserve elements of the past) in the West, who sought to move towards market relations in the economy, but who wished to renew and strengthen the Party, and to revitalize Marxist-Leninist ideology in the context of contemporary conditions. Second were others, like Gorbachev, who sought to square the circle: to keep the essentials of the traditional system, particularly the hegemony of a reformed Communist Party, in the context of an economic market and a pluralist polity with a civil society.

Finally arose the insurgent radical reformers, like Boris Yeltsin, who were now explicitly ideologically opposed to the hegemony of the Party and to the com-mand economy, and advocated a fundamental move to the organizing principles of capitalism, with fully � edged competitive political parties, private property and a market-led economy.

There can be no doubt that such radical liberal leaders saw the origin of the political and economic faults of their societies to lie in Marxism-Leninism.



Their politics were grounded on the assumption that if the Marxist-Leninist system was abolished, wealth and democracy would � ow freely and the new democracies would rejoin their true European home. For example, as Aleksandr Yakovlev – former member of the Politburo with a brief for ideology – put it in October 1991:

At the end of the day Marxism has brought us to the abyss, to backwardness and to the destruction of one’s conscience … Any person on earth knows that Marxism in the � rst place is a teaching of the annihilation of both private ownership of the means of production and the material, legal and spiritual foundations for Western civilization … Marx as long as he lived remained loyal to the Communist Manifesto, this guide for the proletarians to destroy everything that had until now safeguarded private ownership … 8

In place of public property and central planning, private property and the market became the major components of economic policy. Gavril Popov, radical liberal mayor of Moscow, summed up the position quite nicely: ‘We must create a society with … private property … denationalization, privatization, and inequality’. 9

Divisions among the elites The incumbent political elites were sharply and irreconcilably divided about the course of reform. On the basis of interviews with 116 members of the Gorbachev elite, I distinguished between those seeking fundamental change of the regime and those who wanted reform. Of the political elite, 41 per cent regarded the Soviet system as ‘fundamentally sound requiring reforms’; 40 per cent believed that it was ‘basically � awed though signi� cant reforms could have been achieved’; and, most important of all, 19 per cent thought that the system was ‘basically unsound and should have been completely replaced’. 10 A political transformation, as originally contemplated by Gorbachev, could never have succeeded concur-rently with political stability because the political elites were divided about the fundamental nature of the Soviet system.

While members of the political elite universally attributed blame for the failure of reform and for the collapse of the USSR to Gorbachev himself, it was also a consequence of major disagreements between the elite actors themselves about the nature of the Soviet system and the possibility for reform. Under these circum-stances the reforms proposed by Gorbachev were too radical for a ‘negotiated settlement’. A slower pace and limited range of reforms would have had a better chance of success. (Alternatives are further discussed in Chapter 11 .)

Many writers and Western political pundits attribute to Gorbachev the moti-vation to bring about a top-down revolution to implant in the Soviet Union a social-democratic model of capitalism, as in Sweden. This was a completely unrealistic objective. The Soviet Union lacked the conditions suf� cient for such a transformation. What is missing in the arguments for the introduction of



Western social-democracy is an understanding of the forces that drive it and the constraints that hold capitalist societies together. These include entrenched and socially accepted private property rights and a legal system to enforce them; a dominant ideology endorsing capitalism legitimated by electoral democracy; an established and publicly accepted ruling class and a strong state – which provide the basis for political stability; and an effective and ef� cient market-oriented economy – to ensure economic wealth. Over centuries, in Western capitalist states, social movements, trade unions and parties have arisen that worked within the capitalist system and have mediated some of its worst faults.

The Gorbachev elite must be faulted for assuming that one could move to a harmonious type of pluralistic stable democracy, which he anticipated as a neces-sary condition for economic reform of marketization, under the political condi-tions then prevailing in the USSR. He, like many of the radical reformers, had a poor understanding of the likely effects on the economy and polity of the USSR of the ‘free market’ in politics and economics. To take one example, in order to prevent price in� ation as well as to provide an equal distribution of commodities, it took the United Kingdom eight years (1945 to 1953) to move from war-time rationing to the market. In this way social stability was assured concurrently with a move to the market.

In the late 1980s and early 1990s, four major destabilizing elements, fuelled by the perestroika policy, became apparent. These were: � rst, widespread dissatisfac-tion with economic and social conditions; second, ambiguity among the leaders and the lack of a de� nite plan to overcome the discontent; third, increased politi-cal activity among the masses; fourth, independence movements in the republics and regions. To precipitate a move to capitalism, a � fth factor was needed: a clear political alternative and leaders intent on achieving it, and a lack of will on the part of the incumbent ruling elite to continue as before. These � nal dimensions became apparent in August 1991.

Political forces underpinning the end of communist rule Developments in Eastern Europe (these are discussed in Chapter 10 ) hastened the process of radical reform in the USSR. Given the lack of intervention in Eastern Europe, where the people had rejected communist rule, this appeared as a prece-dent for, and a legitimation of, the secession movements in the republics of the USSR. Consequently, their demands for independence were ampli� ed.

Local political elites, often supported by public demonstrations, asserted their authority against the central powers headed by Gorbachev. In March 1990, Lithuania declared itself independent. Following the election of Yeltsin as Chairman of the Presidium of the Supreme Soviet of the Russian Republic, its Supreme Soviet declared its sovereignty in June 1990, and Russia began to enter into political and economic agreements with other republics. By the end of 1990, all the constituent republics (and many other regional areas) of the USSR had declared their own sovereignty. Gorbachev, faced with increasingly hostile governments in most of the



republics – who not only refused to yield tax revenues to the USSR, but also claimed the priority of their own laws over those of the centre – formulated a pro-posed treaty between nine of the republics in which the USSR would become a confederation of states in place of a federative one.

In August 1991, Gorbachev took his annual holiday in the Crimea. This proved a fatal miscalculation. A faction of the leading members of the political elite placed him under house arrest, announcing him to be ill. In an attempt to halt the disintegration of the Soviet system, a state of emergency was declared by the State Committee for the State of Emergency. The members of the State Committee, who took command, were the most powerful men in the USSR and all had been appointed to leading positions in the state bureaucracy by Gorbachev: the Vice-President of the USSR, the Prime Minister, the chief of the KGB (State Security), the Interior Minister, the chief of the Military-Industrial complex, the head of the Food industries, the president of the association of state industries. None had a position in the Party apparatus and this is indicative of divisions within the politi-cal elite. (Yanaev had been in the Politburo, but later resigned.) The Cabinet of Ministers of the USSR supported the declaration of emergency.

The statements of the coup leaders were couched in terms of the maintenance of ‘law and order’ and saving the USSR as a state. They sought to halt the process of democratization, marketization, and Gorbachev’s indecisive political leader-ship which they believed was the cause of the decay facing the USSR. In turn, however, they became irresolute: they hesitated to use armed force, and when they did so it was too late and ineffective.

Boris Yeltsin, now the elected President of the Russian Federation, proclaimed the declaration of the state of emergency to be unconstitutional. He and his sup-porters resisted arrest and de� ed the leaders of the USSR, now clustered around the State Committee for the State of Emergency (SKChP).

Yeltsin, who had been in contact with President Bush, 11 also had crucial sup-port from the United States Embassy in Moscow, which passed information from the National Security Agency disclosing conversations between Krychkov (Chair of the KGB) and Yazov (Defence Minister). ‘An American communications spe-cialist was seconded to help Mr Yeltsin secretly contact wavering military com-manders without risk of detection.’ 12 The putschists were unable to muster suf� cient armed support to take the Russian Parliament building where Yeltsin and his supporters were lodged. Crucially, KGB Special Forces, internal troops and the army refused to use force against the government of the Russian Republic. The leaders of the State Committee for the State of Emergency gave up and were arrested.

The opposition to the state of emergency came from counter-elites led by Yeltsin and some leaders (others supported the incumbent powers) in the repub-lics. The political stimulus against the centre came from the self-interest of these counter-elites legitimated in terms of ‘people’s power’. The popular support given to Yeltsin hardly suggests a popular revolt. The call for a general strike went unan-swered; Moscow and the country functioned as normal during the days of the coup. There is no evidence of any representatives from enterprises or institutions



at the demonstrations (compared with, for instance, the widespread social support for Solidarity in Poland). The call for endorsement was answered by other leaders in the country – particularly by the anti-communist governments in the republics, and in the city of Leningrad (St Petersburg).

Yeltsin seizes power Yeltsin’s own actions constituted a state of emergency. On 21 August he signed a decree ‘ensuring the economic sovereignty of Russia’ and ‘transferring union property [all enterprises] on the territory of Russia to the jurisdiction of Russia’. 13 This was while Gorbachev was still in the Crimea and before he returned to Moscow – but it was later endorsed by President Gorbachev. He also took com-mand of the USSR’s power vertical – the armed forces, the KGB, USSR MVD, the Ministry of Defence. All these actions were unconstitutional – though in this he was supported by governments in the West. He banned the Communist Party and its publications; he effectively performed the duties of the President of the USSR. He displaced President Gorbachev. When Gorbachev returned to Moscow on 22 August he found that his Party had been outlawed and the major executive and economic institutions as well as the mass media of the USSR had been taken over by Yeltsin in the name of the government of the Russian Federation.

After his return to Moscow, Gorbachev (though he had resigned from the General Secretaryship of the Communist Party) was somewhat implausibly accused by his opponents of aiding the coup. With his political base in the Party undermined, his government under arrest, and the assets of the USSR requisi-tioned by the republics, his position was untenable. He was politically isolated and defeated. 14

Consequently, Yeltsin and his supporters adopted not a policy of reform but one of revolutionary political and economic transformation. The leaders of radical reform in the other republics also declared control over the assets of the USSR government in their areas. If a coup d’état is a change of government in which the legitimacy of of� ce of those who hold public trust is turned into a form of private possession, then Yeltsin effected one. The major difference with Yanaev (who led the earlier coup against Gorbachev) was that Yeltsin was ruthless and he merci-lessly crushed all opposition.

In September the USSR Congress of People’s Deputies dissolved itself. In most republics the Communist Party was proscribed, its property was con� scated and its newspapers and journals ceased publication. With the economic assets of the (former) USSR now transferred to the jurisdiction of the republics, their lead-erships promised speedy marketization and privatization of the means of produc-tion. The radical leadership under Yeltsin did not negotiate with the deposed communist elite, they destroyed it.

Unlike in Eastern Europe, however, in Moscow, the incumbent leaders and insurgents did not negotiate a pact. The breakdown of the USSR was not a revolu-tion driven by forces in society; it was a consequence of failed political reform,



propelled from the top, essentially by Gorbachev and other colleagues within the elite of the CPSU. The Soviet leadership was not only internally divided, as it had many who sought to preserve the Union, but it contained signi� cant people who were intent on total reconstitution of the regime. Hence a negotiated settlement between incumbent and ascendant elites pushing for reform through political ‘pacts’ – which is the typical scenario of ‘democratic transition’ – was not achieved. Yeltsin referred to the leadership of the USSR as ‘criminals, traitors of the motherland who must be handed over to the courts’. 15 Elite dissention created a political vacuum which was � lled by the democratic movement led by a fallen former communist elite member, Boris Yeltsin. This was essentially an anti- communist movement and Yeltsin and his associates had signi� cant levels of popular support.

In December, the Supreme Soviet of the Russian Federation, in its area of juris-diction, took control of the property previously subordinate to the USSR. The other republics of the USSR declared their independence: in September, the Baltic republics; in December, Ukraine. The Commonwealth of Independent States was founded on 8 December and enlarged to include the remaining states of the USSR (excepting the Baltic states and Georgia). On 25 December 1991, Gorbachev resigned as President of the USSR, and the Red Flag was hauled down from the Kremlin Tower. On 31 December, the Union of Soviet Socialist Republics existed no more. Russia was recognized internationally as the successor state to the USSR. International recognition of the post-communist governments (in the former USSR and Eastern Europe) soon followed. The symbols of the Revolution and Bolshevism – statues of Lenin, the Red Flag, the Hammer and Sickle, and communist place names were gradually removed. One of Yeltsin’s � rst decrees was to rename the place in front of the Russian parliament building Freedom Square (22 August 1991). Not only in the USSR but in the socialist states of Eastern Europe, anything positive in the history of socialism would later be removed. The era of European state socialism had ended.

What precipitated the fall? Undoubtedly the changes set in motion by Gorbachev’s policy of perestroika were the major triggers. Perestroika undermined ideologically, politically and econom-ically state socialism. The organizing principles of the centrally managed and politically controlled economy were put in question:

• The values of Marxism-Leninism were repudiated by the leadership, and the vision of a communist future was abandoned.

• The integrative role of the Communist Party was discarded, leading to a legitimacy crisis.

• The collective identity given by history and forms of Soviet life had been disowned.

• The system of governance through the planning mechanism and Party control had been renounced.



• The socialist forms of resource management were considered to be ineffective and inefficient.

• The hegemony of the capitalist West was no longer regarded as being incom-patible with the proposed political and economic reforms.

The system did not ‘collapse’ spontaneously; it was brought down by the political leadership, which dismantled the system of planning and Party hegemony. In the USSR, such policy was led from the top, by a fraction of the political leadership around Gorbachev. Whereas in revolutionary activity the positive role of political leadership is often emphasized, here is a case of de� cient leadership. To para-phrase Valerie Bunce, 16 political leaders do make a difference not only in govern-ment but also in bringing about state disintegration. Gorbachev’s political policies lowered the potential costs for prospective insurgents and potential bene� ts were signi� cantly increased.

In Eastern Europe, the thrust was ‘from below’ or from already established counter-elites vying for power. The communist leadership in Eastern Europe had been mortally weakened by the ideological and strategic stance of the Soviet lead-ers. They effectively abdicated power to the opposition. Under Gorbachev’s lead-ership there was a decisive change: previously, public unrest would have been met with force – as in Berlin in 1953, in Poland and Hungary in 1956, in Czechoslovakia in 1968. Now in Poland, the Czech Republic and Hungary, there was a ‘negotiated settlement’ between the various players in the political elite and counter-elite and a ‘pre-emptive coup’ in Romania. 17

In the USSR, the political elite was divided. Gorbachev had undermined the traditional leadership. At a crucial period in the coup of 19 August 1991, its lead-ers lacked the resolve to use force against the Yeltsin-led insurgents intent on the destruction of the USSR. Once elite disintegration was clear, others perceived that the potential bene� ts of insurrection outweighed the potential costs: successful insurgency appeared possible. Not only would the incumbent powers yield, but a critical mass of anti-communist popular support was mobilized to ensure that the new incumbents would be able to legitimate their power.

Motivations of counter-elites What, then, motivated these counter-elites? I would suggest that class interest is an important factor, though not the only one. (I turn to class formation in more detail in Chapter 9 .) The policy adopted by Yeltsin and his supporters transferred the control of assets to the republics. Privatization and control of resources conse-quently had a republican basis. Many previous incumbents of elite positions, mainly Russian by ethnic origin and Communist Party members, lost out in many republics. Others were able to reconstitute themselves anew as liberal-democrats.

The real political threat to the established USSR elites was over control of the resources managed by the all-Union ministries located in the republics. It is here that the legitimacy of markets and privatization on the part of the republican gov-ernments overlapped with class divisions (class in the sense of ownership and



control of productive and � nancial assets). Con� ict between the centre and periph-ery is not only due to ethnic differentiation but has a base in control over produc-tive assets (by ethnic groups who were privileged to assert rights over the former property of the USSR). A consequence of declarations of sovereignty in many of the republics has been a claim to all-Union assets located in the republics.

Engels, in discussing the basis of revolution, asserted: ‘All revolutions … have been revolutions for the protection of one kind of property against another kind of property. They cannot protect one kind without violating another.’ 18 Control over assets was the basis of the cleavage between the major actors in the class structure. On the one hand there were those supporting and represented by the leaders of the attempted coup against Gorbachev in August 1991: groups within the military industrial complex, members of the security apparatus and their backers in the state (including Party) apparatus. These groups, like Gorbachev, sought renewal within the administrative-command economy. If the economy had continued under centralized form and moved to a corporatist economy with elements of private ownership, one could have had massive all-Union corporations like General Motors operating throughout the USSR (a Chinese type of corporatist transformation). Control and ownership would have remained with the all-Union government elites under Gorbachev. Hence, this is why his opponents link him with the conspirators against him. This was a coup carried out by ‘all President’s men’.

On the other side, in support of Yeltsin’s policies, was the liberal-democratic opposition composed of people seeking a system based on private property and the market. One might identify � ve social strata. First were those disaffected members of the old structures, people who early on had ‘jumped ship’, as it were, and used their authority and connexions to further their ownership of assets in the form of cooperatives. A second group is composed of others who made money legally and illegally under the Brezhnev and Gorbachev regimes and who antici-pated the acquisition of more assets following privatization. They were the basis of the cooperative movement and provided � nancial support for the emergent political parties and movements that played an important role in bringing down the communists. Third are farmers who had made pro� ts out of their private plots and kolkhoz surplus produce. A fourth stratum originates from the middle and lower-level managerial strata previously employed in state industry. Fifth is a sec-tion of the ‘intelligentsia’ (physicians, lawyers, engineers) who see their profes-sional advancement linked to their ability to maximize their skills on the market. All these groups have an elective af� nity between their material interests, which they may exploit on the market, and the ideology of a free enterprise system. They constituted a revolutionary social bloc and provided the social support for the radical reformers.

While the precipitants of change help us to understand how state socialism disintegrated, we do not learn from them about the underlying causes and motiva-tions. What were the structural conditions and social prerequisites that led the incumbents to relinquish power, and what forces impelled the insurgents to take it? The following chapters we consider these questions. In Chapter 8 , I outline the



changing character of the societies that had been modernized as a consequence of Soviet power. In Chapter 9 I explain my view of the role of class forces. In Chapter 10 foreign assistance and support are considered. This was a crucial factor both as a determinant of Gorbachev’s policy and in support of the move-ments for radical reform that brought down the communist governments in Eastern Europe and that of the USSR itself. In Chapter 11 , we turn to consider whether any other course of reform was possible.

Notes 1 Gorbachev’s report to the 19th Party Conference, 29 June 1988. 2 For a convincing demonstration of this point see Stephen White� eld, Industrial Power

and the Soviet State , Oxford: Clarendon Press, 1993. 3 For an overview of the Gorbachev era see Stephen White, Gorbachev and After ,

Cambridge: Cambridge University Press, 1993; Richard Sakwa, Gorbachev and his Reforms , New York and London: Philip Allan, 1990.

4 Adam Smith, The Wealth of Nations , Harmondsworth: Penguin, 1974, p. 39. 5 See Archie Brown, Seven Years that Changed the World , Oxford: Oxford University

Press, 2007. 6 Michael Ellman and Vladimir Kontorovich, The End of the Soviet System: What we

learn from the Insiders , Warsaw: World Congress, ICCEES, 1995, pp. 34–5. 7 Data cited by Mark R. Beissinger, ‘Demise of an Empire-State: Identity, Legitimacy,

and the Deconstruction of Soviet Politics’, in Crawford Young (ed.), The Rising Tide of Cultural Nationalism: The Nation-State at Bay? , Madison, WI: University of Wisconsin Press, 1993, p. 106.

8 ‘Yakovlev on “Abyss” of Marxism’, BBC World Broadcasts SU1197 B4, 8 October 1991.

9 John Saville, New York Review of Books , 16 August 1990. 10 David Lane, ‘The Gorbachev Revolution’, Political Studies , 44(1), 1996. 11 As reported on Russian television, 22 August 1991. 12 The Independent (London), 17 May 1994, p. 1. The US intervention, it is claimed

here, was crucial in defeating the coup. The information was derived from Seymour Hersh writing for the Atlantic Monthly (no date given). The role of spetssluzhby (Special Forces) was emphasized by other Russian respondents with links to the KGB interviewed in Moscow as part of my own research on political leadership.

13 Yeltsin speech reported on Russian Central Television, reported in BBC World Broadcasts SU1159 B14.

14 He was later unceremoniously expelled from the Communist Party on 13 June 1992. 15 Yeltsin speech as recorded on Central Television, 22 August 1991; BBC monitoring

SU1159 B14. 16 Valerie Bunce, Do New Leaders Make a Difference? Executive Succession and Public

Policy under Capitalism , Princeton, NJ: Princeton University Press, 1981. 17 John Higley and Jan Pakulski, ‘Elite Transformation in Central and Eastern Europe’,

Australian Journal of Political Science , 30, 1995, p. 7. 18 F. Engels, ‘The Origin of the Family, Private Property and the State’, Selected Works ,

Moscow, 1951, p. 244.


To explain a major transformation of a society, it is not enough to analyse the motives and political policies of political leaders. Leaders and their policies respond to demands coming from society, their policies need legitimacy to be put into effect, political elites and the public alike have to be predisposed to change. To understand why private property, markets and a polyarchic form of politics were introduced, I consider developments from three dimensions. In this chapter, I outline some of the changes that were taking place in the countries that had adopted state socialism. In the next chapter I consider the role of social classes which provided the political and social ballast to movements for radical political and economic change. In Chapter 10 , I turn to the ways in which exogenous inter-ests and developments in� uenced internal changes. These factors constituted the environment to the political system – the conditions that precipitated social change. 1

The fall of communism has to be considered as a multi-causal phenomenon. I am not advocating a form of sociological determinism. The fall of state socialism was not inevitable. It was brought about by human action; alternatives were pos-sible, which will be discussed in Chapter 11 .

A systemic approach To survive and to reproduce themselves effectively, modern societies have to solve a large number of problems. These may be analysed in terms of four major sets of institutions and related processes within them: those relating to values, to social integration, the economy, and the system of government. These systems are interrelated: a change in one has effects on, and rami� cations for, all three other systems. Modern societies are not autonomous units; they operate (though to a varied extent) in a global environment, and reciprocated relationships with the external economic and political surroundings must be assured. 2

There is a constant process of recalibration between the demands of different parts of the social system. Where there is disequilibrium, social breakdown may occur. There may be a type of ‘broken society’ in which sub-cultures (often based on ethnic or national origin) excluded from the mainstream society (in terms of ways of life, access to work, level of income) may openly break laws. Normally,

8 Underpinnings of reform The changing social structure


such disequilibria (even if they are not resolved) have no serious effects on the nature of the regime.

It is when there is a concurrent failure in several of these sectors and inter-change systems that severe instability may occur. In certain circumstances a polit-ical order may collapse, leading to revolutionary change (as was the case of Russia in 1917). But even serious systemic imbalances may not give rise to insurrection. Mass unemployment and economic and � nancial crises under capitalism, for example, may result in social distress and unrest, but not in any systemic changes – as, for example, during the economic crises following the � nancial upheavals of 2008 onwards.

Revolutions occur not only when there are severe systemic imbalances, but also when potential insurgents have a collective vision of an alternative regime (economic, political and social); when they have a will and capacity to bring down the incumbents of power; and when the defenders of the old order decide to give up. These conditions were ful� lled in Eastern Europe and the USSR in the period 1986–90.

Many of the tensions that were unfolding under state socialism were noted when we considered how Gorbachev articulated policies for economic and politi-cal reform. In this chapter and the next three, we consider how six major sets of social relations were unfolding and how they gave rise to different social prob-lems. First was the mobilization of resources. This involved a long-term decline in the rate of economic growth and the development of a popular ‘expectations’ gap. Second was the maintenance of loyalty, solidarity and commitment. Below we consider the modernization of the social structure – the growth of a skilled non-manual class and the cultural and social maturation of the population – which gave rise to a new pattern of demands that required adaptation in the economic and political systems. Third, changes in the occupational and educational levels weak-ened the supports of the established elites. In the next chapter I show how they impacted on the class structure and strengthened reformist counter elites. Fourth, we explore the crisis of values and legitimacy. To legitimate market reforms, the political leadership under Gorbachev denigrated the centralized command system in politics and economics. The renunciation of the dominant ideology of Marxism-Leninism by the leaders of the reform movement in the political elite created an ideological vacuum, which was � lled by a growing consciousness of nation.

Fifth, in Chapter 10 , we turn to changes in the boundaries with world powers. To solve internal problems Gorbachev adopted a foreign policy that gave great in� u-ence to exogenous factors, which in turn in� uenced internal political and economic policies. Finally, in Chapter 11 , I show how the interaction of structural and contin-gent factors was handled in a way that resulted in the breakdown of the regime. I also discuss alternative scenarios that might have preserved state socialism.

Falling rates of economic growth Probably the most important long-term underlying problem of the state socialist societies was the fall in the rates of economic growth. Table 8.1 indicates that this

Underpinnings of reform: The changing social structure 113

was a systemic characteristic of state socialism. In the earlier periods, particularly before 1960, rates of growth were spectacularly high. After 1975, however, they fell considerably and the average rate of growth in the later 1980s was under 4 per cent.

Even taking the most favourable statistics produced in these societies, for all the Eastern European states and the USSR, they show a persistent long-term decline. 3 Wages were rising without equivalent output of goods and services, and shortages appeared in the retail market. However, overall these � gures, even for the Eastern European states (except Poland), are positive for the 1981–86 period and are comparable to capitalist countries at similar levels of development. Figure 8.1 illustrates the changes.

One might here make a comparison with China, where economic decline was halted by a signi� cant economic reform. China’s gross domestic product grew at

Table 8.1 Growth of produced national income: Eastern Europe and USSR, 1951–55 to 1986–87

1951–55 1956–60 1961–65 1966–70 1971–75 1976–80 1981–86 1986–87

Bulgaria 12.2 9.7 6.7 8.8 7.8 6.1 3.7 5.2Hungary 5.7 5.9 4.1 6.8 6.3 2.8 1.3 2.0GDR 13.1 7.1 3.5 5.2 5.4 4.1 4.5 3.9Poland 8.6 6.6 6.2 6.0 9.8 1.2 �0.8 3.3 Romania 14.1 6.6 9.1 7.7 11.4 7.0 4.4 6.0Czechoslovak 8.2 7.0 1.9 7.0 5.5 3.7 1.7 2.3USSR 14.2 * 10.9 * 6.5 7.8 5.7 4.3 3.6 3.2Average 10.8 7.68 5.4 7.0 7.4 4.1 2.6 3.7

Source: Statisticheski ezhegodnik stran-chlenov soveta ekonomicheskoy vzaimopomoshchi 1988 (Moscow, 1988), pp. 25–35 * No data; 1951–60 for the USSR are given in the later yearbook and these � gures are taken from the 1971 edition.

−1

0

1

2

3

4

5

Av

Per

Cen

Gro

wth

AvePolHunCzeUSSRBulRomGDR

Figure 8.1 Average rates of produced national income, Eastern Europe and USSR, 1981–86.


an annual rate of 8.8 per cent between 1979 and 1990. This rise had a ‘cushion effect’ on the erosion of political authority. 4

In the economic modernization process, the market became relatively more important in terms of distribution, exchange and consumption of commodities and labour. Private trade in services and commodities developed in all the state socialist societies and was associated with ‘corruption’ and the growth of ‘grey markets’ (i.e. semi-legal commercial activity). The ‘market sector’ developed in importance and there was a growth in the number of people involved in market-type transactions. But it was only a quasi-market and was limited by the political class and the administrative system. 5 It created latent and unmet demands on the part of an aspiring middle class for whom potentially the market would give greater opportunity.

Such developments led to problems, which precipitated the Reform movement Czechoslovakia in the late 1960s, and in Poland and Hungary from 1976, as well as reforms under Kosygin and Brezhnev in the USSR. But the decline in growth rates is not suf� cient in themselves to account for a major crisis: they were com-mensurable performances to those of advanced Western European countries during the 1980s. Table 8.2 shows that the ‘capitalist core’ performed only mar-ginally better economically than the state socialist countries as a whole in the period 1981–88.

The state socialist model economically did not fail absolutely, but it was not growing fast enough to ‘catch up’ with the core countries in the world economy. In 1986, the USSR accounted for 12 per cent of world manufacturing production, coming third (after the USA and Japan), China was fourth, and East Germany eighth in the world ranking. 6 The 1980s witnessed a considerable fall in growth rates and a decline in the ratio of state socialist to the capitalist core (0.86) and East to West Europe (0.7). Table 8.2 also emphasizes the enormous success of the Chinese reforms: the table shows consistent growth in the three ten-year periods (4.05, 5.7 and 8.68). But the growth rates of even the Eastern European states were still respectable: in the period 1980 to 1987, the USSR had an annual growth rate of industrial production of 3.7 per cent, East Germany 4 per cent, Romania 4.8 per cent, Poland 1.4 per cent and Czechoslovakia 2.8 per cent (China’s was 12.6 per cent); these compared favourably with France (–0.5 per cent), the United Kingdom (1.3 per cent) and Italy (0.9 per cent) (the USA was 3.9 per cent). 7

The state socialist societies had copied advanced technological processes and techniques from the core capitalist countries. They could not beat them, but they had moved from agricultural to industrial countries producing jet aircraft, com-puters, space satellites, advanced military equipment and electronic systems. In Wallerstein’s terms, state socialism was no longer just a group of states on the ‘semi-periphery’ of the world system. Undoubtedly, the level of technology fell below that of the West and the ‘technology gap’ was not closing. 8 One of the tasks of reform advocated by Gorbachev was to join the world market in order to improve technological capacity. Whether the Soviet Union and the Eastern European states, in moving into the world economy, would join ‘the core’ of the capitalist world economy or fall into the periphery is a question discussed in


Chapter 15 . But state socialism had had the effect of moving not only Tsarist Russia but also the Eastern European societies from the periphery ‘into a much more core-like place’. 9

Which model to copy? While there was some disenchantment among the leaders of the state socialist bloc, there was no agreement as to which other type of system would be better. A study of the opinions of 116 members of the Gorbachev elite, carried out by the author, asked whether there was any foreign country that could be a model for the development of Russia. It is clear from the responses that the members of the political elite had no agreement about which country could be used as a model. The most frequently cited country was China (15), followed by Scandinavia (13), Germany (12) and the USA (11). 10 By far the majority of the elite respondents (66) believed that Russia had to � nd its own way, and spontaneously declared that no other country could be used as a model. There was clearly no generally held vision of a movement to capitalism on the model of the Western countries. The political elite had no common positive idea of the kind of society that might replace state socialism – even if it was to be changed at all.

It is somewhat surprising that corporatist societies like South Korea and Taiwan had little recognition, outside academia, as to possible ways forward. While the improvements in the newly industrializing countries of south-east Asia was certainly one of the arguments used to criticize the incumbent communist

Table 8.2 Economic growth in the capitalist core and state socialist societies, 1961–88

Annual average real GNP growth rates

Percentage change in growth rates

1961–1970

1971–1980

1981–1988

1960s–1970s

1970s–1980s

1960s–1980s

Capitalist core 1 4.9 3.2 2.62 �35 �18 –47Western Europe 2 4.7 3.0 1.79 �36 �40 �62USA 3.8 2.9 3.02 �22 +2 �21State socialist 3 4.7 3.4 2.27 �26 �34 �51Soviet Union 4.9 2.8 2.08 �41 �27 �58Eastern Europe 3.8 3.4 1.26 �12 �63 �67China 4.05 5.7 8.68 +40 +52 +114Comparative ratios

state socialist to capitalist core 0.99 1.08 0.86 +9 �20 �13

East to West Europe 0.81 1.13 0.7 +40 �38 �14

Source: Economic Report of the President 1985, 89 , Washington, DC: US Government Printing Of� ce, 1989, cited in T. Boswell and R. Peters, ‘State Socialism and the Industrial Divide in the World Economy’, Critical Sociology , 17(1), 1990, p. 7.

Notes: 1 ECD countries (1976–80 also includes Israel, South Africa and non-OECD Europe) 2 European Community 3 China, Eastern Europe, North Korea, Soviet Union, Yugoslavia


governments, and were of concern to the political leadership, they were not really decisive.

In Eastern Europe, the image of capitalist consumerism was a constant reminder of the comparative weakness of state socialism – though, of course, the state socialist societies had other social bene� ts in the form of public health services and education, as well as employment-linked pensions. The level of consumption in the West could not be bettered by the socialist states – but they were examples that could be compared. It was the subjective evaluation of the West that was an important ‘push’ factor for reform. The artefacts of capitalism captured the minds of the people: they sought the ful� lment of the grati� cation of social and emo-tional needs through the continual and renewed consumption of an in� nite variety of goods and services. This expression of consumer society (symbolized by a supermarket mentality, the television as mass media, the motor car as status symbol, rock and roll and sex as immediate grati� cation) were forms of cultural contamination that state socialism could neither surpass nor control.

But something more than economic decline has to be invoked to explain the widespread disenchantment with the state socialist political and economic system. Expectations had been generated by the political leadership of the state socialist societies. Remember, Khrushchev had boasted of the decline of capitalism and the inevitability of the socialist states surpassing the standard of living of the West. While these public pronouncements were toned down by successive leaders, the legitimacy of the government rested on ful� lling a high level of public expecta-tion. General dissatisfaction with the standard of living was a major thrust for reform. In all the state socialist societies (including China) it led to an emphasis on economic reform to increase productivity and output – proposals within the parameters of state socialism. This discontent was itself a re� ection not just of a fall in the rate of growth but of changes in levels of expectations of a more demanding population.

Insuf� cient growth in living standards was a cause of public frustration and a stimulus for economic reform. The failure of perestroika to improve the standard of living led to further political agitation and reform. A lesson here is that rather than emulating the consumer mentality of the West, socialist leaders might have emphasized the security provided by a full employment economy, regular and dif-ferentiated income, subsidized utilities (electricity and gas supply, housing), the provision of free education and child care, as well as old age pensions and health care. The state socialist countries were also relatively free from crime and were not involved in foreign wars. Economies are not only evaluated in how much they produce, but what kinds of goods and services that are available and who bene� ts from the economy.

The changing social structure The social science literature on transformation of societies gives many insights into the changes that take place in societies as they modernize. 11 These develop-ments condition the role of political leaders and form a constellation of elites and


classes, which in turn impact on the ways that societies are managed. In the litera-ture on early twentieth-century transitions, the centre of attention was the evolu-tion from feudalism to modernity 12 in terms of democracy or dictatorship, the best-known approaches here being those of Samuel Huntington and Barrington Moore. A sociological approach outlines the cultural and institutional conditions that shape the disintegration of the old regime and provide building blocks for a new one. Independent factors are the level of education, the occupational struc-ture of the population, the rise of economic institutions (such as banks), technical progress and media (such as printing), the type of political culture, the existence of a potentially friendly (or hostile) external environment and the possibility of entry to a wider economy. 13

The state socialist societies of the mid-1980s, when Gorbachev began his reforms, were signi� cantly different from those in which the communists took power in Eastern Europe after the Second World War. Major features were the growth of population, the rise in levels of urbanization and the quality of educa-tion. A substantial urban population with higher education had matured. As a con-sequence of industrialization, the occupational structure shifted away from jobs in the primary to the secondary and tertiary sectors. Important generational differ-ences are linked to these changes, with younger people being more in� uenced by the modernization of society than older ones. Psychologically, this disposed the younger generation to be more receptive to ideas of the market and to disenchant-ment with the political regime. Such incompatibility on the part of certain social strata was a consequence of the modernization of the social structure.

In 1950, of the countries in the socialist bloc, only the GDR and Czechoslovakia had more than half of the population living in towns. By 1987, the average (excluding Vietnam) was well over 60 per cent. By the 1980s, the USSR was an urban industrial society comparable in many respects to advanced Western socie-ties (in 1989, 66 per cent of the population was urban). China was well behind the European societies: in 1964, the � gure was 13.6 per cent, and in 1990, only 26 per cent lived in towns. By way of comparison, in the mid-1970s, North America was 72 per cent urbanized and northern Europe had an urban population of 83 per cent. Only in the early 1960s did the USSR become mainly urban – a condition reached in Britain before the mid-nineteenth century. In the USSR, the total number of urban dwellers rose from some 22 million in 1922 to 186.8 million in 1989. There was an enormous growth of 100 million people living in towns between 1959 and 1989. 14

A major shift from employment in the agricultural to the industrial and service sectors and a decline in the traditional peasantry had taken place. By the mid-1980s, manual and non-manual workers accounted for over 80 per cent of the employed population in most of the Eastern European states (though it should be noted that agricultural workers in state farms are counted here). 15

The number of employees in ‘non-productive’ 16 work activity is an index of non-manuals employed in the economy. The numbers of non-manuals doubled between 1950 and 1987 in the developing Eastern European countries. To give one example: in Poland in 1950, only 385,000 people were employed in the


sectors of science, education, culture, health, insurance and tourism; by 1987, the number had risen to 2.001 million. In the USSR, the comparable � gures were 6.265 million and 23.812 million. 17 All these data indicate the presence of a large middle class of non-manual employees, known in these countries as the intelli-gentsia. By the late 1980s, this group had a demographic and a growing moral density. This development had a profound impact on the political support system, which is discussed below.

In China, on the other hand, a somewhat different picture prevails. On Table 8.3 we note that ‘employers’ accounted for a signi� cant but small proportion (2.21 per cent) of the labour force even in 1965, when 54 per cent were engaged in agriculture, and 29 per cent were in the non-government private sector and only 14.5 were public employees (the latter � gure includes manual and non-manual workers). By 1980, employees in the private sector were the largest single cate-gory. Opportunities existed in the private sector for ambitious Chinese wishing to deploy their talents in business and commerce – though the economic units were very small before the 1980s. At this time, the economic and social structure in China, being mainly agricultural and rural, was signi� cantly different from the Eastern European states.

The rise in educational levels Linked to these occupational changes were improvements in the cultural levels of the population. One measure of such advancement is standard of education. In 1926, the Soviet authorities claimed that 51.1 per cent of the population aged over nine years was literate; by 1939, the � gure reached 81.2 per cent. 18 By 1959, the census showed that by far the largest group of the population had received only an incomplete secondary education. Hence, under Khrushchev, the educational and cultural level of the population was much below that of the advanced European states. But there was a spectacular rise in educational standards during the 30 years prior to perestroika. In the USSR, in 1939, there were only 1.2 million people with a complete higher education; in 1959, there were 8.3 million, and nearly 21 million in 1987. The number of quali� ed specialists employed in indus-try increased from 8.8 million in 1960 to 35.6 in 1987. 19 To the workforce between 1960 and 1986 was added some 20 million graduates of trade schools (an annual output of 2.5 million in the late 1980s).

Table 8.3 Type of employment in China, 1965–90

Employers Own account Unpaid farm Employees:

Private Government

1965 2.21 28.86 25 29 14.51970 2.86 26.22 20 38 12.61980 4.4 20.5 10.7 51.9 12.41990 4.8 18.6 8.9 56 11.5

Source: Statistical Yearbook of the People’s Republic of China 1993 , Beijing, 1993, p. 59


The various nationalities in the republics of the USSR were part of this signi� cant development in terms of levels of education, non-manual statuses and urbanism. Educational advances broken down by republic are shown on Figure 8.2 . These data show the levels of full secondary education in selected republics. Inequalities between republics are not as marked as one might have expected. Indeed, the � gures for full general secondary education give both Tadzhikistan and Uzbekistan higher ratios than the USSR as a whole. The main reason for this is that the Central Asian republics do not have the large number of older people who had inadequate facilities before 1959. There was a signi� cant raising and equalization of educational levels throughout the USSR. Figure 8.2 also shows that the number of people with higher education tripled between 1959 and 1979.

The government encouraged the diversity of cultures of the nations constitut-ing the USSR. Language competence in the vernacular languages rose during the years of Soviet power. 20 Nationality was becoming a basis of social identi� cation when Marxism-Leninism lost its binding power.

The ideological framework Ideology de� nes what is ethical and desirable; it provides a basis for social soli-darity on which political legitimacy may rest: ‘The strongest is never strong enough to be always the master, unless he transforms strength into right and obedience into duty.’ 21 A society is legitimate in a political science sense if

0

50

100

150

200

250

300

1959 1970 1979

USSR Full

sec

USSR High

er

Uzbek

istan

Tadz

hikist

an

Ukrain

e

Latvi

a

RSFSR

Figure 8.2 Educational levels of the population in the USSR, RSRSR, Latvia, Ukraine, Tajikistan, Kyrgyzstan and Uzbekistan, 1959, 1970 and 1979, (per 1,000 of the population aged ten and above)

Source: Census data, Chislennost’ i sostav naseleniya SSSR , 1984: pp. 26–41 Note: Figures for republics are full (ten-year) education, USSR � gures include full secondary and higher education.


the political elites and the dominant social groups subscribe to the values and institutions of the system, even though many may not (all modern political sys-tems have dissenting groups, often large ones). 22 Crucial to the legitimacy of a social system is the extent to which the elites remain con� dent in their exercise of power and maintain the myths enshrined in its ideological charter. When such beliefs break down, for a legitimacy crisis to occur, a critical dissenting counter-culture must develop. To turn generalized discontent into political action, an alternative legitimate way of doing things must be articulated.

In the countries of Eastern Europe, disappointment with the outputs of the economic system, coupled to the weakness of political supports, led to public dis-satisfaction. When the central-command system was denigrated by the leadership under Gorbachev, discontent led to a crisis in legitimacy. This was not the case initially in the Soviet Union (and certainly not in China) where Marxism-Leninism was the of� cial ideology which sustained the political order from Lenin to Chernenko. While the saliency of ideology weakened under Khrushchev, it was not discredited until the advent of perestroika. The critique of the Gorbachev lead-ership not only ampli� ed public dissatisfaction through the policy of glasnost, it also gave sustenance to a counter market-based ideology. The notions of the supe-riority of state property and central planning and the inevitable world victory of communism were either rejected by the leadership of the reformist Marxist-Leninist states, or these sentiments were quietly dropped from doctrinal statements. The erosion of the legitimating ideology was now under way.

In a manner unthinkable earlier, Marxist-Leninist ideology was broken by the political leadership under Gorbachev. Ideological dissent within the political leadership radicalized: some, initially grouped around Gorbachev himself, lost con� dence in the Party and communist institutions of power and they publicly discredited the legitimating ideology of Marxism-Leninism. As noted in Chapter 7 , a signi� cant section of the political elite believed that the institutions of Soviet power had to be completely replaced.

The Minister of Health for the USSR, at the 19th Party Conference in 1988, berated the national health system by pointing out that the level of registered infant mortality in the USSR was only just lower than that of Barbados; and the average life expectancy in the USSR was 32nd in the world. In Uzbekistan, he pointed out that ‘milliards of rubles’ were squandered and 46 per cent of the hospitals were in buildings that were below the minimum sanitary hygienic stand-ards. The point here is not whether these statements are true or false, but that such statements are never made by ruling elites even, or especially, if they are true, because they undermine the moral capacity of the leaders to rule. Previously government-sponsored ‘self-criticism’ was directed at negative phenomena at variance with the communist system (which had to be improved), not, as here, with gross faults generated by it.

The break with Marxist-Leninist ideology was a consequence of a conscious decision to delegitimate the past and to move to a new market type society. It was a clear signal to those in ambiguous class positions to ‘jump ship’ to join the forces of radical economic reform.


The media, legitimated by the policy of glasnost, further undermined the myths about the regime. To illustrate, Egor Ligachev (Politburo member and critic of Gorbachev) has recalled that glasnost ‘created a gloomy atmosphere in the country’.

Under the � ag of democracy and glasnost, the ideological and moral pillars of society are being washed away. The destructive work of the opposition forces coincides with hostile forces from outside. They have set as their goal the break-up of the USSR, after Eastern Europe, to ruin the social transforma-tion along the lines of scienti� c socialism, and switch our country to the tracks of capitalist development. As to the mass media, along with the great creative work they are doing, some publications, television studios, and radio programs openly trample our past and present, inciting tension in society … 23

The undermining of Marxist-Leninist ideology led to a weakening of the regime. Somewhat incomprehensively for persons with even a cursory knowledge of Marxism, Gorbachev and his advisers – still seeking to maintain Party hegemony – appeared insensitive to class interests which would be strengthened by the market; though for some, this is what they had intended. (The market would reward those who gained by trade and barter, and would provide a social base for political oppo-sition and further claims for privatization.)

If the Gorbachev leadership sought a new framework for a reformed state socialism, then the ways of maintaining social solidarity were misjudged and the destabilizing effects of glasnost and pluralism, when linked to a qualitative change in the level and intensity of political demands, were not anticipated. The Soviet slogan of ‘unity of the Party and the people’ was replaced by popular claims for a plurality of interests which, in the transition period of 1989–90, led to con� ict and discord. There developed a political chaos that paralleled the economic chaos described in Chapter 6 . The changes envisioned by the political leadership of Gorbachev required a new ideological shell to legitimate reform socialism – and this was lacking.

Compare again the position in China where the political leadership did not renounce the legitimating ideology of Marxism-Leninism-Mao Zedong Thought. Market economic reforms occurred without political reforms. The constellation of political factors (the relatively small intelligentsia, the large peasantry, the power-ful interests of the armed forces and a secure leadership) has maintained the formal rule of the party while its power has been undermined. The political class has maintained its power because of its relative strength, con� dence and the will to rule. It has not provided conditions in which the potential advantages of revolt by those in ambiguous class positions outweigh the potential losses.

China may be in an analogous position to the Eastern European societies in the 1980s: professionals having an ambiguous class position might, when conditions are ripe, join forces with the rising business class. However, this does not neces-sarily mean disintegration as in the Soviet Union. As suggested by Bruce Dickson (noted in Chapter 5 ), the Chinese Communist Party can absorb business interests


that could operate within it and enjoy the security of a stable political system. 24 Indeed, as will be discussed in Chapter 17 , a very rich stratum of businessmen is already in place. The political leadership, however, is not weakening its ideological legitimation.

‘National in form, capitalist in outlook’ The development of national interests and the creation of national consciousness was essentially a consequence of local elites reviving nationality as a basis for their own legitimacy. The management of the all-Union Soviet political and economic institutions formed the core of the Soviet Union’s political class – those in control of the national economy and political policy; those in the republics were in an ambiguous position. The discrediting of USSR institutions and their legitimating ideology created conditions in which the republican elites had potentially more to gain than to lose by advocating a move to the market and their own sovereignty. As a consequence of the weakening of the Soviet political class, control (and in future ownership) of assets would shift to the republican and regional elites. The assertion of these class rights is often occluded by the emphasis put by commenta-tors on national and ethnic identity.

The movement for radical reform had a nationalist/regional form. This was a consequence of Stalin’s policy of korenizatsiia , which had been the basis of nationality policy. This entailed that local cadres would be recruited from the indigenous nationalities. A consequence was that the commanding posts of the political institutions were manned by members of the local peoples. As Lubomyr Hajda and Mark Beissinger point out, in the republics forming the USSR, the members of the titular nationality predominated within local party and govern-mental organizations. 25 Soviet nationalities’ policy had the effect of heightening the identity of the dominant republican nationalities. Underlying the rise of con-sciousness was the increase in educational levels, and the stratum of professionals provided the leadership of the nationalist movements. However, national con-sciousness is not the same as demands for a state structure independent from the USSR.

In conditions of moderate economic growth and rapid population increase, competition between strata – for education, occupational status and political power – escalated and as Russians often formed a disproportionate part of the elites, this competition took a national form. While in the theory of Soviet social-ism, ethnicity was a legitimate form of cultural identi� cation, it became a form of ‘social closure’ in which language, religion and skin pigmentation became a cipher to identify social groups and to allocate privilege, power and prestige. People had two forms of national identity – to the Russi� ed USSR, and to nation embedded in culture, language and geographical area. Hence when the Soviet Union was disowned (by the leadership of radical reform movements), nationality became a basis of legitimacy. The republics had a constitutional right to secede from the USSR and their elites found it to their interest to proclaim their own independence from the centre.


However, it is important not to con� ate the reform movement into a nationalist movement; the former legitimated the latter. In the Eastern European countries, ethnically homogeneous societies – GDR, Poland and Hungary, for example – developed their reform movements independently of the nationalist movement. Also the assertion of the rights of the Russian Republic (led by Yeltsin) did not (in the � rst instance) have a nationalist/ethnic base. It had a political objective – articulating the interests of the ascendant class strata. Nation was revived or cre-ated and turned into a movement for reform. Nationalism then was a convenient form of legitimation for the radical reform movement. It had crucial social and political cementing functions. As Gellner has pointed out: ‘A nation is a large col-lection of men [and women] such that its members identify with the collectivity without being acquainted with its other members, and without identifying in any important way with sub-groups of that collectivity.’ 26

Nationalism, religion and the values of capitalism gradually � lled the void in the territories of the USSR and the Eastern European states. Nationalism and reli-gion provided ideologies that were used to legitimate opposition to Soviet power and to communism. It was an ideological vehicle guided by the national intelli-gentsia in the republics and regions. As Mark Beissinger has put it, ‘in the Soviet case groups which were the most economically developed were actually those that pressed the hardest for the break-up of the Soviet Union, while least devel-oped groups were practically the last to support their own independence’. The causal factor here is something linked to economic development, not to national identity. What needs to be added is that the incumbent regional middle class and managerial elites gained most from the break-up of the USSR. Beissinger further points to a correlation between non-violent protest and levels of urbanization and education of a nationality. 27

The politicization of the peoples on the basis of nationality developed rapidly in the period 1988–89. National forms of opposition which developed in the republics against the centre were a consequence, not a cause, of the perestroika policies of Gorbachev. The rise of nationalist opposition has been carefully docu-mented by Ian Bremmer, who says that ‘little signi� cant dissent arose over the Soviet nationalities’ question until after Gorbachev acceded to power … Soviet rule was circumvented, but not challenged, through subterfuge and corruption.’ Perestroika according to Bremmer had ‘nefarious effects’. It was ‘damaging to the interests of national elites in the Soviet Union. This process involved khozraschet and the related effective tightening of public monitoring of accounts; attacks [by Gorbachev] on previously widespread corrupt practices; large-scale reductions in state-sector employment; and cutbacks in center-periphery capital transfers. The net effect was to economically alienate peoples in republics who could previously count on reasonable (and, in some cases, lavish) living standards.’ 28 The national movements that arose in the twilight of the USSR had very different objectives and many did not challenge Soviet rule or policy, but wanted a recalibration between the centre and the republics.

The economic and political content of the programme, however, was as much derived from class interest as from national identity. The quest for property was


articulated by an ascendant bourgeoisie in the republics. Dismantling the USSR gave rights over the property of the all-Union ministries to the republics – and to their privatization. The process of the self-ascription by a person to a social group – a social identity – is not the same as a collective identity. A collective identity is formed by elites and may take many forms – as an identity within the Soviet Union, or as the basis for a separate state identity.

Perestroika undermined not only the Marxist-Leninist foundations of the Soviet Union, but also national policy: sblizhenie (merging of nations) was replaced by otdalenie (distancing of national groups from the centre). Moreover, the elites of the national movements (with the exception of the Baltic republics and Georgia) initially sought not the complete dissolution of the Union, but greater independence, which had been offered by the Soviet leadership. 29 Policies that � owed from Gorbachev’s perestroika broke the frame of the Soviet Union, resulting in ethnic-based con� icts and the shift from national self-identities to col-lective national identities.

Whereas the USSR, in practice, was national in form and socialist in content, the transformation of state socialism led to independent states that became national in form and capitalist in content. A driving force in the break-up of the USSR was the transfer of publicly owned assets to the republics where they were privatized. This suggests that class interests had captured, or at least strongly in� uenced, the nationalist movements.

Notes 1 There are many books and articles ‘explaining’ the end of the USSR and the social

system: Stephen F. Cohen, Soviet Fates and Lost Alternatives , New York: Columbia University Press, 2009; Z. Brzezinski, The Grand Failure: The Birth and Death of Communism in the Twentieth Century , London: Macdonald, 1989; Samuel P. Huntington, The Third Wave , Norman and London: University of Oklahoma Press, 1991; Leslie Holmes, The End of Communist Power , Cambridge: Polity, 1993; Robin Blackburn (ed.), After the Fall , London: Verso, 1991; Ralph Miliband and Leon Panitch (eds), Communist Regimes: The Aftermath , London: Merlin Press, 1991; R. Sakwa, Gorbachev and His Reforms, 1985–1990 , Englewood Cliffs, NJ: Philip Allan, 1991; T. Zaslavskaya, ‘Social Disequilibrium and the Transitional Society’, Sociological Research , 36(3), 1997: pp. 6–21; Daniel Chirot (ed.), The Crisis of Leninism and the Decline of the Left: The Revolutions of 1989 , Seattle: University of Washington Press, 1991; Mark Beissinger, Nationalist Mobilization and the Collapse of the Soviet Union , New York: Cambridge University Press, 2002; Ken Jowitt, New World Disorder: The Leninist Extinction , Berkeley, CA: University of California Press, 1992; Richard Pipes, Communism: The Vanished Specter , London and New York: Oxford University Press, 1994; John B. Dunlop, The Rise of Russia and the Fall of the Soviet Empire , Princeton, NJ: Princeton University Press, 1993; T. Zaslavskaya, ‘Friends or Foes? Social Forces Working for and Against Perestroika’, in A. Aganbegyan (ed.), Perestroika Annual , London: Futura, 1988; S. Bialer, The Soviet Paradox: External Expansion, Internal Decline , New York: Knopf, 1986; I. Szelenyi and B. Szelenyi, ‘Why Socialism Failed’, Theory and Society , 23, 1994: 211–23.

2 Here I follow a Parsonian approach; for a concise introduction see G. Rocher, Talcott Parsons and American Sociology , London: Nelson, 1974, pp. 63–7; T. Parsons,


‘General Theory in Sociology’, in R. K. Merton et al ., Sociology Today , Vol. 1, New York: Free Press, 1959.

3 See also the economic data collected by Central Intelligence Agency, Handbook of Economic Statistics , Washington DC, 1991.

4 Minxin Pei, From Reform to Revolution , Cambridge, MA: Harvard University Press, 1994, p. 21.

5 For a detailed study of economic decline during perestroika, see William Moskoff, Hard Times , Armonk, NY: M.E. Sharpe, 1993. On the rise of corruption see Leslie Holmes, The End of Communist Power , Cambridge: Polity Press, 1993.

6 Peter Dicken, Global Shift , London: Paul Chapman, 1992, p. 30. 7 Dicken, Global Shift , p. 22. 8 See Timothy W. Luke, ‘Technology and Soviet Foreign Trade: On the Political

Economy of an Underdeveloped Superpower’, International Studies Quarterly , 29(3), 1985: 327–53.

9 Luke, ‘Technology and Soviet Foreign Trade’, p. 328. 10 These results include multiple answers. 11 See also: M. G. Field (ed.), The Social Consequences of Modernization in Communist

Societies , Baltimore, MD: Johns Hopkins University Press, 1974; M. Lewin, The Gorbachev Phenomenon , Berkeley, CA: University of California Press, 1988.

12 See Harry Eckstein, F. J. Fleron Jr, et al ., Can Democracy Take Root in Post-Soviet Russia?: Explorations in State-Society Relations , Lanham, MD and Oxford: Rowman & Little� eld, 1998; see especially the articles by F. J. Fleron Jr, ‘Congruence Theory Applied: Democratisation in Russia’ (pp. 35–68), P. G. Roeder, ‘Transitions from Communism: State-Centred Approaches’ (pp. 201–28), and W. M. Reisinger, ‘Transitions from Communism: Putting Society in its Place’ (pp. 229–48).

13 For example, Lipset showed that European stable democracies had higher education enrolment of 4.2 per 1,000 of the population, European dictatorship 3.5, Latin-American democracies and unstable dictatorships 2.0 and Latin-American stable dictatorships 1.3: S. M. Lipset, ‘Some Social Requisites of Democracy, Economic Development and Political Legitimacy’, American Political Science Review , LIII, March 1959.

14 Statisticheski ezhegodnik stran-chlenov soveta ekonomicheskoy vzaimopomoshche , Moscow, 1988, p. 18. Data for China refer to 1963, and 1990, calculated by author; Chinese Statistical Yearbook 1994 , Beijing, 1994, p. 47. See also Minxin Pei, From Reform to Revolution , p. 59.

15 For comprehensive data see Statisticheski ezhegodnik , pp. 21–2. 16 ‘Non-productive’ refers to activity that does not lead to the production of any kind of

physical commodity. 17 Statisticheski ezhegodnik , pp. 409–13, 418–19. 18 Narodnoe obrazovanie v SSSR , Moscow, 1957, p. 733. 19 Of these 15.5 million had higher education. Data from Narkhoz v 1987g , p. 370. 20 For details of national/ethnic levels of education, occupation and language, see David

Lane, Soviet Society under Perestroika , London: Routledge, 1992, ch. 6 . 21 J. J. Rousseau, The Social Contract and Discourses , New York: Dutton, 1950, p. 6. 22 For a useful discussion see Agnes Heller, ‘Phases of Legitimation in Soviet-type

Societies’, in T. H. Rigby and Ferenc Feher (eds), Political Legitimation in Communist States , London: Macmillan, 1982.

23 Quoted in Minxin Pei, From Reform to Revolution , p. 67, and letter to Gorbachev from Ligachev, 17 March 1990, reprinted in Yegor Ligachev, Inside Gorbachev’s Kremlin , New York: Pantheon, 1993.

24 Bruce J. Dickson, Wealth into Power , Cambridge: Cambridge University Press, 2008. 25 Mark Beissinger and Lubomyr Hajda, ‘Nationalism and Reform in Soviet Politics’, in

Lubomyr Hajda and Mark Beissinger (eds), The Nationalities Factor in Soviet Politics and Society , Boulder, CO and Oxford: Westview Press, 1990, p. 307.


26 E. Gellner, Culture, Identity, and Politics , Cambridge: Cambridge University Press, 1987, p. 6.

27 Mark R. Beissinger, ‘The Rising Tide of Cultural Pluralism’, in Crawford Young (ed.), The Rising Tide of Cultural Pluralism: The Nation-State at Bay? , University of Wisconsin Press, 1993, p. 99. See also Mark Beissinger and Lubomyr Hajda, ‘Nationalism and Reform in Soviet Politics’, in Hajda and Beissinger, The Nationalities Factor in Soviet Politics and Society .

28 See Ian Bremmer and Ray Taras, Nation and Politics in the Soviet Successor States , Cambridge University Press, 1993, especially ch. 1 , p. 19.

29 Donna Bahry, ‘Soviet Regions and the Paradoxes of Economic Reform’, in Ian A. Bremmer and Norman M. Naimark (eds), Soviet Nationalities Problems , Stanford, CA: Center for Russian and East European Studies, 1990, p. 52.

A major thesis of this book is that social class was, and still is, a major driving force of transformation. Class analysis of social revolutions is often conducted within a Marxist framework. Unquestionably, Marx de� ned class in terms of the ownership of property and the extraction of surplus through exchange value: ‘The historical task of the socialist revolution is to eliminate that form of exploitation due to differential ownership of alienable assets.’ 1 Neither private property nor the production of exchange value existed under state socialism. It is the posses-sion of privately owned physical and � nancial assets added to labour power, the product of which is traded for pro� t, that constitutes capitalist exploitation. Ownership of assets on the one hand and the sale of labour power on the other de� ne the polarized classes of capitalism. John Roemer, following a long tradition in Marxism, suggests that due to the abolition of private possession of such assets, economic exploitation cannot exist under conditions of state socialism. 2 The other characteristic of state socialism was that production and sale of commodities was not driven by the pro� t motive. The logic of this traditional Marxist position is that antagonistic classes could not exist under state socialism. In this argument, the transformation is analysed in terms of elites rather than classes.

My own position is that these arguments (derived from a Marxist analysis of a type of industrial capitalism) had been superseded by the state socialist social formation and in which classes took a different form. Such a traditional Marxist interpretation is also denied by many contemporary Marxists who de� ne the state socialist countries as ‘state capitalist’. Before outlining my own de� nition of class and an appraisal of the role of class in the dismantling of state socialism, I con-sider how critical Marxist theories fail in their understanding of class analysis.

Bureaucratic state capitalism Analysis of the Soviet Union and Eastern European communist societies in terms of bureaucratic state capitalism 3 is a political position shared by many diverse political groups ranging from the Mensheviks through Herbert Marcuse and Tony Cliff to Mao Zedong. The crucial element held in common by this range of theo-rists is that the state continues to exercise independent political and economic functions. Rather than being an expression of the interest of the working class, as

9 Social classes as movers of transformation



in the views of the apologist of state socialism, these writers claim that the state embodies the domination of a capitalist class. The state therefore performs the historical act of the bourgeoisie and state of� cialdom becomes a ruling ‘class’.

They claim that surplus is extracted from the producers to further accumulation and to support the ruling bureaucratic class. Class con� ict, usually latent but sometimes manifest, continues under state capitalism and takes the form of an opposition between the working class and the state bureaucracy. Various thinkers have put forward different reasons for this development and, politically, there is an important difference between those who believe that a socialist revolution could not have been carried out in Russia in 1917 and those who believe that the revolution was justi� ed but then took the wrong direction.

The � rst position is a Marxist approach adopted by Lenin’s opponents, the Mensheviks, even before the October Revolution. Their views are based on the prognosis of Marx and Engels, that before a new mode of production can arise all the possibilities of development of the previous one must have been exhausted. The often quoted remarks of Marx in the Critique of Political Economy are used to legitimate the Menshevik position:

No social order ever disappears before all the productive forces, for which there is room in it, have been developed; and new, higher relations of produc-tion never appear before the material conditions of their existence have matured in the womb of the old society.

Marxists following this line of approach, such as Kautsky and Plekhanov, argued that the revolution had to come � rst in the advanced capitalist countries.

The logic of this position is that the Bolsheviks became not just classless ‘mod-ernizers’, as depicted by modernization theorists, but built capitalism through the state apparatus. Consequently, state capitalism was shaped by Bolshevik power.

The second position recognizes the October Revolution as a working-class event, and many (who nevertheless are critical of Stalinism) have supported the Bolsheviks’ revolutionary initiative. Even if the conditions necessary for a social-ist revolution are not in place, there may be suf� cient cause to start a revolution and thereby change the ownership relations to the means of production. The argu-ment hinges not on the possibilities of instigating a socialist revolution in pre-revolutionary Russia, but on the events that followed. Hence this school of thought sees ‘revolution’ as the successful seizure of power, but it failed to put into effect the insurgents’ Marxist intentions. After October, there was a degeneration of leadership and the regime went back to capitalism.

Such writers contend that the success of the October Revolution indicated that the world was ripe for socialism. It was a legitimate seizure of power on behalf of the working class and should be supported. But Soviet Russia alone could not build a socialist society. A proletarian revolution on a world scale (or at least in the major industrial countries) was a necessary condition for the rise of a socialist state.

As the proletarian revolution did not subsequently occur in the West, for Tony Cliff (the best-known advocate of this position), ‘The central problem in post-October


Social classes as movers of transformation 129

Russia with its low level of national income [was] the ful� lment of the bourgeois tasks of the development of the productive forces.’ 4 Cliff continues, ‘the historical mission of the bourgeoisie [in] outright contradiction to the wishes and hopes of the actors themselves’ had to be carried out by the Soviet bureaucracy. 5 With time, the bureaucracy’s supremacy in the relations of production led to privilege in the relations of distribution and consumption. Thus a new ruling (capitalist) class was born.

An important distinction is made here between the intentions of Marx and Lenin and the growth of Stalinism which is associated with the rise of state capi-talism. To quote Callinicos writing in 1991, ‘a qualitative break separates Stalinism from Marx and Lenin. This profound discontinuity can be traced in the historical record, in the process which transformed the Bolshevik Party … into the apparatus of power, terrorized and terrorizing, that it became by the end of the 1930s’. 6 The mistaken task of trying to build ‘socialism in one country’ became ‘the foundation of the building of state capitalism’. State capitalism, then, ‘is the extreme theoretical limit which capitalism can reach’; it is ‘the extreme opposite of socialism’. 7

State capitalism, it is conceded, differs considerably from Western bourgeois capitalism. There is no competition between enterprises or competition of capi-tals. Production is mainly for use rather than for exchange: that is, production is not geared to the production of goods for sale through a market. The making of pro� t at the level of the enterprise is not required to keep the productive unit in operation. The dynamic force for expansion and capital investment was not intrin-sic to the Soviet Union (and by extension to the other state socialist societies) but to the forces generated by the world economy, to ‘world competition’. ‘The Russian state is in a similar position to the owner of a single capitalist enterprise competing with other enterprises.’ 8 Competition takes an international form and the need for military preparedness drives the state and its economic activities.

Under these conditions, these writers contend, the political leadership cannot break out of the capitalist world shell. The capitalist state (like the individual capitalist) has to accumulate in order to survive. Unlike Western bourgeois capi-talism, the ‘state capitalist’ versions (which included the other state socialist soci-eties) did not have persons who are ‘capitalists’ with a legal right to the ownership of enterprises. Bureaucrats extracted surplus value and their class rights were given by their ‘control’ of the means of production. Hence the system is one of bureaucratic state capitalism.

My criticism of this viewpoint is on the following lines. It cannot be denied that preparations for defence and the priority given to the arms industry under Stalin played an important part in determining the level of accumulation. However, it does not follow from this that the ‘goal of capitalism – production for produc-tion’s sake’ (to extract surplus value) prevailed or that the states of the Soviet bloc became a ‘variant of capitalism , in which global military competition compelled the subordination of production within the USSR to the goal of capital accumula-tion’. 9 Unless there is extraction of surplus value, in the Marxist paradigm that these writers adopt, there cannot be a capitalist class.



Leaving aside the fact that the overwhelming level of output did not enter into the sphere of international competition (even in Chris Harman’s estimate only between 12 and 16 per cent of national income in the USSR was devoted to arms expenditure in the post-war period 10 ), global competition of this kind cannot be said to be equivalent to that of the competition of capitals, which is a key compo-nent of the Marxist understanding of capitalism. Without such competition, capi-talist societies would collapse and so would the infrastructure of capitalist markets and the dominant class. This was not the case in the state socialist societies. Take away global military competition and what this school calls the bureaucratic and class structures do not change.

The state capitalist theorists, such as Cliff and Callinicos, it is contended here, are unable to point to any distinct revolutionary break in the development of the relations of production in Soviet Russia – or in the other state socialist societies prior to the events of 1989.

The implication of the state capitalist position is that the collapse of the Eastern European and Soviet regimes between 1989 and 1991 is irrelevant to the socialist project. State capitalism was a phase in the development of capitalism. Chris Harman asserts that ‘the transition from state capitalism to multinational capital-ism is neither a step forward not a step backwards, but a step sideways’. 11

The theory does not point out why the transformation should have occurred after over 50 years of ‘class power’. There is an implication that ‘control’ did not give rise to a ruling class in a Marxist sense – if it had, why was there a need to change it? Also, if state socialism was the ‘extreme theoretical limit capitalism could reach’, then a shift to multi-national capitalism is surely a step back. There is, too, a presumption that the ascendant class should be the working class, whereas in fact it was marginal to the political events that happened in the disman-tling of state socialism.

In my view, factions of the nomenklatura and the professional strata were an incipient bourgeoisie. But what this school of thought does contribute to our understanding is the valuable insight of locating state socialism in the context of global capitalism, a point taken up in the next chapter.

The transitional society – the Trotsky approach These arguments are rejected by the second school of Marxists mentioned above, that of the transitional society. The classic statement of this interpretation was put by Trotsky in his work, The Revolution Betrayed (1945). Here the Soviet Union was de� ned as a ‘contradictory society, halfway between capitalism and social-ism’. Where Trotsky and his followers differ from Cliff is over the class nature of the USSR. Classes are ‘characterized by their position in the social system of economy and primarily by their relation to the means of production’. 12 For Trotskyites, the ruling group has its basis of privilege in control of the administra-tion; it is bureaucratic in character, rather than capitalist in the sense of ownership relations. Bureaucratic position gives rise to economic privilege as well as social status but it does not give the right to ownership of the means of production and



their transference through the family – which ensures the reproduction of bour-geois capitalism. 13

Ernest Mandel has elaborated this paradigm. 14 For him, the form of ownership and direction of the economy was socialist because there was no alienation of labour power, no production of exchange value (that is, no pro� t realized by a social group through the purchase and sale of commodities). But the system is ‘bourgeois’ in so far as distribution is carried out through the market. There is then an ‘antagonistic logic’ between markets of commodities (which had prices) and labour (which received money wages) and the plan for the macro ordering of the economy.

The end stage of ‘transition’ for Trotsky and Mandel was indeterminate – it could lead to socialism, or degeneration could result in a capitalist restoration. From this point of view, and contrary to Harman and Callinicos, the privatization of property carried out by the ‘reformers’ of state socialism would appear to be a step backwards rather than one sideways. It entails the creation of a bourgeois class with legal rights to property. This position in my view is nearer to the reality of state socialist society. The reform movements were, in a Marxist sense, coun-ter-revolutionary and pushed state socialist societies to capitalism.

The ‘state capitalist’ theorists have to con� ate class (in the sense of ownership) with control of (in the sense of having powers of direction over) productive assets. In a Marxist sense, for an ascendant class to form it would have to be based on legal rights (ownership, control and sale) of property.

A class explanation of transition to capitalism It is my contention that class actors were at the heart of the transformation from state socialism to capitalism. To explain how this came about, a de� nition of the character of classes under state socialism is necessary. It cannot be derived from the traditional Marxist paradigm discussed above. I de� ne a social class as being constituted from a group of people who share a similar economic position which determines life chances; a class reproduces itself demographically, has an actual or latent awareness of its own position in relation to those in other social classes, and provides a basis for social and political action.

As applied to the state socialist societies, its class structure has three elements. First, an administrative stratum is able to turn executive power into ownership of capital assets and in so doing, moved from a stratum into a class. Second, an ‘acquisition’ stratum is able to valorize skill assets through the market; factions of this group were able to utilize such assets to secure rights over property and in so doing became part of a bourgeois class. Third, external class interests, acting through global political elites, provide the means and the legitimation for transfor-mation. (This component is discussed in the next chapter.)

These three groups possessed the attributes of classes described above: a group of people sharing a similar economic position which determines life chances; a class reproducing itself demographically, having an actual or latent awareness of its own position in relation to those in other social classes, and providing a basis



for social and political action. To avoid confusion with Marxist conceptions of class (which are de� ned in relation to property), I refer to them here as a stratum.

The administrative stratum was composed of people occupying a hierarchy of posts that gave control over the means of production, as well as the ideological, military and security institutions. These key positions were de� ned by the nomen-klatura – a list of positions controlled by the Communist Party (though sometimes jointly managed with state institutions). The nomenklatura affected not only elite positions, but positions of authority at lower levels. Posts in the Party and trade union hierarchies, executive positions in government institutions (including enter-prises, educational and health institutions, the media) were also subject to nomen-klatura vetting. Hence there was a vertical binding of members of the nomenklatura , with movement between nomenklatura posts. Not all members of this group formed the administrative stratum, which was constituted by members of the key administrative and executive posts.

These positions were also not only forms of employment: they included politi-cal positions associated with the work process (trade union secretary) or with political organization in any association (Komsomol – the Young Communist League – secretary). Movement through such positions determined the career of persons in the political class (the group of people who ruled the country). The dif-ference with market capitalism was that these positions did not allow the holders to dispose of the assets under their control; neither did production enterprises directly bene� t from the income yielded from production of goods or services. Many persons occupying positions in the party structure were symbolic and nom-inal and they were also members of the professional classes (examples being rep-resentative of academia, the media and the military in the Central Committee of the Party).

The second dimension of class was linked to the market. Under state socialism, a systemic form of class strati� cation was linked to the market. Employees were paid for their labour by a state enterprise or institution: the state had a monopoly of hiring, and � xed wage rates and conditions. Labour productivity was encour-aged through the incentive for monetary reward. This gave rise to a market for labour and for goods. People competed for jobs that offered better conditions and higher income. The exchange of labour power for money remained a feature of state socialism and income derived from employment was important in the deter-mination of living standards. Under capitalism, the labour market promotes ille-gitimate inequality. John Roemer theorizes this form of inequality in Weberian terms. It gives rise, he says, to a class being in possession of ‘skill assets’, which leads to structural inequality. 15 Under state socialism, however, the economic rewards were not determined by bargaining on a market, but administratively. The difference between the actual level of rewards and a notion that the market would give higher material bene� ts created a sense of alienation from the political system. The intelligentsia, de� ned by higher education and executive and profes-sional non-manual occupations, became an ‘acquisition stratum’ – a group seek-ing � nancial rewards through a market for their services. In this sense they were a potential ascendant class.



Exploitation that occurred under state socialism had a much wider signi� cance than that de� ned by Marx and may be subsumed under the Weberian concept of domination. The bureaucratic ‘controllers’ dominated society politically, rather than being driven economically to extract surplus value to further capital accumu-lation. Such people may seek to turn their political power into monetary rewards: but as such this is not surplus in a Marxist sense. I would agree with writers such as Anthony Giddens 16 and Ferenc Feher et al . that relations of domination are dif-ferent from class relations. 17

There were two systems of strati� cation in operation under state socialism – a planning and administrative system controlled by a political stratum and a quasi market linked to the possession of intellectual assets and skills. We may de� ne class boundaries operating on the basis of these two criteria of strati� cation (con-trol of assets and marketability of skills). Behind the reform process were the interests of these two competing strata: state bureaucracy and middle-class occu-pational groups whose life chances were linked to the marketability of their skills.

Class strati� cation then provided a framework for the reformers. Gorbachev not only legitimated and introduced market reforms, he also presided over sig-ni� cant changes in property laws. Gorbachev weakened the planning system and allowed the autonomy of enterprises and, perhaps most important of all, allowed privatization to take place. 18 As the economy collapsed in the late 1980s, manag-ers and of� cials embezzled state property, and ‘spontaneous’ privatization occurred in addition to the ‘cooperative’ enterprises that had legally been set up.

The decentralization of power to the republics and the direct election of their Presidents strengthened the republics against the centre. 19 The USSR ministries owned and controlled the major industrial complexes. Hence the quest for rights over property took on a regional form and provided an economic and class base for the sovereignty of the republics. The rise of a collective national identity was a way in which nationalism legitimated class rights over property in the republics. Dissolving the USSR eliminated state ownership at the centre and allowed the elite strata who came to power in the republics to distribute ownership rights to the administrative strata de� ned above.

Predispositions for change The social developments described in previous chapters – the greater urbaniza-tion, the growth of non-manual occupations, the rise in educational levels – all increased the density of the acquisition strata. This in turn led to a population more receptive to the move to a market economy, where such groups, it was believed, would be able to valorize their skill assets. It is not being argued here that these demographic changes directly led to challenges of the system of state socialism; rather they created social groups that were predisposed towards change.

In the 1980s, the professional strata (known as the intelligentsia) were recep-tive to an alternative conception of socialism (which in practice embraced many of the practices of contemporary capitalism), to a vision of a future different from that of their parents. As Millar concludes from a study based on interviews



with Soviet immigrants to the United States: ‘A long term trend toward privati-zation is evident, which shows up not only in the evasion of mobilization effort … but also in the economic realm. The study reaf� rms the pervasiveness of illegal as well as private economic activity.’ 20 An underlying cause of this con-sciousness was the market relationships on which these strata could capitalize (or believed they could capitalize) their skills. The consumption of commodities in exchange for work was not in equilibrium: this was expressed in the growth of corruption (behaviour that deviates from accepted public norms to serve pri-vate ends).

Field studies conducted in 1991 con� rm that on the part of the intelligentsia in the post-communist countries, there was a signi� cant negative attitude towards socialist principles and a positive attitude towards capitalist ones (for example, opposition to income being determined by need rather than merit, government provision of employment, egalitarianism of income distribution, limits on earned income). One study showed evidence of a ‘steady decline in support for socialist principles from those with low education to those with higher educations. Across all the East European countries, the correlation coef� cient between the socialism index and education level is –.33 … non-egalitarian reforms are supported by the more highly educated minority in those societies, who, as it happens, also have the most to gain from such reforms.’ 21

Increasing levels of dissatisfaction by the growing professional strata weak-ened their loyalty to the regime and created a disposition to support political change favouring a market system. The rise of a large stratum of non-manual urban people had implications for the political support structure. They made demands, to which the reform political leadership responded. The recognition by the political leadership of ‘de� ciencies’ and ‘shortcomings’ in policy was trig-gered particularly by the lack of ful� lment of the aspirations of groups of intel-lectuals – professional employees with higher education or specialist quali� cations. The policy of glasnost was a recognition of a surge of individual and group demands. The support for reform came from the professional classes who became disenchanted with their status under command socialism. They in turn were culti-vated by the reform leadership.

This tendency applied to all state socialist societies. On the basis of an exhaus-tive study, Jean-Charles Asselain concludes that, in Poland, Czechoslovakia and Hungary, there took place a ‘real deterioration in the standard of living of “intel-lectual” categories compared to the pre-war period’. 22 The members of the politi-cal administrative stratum (including some in the intelligentsia), however, received a disproportionate part of their income in kind (housing, travel, health). Still, there is no doubt that the professional groups thought that they were rela-tively worse off.

In the European state socialist countries, by the 1980s, the large educated non manual urban population changed the social base of politics. Under Stalin, the peasantry was a major social prop to the regime; under Brezhnev and Khrushchev, this mantle fell to the manual worker. Under Gorbachev, the skilled and quali� ed non manual workforce was an ascendant group and the social base on which



radical reform policies rested. The modernization process had created a ‘demo-graphic identity’ among the intelligentsia. In the Eastern European countries the intelligentsia inherited bourgeois traditions from the pre-communist regimes. A critical moral mass developed which adopted either an independent appraisal of, or became detached and alienated from, the legitimating ideology of power, and the political class. In all these societies, the real political ballast of the regime moved from the peasantry and working class to the intelligentsia.

Changing bases of political support The political support system of the traditional political leadership was not appro-priate to the aspirations of the rising professional non-manual strata. In the period 1956 to 1961 (under Khrushchev), manual workers constituted 41.1 per cent of new Party members; their share rose to 59.4 per cent in the late Brezhnev period (1981–85). 23 This gave a solid working-class membership to the Communist Party: manual workers constituted 43.4 per cent of membership in 1981 and 45.4 per cent in 1989. 24

However, manual workers and collective farmers were increasingly excluded from positions of authority in the Party and the political leadership was � lled with those from non-manual and professional social groups. For example, in the USSR, of the total Party membership in 1971, 2.81 million (19.6 per cent) had a higher education; this � gure rose to 6.8 million (31.8 per cent) in 1986. Concurrently, of the Party’s leading cadres (members and candidates of central committees and auditing commissions of Union Republican parties and Province ( obkom ) and ter-ritories ( krai ) committees), 69.4 per cent had higher education. Even at the level of cities, districts ( raykom ) and areas ( okrug ) 56.7 per cent had a complete higher education. 25 These data indicate the in� ow of the intelligentsia to positions of in� uence in the leading institutions of the Party.

Another measure that indicates the changing political base for the Gorbachev leadership is the changing social background of the membership of the Supreme Soviet of the USSR. In 1979, workers constituted 34.8 per cent of the members of the Supreme Soviet of the USSR. 26 This � gure rose slightly to 35.2 per cent in the Supreme Soviet elected before the reform leadership was in command. After Gorbachev came to power, there was a massive decline of working-class repre-sentation. The share of workers among the deputies to the Congress of People’s Deputies in the 1989 election came to 18.6 per cent; collective farmers received only 11.2 per cent of the seats (compared to 16.1 per cent earlier); and the propor-tion of women fell considerably from 32.8 per cent to 17.1 per cent. 27 The number of deputies in the professional classes with higher education rose from 7.8 per cent to 15.7 per cent. 28 These data are illustrative of a shift in the basis of power of the leadership towards the non-manual professional strata.

The implication here is that there was developing a dual class structure in which ‘intellectuals’ and professionals had much potentially to gain from a mar-ket-type system. They had marketable skills, which they believed were hampered by the nomenklatura system. We return to and develop this point below.



In Eastern Europe, an important indicator of support of the traditional com-munist elites by the manual working class is shown by the in� ux of manual work-ers into the Party and representative institutions after political crises. In Hungary after 1956, ‘recruitment of active workers into the … Party increased substantially … together with massive promotion of former workers to administrative party posts. In Czechoslovakia … after the events of 1968–69 … workers made up 63 per cent of the new members admitted to the Communist Party between 1971 and 1976’. 29 In 1971 in Poland, Eduard Gierek promised to speed up ‘the process of integration of the working class in the management of the state’. 30

When reform leaderships came to power, the support structure shifted to the middle classes and intelligentsia. An example is the case of Hungary, where in October 1989, the Congress of the Hungarian Socialist Workers’ Party renamed itself the Socialist Party of Hungary; its membership, which in 1985 had been composed of 40 per cent workers and 20 per cent peasants, was transformed and by 1989, 90 per cent of its members were ‘intellectuals’. 31

I conclude that a new group, the ‘acquisition stratum’, had secured signi� cant representation in the higher levels of the administrative and political bodies. This did not happen automatically; it was furthered by the political leadership.

The reform leadership of Gorbachev shifted its political fulcrum of diffuse and speci� c support away from the manual working class and the traditional Party and state bureaucracy to an alliance with the more technologically inclined and mod-ernizing forces and the intelligentsia. This threatened the traditional alliance between the Party executive, government administrators and their supporters among the manual working class. The maintenance and replication of the tradi-tional political elites was further weakened by the rise of market forces which the reforms had encouraged. As movements to marketization and democratization progressed from the top, the costs to the intelligentsia and economic mangers of breaking away from the existing system fell and the attractiveness of an alterna-tive system rose. 32

Also, the position of people in ambiguous class positions changed: if their authority was being eroded by the political leadership of the administrative stra-tum, then their interests may be better served by support for the market. Marketization would provide great opportunities; members of the administrative stratum would be in a position not only to bene� t from their intellectual capital but also potentially to gain from the acquisition of physical assets, which would follow from the privatization of state property. It follows from this analysis that people with authoritative roles in the state and Party apparatus would not seri-ously oppose the dismantling of state socialism because their class interests could be served by the market and privatization.

Class divisions Here, then, we identify class interests dividing state socialist society, which were crucial in providing ballast for political change. These groups formed part of the ‘counter-culture’ referred to above by writers such as Goldfarb, and would be



characterized by Ernest Mandel as constituting ‘bourgeois’ strata in terms of their consumption patterns. They were a latent class interest under state socialism and had been kept ‘in place’ by the loyal administrative stratum which controlled the state and Party apparat.

The structure of state socialism, however, prevented the intelligentsia and managerial personnel from exploiting this position. The functioning of the labour market and the exchange of commodities were severely limited by the institu-tional arrangements. There was no market for property, and privileged groups of workers could not combine to raise their incomes; managers were subject to eco-nomic plans. Hence managerial executives and professionals received, relative to other workers, much less than in Western capitalist societies. To allow a labour market to operate would have seriously weakened the administrative stratum. This was the traditional view of the nexus between property, market and class, noted above in Chapter 3 . Moreover, administrative privilege (available to some in the acquisition stratum) also had its attendant forms of access to goods and services. The marketization of distribution was circumscribed by administrative control. The existence of this quasi market goes some way to explain the ways in which detailed empirical comparisons between socialist and capitalist countries have indicated partial forms of convergence. 33

The administrative (or bureaucratic) stratum is de� ned by its position in con-trol of executive and legal statuses, whereas the acquisition stratum is demarcated by possession of skill (intellectual) assets. Hence in a Weberian sense, class is de� ned for these groups by the possession of power or marketability of skills. Bureaucratic position and skill/knowledge were two competing principles of class allegiance under state socialism. The intelligentsia (all employees with higher educational quali� cations, or ‘professionals’) have better ‘market’ chances than ‘bureaucrats’ (those dependent on the nomenklatura for position) who endorse administrative redistribution.

The political strategy of the acquisition stratum was to support a change to a market system; it was less concerned with privatization of state assets – at least initially. It sought to increase the distribution of resources through strengthening, extending and pro� ting from the market. It supported representative political institutions as forms of coordination and civil society, as a context for its own development as well as a springboard for launching a critique of the existing order. Gorbachev himself, at least in the early years of reform, was an advocate of this position. From the point of view of the analysis of transition to capitalism, the acquisition stratum furthered a market system of exchange and market valoriza-tion of labour; but, unlike Marx’s ascendant capitalist class, it had no propensity for the accumulation of capital through the extraction of surplus labour. Under state socialism, from a Marxist position, it was a stratum, not a class (though it could be referred to as a ‘class’ as used here in a Weberian sense).

The administrative stratum was not simply composed of people ‘extracting surplus’, but rather of persons with a commitment to a system of state ownership and control under a state socialist regime. These were the people who conducted the failed coup against Gorbachev, described in Chapter 7 . Politically, they would



seek ‘to make better’ the administrative command system, rather than to replace it. 34 Many in the administrative stratum, however, would potentially be able to bene� t from a market system, if it gave them access to private property. This de� nes their ambiguous class location.

George Konrad and Ivan Szelenyi con� ate the intelligentsia into the bureau-cratic class. In their view, the state socialist system represented the rule of the intelligentsia.

[T]he transformation of the intelligentsia into a class, principally in the ratio-nal-redistributive economies, has indeed meant that in the industrially back-ward agrarian societies of Eastern Europe the intelligentsia, organized into a government-bureaucratic ruling class, has taken the lead in modernization, replacing a weak bourgeoisie incapable of breaking with feudalism. 35

This position ignores the different interests of the two groups. Also, like the state capitalist theory, it does not show why a move to capitalism and the privatization of assets is necessary. During the terminal period of the USSR, as noted in earlier chapters, the loyal administrative stratum was undermined by the reforming lead-ership of Gorbachev both in the USSR and in the dependent communist states in Eastern Europe.

At the core of the administrative stratum were the key sectors of the govern-ment bureaucracy of the USSR: the military-industrial complex and the ministries with control over the means of production – their relative autonomy de� ed pene-tration by the Gorbachev Party leadership and they opposed market reforms. 36 It is important to emphasize too that the intelligentsia or the professional adminis-trative strata did not form a unitary class, but contained strata with varying degrees of identity and commitment to the communist system. Depending on the likeli-hood of political success, they would endorse one or the other system of power. Under Gorbachev’s leadership, the Party’s own professional cadres were among the � rst to shift their allegiance away from the administrative stratum to further a market society.

Members of the administrative stratum were in a contradictory position. They occupied in� uential, secure and privileged positions in the ruling elites. But they also had potential to an even more advantaged economic class position if they could turn their administrative control into ownership of property and/or were able to valorize their administrative and executive capital through a market. From being members of a privileged salaried administrative stratum or elite they would become part of a capitalist class with legal rights over the expropriation of surplus value.

There were then two systems with contrary class interests in operation under state socialism – a planning and administrative system controlled by a political stratum, and a quasi market system with an ascendant bourgeois stratum linked to the possession of intellectual assets and skills. We may de� ne class boundaries operating on the basis of these two criteria of strati� cation (control and marketa-bility of skills). Behind the reform process were the interests of these two competing



strata: state bureaucracy and mainly middle-class occupational groups whose life chances were linked to the marketability of their skills. Both could turn their social positions into class rights in two steps: � rst, securing an economic market, and second, acquiring rights to property. These social strata under state socialism formed an ascendant class.

The USSR was the linchpin of the power structure of the state socialist social formation. A faction of the political elite under Gorbachev played an important role in leading the movement for radical reform and in doing so responded to, and cultivated, the acquisition stratum. Initially, in support of the reform process, it sought a move to the market within the context of a Communist Party-led political order, rather than a move to capitalism. It also responded to the exogenous trans-national political elites, discussed below. To secure support for change, the Gorbachev leadership shifted the political ballast within the political elites (those with effective political control) to the acquisition stratum (the intelligentsia). Gorbachev created conditions that widened considerably the political opportunity structure. This set off a tipping process whereby previously loyal ‘within-system’ reformers felt able to shift their support to (and to advocate) radical market reform.

Class identi� cation The ambiguous class position of the managerial and executive strata had been a major factor inhibiting a move to the market: as long as the mainstays of the admin-istrative stratum were united and determined to keep the command system, they had more to lose than to gain by pledging support to its demise. The radical opposition tipped the scales and then under the leadership of Gorbachev (and later Yeltsin) the potential changed: the administrative stratum had more to gain than it had to lose. From the point of view of this analysis, the political loyalty of two major social groups was severely ruptured. With the dismantling of the economic and political apparatuses under Gorbachev, many became predisposed to system change.

A great weakness of the ascendant acquisition stratum was its lack of political power and its weak organizational resources: the administrative/political strata had secured economic and political power – a point emphasized in the ‘totalitar-ian’ concept of state socialism. The con� dence of the administrative stratum varied between different state socialist societies, depending on the way in which power had originally been achieved. Whereas in Eastern Europe, the latent oppo-sition included people who had experienced capitalism, this was not the case in the USSR or China, where for generations either the population had not known the phenomenon or a signi� cant indigenous capitalism had not developed. The moral appeal of socialism was stronger in countries such as Russia, Ukraine, China and Yugoslavia which had successfully repelled capitalist invaders.

Under state socialism, moreover, even this potential ascendant class was unable to articulate an ideology of capitalism involving privatization of property and a comprehensive move to a market system. The internal penetration of capital and external economic links between foreign capital and socialist host countries were very weak.



A social structural analysis in terms of the internal dynamic of a society alone cannot explain the variation of support for an alternative to the state socialist regimes. In the case of the Eastern European and Baltic societies, proximity to the West and traditional forms of national identity are important variables, which give rise to alternative political ideals and to support for a new regime. ‘The West’ had a major impact on the reforms and provided support and impetus for the internal transition to capitalism. The external environment, to which we now turn, had a determinant effect not only in shaping politics but in in� uencing values, norms and the ways exchanges were to take place. The � nal link in the causal chain that dismantled state socialism was the global capitalist class.

Notes 1 John E. Roemer, A General Theory of Exploitation and Class , Cambridge, MA:

Harvard University Press, 1982, p. 238. 2 Roemer, A General Theory of Exploitation and Class . 3 A useful website containing relevant Marxist works on this topic is www.marxists.org . 4 Tony Cliff, Russia; A Marxist Analysis , London: International Socialism, 1964, p. 106. 5 Cliff, Russia , p. 106 6 A. Callinicos, The Revenge of History , Cambridge: Polity Press, 1991, p. 16. 7 Cliff, Russia , pp. 110, 113. 8 Cliff, Russia , p. 159; the above is based on pp. 155–61. 9 Callinicos, The Revenge of History . 10 Chris Harman, ‘The Storm Breaks’, International Socialism , 46, 1990, p. 35. The point

is that such a level of arms production would not determine the character of the whole economy.

11 Harman, ‘The Storm Breaks’, p. 82. 12 L. Trotsky, The Revolution Betrayed , New Park, 1945, p. 248. 13 Trotsky, The Revolution Betrayed , pp. 248–9. 14 E. Mandel, ‘Once Again on the Trotskyist De� nition of the Social Nature of the Soviet

Union’, Critique , 12, 1980. 15 Such exploitation is not illegitimate: it is ‘socially necessary because it improves

welfare’. Differentials of earnings (or levels of consumption) provide incentives and reward for the use of certain skills: the elimination of such inequality would lead to ‘retardation’ in development. See Roemer, A General Theory of Exploitation and Class , pp. 148, 240–2.

16 Anthony Giddens, The Class Structure of the Advanced Societies , London: Hutchinson, 1973, p. 294.

17 F. Feher, A. Heller and G. Markus, Dictatorship Over Needs , Oxford: Blackwell, 1983, pp. 18, 19, 31.

18 Some critical Marxists regard enterprise managers as the nucleus of the ruling class. In my view they did not lead an ascendant class because of the effective controls of the Party state, including control committees at the enterprise. They certainly were signi� cant bene� ciaries of radical reform. See Charles Bettelheim, Economic Calculation and Forms of Property , New York: Monthly Review Press, 1975; Michael A. Lebowitz, The Contradictions of Real Socialism , New York: Monthly Review Press, 2012.

19 For a description of the transfer of power see Andrew Barnes, Owning Russia , Ithaca, NY and London: Cornell University Press, 2006, ch. 3 .

20 J. R. Millar, ‘History, Method and the Problem of Bias’, in Frederic J. Fleron Jr and Erik P. Hoffmann (eds), Post-Communist Studies and Political Science , Boulder, CO and Oxford: Westview Press, 1993, p. 187.


http://www.marxists.org


21 David S. Mason, ‘Attitudes Toward the Market and Political Participation in the Postcommunist States’, Slavic Review , 54(2), 1995: 393–5. Mason points out that ‘in many of these countries the new governments are dominated by the highly educated, because the revolutions swept into power intellectuals who had previously opposed the communist system’.

22 Jean-Charles Asselain, ‘The Distribution of Incomes in East-Central Europe’, in Pierre Kende and Zdenek Strmiska (eds), Equality and Inequality in Eastern Europe , Leamington Spa: Berg, 1987. Taking the average worker’s wage as 1, in Poland the average salary of managers and white-collar workers dropped from 2.5 in 1938 to 1.2 in 1949, in Hungary the differential of engineers and technicians fell from 3 to 1.99 and administrative personnel from 2.4 to 1.41 (p. 26). In Poland, between 1931–32 and 1969, meat consumption fell from 47.5 kg (per capita per annum) to 44.9 kg for managerial and white-collar households and rose from 33.8 kg to 49.5 kg for working-class households (p. 30, fn. 12).

23 ‘KPSS v tsifrakh’, Partiinaia zhizn , 1986, No. 4, p. 8. 24 Izvestiya Ts.K , Moscow, 1989, p. 140. 25 KPSS v tsifrakh, Partiinaia zhizn’ , 1986, No. 4, pp. 23, 20. 26 Vestnik statistiki , Moscow, 1983, p. 61. 27 Izvestiya , 5 May 1989. 28 Izvestiya , 6 May 1989. 29 Ottorino Cappelli, ‘Comparative Communism’s Fall. The First Phase: “The

Intelligentsia Revolution” of 1989–1990’, Harriman Institute Forum , 3(6), 1990, p. 2. 30 Cited by Cappelli, ‘Comparative Communism’s Fall’, p. 3. 31 Cappelli, ‘Comparative Communism’s Fall’, p. 4. 32 On the loss of support of intellectuals in the fall of the communist system see G.

Schop� in, Politics in Eastern Europe , Oxford: Blackwell, 1993, pp. 227–30. 33 Haller and Mach, for instance, show that divergences between Austria and Poland

may be caused both by different systemic features rooted in the political and economic orders and by common factors such as level of economic development. See M. Haller and B. W. Mach, ‘Structural Changes in Mobility in a Capitalist and a Socialist Society: Comparison of them in Austria and Poland’, in M. Niessen and J. Peschar (eds), International Comparative Research , Oxford: Pergamon, 1984, p. 53. Western comparative sociologists have endorsed similarities between capitalist and state socialist societies. Social mobility, for instance, has been held to have a ‘basic’ similarity in all industrial societies determined by the occupational division of labour. See, for example, D. B. Grusky and R. M. Hauser, ‘Comparative Social Mobility Revisited’, American Sociological Review , 49, 1984; R. Erikson and J. H. Goldthorpe, ‘Commonality and Variation in Social Fluidity in Industrial Nations’, Economic and Social Review , 3(1), 1987, pp. 55–6.

34 For a discussion of the attitudes of the political elite, see David Lane, ‘The Gorbachev Revolution: The Role of the Political Elite in Regime Disintegration’, Political Studies , 44(1), 1996.

35 George Konrad and Ivan Szelenyi, The Intellectuals on the Road to Class Power , Brighton: Harvester, 1979, p. 10. In Wright’s analysis, the intelligentsia is located in a contradictory class position and ‘experts’ and ‘state bureaucrats’ are seen as different groups vying for power. See E. O. Wright, ‘A General Framework for the Analysis of Class Structure’, Politics and Society , 13, 1984, pp. 402, 422, n. 46.

36 For details of the divisions within the government bureaucracy and their resistance to reform, see David Lane and Cameron Ross, ‘Limitations of Party Control: The Government Bureaucracy in the USSR’, Communist and Post-Communist Studies , 27(1), 1994, pp. 19–38.


Transitions from autocratic rule in countries with established markets and private property are usually interpreted as being motivated by endogenous forces in which modernizing elites play an important contributory role. Exogenous factors in transitions to democracy and markets are deemed by most writers to be minor players. For example, though not denying any role to external in� uences, O’Donnell and Schmitter regard as ‘fruitless’ the search for ‘some international factor or context’ which ‘cause[s] regimes to collapse’. 1

Transitologists in general underplay external factors, not only in terms of the role of international corporations, but also the part played by the foreign policy of the metropolitan powers and international agencies, such as the IMF and the World Bank, whose purpose it is to in� uence economically the internal develop-ments in countries to whom they give loans, � nancial support and advice. The focus on the ‘� uctuating cleavage between hard-liners and soft-liners’, 2 in which discussion usually takes place, evades the analysis of interests to whom such people and institutions are responding.

Writers in the � eld of international political economy, however, analyse the politics of nation states in a global context, and this is the framework adopted in this book. Mitchell A. Orenstein, Stephen Bloom and Nicole Lindstrom regard transnational actors as ‘a fourth dimension of transition’: ‘the projects of nation-state building, democratization, and marketization have been embedded within transnational agendas and pressures’. 3 Transnational actors, they contend, ‘turned out to be the dark matter that held [together] the various aspects of post commu-nist transition in Central and East Europe’. The focus in this chapter (as well as Chapter 19 ) is on the role of transnational actors in the building of capitalism in the post-Soviet societies. Here we consider the role of exogenous forces in bring-ing about the fall of communism.

The global context Like the historical movement to capitalism in Germany and Japan, the state socialist societies had all experienced industrialization led from the top. This continued under Gorbachev, but the reform leadership was unable successfully to precipitate change only in alliance with internal political groups. Conservative interests in the Party and

10 The international context



the state bureaucracy were deeply entrenched. The potential ascendant class (dis-cussed in Chapter 9 ) was unable to declare openly a policy of capitalist development involving privatization of property and a comprehensive move to a market system. This required external collaborators. The internal penetration of global capital and external economic links to host countries in the socialist bloc were very weak, as the economies were relatively autarchic. The global element then took a political and not an economic form. Gorbachev (and later Yeltsin) and his reform associates sought and received support from outside, from the leaders of the capitalist countries. Their policy was predicated on the objective of making the institutions in the communist countries compatible to participation in world capitalism. This entailed a revolution in property relations and political management. To understand how this remarkable turnaround occurred, we need to consider the changing nature of global capitalism.

Since the October Revolution of 1917, which brought the Bolsheviks to power, the capitalist world had changed signi� cantly. The defeat of fascism in the Second World War had discredited the political right, and socialist ideas – planning, the welfare state – were put into practice by many post-war European governments. From the late 1970s, however, a moral and political rearmament of capitalism took place. The USA cloaked its foreign policy in terms of human rights and the United Nations pursued peace-keeping. The democratic aspects of capitalist soci-ety, expressed in human rights, free elections and competitive political parties, enhanced the image of the West. Concurrently, the USA had intervened militarily in the internal affairs of foreign states. 4 But by 1990, association with such tradi-tional coercive regimes had been renounced and the Washington Post ’s corre-spondent could write from Guatemala: ‘For the � rst time, all � ve of the countries are led by presidents who were elected in contests widely considered free and fair.’ 5 ‘Capitalism’ became a politically incorrect term and the preferred nomen-clature of Western societies was free democracies or open civil societies.

These symbolic aspects of capitalism became more important in the foreign policy stances of Western leaders, particularly Jimmy Carter. Investment, loans, trade and military help were increasingly tied to civil rights issues. In tandem, the West also pursued a policy of subversion. American policy involved CIA inter-vention in support of anti-communist insurgents in Chile, Guatemala, Indonesia, Cambodia, Angola and Nicaragua and the invasion of Grenada.

The transition from autocracy to democracy in South Africa, Spain, Portugal and eventually Argentina and Chile provided an alternative political scenario, not only to authoritarian capitalism but also to the bureaucratic formations of state socialism. 6 The latter was a generally less attractive proposition than the image portrayed of successful Western capitalism. The spectre of a democratic pluralist market society – dynamic, rich, charitable, promoting peace and well-being – now became a challenge to the communist powers.

The West’s ‘Soft Power’ The culture-ideology of consumerism, a kind of ‘soft’ political power, spread on a global scale and contaminated the public in the communist countries. From the time


The international context 145

of Khrushchev’s speech in 1956, predicting catching up and surpassing American standards of living, the population’s expectations rose: there developed a consumer mentality and aspiration. 7 Ironically, perhaps, both Khrushchev and Western pun-dits exaggerated the potential and minimized the dif� culties of the European social-ist states to ‘catch up’ economically with the West, as is demonstrated in Chapter 12 .

In the early 1980s, there was a qualitative rise in the levels of Western mass communications, which directly and indirectly changed people’s perceptions of life in the West. A form of ‘soft power’ had an important in� uence on the popula-tions of the Soviet bloc: the norms and values of capitalism – represented by the American way of life – as a consumer society and as a participatory democracy overwhelmed the traditional communist ideology. In Poland and Hungary, a shift in media policy occurred involving the screening of Western TV programmes oriented to entertainment. Broadcasting (in some countries), also took on a com-mercial function. By 1985, in countries such as Czechoslovakia, TV entertain-ment programmes (not informational ones) were imported. 8 In Poland, 43 per cent of feature � lms shown were of foreign origin. In 1986, Hungary purchased over 600 Western TV programmes. 9 In Hungary, there were no controls over videos and in 1988, some 200,000 were in use. 10 Though foreign radio channels were frequently jammed, in central Europe (including East Germany, Czechoslovakia and Hungary), the Baltic areas, Leningrad and Kaliningrad oblast of the Russian Federation, Western TV could be received.

Western pop culture was widely available through radio and gramophone records. These developments were accompanied by a population more receptive to a move to a market economy. These changes in public perception had important implications for the public ‘emulation’ of society models in the interstate system. As the Chief Executive Of� cer of Heinz has perceptively pointed out: ‘Once tel-evision is there, people of whatever shade, culture or origin want roughly the same things.’ 11 The global media was creating a public disposed to the commer-cial market.

The global campaign for freedom These benign ‘soft power’ developments were accompanied by a more aggressive tone and policy of the Western political elites. The advent of the political leader-ships of Ronald Reagan in the USA and Margaret Thatcher in the UK brought with them a combative anti-communist rhetoric. The USSR was an ‘evil empire’ driven by Marxism-Leninism and intent on external expansion. Containment could only be achieved through confrontation and military superiority. In 1982, Reagan began his ‘crusade for freedom’ to liberate all people living under Marxist-Leninist regimes. 12 In his address to the UK Parliament in June 1982, he called for a ‘global campaign for freedom … a plan and a hope for the long term – the march of freedom and democracy which will leave Marxism-Leninism on the ash heap of history’. 13 American policy promoted democratic change in both communist states and other authoritarian societies (such as South Africa) and concurrently weakened communism and promoted capitalism.



These aims were promoted by many means. Samuel Huntington lists the fol-lowing: the National Endowment for Democracy, statements by the President, the broadcasts of Voice of America and Radio Free Europe/ Radio Liberty, economic pressure and sanctions in many countries, negative votes and abstentions with respect to loans by multilateral � nancial institutions, diplomatic action, material support for democratic forces funded through the CIA (this included support for Solidarity in Poland and insurgents in Chile in 1988 and in Nicaragua in 1990), military action, including activity in Grenada, Panama, the Philippines and El Salvador (to deal with Marxist Leninist insurgents), and support of anti-commu-nist forces in Afghanistan, Angola, Cambodia and Nicaragua. ‘In effect, under Carter, Reagan, and Bush the United States adopted a democratic [ sic ] version of the Brezhnev doctrine: within its area of in� uence it would not permit democratic governments to be overthrown.’ 14 To which might be added also non-democratic ones which supported the policies of the USA.

With respect to Eastern Europe and the Soviet Union, there were three aspects to this policy: ‘a sustained attempt to achieve military superiority … a general militarization of the international arena … [and] a massive “psychological” attack against the socialist community’. 15 This involved the development of space-based weapons, special forces (spies and subversion) in Eastern Europe and the applica-tion of economic sanctions through trade policy and advanced technology embar-goes. In 1983, the Strategic Defence Initiative (SDI) was adopted to further American military superiority. Aid was promised to Eastern European states (such as Hungary and Romania) 16 as a reward for movement away from Soviet in� uence. 17

A psychological war against the Soviet bloc was intended to subvert the trust of the people there in their governments. 18 Frances Saunders has researched the covert policy objectives of the USA masterminded by the CIA which set up a mas-sive apparatus of cultural propaganda against the socialist states. 19 Richard Pipes 20 points out that the ‘systematic policy of subverting the Soviet Union, largely through the use of the CIA’, made a decisive contribution to the collapse of com-munism. 21 He argues further that SDI ‘accelerated the decline’ of the USSR and that CIA policy succeeded in persuading Saudi Arabia to lower oil prices, which severely affected Soviet foreign currency earnings. Support to Solidarity in Poland weakened the Polish government, and to the Afghan resistance was decisive in the defeat of the USSR in Afghanistan, which in turn exacerbated internal criticism. In 1989, during the critical turn of events that led to calls for independence in the Baltic states, the US National Endowment for Democracy gave � nancial assis-tance to pro-Western groups in the Baltic republics, the Ukraine and the Caucasus. 22 To this one could add the success of US policy of ‘covert operations in Chile and Nicaragua’. 23

The outward civil rights stance of American policy not only gave capitalism a democratic image but also had internal rami� cations in the socialist countries. In signing the Helsinki Human Rights’ Agreement, Brezhnev legitimated Western individual rights criteria for the conduct of practices in the states of Eastern Europe and the USSR. 24 As Schop� in has noted: ‘The insistence on the introduction



of human rights into the Helsinki process resulted in the slow but inexorable diffusion of the principle into Soviet-type politics and contributed qualitatively to weakening the legitimating force of Marxism-Leninism.’ 25

The Conference on Security and Cooperation in Europe (CSCE) had moved ‘from commitments to a limited number of human rights [in 1975] to endorsement of the full range of democratic liberties and institutions’. 26 In short, this involved the export of the political architecture of Western democracies – political plural-ism, rights to form political parties, and free and fair elections. Such rights were to become the � rst conditions for the acceptance of the socialist states in regional and international institutions led by the Western powers, and de� ned the condi-tions on which the states of the socialist countries could join them. One direct consequence of this policy was the commitment of the reform government in Hungary to the right of people to emigrate. Thus they allowed � eeing East Germans to move to West Germany through Hungary, thereby undermining the security of the German Democratic Republic.

Against this background the confrontational policy of Ronald Reagan and Margaret Thatcher led to President Bush’s policy of ‘beyond containment’. While the underlying social changes (discussed in Chapter 8 ) created the conditions to which state socialism would have to adapt whatever leaders were in power, Western policy in� uenced the form of the changes under Gorbachev. Nothing less than a transition to a Western-type democracy with competing political parties and a capitalist market economy was demanded. Translated into different political terms, Fred Halliday de� ned the international context of collapse as ‘class strug-gle on an international scale’. 27

Perestroika and the West Perestroika was supported by the US government because it provided ‘leverage to help move the Soviet Union in directions the United States wanted it to go’. 28 Gorbachev’s objectives in the terminal period of the USSR were to secure support for his policy from the West, to end discriminatory trade restrictions and to facili-tate integration into the world economic system. He responded to the West by abandoning Brezhnev’s external socialist intervention policy in Eastern Europe, and con� rmed his position in his discussions with Bush at Malta in December 1989. He reduced Soviet military help to Third World countries, especially Nicaragua, and adopted unilateral disarmament. In February 1990, Gorbachev overturned Soviet policy on Germany and he accepted reuni� cation.

His policy was hailed by George Bush as a ‘triumph for “Western” values’. 29 The Soviet Union and Eastern Europe gained some relaxation of controls on the import of technologies, but the West held out for internal changes before a ‘nor-malization’ of trade could take place. In June 1990, for instance, President Bush vetoed an initiative by the European Bank for Reconstruction and Development until economic reforms were ‘in place’. 30 In July 1991, the Group of Seven, at its special meeting with Gorbachev, did not give the aid requested and full member-ship of the IMF was not offered. At the same time, President Bush made it clear



that continued support for perestroika, for the ‘new Soviet revolution’, was dependent on ‘real reform’. 31

Gorbachev publicly advocated perestroika as a policy of reform within the parameters of Soviet socialism. In Eastern Europe, where communist govern-ments were less securely grounded than in the USSR and where there was consid-erable public opposition, his policies had more profound consequences for the stability of the regimes. The authority of their communist leaders was undermined by the critique of the economic failings of planning endorsed by Gorbachev and his policy in foreign affairs.

Perestroika entailed reform not only in economics but also in politics. The governments of the Eastern European states either adopted the policies of glas-nost, democratization and pluralism, or the people of those countries took them. If one’s country was ‘modelled’ on the Soviet Union, how could one not follow its lead? The effects of Gorbachev’s policy were twofold: in all the state socialist societies, the political elites were prone to lose con� dence and public disquiet grew. These tendencies were later ampli� ed into a mixture of elite-led withdrawal and popular movements for change.

A reformation in Soviet doctrine in� uenced policy in foreign affairs: before Gorbachev, priority was given in Marxist-Leninist theory to class interests. This was interpreted by Soviet leaders to justify the political identity and unity of the socialist bloc. Attempts to weaken signi� cantly the economic and political soli-darity of the Warsaw Pact by Eastern European governments were threatened with intervention by others, led by the USSR – as happened in 1956 in Hungary and 1968 in Czechoslovakia. Perestroika, however, gave priority to state sovereignty. Gorbachev insisted that the leadership of the people’s democracies and socialist states would have to secure their own legitimacy. In 1989, it was made clear that the USSR would not intervene in the affairs of other states – even if they were in the same alliance. 32 This completely reversed the ‘Brezhnev doctrine’ – that gov-erning communist parties were responsible not only to their own people but to those of ‘all the socialist countries’. 33

The logical extension of Gorbachev’s position was that if the ruling communist parties lost their hegemony in Eastern Europe, the countries would be allowed to adopt their own socio-economic formation – whether it be reformed socialist or capitalist. This policy signi� cantly lessened the potential costs of independent reform in the Eastern European countries. Hans Modrow, the last prime minister of the GDR, has recalled that Gorbachev fatally weakened its leadership when he insisted on moving the East German mark away from the ruble to the dollar. 34 Ideologically, it paved the way for the legitimacy of national and anti-communist groups and parties to subvert allegiance to the economic and political systems sponsored by the USSR, as well as adherence to the socialist socio-economic system. When exposed to free elections, the communists lost out to anti-communist opposition parties.

It was anticipated in the West that the consequences of an open market and competitive electoral system would lead to systemic changes. Economic ef� ciency, Brzezinski 35 pointed out, needs competition, competition requires



markets, and valorization requires private ownership. If this standpoint were adopted, perestroika would defeat communism. 36 To modernize the economy, the Western experts advised a move to the market which, they considered, called for political pluralism, and this in turn led to claims for electoral democracy. For Western policy-makers, real pluralism meant the autonomy of political organiza-tion, competition between political parties and a free realm for the operation of corporate business.

Brzezinski and like-minded thinkers, unwittingly perhaps, provide a conserva-tive variant of the sociological critiques of market socialism (outlined in Chapter 4 ). The communists, it was argued, would � nd it dif� cult to compete successfully in free elections. Thus the political market would lead to a representative-type democracy with interest groups and competing parties; the distinctive features of state socialism (the centralized Marxist-Leninist party and state planning) would be destroyed. To ensure a material basis to a Western type of civil society, private property would have to be legitimated. If these were conceded by the communist states, then the Cold War would be won by the West.

As noted in the last two chapters, the maturation of the ascendant intellectual acquisition strata ensured a positive reception for these policies. Unlike ruling classes when faced with the loss of their property, the incumbent ruling elites in the Eastern European societies provided only rather feeble resistance. This was for three reasons. First, the elites only ‘controlled’ property; they did not own the assets of the state as private property, so they did not have as much to lose as an incumbent capitalist class. Second, factions of the ruling elites (what I have termed the administrative stratum), would have much personally to gain from a transition to capitalism: state property, which they ‘controlled’, would be privat-ized, giving them rights to legal ownership. Third, there was a failure in political leadership. The ruling elites in the USSR under Gorbachev were divided and lacked the will to save state socialism.

As Gorbachev sought to put a reform policy in place, the Western powers increasingly raised the stakes of cooperation. Helmut Kohl, the German Chancellor, made it clear that Russia would not be allowed into its ‘European home’ unless the GDR arrived there � rst as part of a united Germany. Margaret Thatcher also raised the level of expectations when she insisted on the introduc-tion of competitive elections in the USSR in the context of a multi-party system. 37 ‘Increasingly, Western responses would shape East European futures’. 38 The Soviet leadership had set in motion a process that would guarantee certain rights and freedoms for the people of Eastern Europe and the USSR: the success of this policy led to the downfall of communism in Eastern Europe.

Transnational capitalist interests Western policy helps to explain why state socialism was dismantled. In order to secure American and European support for his policy of disengagement from the Cold War and to bolster economic growth at home, Gorbachev met the demands of the Western leaders. These demands entailed the dismantling of state socialism



and the establishment of capitalist institutions of private property, the market and an open frontier to world capitalism. They were costs that Gorbachev, the reform-ers and his advisers were willing to pay for a real and effective entente with the West.

Did, then, the Gorbachev leadership realize that their policies would lead to the end of communism in Eastern Europe? This does seem to be likely. Michael McGwire argues that the combination of the ‘desancti� cation of Marxist-Leninist dogma … the emphasis on democratizing both the state and the party, the plans for unilateral force reductions and the withdrawal of Soviet forces, each on its own was a radical development. In combination their implications were revolu-tionary.’ He concludes that ‘the Gorbachev leadership deliberately set in motion the process that would lead to the collapse of communist rule throughout Eastern Europe by the end of 1989’. 39 Later, Gorbachev himself declared that he should have left the Communist Party in April 1991 and formed a ‘democratic party of reform’. 40

Substantiating an interpretation of an international ‘political elite alliance’ is dif� cult: not only are negotiations undertaken in secret, they lack legitimacy in public eyes. ‘Reputational’ studies of the Soviet and Russian political elites under Gorbachev 41 and Yeltsin 42 con� rm the perceived in� uence of the West. With respect to international policy, the extension of private ownership, and the move to the market, members of Gorbachev’s political elite considered the most impor-tant motive of the leadership was a ‘demonstration effect’: ‘The need to show the West that Gorbachev was serious about economic reforms’. Direct in� uence of external people or institutions was ranked third. 43

A former adviser to Gorbachev has described Gorbachev’s policy linkage to the West.

[T]he task of [Gorbachev’s foreign policy] was not to protect the USSR from the outside threat and to assure the internal stability but almost the opposite: to use relations with the outside world as an additional instrument of internal change. He wished to transform the West into his ally in the political struggle against the conservative opposition he was facing at home because his real political front was there. 44

Gorbachev was dependent for support on the Western powers whose policy it was to undermine the political and economic order of communism. The politically conservative leaders of the leading Western nations advocated a policy of com-petitive markets in the polity (parties and elections) as well as in the economy (privatized production for exchange, and a stable negotiable currency that would be negotiable in international markets). While couched in the rhetoric of freedom and democracy promotion, they sponsored a policy of integration into the global capitalist system.

The linkage to foreign interests provided the ballast in the process of capitalist transition. In the place of an indigenous bourgeois class or, as in early capitalism, a landed aristocracy with a commercial and bourgeois outlook, global capitalist



interests, articulated by Western political elites, were a major driving force of the intended transition to capitalism. Global capitalist organizations, such as the World Bank, the IMF, WTO and OECD, increasingly played a role in policy for-mation. This absence of an internal bourgeoisie helps explain why democracy has not developed in post-Soviet Russia and why Western interests are often given such a prominent place in the views of the political elites.

The process of internal reform provides a classic case in which the radical reform leadership, � rst under Gorbachev and then under Yeltsin, sought a pact with foreign actors to further its policy. 45 A consequence – in a state that had a relatively autarchic form of policy-making – was to amplify elite dissension. Under Yeltsin, transition involved the suppression of the former communist elite and later a physical assault on the legislature (which is usually the base of a ‘democratic’ transition).

Yeltsin took administrative measures to destroy the previous ruling elite in the Communist Party and later his former supporters – who became a counter-elite in the Russian parliament. This was a consequence of his dependence on foreigners, of the importance of a ‘demonstration effect’ to the West to secure his legitimacy as a true reformer making a post-communist system with a pro-Western character. The unstated political preferences and external alliances of incumbent political elites are salient issues in understanding regime change. Moreover, demands on such leaders have to take into account the policy of dominant actors in the inter-national arena who have their own political agendas. 46 The combination of sys-temic imbalances induced by Gorbachev’s domestic policy as well as the dependence on the West for support led to the disintegration of the USSR.

Western policy impacted on values (freedom became a symbol of liberation), on integration (a socialistic community was replaced by competition), on the polity (competitive parties and civil society succeeded democratic centralism), and on the economy (private ownership and the market were to supersede state ownership and a planned economy).

The confrontational policies of the Western powers alone did not cause col-lapse, as hawkish writers in the West have argued. But they did have an important contributory effect in undermining the socialist system and in motivating and sup-porting the kind of reform movement acceptable to the West. 47 It is in the wider global context that these policies have to be evaluated. While under Khrushchev, the USSR remained a major world power, claiming military capacity second only to the USA, the country in both internal and international affairs had experienced a steady decline.

The Soviet Union had lost its hegemony over the world communist movement which itself was in disarray. 48 The non-ruling European communist parties dis-tanced themselves from identi� cation with Soviet-type regimes which had become an electoral handicap, and had adopted ‘Eurocommunist’ social-democratic poli-cies. Gorbachev, in formulating policy, was in� uenced not only by Margaret Thatcher and other Western leaders, but also by the heads of socialist and com-munist parties. In seeking a model for a revision of communism, he was no doubt in� uenced by Eurocommunism and particularly by Felipe Gonzales (socialist



Premier of Spain), who was the ‘foreign leader whom Gorbachev felt closest to’, and with whom he had spent many hours discussing politics. 49 Gonzales, it will be recalled, had converted his party from Marxism to support privatization, the free market and NATO, and also secured success at the polls. His policies have been described by the neo-liberal British weekly The Economist as ‘somewhat to the right of Mrs Thatcher’s’. 50

Consequences of perestroika in the communist bloc Within the communist bloc, the Soviet mould of socialism had been openly chal-lenged by diverse forces such as the Czechoslovak Reform movement, Solidarity in Poland, and market reformers in Hungary and China.

However uncomfortable (or enlightening) these developments were for the Soviet leadership, they did not present a serious challenge to the Soviet ideology of communism, nor politically to the Soviet bloc. Gorbachev’s policy of pere-stroika weakened ideologically and politically the Eastern European communist regimes. Developments in Eastern Europe, spurred by perestroika, were crucial in the fall of the USSR.

The underlying developments that created popular movements of opposition go back much further than can be described here, where only some of the major events leading to the fall of communism are brie� y related. 51 Below are outlined some of the salient developments in Poland, Hungary, the German Democratic Republic, Czechoslovakia, Romania and Yugoslavia.

Poland

In Poland, the communist government had been confronted by organized opposition for many years: strikes had been episodic from 1956, and in the early 1980s Solidarity, the Church and the intelligentsia had been major forms of opposition. The course of events leading to the formation of a non-communist government began with the strikes in the spring and August of 1988, which threatened to paralyse the country. The Polish government agreed to legalize Solidarity and, following the lead of the USSR, to allow its participation in elections. In April 1989 a round-table agreement was made between the incumbent political elite and the leaders of Solidarity. This agreement conceded the need for democratic and constitutional reform and, crucially, competitive elections.

In the event, the communists fared disastrously in the elections, 52 and Solidarity formed a government in September 1989. Though the commu-nists did retain a small number of places in the government, communist rule in Poland was � nished. The leading role of the Party was expunged from the Constitution of the country. On 1 January 1990, the country became the Polish Republic and in the same year the Communist Party was dissolved



and a new party founded: Social Democracy of Republic of Poland. Following the lead of Hungary, there opened a new chapter in the history of Polish communism: the communists became part of a multi-party opposi-tion. In July, a bill was passed giving workers rights to buy shares in their enterprises and a window was opened on privatization of the economy. In December, Lech Walesa was elected President. Communism was ended.

External factors were critical in the timing of the collapse. Until the advent of Gorbachev in the USSR, the Polish government was dependent on political alliance with the USSR. Poland could not independently leave the Warsaw Pact or Comecon (Council for Mutual Economic Assistance). The Soviet Union had traditionally considered Poland to be a major defence bulwark against the West. The ‘new thinking’ on international affairs by the Soviet leadership under Gorbachev entailed a change in policy to Poland. The Soviet government, Gorbachev made clear, would not assert military force as it did in Czechoslovakia to defend a pro-Soviet Polish leadership. This change in policy by the USSR reduced considerably the potential costs of a challenge to the communist government by the opposition movement; it also undermined the communist government. The consequence was that when the communist government was defeated at the polls, it was replaced by a radical reform movement intent on a transition to capitalism.

Hungary

The abortive rising of 1956 in� uenced developments in Hungary. Here anti-communism was strong and the country under Imre Nagy in 1956 had declared for a multi-party system and exit from the Warsaw Pact. In the wake of the crushing of the uprising, the process of reform occurred gradu-ally from the 1970s when the political elite became more technocratic and professionalized. Hungary adopted the New Economic Mechanism, which allowed considerable private initiative and a limited role to the market. While Hungary moved in the direction of market reforms in the 1980s, there was little public unrest and ‘dissident’ activity. There was effectively no explicit ‘political reform’, as in Czechoslovakia. Political developments were internal to the political elites where critiques of the centralized system led to internal division.

The more traditional leader, Janos Kadar, who had been in of� ce since 1956, was removed from power in May 1988. New leaders, elected that year, advocated a more pluralist political system, and the need to move to a multi-party system was agreed by the Central Committee. In 1989, national round-table negotiations took place between various factions and the com-munist leadership when it was agreed that competitive elections would be held. The Party’s leading role was revoked in 1989 and the Communist Party changed its name to the Hungarian Socialist Party. In the competitive



elections that took place in the spring of 1990, they were decisively beaten. Communism in Hungary was defeated. The country moved towards mar-ketization and privatization.

The freedoms demanded by, and conceded to, the Eastern European states had rami� cations right across Europe. Henry Kissinger’s domino theory prevailed. The success of anti-communist parties in Poland and Hungary were models for the rest of Eastern Europe.

German Democratic Republic

The German Democratic Republic was one of the least affected by the movements for political and economic reform before 1989. The economy was relatively successful and the political elite appeared to be stable and in control. The German communist leaders considered their policy to be the ‘leading edge’ of the development of socialism and regarded perestroika to be irrelevant to their needs. Reform was precipitated from outside.

In October 1989, Gorbachev attended the GDR’s 40th anniversary cele-brations and met popular acclaim in the streets. During this visit he made it clear to head of state Erich Honecker that rule could only be legitimated through popular support. Concurrently the out� ow of a third of a million refu-gees from the GDR through Hungary to Austria was accompanied by popular anti-communist street demonstrations and strikes. Party membership declined and the leadership was unable (or unwilling) to adapt to the policies espoused by Gorbachev in the USSR. But pressure grew. Erich Honecker, following hospitalization, resigned, and his place was taken by Egon Krenz. Public pro-test continued, along with a steady stream of emigration. In November and December, the government and the Politburo of the Party resigned. An emer-gency meeting of the Central Committee of the Party adopted a New Action Programme. It promised economic reforms, which would be guided by market conditions and, crucially, free and democratic elections. In the short term, it was proposed that a coalition government would be set up.

Competitive elections were promised for March 1990. New political movements mushroomed. In November 1989, West Germany’s Chancellor Kohl outlined a plan for ending the division of Germany. In the same month, the GDR parliament elected a non-communist as President and a new coali-tion government was formed; in this the communist bloc had 11 out of 27 seats. Opposition parties were legalized, press and travel restrictions removed and on 9 November the Berlin Wall was opened for free move-ment. In December, leading members of the former communist state (including Erich Honecker) were arrested and charged with corruption. Concurrently, the GDR government indicated its willingness to move towards greater links with the Federal Republic – though many of the com-munists and opposition groups were opposed to this policy.



The move towards reuni� cation initially was opposed by the USSR. Hans Modrow has recalled that on 30 January 1990, he discussed with Gorbachev a plan for a three-year uni� cation process with the Federal Republic based on military neutrality. The USA, however, opposed the plan. Gorbachev conceded to US demands for a united Germany in NATO – thus undermining the military security of the USSR. 53 In February 1990, Gorbachev agreed to uni� cation. Consequently, at elections held in March, the Communist Party, now renamed the Party of Democratic Socialism, received only 16 per cent of the votes. The right-wing Christian Democratic Union emerged as the single largest party with 40.82 per cent of the vote. The GDR was subsequently absorbed into the Federal Republic of Germany.

Czechoslovakia

Czechoslovakia in 1968 had led the movement for political and economic reform. Thereafter, however, the country was not at the forefront of reform initiatives. In the 1980s, the relatively small group of intellectuals in Charter 77 constituted an oppositional movement. But in 1989, the Velvet Revolution broke out. The major disturbance took the form of public demonstrations, notably in Prague in November 1989. Opposition groups appeared and demanded reforms from the government: a constitutional government, the revocation of the Party’s leading role, and the resignation of the incumbent President, Gustav Husak. There followed the resignation of the Politburo and government. Here not only did the USSR not intervene militarily (as it had in 1968) but, surprisingly perhaps, the Soviet secret service actively helped to organize the demonstrations in Wenceslas Square against the incumbent gov-ernment. 54 Its leader, Ladislav Adamec, spoke positively about the Dubcek reforms of 1968 and negotiated with the opposition leaders in Civic Forum, and popular elections were proposed. By the end of December a non-commu-nist government, chaired by Alexander Dubcek (a leader of the 1968 events) and a presidency � lled by Vaclav Havel was in place. In 1990, the commu-nists lost the elections to Civic Freedom and Public Against Violence. The country moved to an era of transition to capitalism and electoral democracy.

Romania

Developments were not quite so peaceful and free from political violence in Romania, where Nicolae Ceausescu had ruled since 1965 as a personal dic-tator (with many positions of state held by members of his family). Whereas he had adopted an independent position vis à vis the other countries of the Soviet bloc in foreign affairs, there had been little internal liberalization before 1989. Of the Eastern European communist leaders, he had been the most outspoken against the policies of reform in the USSR and Hungary. In



1989, he reasserted the traditional communist belief in the leading role of the Party and the importance of class struggle. The costs of dissent were extremely high and there was no visible opposition movement.

However, anti-government demonstrations took place in December in Timisoara, at which the security forces opened � re on the crowds. Later in the month, Ceausescu called a mass rally in Bucharest. Here he faced a hostile crowd and demonstrations. A state of emergency was declared. Opposition leaders made a stand against the leader and declared the Front for National Salvation to be in power. Ceausescu and his entourage � ed, were captured and later executed. In the uprising it has been estimated that 10,000 people were killed. Following the upheaval, competitive political parties were allowed and re-established.

In Romania, however, it is believed that counter-elites in the intelligence apparatus engineered Ceausescu’s downfall. Consequently, the National Salvation Front (a coalition in which the former communists were a leading force) was elected in competitive elections in May 1990. The developments in Romania were more of an internal coup than a popular revolution.

Yugoslavia

In Yugoslavia in 1989, the League of Communists was under pressure. In Slovenia in January an independent party, the Democratic Alliance, was founded. In December, the League conceded the need for a multi-party system and the ‘leading role’ of the communists was renounced in January 1990. Elections followed in the various republics: in Serbia the reformed communists maintained power; in the other republics, anti-communists controlled the governments. By 1991 the Federation was dissolved. As the organizing principles of state socialism and Titoism were subverted, nation-alism (and religion) became the only form that could legitimate the republi-can elites. As the communists were associated with the pan-Yugoslav state, which was increasingly linked to the hegemony of Serbia, anti-communism took a nationalist form.

In July 1990, Slovenia declared itself an independent republic. In the same month the Serbs in Croatia proclaimed their own sovereign republic, fol-lowed in December by the Croation Assembly’s declaration of sovereignty. From 1991, the assertion of independence and the recognition of independent states from within the Soviet Union strengthened the claims of local political and economic elites to form their own states. It was in the economic interests of Croatia and Slovenia to break away from Yugoslavia (the Serbian minori-ties dissenting). The independent states of Croatia and Slovenia were declared in June 1991 and recognized � rst by Germany, then by other Western coun-tries. Except in Serbia, the power of the communist political class was broken and Yugoslavia disintegrated into warring national entities.



The end of communist rule in Eastern Europe By the end of 1990, the communists had effectively lost their power of command in all the major countries of Eastern Europe, though in Romania, Serbia, Bulgaria and Albania members of the old elite still had important positions. In the USSR, the reform leadership of Gorbachev remained in power. The old communist rulers had not been removed by violent revolution but had negotiated their withdrawal. Neither were they replaced by unitary political movements with a clear intention of creating a new society. The opposition movements that came to power were composed, to use Schop� in’s term, of ‘conglomerate parties’. 55 These included a wide range of political interests that were united in opposition against the domi-nant communist leadership. They were predisposed to pluralist democracy and to market reform. After gaining power, these groups were to splinter over the direc-tion and rate of change. But they all, more or less, accepted ideas of competitive political parties and a move to a market economy. Despite different details of their political transformation, they moved away from the sphere of interest of the Soviet Union and its pattern of economics and politics.

One may note a common pattern of transformation process. By the use of ‘soft power’, the West promoted an image of a benevolent consumer society. Opposition groups were cultivated and supported � nancially. Governments were aided condi-tionally on acceptance of Western terms, in keeping with a move to capitalism and competitive democracy.

In Eastern Europe, the thrust for reform was ‘from below’ or from already estab-lished counter-elites vying for power. The communist leadership in Eastern Europe had been mortally weakened by the ideological and strategic stance of the Soviet leaders. They effectively resigned to the opposition. They abdicated power. This was a decisive change: previously public unrest would have been met with force (as in Berlin in 1953, Poland and Hungary in 1956, Czechoslovakia in 1968), and pro-communist governments were supported. Now the costs of offending the West were higher than the bene� ts of supporting the incumbent communist elites.

A negotiated pact characterized the initial transition from communism. In Poland, the Czech Republic and Hungary there was a ‘negotiated settlement’ between the various players in the political elite and counter-elite, and a ‘pre-emptive coup’ in Romania. 56 In the USSR, the political elite was divided: Gorbachev had undermined the traditional leadership. Once elite disintegration was clear, counter-elites perceived that the potential bene� ts of insurrection out-weighed the potential costs: successful insurgency appeared possible. Not only would the incumbent powers yield but a critical mass of anti-communist popular as well as international support was mobilized to ensure that the new incumbents would be able to legitimate their power. Unlike in Eastern Europe, however, the breakdown of the USSR was not a revolution driven by forces in society. It was a consequence of failed political reform, propelled from the top, essentially by Gorbachev and other colleagues within the political elite of the CPSU. Support from the West not only underpinned the reform strategy, it directed the reforms to policies approved by the West.



Notes 1 G. O’Donnell and P. C. Schmitter, Transitions from Authoritarian Rule: Tentative

Conclusions about Uncertain Democracies , Baltimore, MD and London: Johns Hopkins University Press, 1986, p. 18.

2 O’Donnell and Schmitter, Transitions from Authoritarian Rule , p. 19. 3 M. A. Orenstein, S. Bloom and N. Lindstrom, ‘A Fourth Dimension of Transition’, in

M. A. Orenstein, S. Bloom and N. Lindstrom (eds), Transnational Actors in Central and East European Transitions , Pittsburgh, PA: University of Pittsburgh Press, 2008, p. 6.

4 For a list see: Michael McFaul, Advancing Democracy Abroad , Lanham, MD: Rowman & Little� eld, 2010, pp. 205–6.

5 Noam Chomsky, Deterring Democracy , New York: Hill and Wang, 1992, pp. 216–17. 6 Capitalist states, of course, also had negative aspects and were associated with

enormous abuses of civil rights. International media, however, portrayed them in a more positive light and, as noted above, the development of these states was in the direction of civil rights, the market and democracy.

7 Studies of émigrés, for example, showed a consistent pattern of changing support: in the 1980s, the young were much more critical of state socialism, whereas for the early post-war generation, youth had been more supportive. See J. R. Berliner, ‘The Harvard Project and the Soviet Interview Project’, in F. J. Fleron Jr and E. P. Hoffmann (eds), Post-Communist Studies and Political Science , Boulder, CO and Oxford: Westview Press, 1993.

8 24 per cent of programmes in Czechoslovakia in 1983; see Colin Sparks, Communism, Capitalism and the Mass Media , London: Sage, 1998, p. 57. In Hungary and Poland, TV carried advertising (pp. 59–60).

9 Sparks, Communism, Capitalism and the Mass Media , p. 59. 10 Sparks, Communism, Capitalism and the Mass Media , p. 60. 11 Cited in Leslie Sklair, The Transnational Capitalist Class , Oxford and Malden, MA:

Blackwell, 2001, p. 255. 12 This policy was spelled out in National Security Decision 75 (December 1982), which

is still a classi� ed document. 13 Cited in Raymond L. Garthoff, The Great Transition: American-Soviet Relations and

the End of the Cold War , Washington DC: Brookings Institution, 1994, p. 11. 14 S. Huntington, The Third Wave , Norman and London: University of Oklahoma Press,

1991, pp. 93–95. 15 Michael McGwire, Perestroika and Soviet National Security , Washington DC:

Brookings Institution, 1991, pp. 117–18. 16 The Romanian autocratic leader and his wife were given a state welcome in London in

1978 by the Queen. 17 See McGwire, Perestroika and Soviet National Security , pp. 110–13. 18 McGwire, Perestroika and Soviet National Security , p. 118. 19 Frances Stonor Saunders, Who Paid the Piper? The CIA and the Cultural Cold War ,

London: Granta, 1999. 20 Richard Pipes, ‘Misinterpreting the Cold War: The Hardliners had it Right’, Foreign

Affairs, 74(1), 1995: 154–60. Pipes was an adviser to Reagan and probably knew the content of National Security Decision 75, though he relies on the evidence of Peter Schweizer in Victory , New York: Atlantic Monthly Press, 1994.

21 Pipes, ‘Misinterpreting the Cold War’, p. 159. 22 Evidence is contained in a letter of Yazov, the Soviet Defence Minister; see Garthoff,

The Great Transition , p. 395, fn. 39. A secret Politburo document, referring to contacts between Soviet citizens and foreign UK émigré Balts Radio Free Europe and others, expressed concern at activities of an anti-Soviet and anti-communist character (p. 396).



23 Military aid was sent to anti-communist guerrilla movements in Cambodia and Angola as well. The communist states, of course, engaged in ideological, economic and political subversion, with manifestly little success in the stable Western democratic countries.

24 State socialism had previously emphasized group and class rights, rather than individual ones, which were (under the conditions of state socialism) claims against the state.

25 George Schop� in, ‘The End of Communism in Eastern Europe’, International Affairs , 66(1), 1990, p. 16.

26 Huntington, The Third Wave , p. 90. 27 Fred Halliday, ‘The Ends of Cold War’, in R. Blackburn (ed.), After the Fall , London:

Verso, 1991, p. 87. 28 National Security Review 3 (February 1989), discussed by Garthoff, The Great

Transition , p. 377. 29 Cited by Garthoff, The Great Transition , p. 407. 30 Garthoff, The Great Transition , p. 415. 31 Cited by Garthoff, The Great Transition , p. 470. 32 See McGwire, Perestroika and Soviet National Security , p. 361. 33 For an authoritative discussion see Karen Dawisha, Eastern Europe, Gorbachev

and Reform: The Great Challenge , Cambridge: Cambridge University Press, 1988, especially ch. 7 .

34 Morning Star (London), 28 November 2011. 35 Z. Brzezinski, The Grand Failure: The Birth and Death of Communism in the Twentieth

Century , London: Macdonald, 1989. 36 See Z, ‘To the Stalin Mausoleum’, Daedalus , 119(1), 1990: 295–344; G. Schop� in,

‘The End of Communism in Eastern Europe’. 37 I conducted 116 interviews with members of the Gorbachev political elite (people at

the level of government ministers, � rst secretaries and heads of departments of the CPSU and leading advisers and journalists). In answer to a question as to which groups and individuals had in� uence over foreign policy, nearly half (50) of the respondents thought that Western political leaders had had ‘a great deal of in� uence’, and another 51 believed that they had had ‘some in� uence’. As to the in� uence of individual politicians, when asked to name leaders who were especially important, after Alexandr Nikolaevich Iakovlev (77 responses) came Margaret Thatcher (31), Edward Shevardnadze (26), then three foreign leaders: Ronald Reagan (18), George Bush (7) and Helmut Kohl (7).

38 Dawisha, Eastern Europe, Gorbachev and Reform , p. 224. 39 McGwire, Perestroika and Soviet National Security , p. 360. See also Dawisha, Eastern

Europe, Gorbachev and Reform , p. 220. 40 Cited by Jonathan Steele, interview with Gorbachev, The Guardian (London), 17

August 2011. 41 Conducted in 1993, 116 members of the political elite in post between 1984 and

1991 were interviewed. These included members of the government elite holding the position of minister or equivalent and secretaries of the central committee of the CPSU and heads or deputy heads of its departments between 1985 and 1991. For details see David Lane, ‘The Gorbachev Revolution: The Role of the Political Elite in Regime Disintegration’. Political Studies , 44(1), 1996: 4–23.

42 Interviews carried out in spring and summer of 1994 with 100 of the Yeltsin elite drawn from the government of the Russian Federation, law-makers from the Russian Duma, and leaders of parties or groups elected to the Russian parliament. For details see David Lane, ‘The Transformation of Russia: The Role of the Political Elite’, Europe-Asia Studies , 48(4), 1996: 535–49.

43 See Lane, ‘The Gorbachev Revolution’, pp. 12–13. 44 Andrei Grachev, ‘Russia in the World’, paper delivered at the BNAAS Annual

Conference, Cambridge 1995, p. 3.



45 See discussion in Richard Rose, ‘Comparing Forms of Comparative Analysis’, Political Studies , 39(3), 1991, p. 462.

46 Higley and Burton’s seminal article on elite pacts is concerned with national elites and ignores the international dimension. On the role of US foreign policy as a catalyst of collapse in Eastern Europe see Richard Pipes, ‘Misinterpreting the Cold War’. Pipes is concerned more with economic and military collapse; the evidence here would point to ideological and elite dissension as well as policy formation.

47 McGwire argues, for example: ‘The assumption that it was the confrontational policies of the Reagan administration that led to the Gorbachev revolution is not only wrong, it is dangerous’ ( Perestroika and Soviet National Security , p. 381). This line of argument is correct in pointing to the dangers of these policies.

48 For instance, international congresses of communist and workers’ parties, organized by the USSR, had been boycotted by major ruling communist parties (Chinese, Vietnamese, North Korean and Albanian) and the resulting declarations had only been signed by 61 out of the 75 attending. See Stephen White, Gorbachev and After , Cambridge: Cambridge University Press, 1992, p. 192.

49 Andrei Grachev, Dal’she bez menia: ukhod prezidenta , Moscow: Kultura, 1994, p. 100. My thanks to Archie Brown for drawing my attention to this source.

50 The Economist , 11 February 1989, p. 43, cited by S. M. Lipset, ‘No Third Way’, in Daniel Chirot (ed.), The Crisis of Leninism and the Decline of the Left: The Revolutions of 1989 , Seattle: University of Washington Press, 1991, p. 187.

51 For detailed discussion see Dawisha, Eastern Europe, Gorbachev and Reform ; and George Schop� in, Politics in Eastern Europe , Oxford: Blackwell, 1993. A number of accounts of various societies may be examined in Stephen White, Judy Batt and Paul G. Lewis, Developments in East European Politics , London: Macmillan, 1993; Stephen White� eld (ed.), The New Institutional Architecture of Eastern Europe , London: Macmillan, 1993; Gale Stokes, The Walls Came Tumbling Down: The Collapse of Communism in Eastern Europe , Oxford: Oxford University Press, 1993; Linda Cook, The Soviet Social Contract and Why it Failed , Cambridge, MA: Harvard University Press, 1994; Timothy Garton Ash, We, The People: The Revolutions of ‘89 , Harmondsworth: Penguin, 1990; Michael Waller, The End of the Communist Power Monopoly , Manchester: Manchester University Press, 1993. For details on individual countries see Richard F. Staar (ed.), 1990 Yearbook on International Communist Affairs , Stanford, CA: Hoover Institution Press, 1990.

52 In the lower house, the Sejm, the communists won 173 seats, Solidarity Citizens’ Committee 161, and the United Peasant Party 76; in the upper house, the Senate, Solidarity won 99 seats out of 100; an independent was elected to the remaining seat.

53 Hans Modrow, Morning Star (London), 28 November 2011. 54 Schop� in, Politics in Eastern Europe , p. 235. 55 Schop� in, ‘The End of Communism in Eastern Europe’, p. 11. 56 John Higley and Jan Pakulski, ‘Elite Transformation in Central and Eastern Europe’,

Australian Journal of Political Science , 30, 1995, p. 7.


In previous chapters I have outlined some of the constraints on the political lead-ership. I have shown how systemic changes in social structure led to new demands, and described the strains in the traditional state socialist forms of legitimation and organization of the economy, and outlined the reform strategies advocated and taken in various countries. I demonstrated how these strategies were perceived by the Soviet bloc’s opponents abroad. Many factors precipitated the policies adopted by the Gorbachev leadership which dismantled the USSR. In this chapter, I sum-marize the impact of the various factors, both internal and external to the regime, and review the sequence of events. Finally, I consider what alternative policies were open to the leadership of the USSR and could have prevented its disintegra-tion as a federal state as well as preserving the social formation of state socialism.

Mikhail Gorbachev’s early policy was one of reform within the parameters of state socialism. He articulated the widespread calls for a movement away from the traditional form of centralized political and economic control to a more pluralist society and consumer-oriented economy set within the parameters of state social-ism. In his book Perestroika (1987) he advocated ‘more socialism’ and ‘more democracy’. Gorbachev’s perestroika did not initially envisage a shift to a com-petitive electoral system based on free political parties. Neither did it foresee the substitution of a market system for economic planning, nor the break-up of the USSR. However, Gorbachev considered the USSR to be at a ‘pre-crisis’ stage, 2 which needed systemic reforms.

The policies pursued failed. The combination of systemic imbalances and the interplay of political interests led to policy choices that caused the economy to malfunction and the structure of the state to disintegrate. Perestroika under Gorbachev failed because the institutions devised to operate the traditional socialist system were subject to what Schumpeter has called ‘creative destruc-tion’. However, the outcome was destruction without creation. The institutions of state socialism were dismantled. Key elements of the planned economy were removed. The dominant institution of power, the Communist Party of the Soviet Union, was undermined. The Gorbachev leadership took apart the political system by allowing democratic centralism to be replaced by competitive political groups and parties; in the economy it replaced the planning system with a move to an unregulated market. The political leadership (either through default or design)

11 The move to capitalism and the alternatives 1



lost control of political and economic processes. Exchanges between the major societal systems (values, social integration, government and economy) broke down and consequently regime collapse followed.

There was a lack of sociological imagination in the policies of the radical reformers. They were unable (or unwilling) to devise a reform strategy that would ensure political and social stability concurrent with political and economic restruc-turing. A ‘Western’ world-view, developed under Gorbachev and fanned by Western interests, impacted on popular values: freedom became a symbol of lib-eration, community was replaced by market competition, and consumerism sup-planted the values of labour. Philosophically, the reform leadership undermined the idea of a collective form of politics representing class interests and replaced it with competitive institutions based on ideas of possessive individualism and rights to private property. However, these values could not be imposed overnight. The dis-mantling of the Soviet system left an ideological and social vacuum. In the repub-lics of the former USSR, to a greater or lesser extent, a consciousness of (Soviet) national self-identi� cation shifted to one, engendered by strategic republican elites, of collective national liberation which became encased in a capitalist frame.

While the consequences of perestroika are currently viewed with disapproval or with a sceptical ambiguity by most of Gorbachev’s former subjects in the Russian Federation, in the West, they are regarded as a successful move to democ-racy and markets. Archie Brown lists ten major achievements: freedom of speech and publication, release of dissidents from prison, freedom of religious observa-tion, freedom of communication across frontiers, the introduction of competitive elections, the development of civil society, progress towards a rule of law, the replacement of Leninism by ‘a commitment to pluralism’, the independence of the Eastern European countries, and the withdrawal of Soviet troops from Afghanistan. 3

As will be detailed in later chapters, these positive developments have not compensated for the other losses that have taken place – theft and looting of public property, widespread corruption and crime, the destruction of state welfare, the uprooting and dislocation of the population, and internal strife in many of the former republics. It also destroyed the values of the Soviet Union, which had united the peoples of the USSR and had given to Soviet citizens an historical identity. Many of the achievements (such as competitive elections) are more formal than real. Moreover, the triumphant voices of acclaim do not consider whether some of the achievements listed above could have been reached by other means concurrent with political and economic stability.

Politically, there was no widespread support either for the destruction of the USSR or for undermining the social order of state socialism. Before the initiation of perestroika, there were no signi� cant nationalist movements in the republics (except the Baltics and, possibly, Georgia) seeking secession from the USSR. It was the collective decision, known as the Belovezha Accord, of Boris Yeltsin and the heads of the Soviet republics of Belorussia (now Belarus) and Ukraine – Stanislav Shushkevich and Leonid Kravchuk – that illegally dissolved the USSR on 8 December 1991.


The move to capitalism and the alternatives 163

What were the alternatives? There are two alternative sets of assumptions underpinning the views of commen-tators on the fall of the socialist states. First, there are those who de� ne their demise as an inevitable collapse consequent on the structural incompatibilities or contradictions in the state socialist societies, and consequently, state socialism could not have been reformed. Posing any ‘alternative’ to collapse is therefore not a question worth asking. Second, there are others who consider the policies of the economic and political leadership to have been at fault. From this point of view, the socialist system was not ‘predetermined’ to collapse; reform and development were possible. The approach taken by the present author is that there are no ‘inev-itable’ consequences of history. Institutions, the legacies of the past, geographical location, geo-political interests, the will of leaders and the predispositions of the population all condition policies. There are choices that can be made. State social-ism did not ‘collapse’ of its own accord and it was not fated to be dismantled. 4

Could the leadership under Gorbachev have carried out reforms but still main-tained state socialism and the political formation of the USSR? This question con� ates a number of different issues. First, could the Soviet Union have been reformed concurrently with maintaining the USSR as a federative state? Second, could a set of policies have been devised to reform state socialism and maintain the geo-political space of the Soviet bloc (constituted by Comecon and the Warsaw Pact)? Third, could the Soviet Union have been reformed while concurrently maintaining the organizing principles of socialism?

The Gorbachev leadership appears to have believed that it could succeed con-currently in resolving all three. Perestroika was intended to maintain the USSR, the geo-political space of the Soviet bloc in a reconstituted form of socialism. The outcomes of perestroika led to the failure of all three, indicating a complete break-down in leadership.

The predominant view among Western commentators and academics was, and still is, that the USSR was rent with systemic incompatibilities and could not be reformed (at least in the sense of ‘reform’ making things better). Discussion cen-tres on the USSR as a state formation. Was it was doomed to collapse? Mark R. Beissinger answers in the af� rmative: ‘The USSR was not murdered by an indi-vidual or a cabal; rather, it expired … It could not be salvaged in usable form.’ 5 This is an example of the historical determinist approach mentioned above. It is a one-sided judgement. Certainly there were systemic challenges, and it would be uncharitable to call the USSR’s leaders ‘murderers’. However, I would contend that the policies adopted by the Gorbachev leadership as well as their implementa-tion were prime causes of the disintegration of the USSR. There were alternative strategies that could have been pursued at far less social and economic cost.

Political reform with stability There are three complementary policies that would have enabled reform to take place while maintaining political stability: � rst, a more gradual pace of reform,



including a move to markets, which would have complemented the state socialist planning system; second, a measured introduction of policies promoting political pluralism; third, an economic reform designed to improve the system of planning. Such policies would have preserved the moral and institutional basis of the USSR, and its socialist values, and could have moved the socialist bloc closer to the world system.

A gradual course of action would have included a more pluralist political system, either with competing parties, or greater pluralism within the Communist Party, or a combination of both. An advantage of more than one party would be to open up the political leadership to criticism and to make it more responsive to popular demands. The single Communist Party was a product of a revolutionary struggle in conditions of Tsarist rule which had long passed away. Multiple com-petitive parties can operate under many types of social system and can take differ-ent forms. Currently, under capitalism in the UK and USA, for example, competition between the major parties does not undermine the capitalist values and norms of British and American society because the ‘rules of the game’ (and those who make the rules of the game) severely constrain what elected leaders can do, as well as determining who can become political leaders. The party system promotes a limited ‘within system’ set of choices. In the USA, electoral competi-tion operates (as Gore Vidal has put it) between two right-wing branches – Democratic and Republican – of the Property Party. To advocate an alternative to the market system, electoral democracy and corporate power would be very anti-American, as the American Communist Party has found out. Moreover, under Western electoral democracy, the cost of running elections minimizes the chances of minority ‘anti-systemic’ parties having much success at the polls.

In the USSR, parties organized on a regional basis might have had a national or ethnic basis. Prior to perestroika, national self-awareness was contained within the Soviet framework of the sblizhenie (coming together) of nations. 6 The outputs of perestroika weakened the solidarity of the republican elites and created a dis-position for a transformation that was taken over by nationalist movements. 7 National self-awareness was turned into a collective national identity. But national parties need not be destabilizing. In the USSR, destabilization was a consequence of the economic dislocation of the Union and the regionally divisive effects of perestroika. There were also class interests which underpinned the rise of national identity.

The USSR could have been maintained if competition of parties had been introduced under conditions in which the major actors had accepted the ideologi-cal parameters of ‘the system’ and acknowledged Soviet values. A pluralistic form of electoral competition could have been introduced if the political leadership had proscribed parties that were system-destructive. To forestall the rise of nationally based parties, registration of parties could have required a minimum number of electors in several republics. Such proscriptions would have satis� ed neither lib-erally inclined citizens nor Western critics. The question here is not the policy appeal to the West but the maintenance of the USSR, the socialist system and keeping a reform leadership in place. But there are many examples in Western



democracies where communist, fascist and even religious parties (and those advo-cating communism, fascism and radical Islam) are banned, or they are effectively excluded from the mass media. Under such a system, the state apparatus would continue, but would be subject to renewal and change by the electorally success-ful party. This would operate in much the same way as successful parties work within the state apparatus in capitalist liberal-democratic states.

However, this scenario of competitive parties, if adopted in the central European socialist states, would have resulted in defeat for the communists and consequently a loss of geo-political space for the USSR. The Soviet leadership would have to have weighed up the costs and bene� ts of losing the European communist states. One possible solution would have been the formation of a neu-tral politically unaligned region, along the lines of the settlement for Austria after the Second World War.

Competitive electoral ‘party politics’ is only one form of democratic politics and is subject to many objections. While the introduction of party competition and multi-candidate constituencies (uncontrolled by the Party or the electoral com-mission) would have taken the steam out of some of the more vocal critics of the Communist Party, the resulting process would have been arti� cial, unless the par-ties had a clear social base and political platform. Otherwise, they would appear to be fakes and might degenerate into personality politics on the American pat-tern. Electoral democracy as a shell for a capitalist system does not ensure politi-cal rationality; electoral systems are subject to interests that have the money or administrative power to make their preferences stick. The ideological conver-gence of parties in the West and the shift to ‘personality politics’ have led to widespread public apathy, as indicated by electoral turn-out.

There are other ways in which political participation might have been enhanced. The leadership might have reformed the Soviet system of democratic centralism. Gorbachev could have maintained his original stance and furthered democratic reforms of the Communist Party, and ensured greater pluralism within the existing political framework: executive posts could have been made truly elective, rather than being controlled by the nomenklatura . There could have been more devolu-tion to the republics. The experience of China would point to this as a way to ensure reform (though with limited electoral democracy) concurrent with political stability.

Reforming the economy Maintaining and reforming a socialist economic system is a different question from that of keeping in place the federative state of the USSR. The communist leadership was advised by Western as well as domestic economic counsellors, many of whom did not want a successful socialist type of economic reform; they sought a transition to capitalism (usually de� ned in terms of strengthening democ-racy and markets). In this policy they were supported by the foreign policy of the USA-led Western countries that had the power to exert economic and political sanctions. As the Polish economist Grzegorz W. Kolodko has put it, the reformers



advocated ‘the politics of “the worse, the better”’. 8 Acceding to these policies ensured the failure of a socialist type of reform. One can only speculate whether this was Gorbachev’s real intent.

The model favoured by the ‘reform’ economists was predicated on a micro-level pro� t and loss calculus, rather than on an evaluation of the costs and bene� ts to the whole economy. 9 The effects of a ‘hard budget’ constraint economy in the post-socialist states (as we shall discover in later chapters) have led to the destruc-tion of many previously � ourishing industries. Remember that the socialist bloc had a signi� cant manufacturing base and the USSR had an advanced nuclear and space industry.

The failure here was that the reform leadership did not recognize that the system of planning worked on a macro economic basis which considered social costs. While a free market system might well improve the ef� ciency of distribu-tion, competition has its own transaction expenses, as well as the welfare costs of greater uncertainty and the waste caused by underemployment of capital and labour. Planned socialization of production, the advantages of economies of scale and the provision of goods and services free at the point of delivery all provide economic bene� ts. Most important of all, such socialization of production and distribution contributed to social (and consequently political) solidarity, 10 which was undermined by the reform programme.

Socialist critics would contend that the liberal reform strategy of Gorbachev led to capitalism, not the reform of socialism, and they consider that rather than the incorporation of market forces, the planning system had positive features that should have been developed. When Gorbachev came to power, the USSR had full employ-ment and a stable labour force, positive economic growth, and low foreign debt.

Arguments that the planning system was ‘unreformable’ are often ideological in substance. Janos Kornai’s socialist ‘shortage economy’, characterized by shops that are empty of goods and factories having unlimited sources of bank credit ensured by ‘soft budget’ constraints, is misleading. Market economies are also ‘shortage’ economies – the only commodity in short supply is money. One could parody Kornai by saying that the shops are oversupplied with goods that they cannot sell, despite the fact that people’s needs are not met.

Even within the planning system, one obvious remedy would have been a reform of the price system (raising prices to equilibrium levels). ‘Soft budget’ constraints (essentially the state guaranteeing enterprises against bankruptcy) have some positive features; they enable employment and production to continue and avoid the massive disruption caused by plant closures and ensuing costs of welfare and immeasurable social distress. In this light, ‘soft budget’ constraints promote production and human well-being. If Kornai’s ‘hard budget’ constraints were applied to the failed Western banks in the economic crisis that began in 2007, the economic system of the UK and USA (and other European countries) would have collapsed.

An alternative policy would have been to introduce market elements into the economy coexisting within a system of state planning. All economic systems have elements of state planning and market coordination. Even under Stalin, there was



a collective farm market. A gradual move to market socialism, or socialism with market features, would have been the most likely policy to achieve reform and maintain political stability. The ‘cooperatives’ and private � nancial services intro-duced under perestroika were poorly regulated and led to excessive pro� ts, which in turn created distortions and destabilized the economy. Introducing private banks which created credit had harmful effects and was a mistake: they increased the money supply, leading to in� ation, and bank credit privileged small traders (and later larger ones), which led to unjusti� able inequality and consequently viti-ated social solidarity.

Allowing the privatization of small businesses gave improvement of consumer welfare and more ef� cient distribution. However, it proceeded too quickly and led to distortions. In abruptly disbanding the planning system and introducing unreg-ulated market relationships, Gorbachev’s economic policy was an economic katastroika . A more piecemeal and gradual process of reform, limited to the intro-duction of market relations for small business and retail trade and initially clearly de� ned but restricted political reforms, would have provided a better base for change. That within-system reform of the economy was possible (without politi-cal reform) is shown by the changes that had taken place in the German Democratic Republic and Hungary, 11 and, most important of all, in China.

I am not saying that a slower and more piecemeal strategy would be without problems; as noted earlier in Chapter 4 , combining markets and planning involves inconsistencies. What I claim is that such a policy would have improved eco-nomic planning, preserving the structure of state socialism and the political form of the USSR. Pessimists would argue that it would only ‘delay’ the crash of state socialism; optimists would claim that it would have led to signi� cant within-sys-tem reforms which would have prevented the disasters of transformation.

The Chinese example Should the USSR have reformed the system of state economic control by moving to a corporatist type of state capitalism under Communist Party hegemony? The model here would be that of China, which was outlined in Chapter 5 . This policy had considerable support among the political elites of the USSR. The economic history of China, even by the mid-1980s, illustrated that a Western type of indi-vidualistic private property, a free market and electoral democracy were not nec-essary conditions for successful development. It was simply incorrect to assert, as did Western policy advisers, that an economic reform could not be secured with-out signi� cant political reform.

I am not suggesting that the USSR could or should have adopted Chinese insti-tutions. The USSR had a more advanced economy and had a higher political and intellectual level than China, which leads one to believe that economic and politi-cal management could have been better than in China. What developments in China have shown is that the government could effectively control macro- economic development through state banks and large state-owned corporations. The introduction of retail markets improved domestic distribution. China was



able to progress successfully without the neo-liberal ideological baggage of a free market economy based on private property, and without a pluralist competitive electoral political process (the Washington Consensus). It did lead to other prob-lems (e.g. inequality, corruption), which need to be seriously addressed.

Had the European socialist states adopted such a statist policy, they would have kept many of the components of state socialism, though it must be conceded that elements of capitalism would also have arrived. From a socialist perspective much can be criticized as well as learned from in the Chinese development model.

Fundamentally, it would have kept the political system based on the hegemony of the Communist Party as well as state planning, but it would have increased the level of foreign investment and introduced market mechanisms at the micro level (e.g. in retail trade) and allowed privatization of small businesses. Perhaps more important, ‘state capitalism’, in the sense of state corporations producing exchange values for pro� t, might have weakened the Soviet planning process and endangered the development of socialism (as it has in China). The lesson here is that the market bird must not be allowed freedom to � y and should be kept in the cage of planning.

A Chinese type of reform would not have jeopardized the continuity of the USSR (as there would not have been pluralistic political reform). It would not have weakened the European Soviet bloc. It would have been a useful model for the reform of the Soviet economic mechanism. It is doubtful, however, whether it would have contributed much to the development of socialism in the USSR.

A reform of state socialism? Turning to the problem of the Soviet Union’s position in the world order, when Gorbachev came to power, the economic and political position was not critical. Politically none of the European socialist states, including the USSR, was faced with any notable dissident or secessionist movement. While there was public dis-satisfaction, absent was the aggregation of demands into an alternative political and economic strategy and, with the exception of Poland, there were no credible countervailing elites ready to take power. Even Gorbachev had conceded that the traditional Soviet system could have continued well into the twenty-� rst century.

The Warsaw Pact had well-equipped and loyal armed forces and was in posses-sion of nuclear weapons, maybe not on a parity with the USA but suf� cient to act as an effective deterrent. George Bush may have rattled his nuclear swords, but he would not have used them. The Star Wars programme would certainly have esca-lated the need for further defence spending, but the USSR had been faced in the past with external threats. There is no reason to suppose that the Soviet bloc could not have contained such hazards. Though economic growth rates were falling, they were still positive. The capitalist system had its own problems and Western Europe also had low growth rates in the 1980s. As will be pointed out in the next chapter, to catch up with the advanced capitalist states the socialist societies would have required exceptional and unrealistic growth rates.

Rather than trying to emulate the West, the socialist states could have empha-sized the equity of the socialist system and projected a ‘soft power’ image of its



social and economic bene� ts in terms of culture, science, education, sport, health and the absence of crime. To take a European example, France and Italy are below the standards of living of the USA and Germany, but they don’t profess a wish, let alone pursue a policy, to ‘catch up’ with America or to adopt an American type of political system.

A reformed type of state socialism, contrasted to the traditional state socialist model, could have looked something like the third column in Figure 11.1 .

The Soviet Union could have kept the basic institutions of the social system: notably, the hegemony of the Communist Party and the command economy based on planning and state property. Signi� cant changes, however, could have been made in the ways in which the economy operated; but there would have been no privatization – land and state productive assets would remain public property; assets could have been rented to users in small businesses or in agriculture.

A socialist framework could have been maintained only if the ideology that had captured the reformers (based on individualistic maximization of interests through private property and the market) had been rejected. The political system could have been made more open and Marxist ideology would have been retained as the ‘of� cial doctrine’ but modi� ed in relation to a more differentiated social structure and changes in world politics. Policies of economic and political détente with the West could have continued but within the framework of a ‘separate worlds’ policy’.

Whereas within-system policies had failed in the past, one might suppose that had the leadership of Gorbachev backed such policies they might have succeeded and led to a real uskorenie (acceleration) in the economy. All the charisma pos-sessed by Gorbachev as a leader could equally have been used to reform rather than to dismantle the Soviet Union, and to further rather than to jeopardize the

FunctionTraditionalState Socialist Reformed State Socialist

Economy State Planning Planning Mixed Economy with Planning Hegemonic

Ideology Marxist Leninist Marxist Leninist –Revisionist

Politics Hegemony of Communist Party

Pseudo Pluralism with Hegemony of Communist Party

Integration Socialist collectivism

Socialist community

Gratification Work Work\Consumption

External

World Coexistence Separate worlds

Figure 11.1 Value axes of state socialism and reformed state socialism.



socialist cause. It is quite illogical to assume that Gorbachev could introduce the sweeping transformation that he did but was unable to introduce adjustments of a more limited ‘within-system’ kind. Gorbachev, however, sought transformation rather than reform.

Earlier proposals to improve the economic mechanism and the planning pro-cess (the utilization of ‘net output’ measures), a reform of the price system to eliminate repressed in� ation (Kornai’s ‘shortage economy’), ‘counter-planning’ by enterprises, longer plans for enterprises, greater decentralization of use of prof-its and state bank loans, greater use of collective brigades to improve labour pro-ductivity could have been developed. 12 In agriculture, rather than relying on a reversion to private property and the market, collective farms could have been merged with state farms on the model of state-run agri-business. The regime could also have moved in the direction of widening the welfare state with the provision of more ‘free goods’. While the market may improve the ef� ciency of distribu-tion, at the macro level, state planning is effective in procuring economic develop-ment. It also has the great advantage over market systems in promoting a full-employment economy.

In the � eld of ideology, all value systems are subject to change and develop-ment. Christianity has changed considerably over time and has many con� icting interpretations. The same can be said for social-democracy, liberalism and con-servatism. ‘Western democracy’ is also subject to different interpretations and meanings – it has a parliamentary and a presidential form; there is neo-liberal democracy and welfare-state democracy; the socialist countries could have devel-oped a planned-economy democracy. Marxism-Leninism could have been main-tained as the of� cial ideology and continued to mutate. ‘More socialism’ and ‘more democracy’ (Gorbachev’s terms) were desirable and achievable. Essential compo-nents, however, need to be preserved; at the core of Marxism are a class analysis of society and the socialization of the economy. Reform of Christianity cannot dis-pense with a belief in God and Christ’s teachings; and capitalism cannot continue if production for pro� t derived from the private ownership of property is abolished.

The Communist Party of the Soviet Union could have revitalized Marxism-Leninism. An ideological critique of ‘market society’ was very weak in the social sciences and not informed by any signi� cant knowledge of the effects of a market society and consumer culture. There was a failure in the social sciences in the social-ist states to understand the dynamics and effects of market societies: many believed their own propaganda and others adopted Western text-book paradigms extolling the virtues of the free market and electoral democracy. It has taken some 20 years for many predisposed to the transformation of socialism to learn that the free market does not automatically promote public welfare and that electoral choice does not ensure the public’s choice.

In foreign affairs, the reform leadership had many options and it could have sustained its hegemony in a more relaxed way over the states of the Warsaw Pact. By unexpectedly withdrawing political support from the Eastern European states, Gorbachev and his advisers allowed them not only to move into the Western sphere of in� uence but also to become a sounding board for unregulated reform in



the USSR. If one were to make an analogy with the West, in the aftermath of the � nancial crisis of 2007 onwards, suppose that a communist capture of state power were likely in Greece. Would NATO and the EU leave the incumbent government with only Russia and China to rely on? However, a move to greater pluralism in an electoral sense in the central European socialist states would probably have led to the defeat of the communists (as in Poland). They (plus the Baltic republics) could have been allowed to vote with their feet. However, the USSR could have negotiated conditions on which capitalism would have been introduced. In for-eign affairs, a neutralized bloc could have been assured.

The political elites in the USSR were divided. As future events would con� rm, some were degenerate. To have maintained the political formation of the USSR, a socialist reform leadership could have formed a bloc with reformist groups in the political class and the traditional supporters of state socialism. When confronted with the advocates of radical transformation (such as Yeltsin), a reform leadership could have appealed to those likely to lose from a movement to the market – the armed forces, employees in what in the West is called ‘the public sector’ (those in health, culture, education, lower-level public employees) and pensioners.

‘Reform’ means to make an improvement; one of the objectives of this book (detailed in Part II) is to show that the transformation did not lead to an overall improvement for the people as a whole. The abolition of the traditional system in the move to markets and private property made no reference to the loss of values through market exchange – collective goods, health and old age provision, secu-rity of employment, patriotism, love, fraternity, community and collective inter-ests in general.

The political leadership could have relied on the experience of China as an example of successful Communist Party-led development. This was widely expected in the West, 13 and – as noted above – such a policy had considerable support within the Soviet political elite. Perhaps most important of all, the Gorbachev leadership could have set and enforced limits to the political reform process. Within the Soviet Union, demands were made to de� ne the boundaries of glasnost (openness) and the limits of reform. 14 That Gorbachev did not do so must be explained in terms of the greater salience of the other forces (particularly for-eign ones) and by his own willingness to adopt policies which led to the break-up not only of the USSR but of the socialist system.

To return to Beissinger’s point: it was not ‘murder’. The reform strategy of Gorbachev might be described as ‘suicide’, as the leader went down with the ship; or possibly ‘manslaughter’, as the leader might not have premeditated the down-fall, though he was responsible for it happening. The destruction of the planned economy as well as the undermining of the role and structure of the Communist Party led to the disintegration of the Soviet system and the dismantling of the USSR. Consequently, a capitalist counter-revolution occurred, orchestrated by the President of the Russian Federation, Boris Yeltsin.

Despite the continued presence of communist-type governments in Cuba, Vietnam and China (we can safely exclude North Korea from the list), the era born in October 1917 in Russia ended on 25 December 1991. Gorbachev’s



perestroika had not reformed but destroyed the Soviet model of socialism and broke up the USSR as a state. ‘Radical reformers’ led by Yeltsin took command. They challenged the idea of what Richard Sakwa has called ‘Enlightenment revo-lutionism’ 15 – the idea that rational human intervention could form a coherent society fashioned by man. They rejected collectivist statist ideas and in their place regressed to a form of competitive individualism expressed through the market and competitive democracy. Post-communist governments moved to conduct a ‘transition’. To parody Marx in the Communist Manifesto, ‘a spectre was haunt-ing Eastern Europe’: the spectre of capitalism. In Part II, we turn to consider what capitalism has delivered.

Notes 1 My thanks to Ovsey Shkaratan, R. W. Davies, John Barber and Heiko Pleines for

comments and P. O’Donald and S. Rowley for other help. 2 Mikhail Gorbachev, Perestroika , London: Collins, 1987, p. 24. 3 Archie Brown, Seven Years that Changed the World , Oxford: Oxford University Press,

2007, p. 329. 4 On alternatives see also Stephen F. Cohen, Soviet Fates and Lost Alternatives , New

York: Columbia University Press, 2011. 5 Mark R. Beissinger, Nationalist Mobilization and the Collapse of the Soviet State ,

Cambridge and New York: Cambridge University Press, 2002, p. 390. 6 A public referendum on the union resulted in a majority of 73 per cent of the voters

in favour of keeping the union. See Matthew Wyman, Public Opinion in Post-communist Russia , New York: St Martin’s Press, 1997, p. 159. The vote in favour of the maintenance of the USSR was overwhelmingly supported by Russians. There were big majorities in Russia, Ukraine, Belarus and the Asian republics. The republics in the Baltic and Caucasus did not participate in the referendum.

7 Ronald G. Suny, The Revenge of Past: Nationalism, Revolution and the Collapse of the Soviet Union , Palo Alto, CA: Stanford University Press, 1993; Roman Szporluk (ed.), National Identity and Ethnicity in Russia and the New States of Eurasia , Armonk, NY: M.E. Sharpe, 1944.

8 Grzegorz W. Kolodko, From Shock to Therapy , Oxford: Oxford University Press, 2000, p. 28.

9 For a more detailed critique of Kornai, see Dic Lo, Alternatives to Neoliberal Globalization , London: Palgrave, 2012, pp. 135–7.

10 Commentators like Linda Cook, for example, point to the success and integrative effects of the provision for workers of full and secure employment, rising real incomes and socialized human services; see Linda J. Cook, The Soviet Social Contract and Why it Failed , Cambridge, MA: Harvard University Press, 1993, p. 1.

11 See the description of these reforms in chs 6 and 7 of Jean-Charles Asselain, Planning and Pro� ts in Socialist Economies , London: Routledge, 1981.

12 See David Lane, Soviet Economy and Society , Oxford: Blackwell, 1985, pp. 68–72. 13 Richard Pipes, Director of East European and Security Affairs for the US National

Security Council in 1981–82, writing in 1984, expected this to be the most likely outcome. See his Communism: The Vanished Specter , New York: Oxford University Press, 1994, p. 37.

14 I discuss these in David Lane, Soviet Society Under Perestroika , revised edn, London: Routledge, 1992, p. 121.

15 Richard Sakwa, Postcommunism , Buckingham and Philadelphia: Open University Press, 1999, p. 87.


Part II

The transformation to something else

The period of disintegration of state socialism lasted in Eastern Europe until 1989 and until 1991 in the USSR. From those years began the transformation of the state socialist societies and a transition to something else. ‘Post-communism’ sig-ni� es an intention to overcome the communist era as well as ‘the whole logic of revolutionary thinking that had haunted the European imagination for some two centuries’. 1 Transition and transformation are very general and ambiguous terms applying to very different forms of institutional change.

Transition implies an intentional movement from an existing state to a speci-� ed type of society (in this case the target is a market type of capitalism, encased in an electoral competitive democracy). Transformation is a looser term implying signi� cant societal change with no de� ned outcome or end-state. The forces or drivers of disintegration of the old system may not be the same as those who make the new. 2 The drivers of radical reform might well be what I have called the acqui-sition class, but the bene� ciaries were probably the administrative class as well as others who played a minor or no part in the downfall of the communists.

The leaders and followers had a desire to create a Western-type of society char-acterized by wealth, markets, private ownership, democracy and civil society. These objectives varied in intensity between different post-socialist societies. Those leading the transition to capitalism were placed in a similar position to the Bolshevik leaders in 1917 who set out to make a new type of society. Both embarked on a policy of reconstruction of economy and polity. Initially, the new political leadership in all the post-communist societies took the lead from ‘the West’, which was the image of what they aspired to become.

The policy of transition contained � ve components: internally, to create national sovereign state units, a capitalist market system based on privately owned property, a democratic, competitive electoral politics and a pluralist civil society; internationally, the objective was exposure to the world economy and normaliza-tion of political relations with the West. In the next chapter I detail the extent to which these policies were ful� lled in the post-socialist countries and the type of capitalism that was constructed. Here I consider the divergent paths of the central European post-socialist countries which led to membership of the European Union and the fate of the successor state to the USSR – Russia – which (under the leadership of Yeltsin) became marginalized in the world political system.

12 Diverging pathways

176 The transformation to something else

What type of capitalism? ‘Building capitalism’, however, is not a straightforward project. Discussion of contemporary capitalist societies includes three major types of capitalism with a related political framework. 3 These are:

1 Uncoordinated competitive market-led capitalism (Anglo-American). In this formation the state plays a minor role and the stock exchange a major one. Neo-liberalism is the predominant economic model.

2 Nationally coordinated negotiated social-democratic economies or negotiated welfare state capitalism (Swedish-Danish). Here the state, social- democratic parties and trade unions have a major role in shaping a welfare-state type of capitalism.

3 Negotiated corporatist market economies (German-Japanese). Coordination of the economy is performed by the state acting with banks and business associations and trade unions. The objective is to provide economic and polit-ical stability.

In reality there is a blurring between these different categories and various formal institutions (such as the International Monetary Fund) and informal ones (such as the Davos World Economic Forum) provide coordinating functions, at an interna-tional level. But these models serve the purpose of drawing attention to different ways that modern capitalism may be structured. And against these models we may contrast the emerging economies of the post-Soviet societies.

Later, I argue that the central European post-socialist countries which joined the European Union 4 moved towards the Anglo-American model, whereas Russia developed its own form of uncoordinated, even ‘chaotic’ capitalism. China is an example of a fourth model, of state-led coordinated capitalism.

An assumption of the new incumbent elites and their (usually Western) advis-ers (the ‘transitologists’) undertaking the transformation exercise was that the post-socialist states presented a tabula rasa on which an advanced form of capi-talism could be created. An economic model of capitalism, stripped of history and sociology, informed policy-makers. As Larry Summers, then chief econo-mist at the World Bank put it: ‘Spread the truth – the laws of economics are like the laws of engineering. One set of laws works everywhere.’ 5 These laws were the models of Anglo-American neo-liberalism. They provided a rational strategy for the new radical reform leadership. They legitimated the destruction of the political and economic base of the old ruling elites as well as the formation of competing units on the domestic market. Global competition, it was believed, would promote economic ef� ciency and industrial restructuring on the basis of comparative advantage, as well as providing imports to stimulate a consumer economy.

Such neo-liberal policies would also preclude the reproduction of the com-munist administrative class which, it was claimed, would otherwise replicate the institutional features of state socialism. Such an ‘institutional design’ ruled

Diverging pathways 177

out other more coordinated or social-democratic forms of capitalism such as those noted above which had developed in Germany, Korea, Japan and Scandinavia.

It was argued that, when the fetters of state ownership and communist control were released, the post-socialist countries would converge in economic standards with the advanced Western capitalist countries. This position also assumed that the state socialist societies were states of a single generic type. 6

Other writers, however, take a more institutionalist approach and contend that the previous social formation of socialism constrained, limited and channelled the course of reform. 7 The imposition of policies from the top down would not work unless they were in keeping with the institutions and norms of the host soci-ety. This path-dependent approach places considerable weight on the ways that people and institutions are socially embedded in society. Economic change and development have to take account of the level of economic growth and its endow-ment in physical and social assets. An assumption is made that values, beliefs and institutional patterns that have persisted for some time are likely to continue. This is a more sociological approach, based on the work of Emile Durkheim. Essentially, economists assume a world of a forward-looking (ex-ante) pursuit of self-interest, whereas sociologists see economic and social policies as being con-strained by history and norms that are ingrained in the personality and expressed in institutions. 8

Political networks derived from the Communist Party or in some cases from clans (in the central Asian republics of the former USSR) and families may even take a new and unintended form. Alena Ledeneva has shown that informal link-ages, necessary to make planning work, continued into the post-Soviet period, though they adopt different appearances. In both the Soviet and post-Soviet system, players manipulated the systems to their own advantage. 9 David Stark and Laszlo Bruszt consider how the ‘partial ruins’ of the communist system provide ‘partial building blocks for political, economic and social reconstruc-tion’. They view the process of transformation as ‘bricolage’ – ‘innovative adap-tations that combine seemingly discrepant elements … more than architectural design’. 10

From this point of view, the fall of the old regime involved changes in a limited number of institutional sectors of society, and concurrently the continu-ation of other elements in more or less unchanged or adapted forms. Some of the post-socialist countries had relatively highly developed economies (such as the German Democratic Republic or Poland) and already had important eco-nomic, political and social links with Western European countries. Others (such as Uzbekistan) were largely agricultural or based on extractive industries and bordered on Asian societies. Some (such as the Czech Republic) had achieved high levels of human development, comparable with the West, while in the former Asian republics, countries such as Turkmenistan still had large rural agricultural populations similar to Third World countries. The conclusion to be drawn here is that the capitalism that would evolve would carry the imprint of the past.


The magnitude of catching up with the West Many Western economists anticipated that, once the free market and electoral politics were installed, the European post-socialist states would converge with levels in the European Union. Such commentators seriously underestimated the magnitude of the economic challenge. Here we may consider what rates of eco-nomic growth would be necessary to ensure a ‘catch-up’ with selected Western economies.

Table 12.1 shows the real GDP per capital in 1989, as calculated by the United Nations Development Programme (UNDP). What kind of growth could one reason-ably expect from these transiting economies if they were operating reasonably ef� -ciently? Would that rate of growth enable them to ‘converge’ with the levels of the advanced states? Bear in mind that the rest of the world was not static but growing, so ‘catch-up’ had to hit a moving target: between 1995 and 2004, the average rate of growth for the world was 3 per cent; in industrial countries such as the USA it was 3.3 per cent, for Germany 1.5 per cent, Japan 1.2 per cent and Brazil 2.4 per cent; China, coming from a much smaller base, had an average growth rate of 9.1 per cent. 11

First, we consider what rate of growth the USSR would have needed to attain to catch up with the United Kingdom. Let us assume a modest rate of economic growth for the UK economy of 1.5 per cent; on the other side, let us assume that the USSR achieved a cumulative year-on-year growth rate of 4 per cent. These assump-tions are rather favourable to the USSR, as they probably underestimate what one could expect from the UK and overestimate likely � gures for the USSR – bear in mind that we are calculating on a regular yearly compound increase.

On this basis, it would have taken 32 years and 71 days for the USSR to catch up with the UK. If we take a 20-year period from 1989, and assume the UK growth rate to be 1.5 per cent, we may calculate what rate of growth would be necessary for the reformed USSR to catch up. The answer is 5.56 per cent per annum. This � gure has never been achieved for a continuous 20-year period by a comparable advanced capitalist European country.

Table 12.1 Gross domestic product per capita, 1989: selected socialist societies, USA and UK

Real GDP per capita (PPP$ 1989)

USA 20,998UK 13,732Italy 13,608Czechoslovakia 7,420USSR 6,270Hungary 6,245Bulgaria 5,064Poland 4,770China 2,656Cuba 2,500

Source: Human Development Index, UNDP, Human Development Report 1992, New York: Oxford University Press, 1992, pp. 127–9.


To take another set of examples, let us compare one of the most developed state socialist countries (Czechoslovakia) and one of the Southern European ones (Italy). If we assume that the Italian economy grows by 2 per cent per annum, and that the Czechoslovak economy grows by 3 per cent per annum, from a 1989 base, it would take 63 years for the latter to catch up; after 63 years, the Italian GDP would be US$47,381 and the Czechoslovak would be $47,769. If we do the sums a different way and assume that each economy grows at 2 per cent per annum, after 25 years the difference would have increased, with Italy having a GDP of US$22,325 and Czechoslovakia $12,173 (i.e. just over half of the Italian). The increase is explained by the higher initial income level of Italy.

None of these examples assumes that the post-socialist states would grow at a lower pace than the comparable Western ones. They make the point that economic developments are path-dependent to a considerable extent. To ‘catch up’ with the West was a very tall order.

The neo-liberalism approach How, then, did the transitologists meet the challenge of convergence, and did they secure it? On one issue they were clear: there could be no ‘reform’ of state social-ism. As Janos Kornai opined: ‘There is no alternative to the “capitalist system”.’ 12 Reform was ruled out because a move to private ownership could not be done within the communist statist system. The transitologists reasoned that state minis-tries or state-owned corporations are political not economic organizations and thus operate to ful� l political interests (particularly wealth for politicians, or civil serv-ants). Any meaningful reform would have to proceed on the basis of privatization.

This view, informed by neo-liberal ideology and rhetoric, framed the discus-sion of a transition to capitalism. The domestic elites leading the transformation process were strongly in� uenced by the values of the hegemonic world powers (the USA and the leading countries of the European Union) who sought to impose neo-liberal economic values and norms on the post-socialist countries.

Neo-liberalism is an economic doctrine which contends that unfettered capital-ist market relations provide the best economic system to promote growth and well-being; market capitalism involves private ownership of economic assets, a developed � nancial system which, through the pro� t motive, drives investment to allocate resources to their most effective and ef� cient uses. Necessary conditions for a neo-liberal system to be effective are the free movement between countries of capital, money, labour and services. In a wider sociological sense, neo-liberalism is a form of civil society in which individual choice and personal autonomy pro-mote public welfare, and government provides a minimal, though necessary, framework to maintain rights to property and market functioning. (Civil society as a form of neo-liberalism is discussed in Chapter 14 .)

Whereas in Western capitalist countries, � nancialization (the process of selling commodities and services through the market) of economies was the major thrust of neo-liberalism, in the post-communist ones, the privatization of � nancial and non-� nancial assets was a necessary condition which had to be secured � rst.


Privatization enhanced the formation of civil society which would provide the economic base for a pluralist political polyarchy and its legitimation in terms of a competitive democratic polity. Entry into the world economy on terms of neo-liberalism entailed free convertibility of currency and also a stable currency, which would be maintained by neo-liberal institutions such as the International Monetary Fund. 13

Coordination of the economy was to be achieved principally through the oper-ation of the economic market in which the world � nancial system was to play a leading role. The reasoning of the transitologists was that the market, if unre-stricted by economic and political constraints, would indicate to investors where pro� table investments could be made. As Lipton and Sachs have put it:

With skilled workers in Eastern Europe now earning about $1 an hour, the region will provide an enormous opportunity as a production site for European, Japanese and US � rms selling mainly in the West European market … Hundreds, if not thousands, of � rms are already examining factory sites in Eastern Europe as potential locations for parts of their production process. 14

Foreign direct investment was considered the principal determinant of eco-nomic development (we consider this in the next chapter). Policy entailed the abolition of restrictions and regulation of trade, as well as the destruction of a signi� cant part of the statist structures and policies of state socialism (such as the state’s obligation to provide employment). It was assumed that the freer the market, the more rational and ef� cient would be the economic outcome of trans-formation. This outlook was an ideology (or set of presumptions) that guided reform; in practice, it was implemented to various degrees in different post-socialist countries.

Transformation led to signi� cant societal changes, not all of which had posi-tive effects. Moreover, the geographical locations, political linkages, factor endowments and levels of competitiveness have led the post-socialist countries to different positions in the global economy.

The formation of economic and political blocs The formation of state units and political alliances gave the post-socialist states a political identity. After the dismemberment of the USSR and the rise of post-socialist governments in the central European states, two main groupings of coun-tries emerged in post-Soviet space: the countries of central and Eastern Europe (sometimes referred to as CEECs) and the new states which had been formed out of the constituent republics of the former USSR.

The proximity of the European post-socialist countries to the European Union as well as the mutual desire between elites for membership clearly differentiated the central European and Baltic (Lithuania, Latvia and Estonia) post-socialist countries from others of the former USSR. The latter were grouped around the Commonwealth of Independent States (CIS).


The CIS was formed in December 1991 by the Republic of Belarus, the Russian Federation and Ukraine, and later joined by Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan and Uzbekistan; Georgia joined in 1993. The other countries of the former USSR, including Ukraine, have had little active presence in the CIS. 15 The Baltic countries were never members and sought and later received membership of the European Union. The use of the term ‘CIS’ is ambiguous; sometimes, for the sake of convenience, international agencies such as the IMF refer to all the post-Soviet states of the USSR (excluding the Baltics) as a CIS group. Other less important groupings included a more Western-oriented GUAM: Organization for Democracy and Economic Development, founded in 1997 by Georgia, Ukraine, Azerbaijan, Moldova; Uzbekistan joined in 1998.

Unlike the European Union, the CIS did not try to form an economic or politi-cal union. While a number of signi� cant bilateral agreements have been made, and the creation in 2012 of a customs union and a single ‘economic space’ between Russia, Belarus and Kazakhstan re� ects levels of common purpose, the countries

RUSSIA

FINLANDGulfof

Bothnia

SWEDEN

NORWAY

DENMARK

UNITEDKINGDOM

IRELAND

BELARUS

LITHUANIA

LATVIA

ESTONIA

UKRAINE

ROMANIA

HUNGARY

SLOVAKIA

GERMANY

CZECHREPUBLIC

BULGARIA

SERBIA

CROATIA

BELGIUM

NETHERLANDS

Austria

MACEDONIA

ALBANIA

Switzerland

ASIA

AFRICA

TURKEY

CYPRUSCRETE

BlackSea

BalticSea

NorthSea

Norwegian Sea

Faroe Islands(DENMARK)

Atlantic Ocean

Bay of Biscay

GreenlandSea

MediterraneanSea Ionian

Sea

MALTA

AegeanSea

TyrrhenianSea

FRANCE

ICELAND

ITALY

PORTUGAL

POLAND

GREECE

SPAIN

EUROPE

EUROPEAN UNION

EU Member States

EU New Members 2004

EU New Members 2007

EU Candidates

EFTA Member States

AdriaticSea


of the former USSR have pursued individual paths coupled with varying degrees of animosity towards Russia.

Following the break-up of the Soviet bloc, civil wars and civil strife (including armed con� icts) erupted in Chechnya, Moldova, Dagestan, Kyrgyzstan, Armenia and Georgia, as well as bitter confrontations between nationalities in Estonia, Latvia and Kazakhstan. 16 While the public had anticipated a ‘peace dividend’ from the end of the Cold War, internal strife in the republics and regions of the Russian Federation became a de� ning feature of life.

Partly as a consequence of privatization, corruption and organized crime became a feature of Russian transformation; in the near abroad and in Russia’s republics, nationalist and ethnic con� ict caused severe disruption. Serious social upheavals broke out in the republics of the former Soviet Union, forcing some 6.9 million people to return to Russia. 17

While the transformation is often framed in terms of a peaceful transition to capitalism and democracy, civil strife has been a major component in the states of the former USSR, as well as between and within the former federal units of Yugoslavia. As Matt Killingsworth has put it: ‘since the collapse of the Soviet Union in 1991 and the subsequent ending of the Cold War, varying degrees of political, economic and social chaos have plagued the post-Soviet space. In fact, this space has arguably been de� ned by the war and con� ict that has taken place there.’ 18

Politically, the central European societies had a stronger sense of identity with capitalism and the polyarchic electoral democracies of Western European countries than did the countries of the CIS – particularly Russia, Belarus and the central and eastern parts of Ukraine. The presence of rich natural energy resources in Russia, Azerbaijan, Kazakhstan and Turkmenistan is another major geo-economic difference which separates out these countries from the rest of CIS.

Yet another economic bloc is constituted by China, which developed a market system and had a strong presence in the world economy before the fall of the European socialist states. As we noted in Chapter 5 , its economy is large and it has maintained not only state ownership (though in the form of state corporations) but also the hegemony of the Communist Party.

The break-up of the former communist regimes, and the subsequent transfor-mation of their political, economic and social systems, called for a major change in their international linkages. Anticipating somewhat the ground to be covered in the next chapter, four groups of states evolved having different trajectories of transformation: � rst, the new member states (NMS) of the European Union; second, the members of the European Commonwealth of Independent States (CIS); third, the Asian republics of the former Soviet Union; and fourth, an alterna-tive form of socialist transformation, China.

In this chapter I outline the process by which the post-socialist central and East European states joined the European Union, which was the strongest magnetic force. Following this I consider the position of the most powerful state and successor of the USSR, the Russian Federation.


The appeal of a European home It was widely expected that the end of the Cold War would lead to a peace divi-dend. Politically, one theoretical possibility was for a neutralized central and Eastern Europe. It was optimistically believed (in the West as well as in the post-communist countries) that both the Warsaw Pact and NATO could be disbanded in favour of strengthening the pan-European Conference on Security and Cooperation in Europe (CSCE). Economically, the former Comecon (Council for Mutual Economic Assistance) countries could have continued as a trading bloc, conducting free trade with third parties. This could have taken the shape of a cus-toms union, or bilateral trading links between the (then) European Community. (The European Union was formed under the Maastricht Treaty in 1992.) Either of these courses, though to different degrees, would have retained the existing pat-tern of trade and production while leading to a gradual re-orientation to world markets. They would also have allowed independent states to de� ne their identity. The danger of a shock therapy of free trade between a group of advanced econo-mies and individual less developed new members from the East is that it would destroy the industries of the less advanced.

Neither of these more gradual forms of integration into the international sphere was adopted. A major group of central European countries (initially the Visegrad countries – Poland, Czech Republic, Slovakia and Hungary – later followed by others) looked for economic integration with the European Union and to strategic security with NATO. The leading Western states – though with different degrees of enthusiasm – sought to accommodate them within these institutions. Both NATO and the EU had complementary policies towards the new independent states, which had to meet conditions for membership.

What was the basis of this mutual attraction? From the point of view of the post-socialist central and Eastern European countries (CEECs), there was, � rst, the symbolic attraction of a return to their ‘European home’ and a sharp break with the Russian-dominated Soviet past. ‘Europe’ would be a positive form of identity – politically democratic, economically rich, and culturally civilized. The anti-communist movement was geared towards a return to Western Europe, to its capitalist system, electoral democracy and exposure to the international order. For the public it promised, as was noted earlier, entry into the consumer society of ‘the West’.

The second attraction was security provision against a possible revival of Russian power as well as the need to secure protection against ‘soft’ security threats from international crime, terrorism and illegal people movement, which had been exacerbated by the internal civil strife. ‘Joining democracy’ would secure peace, as democracies did not engage in wars with each other (though they have very many with non-democracies).

Third, it was claimed that membership of the European Union would be eco-nomically bene� cial. Following liberal economic reasoning, it would increase the size of the market, liberalize trade by reducing tariffs, increase foreign direct investment, secure a legal framework for private property; and a low-wage and


educated labour force would provide businesses with cheap labour, which would reward investment.

Fourth, more potent factors involved the realistic political alternatives open to the new states. The collapse of the Warsaw Pact and Comecon had left a political vacuum. The disarray (including internal wars) of the former states of the USSR to the east, and the economic and political weaknesses of the central and East European states were such that they looked to the West for economic and political security.

Fifth, even Eastern Eurosceptics came to believe that the costs of staying out of the European Union might be greater than the costs of going in, even if this initially involved severe economic dislocation and unemployment as the econ-omy adapted to a new system. It was also recognized that if membership applica-tion was successful, it would mean the loss of national sovereignty. Later, developments following the global � nancial crisis of 2007 onwards have brought home the signi� cance of these reservations, and will be discussed further in Chapter 15 .

As the central and Eastern European countries came out of the communist mould, the political and economic elites were fairly united in supporting a move towards integration with the EU. At best, the CEECs would achieve political and economic stability and a rising standard of income; even the sceptics, concerned at dependence on the West, regarded it as the least worst scenario. Ironically, per-haps, having opposed the hegemony of the USSR, the newly independent CEECs had to acquiesce to limitations on their independence required by the conditions that would be imposed on prospective members of the EU.

Why should the then members of the EU15 (the ‘old member states’) support enlargement and the admission of the new post-socialist states from the East? The ideology framing the evolution of the EU was supportive of enlargement. There was a presumption that European states would be able to join. In terms of its con-stitution, the European Economic Community, which predated the EU, was open to new members. However, it was not originally contemplated that the communist countries would be able or willing to join. After 1989, the situation changed. But the original assumptions legitimating the foundation of the European Economic Community were applied to potential new members. Enlargement, it was claimed, would promote the security of the existing members. Its founders, Robert Schuman and Jean Monnet, believed that the formation of a European Community would make war ‘materially impossible’. Hence the inclusion of new members from the East would ful� l one of the original major objectives of the European venture.

The economic reasons for accession states to join were reciprocated by the existing members: a larger market and opportunities for investment would stimu-late sales and pro� ts and consequently employment and wealth in the European Union. Based on a neo-liberal conception of political economy, the free move-ment of goods, services, capital and labour would promote economic well-being. This line of argument is based on the assumption that the joining members would be able to adapt positively, both economically and politically.


An economic and political union with the new states would ensure that the economic and political situation there would be compatible with the economic and political conditions in Western Europe. A legal system would give rights to private property, and the inclusion of the post-socialist countries in the EU would be an irrevocable step on the way to capitalism and would promote democracy. Bearing in mind that the transformation process in the post-communist societies was still under way, the promise of EU membership would act as a catalyst for economic and political change in the countries themselves. The conditions that the EU placed on candidates for membership would have a positive effect (from a Western viewpoint) on the transformation of these societies. Thus the offer of membership would be a signi� cant stimulus to the applicants to accept such con-ditions. The opportunities open to potential new members in the EU would legiti-mate the costs of economic (factory closures) and social (unemployment) adjustment. Being constituent members of the EU would prevent slippage back to neo-communism as well as ensuring that a compatible neo-liberal free market economy remained in place.

Finally, there was the less tangible argument that the EU possessed a collective identity that involved obligations to, as well as economic and political bene� ts from, the post-communist societies. Having applauded the dismantling of com-munism, the states of the EU had an obligation to assist the new countries in the east. These values then motivated, to varying degrees, the EU member states col-lectively to accept the new members, even though some individually may not have had much to gain. 19

Against this ideological background the process of European Union enlarge-ment was initiated.

Joining the European Union Even before the collapse of the communist system, the European Union had con-ducted negotiations on an individual basis with the central and Eastern European states. It had concluded trade and cooperation agreements with Hungary in 1988, Poland in 1989 and the Soviet Union in 1989. 20 In the post-communist period, the EU put in place ‘association agreements’. These had earlier been made with Turkey from as early as 1963 and led to a customs union with that country in 1996. European ‘association agreements’ were important because they de� ned the states which the EU thought most compatible in terms of the movement to a market economy and a pluralistic electoral democracy. Preparations had started for economic cooperation well before the � nal break-up of the socialist states.

An early differentiation of former communist states soon occurred. European Agreements were conducted between the EU and the CEECs (central and Eastern European countries) from the 1990s. As early as December 1990, the EU negoti-ated with Czechoslovakia, Hungary and Poland on the content of an Agreement that was signed with these states in December 1991. The Agreements aimed to regularize relationships between the EU and the CEECs and were conducted on a bilateral basis. At this stage, however, an Agreement did not commit the EU to


give membership. The agreements covered free trade, � nancial and technical assistance, energy, environment and communications. 21

Agreements also covered development of laws compatible with the single market, affecting particularly state subsidies, and freedom of competition. The objective was to realize the neo-liberal goals of the EU – the free movement of capital, commodities and people. The consequences of the agreements were to in� u-ence the political and economic changes taking place in the CEECs in a direction of making them compatible with the economic, political and particularly legal norms of EU. The PHARE programme (Poland and Hungary: Assistance for Economic Reconstruction – later extended to other potential member countries) was intro-duced in 1990 and de� ned the front-runners. Technical assistance was later widened to establish political and economic structures compatible with a market economy.

From 1992, conditions for assistance also involved a democratic political system requiring recipient states to promote democratic practices, human rights, and the rule of law (particularly the recognition of private property rights). Between 1994 and 1996, 29 per cent of the PHARE budget was devoted to civil society, public institutions and education. In the early period (1990–93), over a quarter (26.7 per cent) of expenditure was support for the private sector and the second highest expenditure was on agriculture (12.3 per cent). 22 These � gures illustrate that the linkage with the EU was not the same as becoming a member of a free trade association: signi� cant political and legal conditions applied in the former.

The agreements were undoubtedly asymmetrical, with the EU being able to de� ne conditions to the Eastern countries. By 1995, ten CEECs with Association Agreements already formed an inner ring of Western-oriented countries: Czech Republic, Estonia, Hungary, Poland, Slovenia, Slovakia, Bulgaria, Latvia, Lithuania and Romania. The EU strongly in� uenced their political and economic development.

Hilary Appel details the 1.44 billion euros given under the PHARE programme in support of property rights reform. 23 Such support was supplemented by the IMF, World Bank and USAID. For example, the European Bank for Reconstruction and Development (EBRD) gave a $50 million loan to Poland to privatize munici-pal heating enterprises, the World Bank $280 million for enterprise restructuring and privatization; in 1993 it gave $750 million and $450 million for � nancial restructuring and privatization, and $300 million for similar programs in agricul-ture. 24 This � nancial support was intended to in� uence the material and ideal interests of elites in the countries concerned. As Andre Shleifer (adviser to USAID) has put it: ‘Aid can help reformers by paying for the design and imple-mentation of their projects, which gives them greater capacity for action than their opponents have … It helps the reformers in their political battles.’ 25 The EBRD was founded to support privatization and the stabilization of these potentially new additions to world capitalism.

Conditionality criteria The transition of the CEECs to capitalism was considerably strengthened as a con-sequence of the EU’s conditions for membership. The Eastern European societies


strove to meet the criteria that would ensure a successful application for member-ship of the EU. Domestic politics were signi� cantly dependent on the ful� lment of the conditions for joining the EU. A major argument advanced by advocates of joining was the anticipated bene� ts of EU membership.

In June 1993, at the Copenhagen European Council Meeting, a commitment to membership for selective states was made. Enlargement was now EU policy. The ‘Copenhagen criteria’ had to be met before membership would be given. The major components were: stability of Western-type institutions (electoral democ-racy, rule of law ensuring property rights); a functioning market economy (an open labour market and free formation of prices); capacity of the new countries to cope with competitive pressures and market forces from the existing Union mem-bers; a capacity to take on membership obligations (de� ned in the Acquis – the list of requirements) including adherence to the aims of EMU (Economic and Monetary Union); and, of considerable signi� cance, a commitment to political union. These components constituted a comprehensive bundle of conditions from which the intending members, unlike existing ones, could not opt out.

In 1994 a strategy of pre-accession was adopted in Essen. In December 1995, the Madrid session of the European Council requested the Commission to prepare ‘opinions’ on the ten candidate countries (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) and Cyprus. These considered the effects of enlargement on the Union, particularly the agri-cultural and structural policies, and the long-term budgetary outlook. The Commission Report ( Agenda 2000: For a Stronger and Wider Union ) was deliv-ered in July 1997. There followed a detailed screening process of each country, which negotiated directly with the commission. The candidate countries had to show the extent to which they had met the conditions of the 31 chapters of the Acquis Communautaire.

Consequently, membership was offered in 2004 to the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Subsequent on the rati� cation by the new member states (NMS) on May 2004, the membership of the EU consisted of the 15 old members and ten new members. Bulgaria and Romania were left out, though they remained candidates and eventu-ally joined in January 2007.

Accession negotiations showed that the post-socialist states were at a great disadvantage in bargaining, and they had to accept the conditions of the Acquis in its entirety. They had no opportunity to back out of crucial chapters. Unlike old members, they had to accept in principle joining the EMU when they were ready, and could not opt out like Britain, Denmark and Sweden. They also had to have independent central banks which would promote an anti-in� ation policy (which in turn had implications for domestic economic policy). The establishment of a sound currency has been a major economic policy of EU, aimed at maintaining the value of the currency to keep down in� ation and stabilize exchange rates. Such policy was necessary to promote effective foreign direct investment and to ensure that investors would not suffer as a consequence of currency � uctuations. Financial stability has ruled out Keynesian-type state investment promoting


growth – though members (such as Ireland and Spain) have bene� ted from large EU transfers. The new members have had to become part of the Schengen visa regime and adopt EU visa policy with respect to third parties (thus discriminating against countries left out such as Ukraine and Russia).

Many crucial aspects of social and economic policy were not open to negotia-tion. Reductions in levels of state expenditure, and cuts in social bene� ts and welfare have been imposed to ful� l monetary policies. The objective of the acces-sion negotiations was to allow the entry of the new states into the economies of the EU without disruption. It was realized that the opening up of competition from the West would lead to closures and unemployment in the short run (if one is optimistic), or (if one is pessimistic) as a long-term pattern of de-industrialization. The overall settlement in terms of conditions of entry was not as favourable as earlier admissions (such as the United Kingdom).

Despite these requirements, the expected bene� ts of membership united the political elites in the applicant countries in support of EU membership. The European Union certainly had an important in� uence in the transformation of these societies. Philip Hanson and Elizabeth Teague have shown that while there remain considerable differences between the new members of the European Union, they nevertheless have adopted many of the forms of the Anglo-American form of capitalism, rather than the more corporatist ‘continental’ model. 26 We return to this point in the next chapter. Desire to ‘rejoin Europe’ had to be recon-ciled with the conditionalities imposed by the Copenhagen Treaty. The new member states had to show that their institutions and processes were compatible with those of the EU: this boosted the move to marketization, private property, � nancial liberalization, civil society promotion on the one side, and reduced state ownership and management of the economy on the other.

The elites of the EU were more concerned with the creation of a single market than with a social-democratic ‘social Europe’. Capital would gain and labour would lose. The Acquis did not require, for example, a permanent readjustment of the labour force to the new conditions and the continuation of a full-employment economy; neither did it require that the social welfare provisions of state socialism would con-tinue. In the social spheres, citizens would bear the risks of a market environment.

Membership of the EU brought the new member states into the world system both economically and politically in a way not experienced by the new states (except the Baltic republics) formed out of the former Soviet Union. They were part of a very loose grouping, the Commonwealth of Independent States (CIS). After 1991, they received assistance from the EU under the TACIS (Technical Assistance to the CIS) programme. The objectives were to promote the country’s transition to a market economy and to support democracy and the rule of law. Financial support was much lower in total than that committed to PHARE. For comparison, in 1996, PHARE had a budget of 1,222.9 million euros, compared to 536 million for TACIS. When one bears in mind the large populations of Russia and Ukraine, the ratio of expenditures is even greater in favour of PHARE countries. 27 A distinction might be made that whereas PHARE prepared countries to become members of the EU, TACIS prepared the conditions for a market economy outside


the EU. The major country was the largest and most powerful – the Russian Federation, the successor state of the USSR.

Russia’s unful� lled aspirations One of the major policies underpinning reforms in, and later the transformation of, the USSR was a movement towards and participation in the world economic system. If achieved, it was thought that Russia would be accepted as an equal in the political order of the West. Mikhail Gorbachev’s intention was for the USSR to ‘rejoin its European home’. Boris Yeltsin’s objective was to ensure that Russia would be a full and accepted member of the economically advanced capitalist nations. Unlike the central European states, however, these aspirations were not to be met and it was to fall to President Vladimir Putin to de� ne an alternative path-way, which I discuss in Chapter 18 .

Yeltsin’s early policies were shaped by foreign and domestic advisers who had strong attachments to neo-liberal policies. 28 Initially, in the early 1990s, after gaining the presidency of Russia, to demonstrate his commitment to international political cooperation and distance himself from the previous Soviet confronta-tional stance, Yeltsin accepted American direction. Under his leadership, Russia supported the USA’s policy over Libya and Iraq and backed UN sanctions against Yugoslavia. Russia joined the IMF and other international organizations, such as the Council of Europe. But to no avail: Yeltsin’s stance was not reciprocated by the Western powers.

While the Treaty of Rome provided that any European country could apply for membership of the European Economic Community (and later the European Union de� ned the conditions for membership), it became increasingly clear that Russia was not going to be considered for membership. As noted above, the cen-tral European states as well as the former Soviet states in the Baltic were favoured to become members. Russia was regarded as an unstable political state, only par-tially economically ‘reformed’ and with military potential which spurred its former allies in central Europe to join NATO.

Yeltsin’s foreign policies met with internal opposition in Russia on the grounds that he had capitulated to the West, and from 1992, even Yeltsin took a more chal-lenging line against the USA. The seeds were being sown for a more Eurasianist foreign policy (that is, a policy that would open up to Asia as well as Europe). However, Russia’s feeble economic position and vacillating political leadership led to its marginalization by the leading Western states. Russia, though the succes-sor state to the USSR, did not inherit its sphere of in� uence in central and Eastern Europe, and had little political clout in the Third World. Its opposition to NATO’s position over Kosovo, to the eastward expansion of NATO, and to US plans to extend their missile defence system proved to be fruitless. By the time Vladimir Putin came to power in 1999, Russia was faced by a much enlarged political and economic bloc of the European Union and a military alliance of NATO stretching to its own (Kaliningrad) borders with Poland to the West, the Baltic states to the north-west, and another NATO member and EU candidate, Turkey, in the south.


Not only had Russia’s position in foreign affairs deteriorated, the domestic situation was worse. When Yeltsin took power in 1991, he had considerable back-ing for radical political and economic reforms. He presided over a political elite-led redistribution of property rights. He moved swiftly, at least initially, in the direction of an Anglo-American type of market capitalism and a polyarchic com-petitive electoral political system. But earlier expectations were not met: the much hoped for � nancial aid of the magnitude of a new Western-sponsored Marshall plan did not materialize. Conditionalities of the IMF and EU for trade and aid were linked to levels of marketization, privatization, and ‘civil society’ issues which led to internal dissent.

Privatization in Russia occurred in many ways: the ‘spontaneous’ seizure of assets during the disintegration of state power; management–employee buy-outs, as well as voucher privatization, enabled management to accumulate private assets; and by franchising the new banks to print money, which was used by speculators to buy assets. The Yeltsin leadership formed a new capitalist class at public expense. Privatization involved the fraudulent procurement of state property and set the mould for speculation and corruption. Capital � ight, enabled by the freedom to transfer assets, severely impoverished the country to the advantage of the new corporate capitalist class (the top stratum of which became known as the ‘oligarchs’) (which we consider in later chapters).

The economy declined rapidly in a major transition recession – the loss in Russian GDP was comparable to that of the USSR during the Great Patriotic War of 1941–44. 29 Mass unemployment, signi� cant levels of poverty, a serious popu-lation decline resulting from a declining birth rate, emigration and a dramatic rise in the death rate, led to political instability. Moreover, the government’s economic management was discredited when, in 1998, the government defaulted on the repayment of its foreign debt.

Opposition to Yeltsin The consequences of Yeltsin’s policy led to considerable internal opposition. To curb the opposition, in the autumn of 1993, Yeltsin illegally dissolved the country’s legis-lature and subsequently used troops and artillery to dislodge the elected representa-tives from the Duma building. This led to at least 187 deaths and over 400 injured. This policy, and his re-election against the communist contender Gennady Zyuganov, was backed � nancially and politically by the West, as well as by Russia’s own liberal reformers, who saw Yeltsin as the best insurance against a reversion to a state-driven society. Western commentators are in agreement that Zyuganov would have been elected in a ‘fair and free election’. 30 As Angus Roxburgh has put it:

[The oligarchs] bankrolled Yeltsin’s campaign and used the national televi-sion stations they owned to skew election coverage entirely in his favour. Yeltsin swept back to power – and the West sighed with relief. For Clinton and other Western leaders, ‘democracy’ and the ‘free market’ had been saved in Russia. And that was all that mattered. 31


It is perhaps pertinent to point out that the Western media gave little attention to Yeltsin’s infringements of electoral democracy but emphasized the need for stability. This was to change when Western-leaning contestants were challengers to Putin’s more populist policies, as will be discussed in Chapter 18 .

Yeltsin presided over a systemic decline of the Russian Federation. While under the Soviet regime, Russia’s ranking in the world social development indi-cators (a composite index of GDP, educational levels and health conditions) was in the high social development category (the USSR was ranked 25th, compared to the USA ranked 18th); by 2000, when Putin came to power, Russia had fallen to 60th and by 2006 to 65th place– just below Libya. In 2004, it ranked in terms of life expectancy at 115, just below Grenada. 32 (For further discussion, see Chapter 17 .)

Soviet Russia had been a relatively equalitarian society, but the results of the privatization of property had led to the rise of a small super wealthy bourgeois class, led by ‘oligarchs’ who had plundered much of the previously state-owned natural resources. Moscow, and to some extent St Petersburg and Ekaterinburg, thanks to Western investment, had maintained the previous economic and civil infrastructure, whereas in the rest of the country depopulation, unemployment and poverty were rife.

Russia’s chaotic capitalism Yeltsin, somewhat unwittingly, presided over what was known in the West at that time as an extreme form of ‘disorganized capitalism’, 33 with its attendant character-istics of recession, in� ation, unemployment and a fragmented political structure and civil society. The ‘hidden hand’ of the market may, in the long run, promote growth and wealth, but it may also lead to economic decline. In the short run, when factories are closed, as a consequence of the enforcement of ‘hard budget constraints’, poverty and civil strife may arise which threaten the stability of society. This was the case in Russia but in a more intensi� ed form.

Russia under Yeltsin lacked a hegemonic capitalist ideology, an effective state apparatus, a solidary ruling class, institutions of coordination and consensual political elites. The attempt to copy the paradigm of neo-liberalism on the Anglo-American pattern of competitive capitalism failed. Western forms of ‘disorganized capitalism’ do not lead to breakdown, as neo-liberal societies such as the USA and the UK have powerful states to enforce laws, and are backed by an historically entrenched ruling class and ideological apparatuses (through religion, education and mass media) which buttress the institutions and ideology of competitive market capitalism.

Russia had the features of a ‘chaotic’ rather than a ‘disorganized’ type of capitalism. 34 A chaotic social formation may be de� ned as a social and eco-nomic system that lacks coordination: goals, law, governing institutions and economic life lack cohesion. Its characteristics are uncertainty about the future, elite disunity, the absence of a dominant and mediating class system, criminali-zation and corruption, rent-seeking entrepreneurs, inadequate political interest


articulation and an economy in decline characterized by in� ation, unemploy-ment and poverty. 35

Moreover, serious problems were associated with the new Russian state: legit-imated by a pluralist ideology, the previous system of Party authority and govern-ment administration had been decimated, and regional authorities claimed control of their areas while negotiating ‘treaties’ with the central authorities (later dubbed by Western commentators as ‘asymmetric federalism’). The central government had considerable dif� culty in enforcing federal laws in the localities, and was unable to collect taxes; not only did regional authorities refuse to pay them but so did leading companies. Yeltsin conceded major political in� uence to the emerging economic elites with whom he was politically entwined, notably those having assets in Russia’s rich minerals industry, and there were also related con� icts between the federal centre and the regions which in turn were linked to business interests.

Tight budget controls, insisted on by the IMF, together with a tax de� cit, led to restriction of the money supply and consequently employees and pensioners were unpaid and social welfare services rapidly deteriorated. In the early transition period, hyper-in� ation wiped out people’s savings, and the privatization of state assets led to enormous bene� ts for very few. Clearly, the liberal reformers who had bene� ted greatly from the reform programme consequently become ingrati-ated to the Yeltsin regime. To take one example, the market evaluation of Yukos oil company was $6.2 billion; it was purchased (by speculating oligarchs) for $353 million, most of which was raised from bank credit which the oligarchs themselves authorized. 36 Taking another estimate, Mikhail Khodorkovsky paid $350 million for 78 per cent of the stock in Yukos, which was valued when trading in shares began in 1997 at $9 billion , and market capitalization rose to $15 billion in 2002. To give some idea of the pro� ts that might be made out of oil, the turnover of Yukos in 1996 was $5 billion. 37

While the population had expected the transformation to lead to signi� cant improvement in well-being, the result was ethnic strife, economic decline, grow-ing inequality and moral decay. Russia was widely regarded, domestically as well as abroad, as a failed state. But its political leadership as well as the people still regarded Russia as a world power worthy of respect.

Cohesion in established capitalist regimes is not provided solely by the market, as assumed by the neo-liberal model, but by an ingrained ideology, a dominant ruling class, mass media, and apparatuses of the state which enforce laws; and these are mutually sustaining. This is a point of some importance in the transition from state socialism to capitalism and it was ignored in the thinking of the Yeltsin administration.

What faced the Russian leadership was a challenge: Russia needed ‘to � nd an appropriate paradigm of “the international” in external relations … to devise a model of “the political” that can sustain domestic aspirations for autonomy and sovereignty … and to combine these two elements into a coherent order that can sustain engagement with other states and international society while allowing a coherent version of national identity to develop’. 38 These tasks were to fall to


Vladimir Putin, who made considerable progress in meeting these challenges (which are considered in Chapter 18 ).

In the � rst ten years of transformation, the post-socialist new member states of the European Union had made considerable strides in the direction of economic and political stability, whereas the Russian Federation had neither. The country had expe-rienced internal wars, economic decline and considerable internal strife. We now turn to consider how, and the extent to which, the institutions of the post-socialist societies were transformed into different types of economic and political regimes.

Notes 1 Richard Sakwa, Postcommunism , Buckingham and Philadelphia: Open University

Press, 1999, p. 87. 2 As Guillermo O’Donnell and Philippe C. Schmitter point out: ‘Transition in regime

type implies movement from something toward something else. The major source of indeterminacy in the length and outcome of the transition lies in the fact that those factors which were necessary and suf� cient for invoking the collapse or self-transformation of an authoritarian regime may be neither necessary nor suf� cient to ensure the instauration of another regime – least of all, a political democracy’ ( Transitions from Authoritarian Rule: Tentative Conclusions about Uncertain Democracies , Baltimore, MD: Johns Hopkins University Press, 1986, p. 65).

3 The ‘varieties of capitalism’ literature attempts to de� ne models that are useful tools for contemporary capitalist societies. They ignore energy-based economies, such as Saudi Arabia; developing countries, such as Brazil; societies in transformation, as in central and Eastern Europe; and economic systems, such as China, that operate with only partial markets and state-led entrepreneurship. For an overview see David Coates, ‘Models of Capitalism in the New World Order: The UK Case’, Political Studies , 47, 1999: 643–60. For other discussions see Peter A. Hall and David Soskice (eds), Varieties of Capitalism , Oxford: Oxford University Press, 2001; Bruno Amable, The Diversity of Capitalism , Oxford: Oxford University Press, 2003; David Coates, Models of Capitalism , Cambridge: Polity Press, 2000. On the post state socialist societies, see David Lane and Martin Myant, Varieties of Capitalism in Post-Communist Countries , Basingstoke: Palgrave Macmillan, 2007.

4 The European Union was formed in 1992. Prior to this it was formally the European Community. In this chapter for simplicity I refer to the European Union.

5 Quoted by William Keegan, The Specter of Capitalism: The Future of the World Economy after the Fall of Communism m London: Vintage Books, 1993, p. 109.

6 Klaus von Beyme, for example, emphasizes that the state socialist societies were ‘a uniform socialist political system which was unique in European constitutional history’ ( Transition to Democracy in Eastern Europe , New York: Macmillan, 1996, p. 20).

7 See writers such as David Stark and L. Bruszt, Postsocialist Pathways , New York: Cambridge University Press, 1998; and D. C. North, Institutions, Institutional Change and Economic Performance , New York: Cambridge University Press, 1999.

8 For an excellent discussion see Stefan Hedlund, Invisible Hands, Russian Experience, and Social Sciences , Cambridge: Cambridge University Press, pp. 16–17.

9 Alena V. Ledeneva, How Russia Really Works , Ithaca and London: Cornell University Press, 2006. See also her earlier book on informal practices in Russia: Russia’s Economy of Favours , Cambridge: Cambridge University Press, 1998.

10 Stark and Bruszt, Postsocialist Pathways , pp. 6, 103. 11 Data from World Bank 2006, cited by Paul Hirst, Grahame Thompson and Simon

Bromley, Globalization in Question , Cambridge: Polity Press, 2009, p. 132.


12 Janos Kornai, From Socialism to Capitalism , London: Social Market Foundation, 1998, p. 40.

13 For a ‘shopping list’ of necessary ‘radical reforms’, see A. Aslund, Building Capitalism , New York: Cambridge University Press, 2002, p. 77.

14 David Lipton and Jeffrey Sachs, ‘The Strategy of Transition’, in David Kennet and Marc Lieberman, The Roads to Capitalism , Fort Worth: Dryden Press, 1992, p. 352.

15 In 2012, the most active members were Russia, Belarus, Kazakhstan, Kyrgyzstan and Turkmenistan. A customs’ union and a Common Economic Space were formed in 2011, composed of Belarus, Kazakhstan and Russia. We return to regional groupings in the � nal chapter.

16 For an overview see Matthew Sussex (ed.), Con� ict in the Former USSR , Cambridge: Cambridge University Press, 2012.

17 See V. Mukomel, ‘Immigration from the Near Abroad: What is to be Expected?’, Center for Strategic Research, at: www.eldis.org .

18 Matt Killingsworth, ‘The Transformation of War: New and Old Con� icts in the Former USSR’, in Sussex, Con� ict in the Former USSR .

19 This line is developed by F. Schimmelfennig and U. Sedelmeier, ‘Theorizing EU Enlargement: Research Focus, Hypotheses and the State of Research’, Journal of European Public Policy , 9(4), 2002: 500–28.

20 These are conveniently detailed in Karen Smith, ‘Enlargement and European Order’, in Christopher Hill and Michael Smith (eds), International Relations and the European Union , Oxford: Oxford University Press, 2006, p. 274.

21 For details see Mike Mannin (ed.), Pushing Back the Boundaries , Manchester: Manchester University Press, 1999, p. 36.

22 Mannin, Pushing Back the Boundaries , p. 40. 23 Mannin, Pushing Back the Boundaries , p. 40. 24 Data cited by Hilary Appel, A New Capitalist Order: Privatization and Ideology in

Russia and Eastern Europe , Pittsburgh, PA: University of Pittsburgh Press, 2004, p. 28. 25 Cited by Appel, A New Capitalist Order , p. 29 26 For details see Philip Hanson and Elizabeth Teague, ‘Russian Political Capitalism and

its Environment’, in Lane and Myant (eds), Varieties of Capitalism in Post-Communist Countries .

27 For details see John van Oudenwaren, Uniting Europe , Lanham, MD: Rowman & Little� eld, 2005, p. 323; and Mannin, Pushing Back the Boundaries , p. 39.

28 On Yeltsin see Timothy Colton, Yeltsin: A Life , New York: Basic Books, 2008; Herbert J. Ellison, Boris Yeltsin and Russia’s Democratic Transformation , Seattle and London: University of Washington Press, 2006.

29 World Bank, World Development Report for 1996 , New York: Oxford University Press, 1996, p. 26.

30 See for example, Angus Roxburgh, The Strongman: Vladimir Putin and the Struggle for Russia , London and New York: IB Tauris, 2012, pp. 12–13.

31 Roxburgh, The Strongman , p. 13. 32 UNDP, Human Development Report 1990 , New York and Oxford: Oxford University

Press, 1990. The USSR included many economically backward republics of central Asia, making Russia much higher than 25th. The GDR at this time was ranked 20th, for example. For later data see Human Development Report 2000 . Data for 2004 and 2006 are taken from http://hdr.undp.org/hdr2006/statistics .

33 For a discussion of a trajectory from liberal, organized and disorganized capitalism see Scott Lash and J. Urry, The End of Organized Capitalism , Cambridge: Polity Press, 1989.

34 The term ‘virtual economy’ is often used to describe the nominal price system and the prevalence of barter. This notion may be applied to the economy, but it lacks a societal and political component.

http://www.hdr.undp.org/hdr2006/statistics

http://www.eldis.org


35 In 1997, 20.8 per cent of the population (nearly 31 million people) earned less than the subsistence wage of 411 rubles (about $70) a month. Data based on State Statistics Committee, Rossiyski Statisticheski ezhegodnik 1998g , Moscow, 1998, p. 207.

36 See P. Khlebnikov, Krestni otets Kremlya Boris Berezovski ili istoriya razgrableniya Rossii , Moscow: Detektiv Press, 2001, pp. 196–210.

37 Data cited by Richard Sakwa, The Quality of Freedom: Khodorkovsky, Putin and the Yukos Affair , Oxford: Oxford University Press, 2009, pp. 44–5, 49.

38 Richard Sakwa, ‘Russia’s Identity: Between the “Domestic” and the “International”’, Europe-Asia Studies , 63(6), 2011: 957–75, p. 957.

In all the post-socialist countries major structural reforms were instituted between 1991 and 1995. These were comprehensive changes to the economy: they involved the introduction of markets and institutions to make them work (stock exchanges, a capitalist-type banking system); privatization of state-owned assets; a monetar-ized economy; free trade; convertible currency and the abolition of price controls. To achieve these aims, the state administrative apparatus, devised to promote a socialist economy, was subject to radical change: it was now to serve the ends of the market. A major objective was the privatization of state-owned property, as well as severe limitations on redistributive ‘welfare state’ activities. Unwittingly perhaps, the transitologists followed Lenin’s Bolshevik policy of breaking the state apparatus. The previous instruments of Soviet power, the Communist Party and state media, were dismantled and a pluralist competitive electoral system was introduced. However, in practice, as we noted in the last chapter, the attainment of these objectives was shaped by both domestic and external forces and there were different outcomes in the post-socialist societies.

Variations in economic transformation Figure 13.1 summarizes the economic changes in all 29 of the post-communist countries for � ve selected years (1989, 1995, 2000, 2006 and 2010) for four key components 1 of economic change: large-scale privatization (LSP), small-scale privatization (SSP), enterprise restructuring (EnRe) and price liberalization (PrLi). The measurement scale for the indicators ranges from 1 to 4+, where 1 represents little or no change from a centrally planned economy and 4+ represents the standards of an industrialized market economy. The reform scores re� ect the assessments of EBRD country economists. 2

The major changes took place in the early transition period between 1993 and 1995, which were tumultuous years of change. By 1995, price liberalization (PrLi on Figure 13.1 ) as well as small-scale privatization (SSP) had been largely accom-plished. Enterprise restructuring (remaking large enterprises to meet market con-ditions) was the most resistant to change and was associated with dif� culties in privatization of the large state-owned enterprises. However, by 2006, a major economic transformation had been achieved.

13 Trajectories of transformation



There are considerable differences between the various countries, which may be grasped by study of the extent of marketization. 3 Figure 13.2 plots the EBRD overall Transition Index for a selected range of post-socialist countries over three time periods: 1999, 2003 and 2009. The higher the rank, the greater the level of marketization and privatization (40 = level of capitalist economy). As one moves to the right of the Figure, the level of marketization falls.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

LSP SSP EnRe PrLi

1989

1995

2000

2006

2010

Figure 13.1 Economic transformation in all post-socialist countries, 1989, 1995, 2000, 2006, 2010 (averages) .

Source: EBRD Transition Indicators 2006, derived from Transition Reports, various dates (particularly editions of 2006 and 2010), at www.ebrd.com/downloads/research/transition .

0

5

10

15

20

25

30

35

40

EB

RD

Tra

nsit

Inde

x

1999 2003 2009

BelUzbTurkKazUkrRussLithLatEstPolHunCz

Figure 13.2 The extent of the capitalist market: EBRD indicators 1999, 2003, 2009. Source: EBRD, Protsess perekhoda i pokazateli stran SNG I Mongolii v 2009g , London: EBRD, 2010, p. 9; Transition Report 2003 , London: EBRD, 2003, p. 16; Transition Report 1999 , London: EBRD, 1999, p. 24.


http://www.ebrd.com/downloads/research/transition

Trajectories of transformation 199

One might distinguish between three major groups: the new member states (NMS) of the European Union, which even by 1999 had greatly transformed economies; Russia and Ukraine, which had maintained many features of the pre-vious system; And a number of partly reformed countries including Belarus and the central Asian economies of Uzbekistan and Turkmenistan. Marketization has increased in all the post-socialist countries, including the latter, since 1999. These structural changes brought about at least a partial economic convergence to the market features of Western capitalist societies. The NMS of the European Union experienced the greatest changes, Turkmenistan and Belarus the least.

A neo-liberal economic policy can only be enabled if appropriate political and social institutions are in place. The best shell for such policies is political coordi-nation through electoral democracy. Parliamentary institutions allow for the coor-dination of different social and economic groups and, in the post-socialist societies, give legitimacy to the process of transformation. The institution of a Western type of pluralist polity was a major goal of the transitologists.

Political transformation In order to plot the extent of the political changes as they affect the former state socialist societies, one may utilize the political indexes which rank countries by political rights and civil liberties as measured by Freedom House. 4 It must be kept in mind that these indexes measure the values and norms of Western societies, especially those favoured by the Anglo-American type of political institutions. I do not wish to prioritize this model, but to use it as a measure of the effects of reform. Also, it must be borne in mind that the indexes may not be strictly compa-rable given the problems of data collection in various countries. Nevertheless, they are useful and bring out differences between various countries and groups of countries, which is our concern here.

According to the Freedom House estimates for 2008, the trajectories of trans-formation may be divided into three main groups of countries in terms of indi-vidual political freedoms and relevant political structures. First, electoral pluralist: those with political rights and civil liberties sharing most of the features of advanced Western societies; this top group includes principally states which have joined the European Union (see countries in Figure 13.3 ). Second, an intermedi-ary group of countries made up of those that have made some progress towards political liberalization but still retain signi� cant elements of statism: these include Kyrgyzstan, Bosnia, Georgia and Armenia. The third group is formed by countries with statist polities – having a hegemonic (usually one-party) political regime and a signi� cant state managed economy. These include China, North Korea, Belarus, Cuba, Russia, Turkmenistan, Tajikistan and Uzbekistan.

If we combine the political and economic dimensions of coordination we may distinguish between different types of political economy. These groupings are shown on Figure 13.4 . First we distinguish a group of post-socialist EU countries with Western-type political and economic competitive markets (EBRD scores of over 14, EU new member states). Second is a group of hybrids with elements of



markets (scores of 12 to 14) and electoral democracy (Mongolia, Ukraine). Third, we have countries with electoral and market processes coexisting with consider-able state economic and political control (Russia, Kyrgyzstan). Fourth are mixed economies with a statist political system (Kazakhstan and China). Finally come more fully state-coordinated societies (Belarus, Turkmenistan, Uzbekistan and Tajikistan).

These conclusions seriously compromise the idea that a rapid move could be made (even if it would be welcomed) from the state socialist system to stable democratic market regimes. Rather than a transition to ‘capitalist economic democracy’, a consolidation of a ‘hybrid’ type of regime seems to be characteris-tic of a large number of post-socialist states: societies with some aspects of com-petitive political and economic markets coexisting with many of the values, processes and institutions from the Soviet period. The central Asian republics remain overwhelmingly statist: Kazakhstan and Kyrgyzstan have carried out the greatest reforms, while Turkmenistan, Uzbekistan and Tajikistan (like Belarus) have retained many of their former political features. They have carried out market reforms and are no longer centrally planned economies, but have retained considerable state controls and experienced relatively little enterprise reforms.

COMPETITIVE ELECTORALDEMOCRACIES

MongoliaHungaryCzech RepEstoniaLatviaLithuaniaSloveniaPolandRomaniaSlovakiaUkraine

Partial political reform KyrgyzBosniaGeorgiaArmeniaMoldova

Little or no political reformSTATIST SOCIETIES

ChinaNorth KoreaBelarusCubaRussiaTurkmenistanTajikUzbekistanKazakhstanAzerbaijan

Figure 13.3 Political transformations: three groupings of post-socialist states. Source: Freedom House website, www.freedomhouse.org .


http://www.freedomhouse.org


Linkage to the world economic system Transformation required not just changes in the institutional structure achieved through privatization and the institution of the market, but also processes linking the advanced capitalist economies to the post-socialist ones.

The end of the bi-polar world consequent on the fall of the Soviet bloc led to the hegemony of Anglo-American capitalism on the one hand and a move to eco-nomic and political regionalism (such as the European Union) on the other. Contemporary political developments are increasingly conditioned by the geo-political framework in which nation states are embedded. After the fall of state socialism, the post-socialist countries became exposed to the world economy. As we noted earlier, the expectation of many radical reformers was that membership of the world economy would enhance economic development of the post-socialist economies.

In neo-liberal ideology, foreign direct investment is a major driver of capitalist reform and development. Policies were designed to make currencies freely con-vertible and to open markets to the West to encourage foreign investment. Such policies, it was contended, would facilitate economic convergence, as investment would have the political effect of linking the post-socialist societies to the West through their ownership and control of companies in the host countries. In this way, economic relationships would have the political effect of bringing the post-socialist states into the capitalist global class system.

Figure 13.5 shows the FDI stock over the period 1989 to 2008 (average) expressed on a per capita basis. These � gures represent purchases of assets in the host countries as well as capital investments in private companies. 5 The European CIS countries (including Russia) have had a relatively low � ow of foreign investment – lower than the average for developed economies, and are similar in scale to China.

POLITICAL COORDINATIONELECTORAL DEMOCRACY

HybridMONGOLIAUKRAINE

MarketALL EU POST-SOCIALIST STATES

Mixed ELECTORAL/STATIST

HybridKYRGYZRUSSIA

STATIST StatistBELARUS TURKMENUZBEKTAJIK

HybridKAZAKHCHINA

STATIST MIXED MARKETECONOMIC COORDINATION

Figure 13.4 Economic and political coordination: NMS, CIS and China .



Despite very large Western investments in Russian, Kazakhstan and Azerbaijan energy sectors, when population is taken into account, total FDI is on a different scale from that of the NMS. The average in� ow for the whole intensive period of transformation (1989 to 2008) for the central and Eastern European countries (CEECs) was $2,714 per capita; the largest, for the Czech Republic, came to $5,000. For the CIS states, the average FDI was only $643 per head. 6 China is just above the � gure for the CIS, averaging $681 per capita (data for 1995 to 2008). 7 If we showed the � gures as a proportion of GDP, the country rankings would be different, as Russia, Kazakhstan and China received large foreign investments.

We may conclude that the ‘driving’ effect of FDI was much lower for the CIS countries and China, and consequently they were less integrated into the world economic system. For China, high levels of reinvested pro� ts as well as capital from the state banks were highly signi� cant.

Economic outcomes The immediate economic consequences of transformation were signi� cant falls in gross national product. Between 1990 and 1993, real GDP had declined in Poland by –3.1 per cent, the � gure for Czechoslovakia was –4.3 per cent, Hungary –4.8 per cent, Lithuania –18 per cent, Ukraine –10 per cent, Russia –10.1 per cent and Tajikistan –12.2 per cent. 8 Even ten years after 1989, only Poland (118 per cent) and Slovakia (105 per cent) had surpassed the 1989 level; Georgia, Ukraine and Armenia were less than 40 per cent of the 1989 level and Russia 57 per cent. 9 Countries that had made the best recovery were the new member states of the EU. Those of the former USSR did much worse (and this also included the Baltic countries).

−500.0

500.0

1500.0

2500.0

3500.0

4500.0

5500.0

6500.0

7500.0

Cze

ch Est

Hun

Latv

ia

Pol

Lith

Bel

Ukr

Rus Chi

Kaz

Turk

m

Uzb

Aze

r

Tota

l FD

I per

cap

ita

Figure 13.5 Cumulative FDI in� ows per capita, 1989–2008: major CIS, NMS and China. Source: EBRD website, see ‘transition indicator by sector’, www.ebrd.com/pages.research/economics/data/macro.shtml#structural .


http://www.ebrd.com/pages.research/economics/data/macro.shtml#structural

http://www.ebrd.com/pages.research/economics/data/macro.shtml#structural


After these initial considerable falls in output, there was an economic recovery. Figure 13.6 shows the changes for various groups of countries in GDP for a 20-year period – from 1990 to 2010. To make the � gures more accessible, I have divided the countries into three representative groups: Figure 13.6 shows the NMS and European CIS; the Asian CIS is shown on Figure 13.7 . China is included in each case for comparative purposes.

The NMS had a fairly constant rise in GNP from 2000 to 2007 and a slight decline thereafter (Latvia a rather greater fall). For the CIS countries, the graphs illustrate falls in GDP between 1990 and 2000, followed by recovery. China stands out with consistently high growth rates, similar to Turkmenistan. Given their higher initial starting points, the NMS did not do much better than the CIS, with Belarus having a remarkably high rate of growth.

There has been a slight convergence for the new member states to the levels of the advanced Western societies. In Table 13.1 we compare changes in the GDP of selected post-communist countries with the United Kingdom. If we consider the ratios of GDP/GNI per capita between 1989 and 2010, we note a slight catch-up to the UK levels for Czech Republic and Hungary, and a rather better catch-up for

0

5,000

10,000

15,000

20,000

25,000

1990 2000 2005 2006 2007 2008 2009 2010

US

$ pe

r ca

pU

S$

per

cap

Lat

Pol

Hun

Cze

Chi

0

2,500

5,000

7,500

10,000

12,500

15,000

1990 2000 2005 2006 2007 2008 2009 2010

Ukr

Bel

Rus

Chi

Figure 13.6 Gross national income in European post-socialist countries, 1990–2010. (A ) Latvia, Poland, Hungary, Czech Republic and China . (B) Ukraine, Belarus, Russia and China.

Source: International Human Development Indicators, http://hdr.undp.org .


http://www.hdr.undp.org


Poland. The differences in national income decreased by the rather modest amounts of between 4 per cent (Hungary), 10 per cent (Czechoslovakia/Czech Republic) and 16 per cent (Poland).

When we consider the former countries of the USSR, however, the gap between them and the UK actually increased. Compared to the USSR � gure for 1989, the gap between the Russian Federation and the UK rose by 2 per cent, for Latvia (despite its membership of the European Union) 9 per cent, Belarus 9 per cent, Kazakhstan 17 per cent and Turkmenistan 26 per cent. Also, we must bear in mind that the less developed area of Czechoslovakia (Slovakia) and the USSR (central Asian republics) would have depressed their � gures for 1989, thus somewhat

Table 13.1 Changes in real income per capita 1989 and 2010: selected post-socialist states compared to the UK

Real GDP per capita (PPP$ 1989)

Ratio 1989 to UK

GNI per capita (PPP$ 2008) 2010

Ratio 2010 to UK

UK 13,732 32,975 Czechslovakia/CzechRepublic 7,420 0.54 22,678 0.65USSR 6,270 0.46 Russia 15,258 0.43Latvia 12,944 0.37Kazakhstan 10,234 0.29Turkmen 7,052 0.20Belarus 12,925 0.37Hungary 6,245 0.45 17,472 0.50Poland 4,770 0.35 17,803 0.51China 2,656 0.19 7,258 0.21

Source: Data for 1989 from Human Development Index, UNDP, Human Development Report 1992 , New York: Oxford University Press, p. 127; for 2010, International Human Development Report 2010 , UNDP, http://hdr.undp.org .

0

2,000

4,000

6,000

8,000

10,000

12,000

1990 2000 2005 2006 2007 2008 2009 2010

US

$ pe

r ca

p

Kyr

Uzb

Tur

Kaz

Chi

Figure 13.7 Gross national income in Kyrgyzstan, Uzbekistan, Turkmenistan, Kazakhstan and China, 1990–2010.

Source: International Human Development Indicators, http://hdr.undp.org .





exaggerating the increase for Czech Republic and Russian Federation and Latvia in 2010.

We can con� dently conclude that in the NMS a slight convergence has taken place, while in the CIS there has been a divergence from the advanced Western states. In Chapter 17 I discuss further other deteriorating aspects of public well-being.

Transnational corporations Foreign direct investment leads to a direct linkage between the parent company and af� liates in host societies. Transnational corporations (TNCs) 10 are consti-tuted of parent enterprises (located in the ‘home’ or ‘parent’ country) and foreign af� liates (in the ‘host’ country). Transnational corporations play a signi� cant role in determining the level of global integration. In 2010, of the top 100 TNCs, 62 per cent of the assets were located outside the country of the parent corporation, as were 64 per cent of their sales and 56 per cent of their pro� ts. 11

The nature of foreign company penetration is determined by the scale of invest-ment in a host country which in turn has important consequences not only for development (new technology and management practices) but also in terms of dependency on foreigners and the formation of class and political identities. In this respect, a major distinction may be shown between the post-communist NMS of the EU and China, on the one hand, and the members of the Commonwealth of Independent States (CIS) on the other.

The post-communist countries in the European Union host an exceedingly high number of foreign-based � rms (see Table 13.2 ). In 2010, there were 28,994 in Hungary alone. China is a special case, hosting around half of all foreign af� li-ates on a world scale. In the CIS countries, foreign ownership is much less: of the 3,487 � rms operating in the CIS, Russia in 2010 had 2,139, Belarus a mere 61 af� liates and Ukraine 872. The energy exporting states of the CIS (Russia, Kazakhstan, Azerbaijan and Turkmenistan) have a small number of relatively large investments, whereas in the post-socialist central European states and China, there is a large number of small investments – and a wider spread of companies. One implication is that participation in capitalist companies and the transmission of capitalist values is greater in the latter two areas – though the vast population of China somewhat diminishes the effects.

The ownership and control of transnational corporations have important eco-nomic and political signi� cance. In Immanuel Wallerstein’s world system analy-sis, pro� ts � ow into the core countries from economic exploitation of the semi-periphery and periphery. Transnational companies located in the core states are a major vehicle for such transfer. Parent companies in the home country ben-e� t greatly from foreign af� liates’ sales and consequently pro� ts. The American corporation General Electric, for example, derives half its sales in af� liated com-panies; the � gure for Vodafone (based in UK) is 71 per cent and for BP (UK/USA) nearly 80 per cent. 12

Study of the national base of transnational companies indicates the place of the post-socialist states in the world system. A word of caution is required here. Data



are based on national sources and are not strictly comparable, as countries vary in their classi� cation of ‘an af� liate’. For example, some will count all companies exercising a franchise as ‘an af� liate’ (e.g. retail food outlets, such as McDonald’s), whereas others will only count the foreign company assigning the outlet. This accounts for the extraordinary number of Chinese foreign af� liates; most are small businesses with some (usually) expatriate Chinese capital. Some compa-nies, for tax and other purposes, are registered in nominal countries. It is also important to bear in mind that not all owners are citizens of the country in which a parent company is registered. Nevertheless, the data on national registration may be used as indicators of the global distribution of ownership.

Foreign af� liates in the post-socialist countries are principally investments by companies from the advanced capitalist countries. With some notable exceptions (particularly in China) the development of large indigenously owned companies in the post-socialist societies lacked suf� cient domestic political and � nancial support.

Post-socialist countries’ transnationals Few post-socialist companies are comparable to the very large Western transna-tional � rms. The economic power of capitalist companies is evaluated in two

Table 13.2 Number of foreign af� liates in post-communist countries, with comparisons to other countries (2010 or latest available year)

Number of foreign af� liates

NMS Czech Republic * 56,808 Poland 7,016 Hungary 28,994 European CIS Belarus 61 Ukraine 872 Russia 2,139 Asian CIS Kazakhstan 156 Azerbaijan 89 Uzbekistan 64 Others China 434,248 USA 27,251 UK 45,466 Brazil 4,547 World total 892,114

* The high � gure for parent corporations in the Czech Republic is probably accounted for by the splitting of the former Czechoslovakia. Source: UNCTAD, World Investment Report 2010 , Geneva: United Nations, 2010; data from UNCTAD website, www.unctad.org , Webtable 34.


http://www.unctad.org


ways: by measuring their revenue, and by their market valuation. On the basis of these measures, the European post-socialist countries occupy a relatively low position in the world economy. Fortune magazine publishes a list which is based on revenue. 13 This list has the advantage of including companies not quoted on the stock exchange (and therefore having no market valuation). In the July 2011 edition (data for March 2011) of Fortune , of the 500 top global companies, 133 are legally domiciled in the USA, followed by Japan with 68, France 35, Germany 34 and UK 30. While such companies may have shareholders outside the country of registration or domicile, the � gures illustrate the economic power of the country.

The only post-socialist country to have any noteworthy number of companies is China (including Hong Kong) with 61; Russia had only seven companies. Of Russia’s top � ve companies, four are in the energy sector and one is a bank, as shown on Table 13.3A . China not only had more companies, but they were much more diversi� ed: they included a bank, an electricity company, oil, oil and chem-icals (Sinopek), and communications ( Table 13.3B ).

The total revenue of these companies is relatively small in comparison with the top Western corporations. The revenues earned by the top 500 global companies located in China, Russia, Britain and the USA is shown in Figure 13.8 . Data here illustrate the enormous gap between the USA on the one hand and Russia on the other; China, though well behind, is becoming a serious rival. We return to a discus-sion of the place of the post-socialist countries in the world economy in Chapter 15 .

Table 13.3A The top � ve Russian companies in the world ranking of the top 500, 2011 (by revenue)

Russia top � ve Rank

Company Global 500 rank

Revenues ($ millions)

1 Gazprom 35 118,6572 Lukoil 69 86,0783 Rosneft Oil 179 46,3044 TNK-BP International 235 36,8815 Sberbank 298 32,066

Table 13.3B The top � ve Chinese companies in the world ranking of the top 500, 2011 (by revenue)

China top � ve Rank Company

Global 500 rank

Revenues ($ millions)

1 Sinopec Group 5 273,4222 China National Petroleum 6 240,1923 State Grid 7 226,2944 Industrial & Commercial Bank of China 77 80,5015 China Mobile Communications 87 76,673

Source: ‘Top Five Hundred Companies’, Fortune , July 2011, http://money.cnn.com/magazines/fortune/global500/2011


http://www.money.cnn.com/magazines/fortune/global500/2011



The � nancial sector Financial companies play a signi� cant role in directing investment in the world economy. In neo-liberal theory, investment through banks ‘drives’ development, though in addition, speculation on sales of assets and future prices has an impor-tant role. Of the world’s top 50 � nancial transnational companies, there is not one parent company located in any socialist or post-socialist country (including China). Japan has three companies 14 (ranked by � nancial assets).

The dominant world � nancial companies are American and European regis-tered � rms which wield enormous � nancial power. In 2008, the US-based City group, for example, had 723 foreign af� liates spread over 75 countries; Allianz SE (Germany) had 612 operating in 52 countries; and ABN AMRO (Netherlands) 703 in 48 countries. 15 Companies seeking loans from the private banking sector in the developing world and in transition countries seeking a place in the world economy are in an asymmetric relationship to banks in the core countries.

Foreign bank ownership has increased greatly in the post-communist econo-mies; and countries in central Europe and the Baltic states have become highly dependent on foreign banks. As illustrated on Figure 13.9 , in the NMS states, in 2004, on average over 70 per cent of the assets of banks were foreign owned (in Estonia the � gure was 98 per cent, Czech Republic 95 per cent). Whereas in the old member states, foreign ownership in the eurozone was less than 20 per cent on average, with countries like Germany and France having less than 10 per cent; even a neo-liberal economy like the UK only had 20 per cent of its bank assets in foreign hands. 16 Moreover, lending by foreign banks in the NMS was dispropor-tionately in foreign currency (usually in Euros).

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

USA China UK Russia

$ M

illio

ns

Figure 13.8 Total revenue of the top 500 companies in USA, Britain, Russia and China, 2011 .

Source: ‘Top Five Hundred Companies’, Fortune , July 2011, http://money.cnn.com/magazines/for-tune/global500/2011





In Russia, no comprehensive privatization of the banking sector occurred in the early transition period (though some small foreign banks had been set up under the Yeltsin presidency). Consequently, ownership by foreign banks is rela-tively low – 202 banks had some foreign ownership at the end of 2007, but only 62 of them were fully foreign owned. By 2008, however, the number had nearly doubled to 108 (out of a total of 1,108 banks). 17

The Russian economy would appear more insulated from external � nancial shocks than the NMS of the EU, being less dependent on foreign banks and having greater regulation of the banking system. (They are, however, strongly affected by changes in world commodity prices.) Russian banks have lower risk levels than those in central and Eastern Europe; they also have much higher government reg-ulation, and the large state-owned and state-controlled banks are much more cau-tious with respect to lending.

Ukraine appears to have been straining to adopt the � nancial features of the NMS and in doing so has created higher levels of risk and credit default. Both Russia and Belarus still have strong state banks and relatively low foreign owner-ship, though Russia in recent years is becoming more open. Ukraine’s recent developments (a consequence of the role of Yushchenko, Tymoshenko and their supporters who secured power after the ‘Orange Revolution’) have moved the country more in the direction of its banking system becoming like those of the NMS. The CIS also has a lower proportion of their assets in speculative domestic loans. Most of the CIS countries (Belarus, Russia, Uzbekistan and Turkmenistan)

0

20

40

60

80

100

120

Ger

Fran UK

Chi

Est

Lith Cz

Pol

Hun

Latv

Bel

a

Ukr

Rus

s

Aze

r

Kaz

Uzb

Turk

2004 2007 2008

Figure 13.9 Share of foreign-owned banks, 2004, 2007, 2008 (percentage of total assets).

Source: EBRD database, Structural Indicators (Financial Sector), www.ebrd.com/country/sector/econ/stats/sci.xls ; data for Western European countries (2004 only) taken from M. Cihak and W. Fonteyne, Five Years After: EU Membership and Macro-Financial Stability in New Member States , IMF Paper, WP/09/68, March 2009, p. 6; data for China (2003 and 2005) from Barry Naughton, The Chinese Economy , Cambridge, MA: MIT Press, 2007, Table 19.2 , p. 455.


http://www.ebrd.com/country/sector/econ/stats/sci.xls



are less likely to be directly affected by banking crises fuelled by foreign banks than those in the NMS.

China has kept intact a core of major state-owned banks which have continued from the planned economy. Figure 13.10 shows the distribution of assets by the major types of banking institutions. In 2003, the state-owned commercial banks accounted for 58 per cent of bank assets, joint-stock commercial banks owned 10.7 per cent, rural banks (rural banks, rural cooperatives and rural credit coop-eratives) 10.25 per cent. By 2010, the relevant percentages were: 49.2 per cent, 15.6 per cent and 11.2 per cent. Foreign-funded � nancial institutions owned only 1.5 per cent of assets in 2003 and 1.8 per cent in 2010. Other banking institutions, such as urban credit cooperatives, non-bank � nancial institutions and postal sav-ings banks, also had a high state involvement. 18 Borrowers in China then would be even more dependent on its system of state banks than Russia. However, in China domestic banks have played a signi� cant role in economic development and are beginning to make investments abroad, especially in Africa. They also are less involved in speculative � nancial activity.

The CIS states not only have far fewer foreign banks, they have many more state banks. Belarus, Uzbekistan and Turkmenistan have over 65 per cent of bank-ing assets in state ownership (see Figure 13.11 ). Other signi� cant shares are held by the state in Azerbaijan (40 per cent in 2008) and Russia (38 per cent in 2008). At the other end of the spectrum, the Baltic states, Czech Republic and Kazakhstan have fewer than 10 per cent; Latvia and Ukraine, as a consequence of failing banks, have increased somewhat state ownership during the � nancial crisis. As for Belarus, Ukraine and Russia, they have contrasting pro� les,– with Ukraine having

0

10

20

30

40

50

60

70

80

90

2003 2006 2010

% b

ank

asse

ts

Maj State owned Joint stock Rural Foreign

Figure 13.10 Assets of Chinese banks . Source: World Bank, China 2030 , www.worldbank.com/China2030 , p. 155.


http://www.worldbank.com/China2030


a very high level of private ownership, quite the opposite to Belarus. Ukraine’s ‘Orange’ Revolution (discussed in Chapter 19 ) brought to power leaders who encouraged European investment, whereas Belarus has maintained state owner-ship and control.

Domestic credit Domestic credit to households (including mortgage advances) was encouraged in the deregulated Western banking systems and became a major source of � nancial instability in 2007. Unsecured loans to the domestic sector and their securitization led to banks having insuf� cient liquidity to repay deposits and consequently they restricted credit, resulting in economic decline. A similar process occurred after 2004 in the post-socialist states, though again there are important differences between the CIS and NMS. Figure 13.12 shows that while there were modest rises for both domestic credit and mortgage advances for Russia and Belarus, Ukraine had a massive expansion after 2004. Both Russia and Belarus pursued a relatively cautious and traditional domestic credit policy.

Comparisons of domestic credit for CIS and NMS are shown on Figure 13.12 for Russia, Belarus, Ukraine, Hungary, Kazakhstan and Estonia. The picture we saw earlier is repeated: Estonia, Hungary and Ukraine having very high levels; Russia and Belarus are very closely linked and relatively low.

The conclusion to be drawn here is that the NMS were not only driven by for-eign investment but that consumption was dependent on the availability of bank credit – a similar pattern to the American and British provision of credit.

0

20

40

60

80

100%

Ass

ets

Sta

te o

wne

d ba

nks

2004 2007 2008

RussTurkBelaUzbAzerPolUkrHunLatvKazCzLithEst

Figure 13.11 Share of state-owned banks: Belarus, Russia, Ukraine and other post-socialist countries, 2004, 2007, 2008 (percentage of total assets) .

Source: EBRD database, Structural Indicators (Financial Sector), www.ebrd.com/country/sector/econ/stats/sci.xls (there are no data for missing years in Uzbekistan and Russia).





Conclusions The central and Eastern European countries have secured considerable foreign direct investment and consequently have been highly penetrated by Western � nancial and non-� nancial companies. While the new member states of the EU have transformed to a kind of capitalist economic democracy, the states of the former Soviet Union have consolidated a hybrid type of economic and political regime. The latter countries have adopted many aspects of market economies, but retain many of the statist features of the former system – especially in the central Asian republics. They are also less dependent on the world economy with many

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2003 2004 2005 2006 2007 2008

%G

DP

Russia DomCr Russia Morg UKR DomCr

UKR Morg Bel DomCr Bel Morg

0.05.0

10.0

15.020.025.030.035.0

40.045.050.0

2003 2004 2005 2006 2007 2008

%G

DP

Russia UKR Bel Kaz Hun Est

Figure 13.12 (A) Domestic credit and mortgage advances (percentage of GDP): Russia, Ukraine, Belarus, 2003–08 , (B) Domestic credit (percentage of GDP): Russia, Ukraine, Belarus, Kazakhstan, Hungary and Estonia, 2003–08.

Source: EBRD Structural Indicators, www.ebrd.com/country/sector/stats/mpfdi.xls


http://www.ebrd.com/country/sector/stats/mpfdi.xls


fewer Western af� liated companies. Of the post-socialist countries only Russia has a (small) number of transnational corporations.

The predictions about the post-socialist countries ‘converging’, or developing their levels of well-being to those of the Western states, were utopian and not based on any realistic economic analysis of the rates of growth that could be achieved. There has been a convergence in the NMS of forms of economic and political institutions – as required by the EU. Following a period of economic decline, the NMS of central Europe have regained some economic momentum, but only a slight levelling up of gross national product has taken place. In the CIS countries, there has been a divergence rather than a convergence. China, which did not experience any signi� cant political transformation, has been a much more successful model of development from an economic point of view.

Exhortations by the political reformers to ‘suffer the pain of transition’ to ensure a healthy and wealthy future were political propaganda (a form of ‘soft power’) to secure support for unpopular changes, not realistic assessments of likely outcomes. Joining the world economy, on balance, has not had very posi-tive effects for the European states on their domestic economies, and in many cases has led to the ruin of local industries.

The neo-liberal agenda was not restricted to the economic and political. An important component lies in the organization of society. The complementary move to a Western type of ‘civil society’, to which we now turn, was required to provide a social shell for the economic and political changes that were taking place.

Notes 1 EBRD Transition Indicators 2006, derived from Transition Reports, various dates

(particularly editions of 2006 and 2010), see EBRD website, www.ebrd.com/downloads/research/transition .

2 For methodology, see: www.ebrd.com/pages/country/ . 3 This index considers government consumption as a proportion of total consumption, the

ratio of transfers and subsidies to GDP, the number, composition and share of output by state-operated enterprises, government investment as a share of total investment, the use of price controls, the rates of top marginal tax thresholds, duration and use of military conscription, growth rate of money supply, level of in� ation, access to foreign currency bank accounts, exchange rate controls, risk of property con� scation, risk of government cancelling contracts, revenue derived from taxes on international trade, variation on tariff rates, share of trade sector covered by non-tariff restrictions, size of the trade sector, percentage of bank deposits held in privately owned banks, share of total domestic credit allocated to the private sector, determination of interest rates by market forces, access to country’s capital markets by foreign capital (summarized from Appendix 2, Explanatory Notes and Data Sources, EBRD, Transition Report 1999 , London: EBRD, 1999, p. 24). In interpreting these data, one should note that in some countries, privately owned companies may still have considerable state ownership, especially in large-scale industry. For other indexes see also Philip G. Roeder, ‘The Revolution of 1989: Post-communism and the Social Sciences’, Slavic Review , 58(4), 1999: 743–55.

4 Political rights include the right of adults to vote and compete for public of� ce and for ‘elected representatives to have a decisive vote on public policies’. Civil liberties include the rights to ‘develop views, institutions and personal autonomy’ independently of the




http://www.ebrd.com/pages/country/


state (Freedom in the World 2007, see www.freedomhouse.org . Rankings (on a 1–7 point scale) are shown on Figure 13.3 . I classify their de� nitions as follows: ‘unfree’, little or no political reform (these are essentially statist regimes); ‘partly free’, partial political reform (includes some pluralistic democratic rights and freedoms); and ‘free’, great political reform (de� ned as similar in character to Western liberal democratic regimes).

5 UNCTAD de� nes FDI � ows as follows. For associates and subsidiaries, FDI � ows consist of the net sales of shares and loans (including non-cash acquisitions made against equipment, manufacturing rights, etc.) to the parent company plus the parent � rm’s share of the af� liate’s reinvested earnings plus total net intra-company loans (short and long term) provided by the parent company. For branches, FDI � ows consist of the increase in reinvested earnings plus the net increase in funds received from the foreign direct investor. FDI � ows with a negative sign (reverse � ows) indicate that at least one of the components in the above de� nition is negative and not offset by positive amounts of the remaining components. FDI stock is de� ned as follows. For associate and subsidiary enterprises, it is the value of the share of their capital and reserves (including retained pro� ts) attributable to the parent enterprise (this is equal to total assets minus total liabilities), plus the net indebtedness of the associate or subsidiary to the parent � rm. For branches, it is the value of � xed assets and the value of current assets and investments, excluding amounts due from the parent, less liabilities to third parties.

6 EBRD, Foreign Direct Investment, see www.ebrd.com/country/stats . Expressed as a proportion of GDP, FDI for the same period was 39 per cent for the Czech Republic, 16 per cent for Russia, 64 per cent for Azerbaijan and 12 per cent for China (average for 1995–2008).

7 Author’s calculation derived from UNCTAD FDI statistics database, www.unctad.org . A similar � gure of $624.4 is given by the World Bank World Development indicators data to 2007.

8 Transition Report Update 1999 , London: EBRD, 1999, p. 6. 9 Transition Report Update 1999 , p. 3. 10 A formal de� nition of a transnational corporation (TNC) is an incorporated or

unincorporated enterprise comprising parent enterprises and their foreign af� liates. A parent enterprise is de� ned as an enterprise that controls assets of other entities in countries other than its home country, usually by owning a certain equity capital stake. A foreign af� liate is an incorporated or unincorporated enterprise in which an investor, who is a resident in another economy, owns a stake that permits a lasting interest in the management of that enterprise (an equity stake of 10 per cent for an incorporated enterprise, or its equivalent for an unincorporated enterprise). In the UNCTAD World Investment Report ( WIR ), subsidiary enterprises, associate enterprises, and branches are all referred to as foreign af� liates or af� liates ( WIR 2005 , Geneva: United Nations, 2005, p. 297.

11 UNCTAD, World Investment Report 2011 , p. 27, www.unctad.org/en/publicationslibrary/wir2011 .

12 UNCTAD, WIR 2009 , Annex Table A.I.12, Table A.I.9. See www.unctad.org/en/docs/wir2009 .

13 The data include companies which ‘publish � nancial data and report part or all of their � gures to a government agency’.

14 Mitsubishi (ranked 38), Nomura (40) and Mizuho Financial Group (47) (UNCTAD, WIR 2009 , Annex Table A.I.12, p. 234, www.unctad.org/en/docs/wir2009 ).

15 UNCTAD, WIR 2009 , p. 234. 16 M. Cihak and W. Fonteyne, Five Years After: EU Membership and Macro-Financial

Stability in New Member States , IMF Paper, WP/09/68, March 2009, p. 6. 17 EBRD database. Structural Indicators (Financial Sector). See www.ebrd.com/country/

sector/econ/stats/sci.xls . 18 For details, see World Bank, China 2030 , www.worldbank.com.China2030 , p. 155. For

an earlier discussion, see Barry Naughton, The Chinese Economy , Cambridge, MA: MIT Press, 2007, p. 455, Table 19.2 .


http://www.freedomhouse.org

http://www.ebrd.com/country/stats

http://www.unctad.org

http://www.unctad.org/en/publicationslibrary/wir2011


http://www.unctad.org/en/docs/wir2009





http://www.worldbank.com.China2030

‘Civil society’ is one of the major themes of discourse on the transformation of the former European state socialist societies to capitalism. Before the collapse of state socialism, citizen participation in democratic politics was discussed in terms of representative democracy, and the notion of ‘civil society’ played a relatively unimportant role in political analysis. 1 It is a concept laden with ambiguity and ideological pretensions.

In its most general sense, as used in political science discourse, civil society is that social space between individuals and primary groups (the family) on the one side, and political authority (the state) on the other. For most civil society theo-rists, autonomous associations (private business) and institutions (such as churches) � ll this space. An alternative approach is to conceive of civil society as being constituted from social networks or associations which may be linked to political authority.

‘Civil society’ not only has different meanings but has different political usages. In relation to the post-socialist states, I argue that civil society initially became a dis-course of critique of state socialism, it then turned into a reform ideology legitimating a pluralistic democratic society, and � nally it became an ideological component of neo-liberalism.

In liberal democracies, civil society is ‘organic’ in form, distinguished by the autonomy of intermediary groups from the sphere of state activity; without such associations, it is contended, a truly pluralist form of democracy cannot develop. Another approach is civil society of the ‘mechanical’ type. This involves associa-tions being embedded in the state; youth organizations, businesses, professional associations, trade unions may be supported, � nanced and even directed by the government.

With respect to the post-socialist states, I argue that these two different inter-pretations – the organic and the mechanical – legitimate different political forms of society. Civil society promotion on the part of the West (as well as domestic liberalizers in the post-socialist states) was part of a Western liberal vision involv-ing the dismantling of the socialist state. In its place autonomous associations (often sponsored by foreign interests, such as USAID – United States Agency for International Development) legitimated new forms of redistribution and regulation.

14 Civil society and the neo-liberal agenda



Such forms were intended to replace the former state socialist networks of civil society.

What type of civil society? Compared to transitologists, sociological interpretations are less normatively con-strued. The peculiar feature of civil society is that it is ‘a solidary sphere in which a certain kind of universalizing community comes gradually to be de� ned and to some degree enforced’. 2 Jeff Alexander conceives of civil society as some inde-pendent set of civil ties of communities with their own ‘cultural codes, and narra-tives in a democratic idiom’. 3 Rather than considering the units of civil society to be ‘autonomous’ and independent of other component parts of society, they are envisaged as interacting with, in� uencing and being in� uenced by, other spheres of society (including the state).

A similar view is taken by Chris Hann who, criticizing the Western model (of essentially ‘autonomous’ associations), contends that we should ‘understand civil society to refer more loosely to the moral community, to the problems of account-ability, trust and cooperation that all groups face. In this sense, all human com-munities are concerned with establishing their own version of a civil society…’. 4 This theoretical approach has the advantage that it does not privilege one form or paradigm of ‘civil society’, and does not de� ne it in terms of the market, private property and possessive individualism. It includes ‘reciprocal associations’, infor-mal networks and forms of mutual support.

Writing from an historical perspective, other writers associate the rise of civil society with the development of capitalism, and consider its formation to be dependent on the bourgeoisie. The emphasis here is on the economic formation distinguished by private property. 5 The legal system enforced rights to private property and made the accumulation of capital possible. This form of civil society is created out of the process of ‘democracy formation’ in the post-socialist socie-ties. Electoral democracy is the political shell preserving the right to property, legitimated by civil society. In this sense, it is a component of neo-liberalism – a set of autonomous structures and networks in which private interests can freely operate.

Civil society promotion Transitologists attempting to form post-socialist societies in terns of Western lib-eral democratic conceptions of civil society assumed that it was predicated on individual rights. Here they came into con� ict with the non-liberal ideas that were widespread in many Eastern European societies, especially Russia, Ukraine and central Asia where more collectivist socialist and statist ideas of rights are embed-ded. As Pollis and Schwab have argued,

… only in the Western capitalist states, with a shared historical development and a common philosophic tradition, does the concept of individual rights


Civil society and the neo-liberal agenda 217

against and prior to the state exist. And only in these countries are political and civil rights implemented to a greater or lesser extent. Most non-Western states, for a combination of cultural and ideological reasons and because of policy priorities set by the demands of economic development, do not empha-size or attend to political and civil rights. 6

Such writers emphasize the interrelationship and interdependence between particu-lar sets of human rights’ doctrines and the social, political and economic structures in which they are embedded.

Hence individualistic human rights have a particular rather than a universal relevance. In the former socialist societies, economic, welfare and distributive collective rights were given a priority and were established in countries that had only rudimentary (if any) individual rights before the socialist revolutions took place. These collective forms of rights then were imposed on, or were copied, in varying degrees, in the central and Eastern European states in the period of the construction of the socialist system. A classi� cation showing the differences between individualistic and collectivist types of rights is summarized in Figure 14.1 . These assumptions de� ne different types of civil society.

In attempting to ‘create civil society from above’ transitologists are confronted with individualistic and collectivist assumptions about human rights. The former are shown in the � rst column, the latter in the second. The Western capitalist transitologists favoured the formation of civil rights as illustrated in the � rst column, whereas the socialist and traditional conceptions of rights are listed in the second.

Civil society is not only an ambiguous concept, but has played diverse roles in the evolution of the post-communist states. I distinguish four major civil soci-ety maps: as a component of capitalism (this is elaborated in Figure 14.2 ); as reform ideology (see Figure 14.3 ); as political policy legitimating democratization

INDIVIDUALISTIC ORGANIC

Solidarity

Rights are possessed by Individuals

Rights are determined priorto the state and expressedin law

Rights are enforced byindividuals mediated by law

Rights are observed through anabsence of interference in affairs ofindividuals and institutions

COLLECTIVIST MECHANICAL

Solidarity

Rights are held by groups andclasses, as well as individuals

Rights are defined by,and activated through,the state

Rights are enforcedthrough administrative action

Rights are achieved through positive actions byinstitutions and the state.

Figure 14.1 Individualistic and collectivist rights .



(see Figure 14.4 ); and as an ideological component of neo-liberalism for the post-socialist states joining the European Union (see Figure 14.5 ).

Civil society in established capitalism In the established capitalist countries of Western Europe, capitalism has had a long uninterrupted history. By the twentieth century, people in countries like the UK, France and Italy had already secured rights to private and corporate property. There were economic markets, and pluralist polyarchic political coordination through parliamentary processes and the institutions of economic and political civil society.

As illustrated in Figure 14.2 , institutions were in place that maintained the coordination, legitimacy and stability of capitalist societies. In this context, civil society forms of economic associations were relatively autonomous. Political institutions (parties, interest groups in civil society, parliaments) have sought to protect the public from the destabilizing effects of the operation of the free market under corporate capitalism. They have sought to introduce social mechanisms to protect disadvantaged groups and have been able to do so with varying degrees of success over a period of time. Civil society had dominant forms of corporate prop-erty (autonomous from the state) as well as other disparate groups and associations (churches, political parties, sports associations, guilds, trade unions and so on).

In the state socialist societies, civil society was embedded in structures of state coordination and administrative distribution, as illustrated in Figure 14.3A . Economic enterprises and sports clubs had members and networks, but were owned by, and worked under, the control of the state, which limited their autonomy.

Civil society in the early transformation of central and Eastern Europe In the post-state socialist societies, the meaning and relevance of civil society has changed over time. In the terminal state socialist period, ‘civil society’ discourse originated in the reform movements and provided an intellectual challenge to the structure and process of state socialism. Those disposed to change the parameters of the socialist system were able to legitimate their position through a civil society discourse. Essentially, civil society legitimated a sphere of interests independent of the state and was based on organic rather than mechanical organising princi-ples, as summarized in Figure 14.1 . The proposed type of civil society to be formed was predicated on the political sphere. Due to the absence of autonomous

Form of Property

Principal Economic Coordination

PoliticalCoordination

Legitimation Type of CivilSociety

Private Market ElectoralDemocracy

Law Autonomous Self-regulation

Figure 14.2 Civil society under established capitalism.



(non-state-sponsored) associations under state socialism they could not stimulate reform but were consequences of reform.

As illustrated in Figure 14.3A , the initial conditions were not those of the market and private property, which could secure a private autonomous sphere, but state coordination and administrative distribution.

In the pre-transformation period, civil society was not composed of a structure of institutions but was a discourse which legitimated reformers’ intentions for regime change. Civil society in the sense of autonomous associations did not cause change, but the discourse of Western civil society legitimated criticism of the statist forms of socialism and, later, legitimated regime change. The initial discourse was in terms of rights to assembly and to form associations (from envi-ronmental groups to jazz bands); only later did the claim for private property arise (as illustrated in Figure 14.3B ).

When the outcome of the reform movement was positive (state socialism was dismantled), civil society discourse changed to become a policy objective and the concept was widened to include the market and private forms of property.

Here we may note some major differences between the existing capitalist and the new post-socialist states. First, civil society initially was borrowed as a dis-course from the established economically capitalist and politically polyarchic countries to legitimate political opposition to the socialist state. Second, emphasis was on the promotion of political civil society (rights to political association against the state), whereas historically, in the transition from feudalism to capital-ism, economic civil society (rights to property) was achieved � rst and provided a base from which political civil society could be formed. Reformers in the new post-socialist states sought to achieve (polyarchic) electoral forms of political

A. Initial form of state socialism

Form of Property


Political Coordination

Legitimation Type of Civil Society

State/Cooperative State plan Dominantpolitical party

Class power Associationsbounded by state

B. Reformers’ Intended outcomes

Form of Property


Political Coordination

Legitimation Type of Civil Society

State/ Cooperative

Longer term:private property

State plan/Market elements

Longer term: market system

Pluralistic

Longer term:Competitive Electoral democracy

Rights of citizens and groups

Associations freeof the state.Promotion ofpluralistic forms

Figure 14.3 Civil society in the state socialist societies as an agent of reform. (A) Initial form of state socialism, (B) Reformers’ intended outcomes.



coordination. Third, the socialist state’s powers included economic rights to prop-erty, and had to be broken. There is an analogy here with the claims of the ascend-ant bourgeoisie against the rights of the feudal aristocracy. Fourth, with the possible exception of the early post-Second World War transformation of Western Germany and Austria, Western European states were strongly entrenched in terms of legitimacy and their parliaments provided a coordinating role between the cap-italist market and society. Western civil society associations worked in the context of established state apparatuses, whereas the reform movement’s goal was to weaken the structures remaining from the communist state.

After the defeat and dismantling of the hegemonic communist parties, civil society formation took different forms in the new member states of the EU and the others in the former space of the USSR. Initially in the post-socialist period, in the central European societies state activity was associated with communism and lacked legitimacy. ‘Stalinism’ was the epithet used to deny the state socialist forms of civil society. The dispositions of reformers (both internal to the society and from abroad) were to weaken state forms, and to promote political civil soci-ety (any kind of ‘people’s associations’). 7

In the transformative post-socialist society, civil society discourse shifted to the sphere of the economy. It not only legitimated the privatization of state property, it undermined the socialist state’s practice of social transfer. Policy sought to reduce not only the hegemonic power of the state, but state social-welfare activity as well. Paradoxically, unlike in Western social-democratic states, provision of public wel-fare was considered by the reformers as something morally bad and derived from the disreputable communist regime. The coordination of the economy, constituted of autonomous business � rms and other private entities, would be furthered through a market and democratic parliamentary-type institutions. Welfare would become an individual’s responsibility, not a collective one. Thus, while the objective for Western European civil society associations – parties, trade unions and welfare groups – was to curb the operation of the market and strengthen state redistribution, in the transitional post-socialist states the objective was to enhance the power of the market and weaken the distributive powers of the state: a neo-liberal strategy.

These are the frames in which democracy promotion had to take place. In the established capitalist states, autonomous civil society activities arose out of exist-ing socially based associations. In the post-socialist states, neo-liberal policies of de-statization, marketization and privatization successfully narrowed the scope of government activity. Similar processes were at work in the Western European states, but they were confronted with a stronger nation state in which government economic and social activity remained relatively strongly embedded (see Chapter 18 for a discussion of state ownership of companies). Resistance was also greater in the post-socialist states of the Commonwealth of Independent States.

Civil society map to join the European Union In the post-socialist states seeking membership of the EU, their initial conditions did not include established capitalist economic and political structures. The initiatives



for the institution of democratic governance (i.e. electoral democracy, political parties) occurred in a hybrid society – one with market elements, but with only rudimentary polyarchic structures and very weak representative institutions (such as political parties). Elite dispositions in the early transformation period came from the West (in practice from the EU), which de� ned through the Acquis 8 the conditions for membership. This widened the previous radical reform concept of political and social civil society to include a private property component. Hence the trajectory of democracy policy formation was a consequence of an external EU elite which called for the manufacture of civil society. The conditions are summarized in Figure 14.4 .

In the Eastern European post-socialist states (seeking EU membership), while ‘informal groups’ and civil society advocates such as Vaclav Klaus and Vaclav Havel were important as ideologists in the fall of state socialism, civil society institutions (as autonomous articulators of social interests) were only embryonic. Trade unions and political parties had no experience of working in a capitalist framework, let alone a testing neo-liberal one. In this context, civil society had to be made by the political elites in the post-communist countries, with the assis-tance of their sponsors from abroad.

How, then, did the next process of civil society formation proceed? The analysis now moves to consider civil society in the form of an empirical social formation. 9

Real existing civil societies Detailed comparative data on the constitution of civil society in central and Eastern European member states of the European Union have been collected by the European Social Survey, the European Values Survey and the World Values Survey, 10 and the US Agency for International Development (USAID). 11 We need to bear in mind that statistics are collected for the use of the people who commis-sion them and contain biases in de� nition, classi� cation and collection which serve to promote their own interests. 12 Hence care is necessary in interpretation. These sources in combination, however, present a picture of the strengths and weaknesses of civil society in the emerging post-communist societies.

The 1995–97 World Values Survey points to a much lower level of participa-tion in 13 post-communist countries than in eight ‘older democracies’ (USA, Australia, Sweden, Finland, Japan, Norway, Switzerland, Japan and Federal Republic of Germany). Rates of organizational membership for the former were

Form of Property

PrincipalEconomicCoordination

PoliticalCoordination

Legitimation Type of CivilSociety

Private/corporateand state

Economicmarket

Electoraldemocracy

Law Associationsautonomous ofthe state

Figure 14.4 Civil society in the new member states: electoral democracy as instrument of neo-liberalism.



2.39 memberships per person compared to only 0.91 memberships in the post-communist countries – Macedonia and the German Democratic Republic were the highest with scores of 1.5 and Hungary had 1.0; countries of the former Soviet Union were below 1. 13

A later European Values Survey, conducted in 1999/2000, can be used as a basis for comparison between the new and older members of the European Union. Figure 14.5 illustrates the percentage of the respondents in different countries who participated in political parties and trade unions in 1999/2000. To simplify the comparisons, only three Western European states (Great Britain, Germany and Spain) have been selected to illustrate differences with the new post-socialist EU members (data include Romania but not Bulgaria), and four post-socialist non-members (Croatia, Belarus, Ukraine and Russia) to illustrate those left out. As there were considerable differences between the countries in each group, an average is used in terms of the median.

In terms of the types of trade union and political party membership, the survey shows important differences between the older democracies and post-communist countries. Rather surprisingly perhaps, the new members had trade union partici-pation rates higher than those of the old members. However, we must bear in mind that the post-socialist countries had the imprint of the paternalist trade union movement, providing social support services as part of the welfare state, rather than the economistic Western trade unions. This illustrates the point made above about the state socialist societies being based on a type of ‘mechanical’ rather than ‘organic’ solidarity.

It is when one considers political associations that a greater real gulf is observed. In all the new EU states, membership of political parties is less than

7.2

10.3

22.1

2.50.4 0.5

0

5

10

15

20

25

OldMems NewMems NonMems

%m

embs

TusMem PolParMem

Figure 14.5 Trade union and political party membership: old members, new members and non-EU post-socialist countries, 1999/2000 .

Source: Derived from The European Values Study: A Third Wave , source book of the 1999/2000 Euro-pean Values Survey, Loek Halman, Tilburg University, no date. Note: Data refer to median membership in the relevant group of countries.



1 per cent, with extremely low participation in Estonia, Lithuania and Slovakia (0.2 per cent or less of the respondents). Comparatively, in the three old EU states, membership is higher than 2 per cent and in the non-EU post-communist societies membership is about the same as in the new member states, even slightly higher. Clearly, as part of de-statization, the hegemonic Communist Party (or equivalent) was discredited (and sometimes made illegal), and has not been replaced with other more spontaneous and ‘autonomous’ political associations.

If we consider civil society associations in a wider sense, we again � nd a simi-lar pattern between the Western European and post-socialist states. Unpaid volun-tary work and participation in rights activity (including in the Third World) are fairly robust indications of the strength of civil society. Data have been collected and analysed for all European societies, 14 and the medians for the old EU mem-bers, new members and post-socialist societies excluded from the EU are shown on Figure 14.6 . These data refer to 2003 and have not been repeated since. With the exception of Belarus, all the post-socialist countries are again below the median for participation in Third World and human rights associations. In terms of civil society participation in human rights and Third World countries, in old EU countries it is 9.5 times greater, and for participation in voluntary unpaid work it is 7.25 times greater. This is evidence of a ‘civil society de� cit’ in the new member states.

The medians of the two sets of countries (old and new EU members) bring out that GDP is 2.44 times greater in the old EU countries. Not surprisingly, then, we � nd very high correlations between GDP and participation in civil society associations.

2.9

0.4 0.5

1.9

0.2 0.30.30.3

26.1

10.6

6.57

0

0.5

1

1.5

2

2.5

3

3.5

Old EU Membs New EU membs Others (E.Eur)

% M

embs

0

5

10

15

20

25

30G

DP

(P

PP

)

Unpaid Human Rts GDP

Figure 14.6 Human rights, voluntary work and GDP indexes: old, new and non-EU members.

Source: Voluntary work and human rights, European Social Survey (2002/2003), based on a sample of responses from relevant countries; GDP from World Development Report 2004 Notes: GDP (PPP) for 2002 measured in thousands of US dollars – right hand scale. Voluntary work, participation in Third World and human rights organizations, percentage of respondents answering positively – left hand scale. New members exclude Bulgaria and Romania. Others (non-EU) include Russia, Belarus, Ukraine and Croatia.



The correlation coef� cient between the level of participation in voluntary work and GDP is 0.52 and between human rights activity and GDP is 0.63. 15 Typically, societies with active civil societies are prosperous and citizens have considerable spare time and disposable income. Overall, however, the new EU members from central and Eastern Europe had a participation gap far in excess of the differences in GDP. With the exception of Slovenia (not shown on Figure 14.6 ) all the post-socialist countries are below the median GDP, and the same may be said about participation in voluntary work.

A second set of data, which indicates political participation, is the proportion of citizens who vote in European elections. Here again the data are unequivocal: the average turnout in the EU as a whole was 45.6 per cent; for the old members it was 52.9 per cent and for the new CEECs, 31.2 per cent. Figure 14.7 shows the old members of the left, the new members in the middle right and the three aver-ages on the far right. (Cyprus and Malta are included in the total in the text, but omitted from Figure 14.7 .)

These data show that there is a serious de� ciency with respect to participation in voluntary organizations with a political ‘input’ which has important implica-tions for the ef� cacy of civil society associations as instruments in the process of a liberal-democratic system as well as for the articulation and defence of com-munity interests. These quantitative data need to be quali� ed with respect to the structures of the associations and the processes that helped or hindered their formation.

Western civil society promotion While these data provide ‘snapshot’ pictures of civil society associations, the US Agency for International Development (USAID) has collected data on the devel-opment of civil society organizations for all CEE countries, as well as for Eurasia

0

20

40

60

80

100

BE LU IT EL IE DK ES DE FR AT FI NL UK PT SE LT LV HU CZ SI EE PL SK EU Ol Nw

Figure 14.7 Turnout at European elections, old and new members, 2004 (percentage vote by country).

Source: www.europarl.europa.eu/elections2004


http://www.europarl.europa.eu/elections2004


since 1999. 16 Their annual reports are collected from � eld-workers in the relevant countries. While they lack the comprehensive measurement of participation rates comparatively, they bring out the organizational character of the associations and government policy towards them. As noted above, we need to take into account that the reports were written for USAID and may be biased towards promoting their own policies. USAID has measured the ‘sustainability’ of non-governmental organizations (NGOs) in the post-communist countries. A score of between 1 and 3 indicates consolidation of the society into a Western-type democracy; 3 to 5 indi-cates mid-transition stage; and early transition, 5 to 7. These scores are aggregated from seven components of civil society associations as estimated by USAID � eld-workers: legal environment, organizational capacity, � nancial viability, advocacy, service provision, infrastructure and public image. The top scores (1 and 2), giving a ‘consolidated civil society’, show what Western policy-makers consider to be a vibrant civil society.

In view of the weakness of civil society, indicated above by the survey meas-ures, USAID’s measures take a relatively low threshold for a ‘consolidated civil society’. USAID contends that a ‘Western-type democracy’ was attained already in 1997 for those countries that constituted the new member states (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia and Slovakia). Countries like Russia and Ukraine have remained (by 2006) at the mid-transition point. The scores are shown on Figure 14.8 . We may note that for the new mem-bers there has been a very slight decline in the sustainability of non-governmental organizations between 1999 and 2006. We may conclude that the situation described in the surveys cited above for earlier years has not changed very much.

1

2

3

4

5

6

7

1997 1999 2001 2003 2006

Sco

re

New Mems Non-Mems Linear (New Mems)

Figure 14.8 USAID Sustainability Index of NGOs, 1997 to 2006: new post-socialist EU members and non-members.

Note: Non-members – average of Russia and Ukraine. New members exclude Bulgaria and Romania. In 2006 the score for Bulgaria was 3.2 and for Romania 3.6 (1 to 3 represents consolidated democracy). Source: USAID, NGO Sustainability Index 2006 , p. 242.



Study of the USAID annual reports brings out the structural weaknesses of civil society organizations. On the positive side, since the collapse of the state socialist system, a legal framework has been set up, training of staff has improved and input to the decision making process has grown. 17 Politically, civil society organizations have become ‘a means to attain political power’. 18 Financial sus-tainability is insuf� cient for a number of reasons – governments have diminishing resources, socio-economic development is inadequate, the business sector is weak and there is no tradition of philanthropy. 19 It is widely conceded that international donor assistance has been and is necessary to promote NGO sustainability. 20 Sponsorship, particularly by foreign organizations, has been a major source of � nance.

Many organizations have been formed on the basis of sponsors’ purses; they lack transparency, self-regulation, and independent forms of � nance. Policy pri-orities assumed by organizations such as the UK Department for International Development (DFID), USAID, the National Endowment for Democracy, the Open Society Foundation and Freedom House do not always coincide with those of people living in the areas concerned.

There is a need for greater accountability of the growing number of NGOs (non-government organizations) and CSOs (community service organizations), many of which have been founded and funded by foreign bodies. The withdrawal of ‘long-term supporters such as USAID and British DFID … caus[ed] a substan-tial reduction in the annual amount of support available to the … NGO sector’. 21 The 2006 Report notes that by 2004, ‘most foreign donors had departed and domestic funding sources were still insuf� cient to sustain civil society organiza-tions’. 22 A considerable portion of NGO funding is sourced from public funds. 23 What becomes clear is that the EU and national government funding are seen as a necessary condition for the ful� lment of the objectives of NGO organizations. Ironically, the legitimacy of civil society promotion was to replace statist organi-zations with autonomous self-� nanced and self-governing ones; in practice these associations were dependent on foreign state-sponsored � nance as well as sub-ventions from home governments.

One might question, moreover, whether such objectives for civil society asso-ciations should be supported. The effects of neo-liberal economic policies have led to restrictions in government budgets. These impact on the capacity of govern-ments to defend citizens consequent on the deleterious effects of policies, includ-ing the public provision of social services. Supporting CSOs in these circumstances weakens the power of government and leads to the promotion of the sector as the political counterpart of neo-liberal economic policies.

As the 2006 NGO Sustainability Index puts it:

Most Central European countries [have] decentralized government functions, leading to the emergence of lower levels of public administration and self-governing structures. These new decentralized units of government have enhanced mandates and resources, and they can often provide grants to NGOs active in their respective territories to carry out government programs.



Local government authorities realized over time that the state is not capable of delivering all the services expected by citizens, and that such services could be – and in some cases already were being – provided by NGOs. While it took state institutions some time to align their operations to cooperate with the NGO sector, the government eventually started to fund NGOs to provide services that it could not deliver itself. 24

De-modernization Western European nation states in the twentieth century moved away from the nineteenth-century model of philanthropic support (and volunteers) to provide social services as a right to members of the community. In the social-democratic states, these were comprehensive and free at the point of delivery. Neo-liberal policies seek to transfer the responsibility away from the state to the individual. The current shift to NGOs is part of this policy. It is a form of de-modernization. The lack of foreign donors also pushes CSOs into their own income-generating activities. The introduction of ‘fees for services’, as promoted by USAID, leads to commodi� cation of the public sector and a diminution in the public sphere of service provision. Whether this is desirable or not is a matter of political prefer-ence. However, these forms of civil society activities do not enhance ‘democracy promotion’ as advocated by the political philosophy of the EU. Civil society asso-ciations, as autonomous ‘people’s representatives’, are notably absent.

USAID considers that the NGO sector should develop an ‘adversarial’ model of accountability to the state rather than ‘a corporatist model of civil society as in Germany’, and policy should avoid state funding pushing civil society associa-tions in the direction of ‘public organizations’. 25 There is clearly a neo-liberal ideological preference for CSOs to become state critics and thereby to enter the political arena. This again illustrates the ideological preference for an ‘organic’ American individualistic type of civil society, rather than the more ‘mechanical’ one, discussed above. Such civil society promotion is a component of neo-liberal regime change. On the other side, as will be noted in Chapter 18 , the Putin leader-ship in the Russian Federation advocates and legitimates a more ‘mechanical’ form of CSO.

The 2006 NGO Sustainability Report highlights the ‘transformational impact of civil society’, pointing to the fact that regimes (such as Slovakia, Serbia, Georgia, Ukraine and Kyrgyzstan) channel civil society ‘energies and resources into a get out the vote campaign or an opposition movement’. 26 The rise of the phenomenon of ‘coloured revolutions’ brings civil society as a social movement into political perspective, and we turn to consider this aspect further in Chapter 19 . However, these activities are recognized, even by USAID, to be counter- productive (Hungary and Latvia in 2006 are singled out, 27 and Ukraine is also a notable example), in that the public become sceptical of NGO activities.

NGOs are lacking in resources, the professional quali� cations of employees are low and the infrastructure of support is weak. Active membership of CSOs is small and puts into question their effectiveness as autonomous groups articulating



public interests. The sector is lacking in organizational capacity and regularized forms of accountability and transparency. In the public image, NGOs are compro-mised due to their lack of competence and transparency. It might be questioned whether they are bodies that can effectively take over responsibilities that are traditionally the role of local and central government. While answerable to their sponsors, there is an absence of accountability to users of services or to the public sphere as a whole. The sector is unable to respond to the needs of potential service users. There is a general tendency for these groups to be separate from society. Consequently, they are often viewed by the public with suspicion, especially so when they become involved with foreign political sponsors engaged in electoral politics.

What place for civil society? ‘Civil society’ can be interpreted as sets of relationships set in two different types of society – mechanical and organic. In Western societies, civil society is a form of political articulation and coordination based on autonomous associations working in a capitalist market framework. In the state socialist societies there was no civil society in this sense, though there were networks and groups interlinked with, and often controlled by, the state. In the terminal period of state socialism, civil society discourse adopted yet another dimension: it became part of a counter-ideology delegitimating the socialist political system and posing a pluralist alternative.

In the construction of capitalism and a pluralist competitive democracy in the post-socialist candidate member states, spurred by the policy of the EU, civil soci-ety promotion became a policy objective. It was a social component of the move to markets and electoral democracy, a part of the neo-liberal politics of transfor-mation strongly in� uenced by American values, people, processes and money.

Unlike the conditions in the old EU member states, in the post-socialist socie-ties, CSOs had not only to be encouraged, but formed by the new incumbents of power. In this context, the previous forms of association in the post-socialist states were severely weakened, if not destroyed, as part of the anti-statist philosophy guiding transformation. Civil society promotion was introduced in a period of rapid and comprehensive changes in the fabric of the society: economically – the introduction of markets internally and on a world scale and the privatization of state assets; politically – the dismemberment of the hierarchical political system and the introduction of a pluralistic polity; and socially – the formation of a new class system and the curtailment of previous networks of welfare (including employment).

Another obstacle to the installation of a new ‘Western’ type of civil society is that the level of GNP was lower than in the old EU states and the economy expe-rienced a marked decline during the early period of transformation. As GNP is highly correlated with the vitality of CSOs, a major precondition for autonomous civil society development was absent. The disposable income and social energy of the population was insuf� cient to lead to investment in autonomous civil society associations. The economic downturn and social vacuum caused by the transformation



process led in turn to the arti� cial ‘manufacture’ of civil society and the intrusion of foreign donor interests, which became counter-productive – they undermine the autonomy of associations (a fundamental attribute of the liberal concept of civil society) and form a stratum of managers and executives responsible to donors, rather than accountable to clients.

In the post-socialist new member states, membership and structures of civil society associations are very much lower and weaker than in the old ones. Studies show that in the former, such associations are poor articulators of social needs and are unable to provide satisfactory levels of services.

The EU proposals for the introduction of new forms of democracy, as far as CSOs are concerned, have not been as successful as anticipated in the new post-socialist member states. There are a number of reasons for this and some are related to the initial conditions of the new member states. First, while the legiti-mation of transformation was in terms of political civil society promotion, the transformation process has focused on the formation of markets and private com-panies (‘economic’ civil society), consequent on the destruction of the statist system. This has led to much weaker governmental institutions than in the old EU member states. Second, the tasks of government were compounded by the shocks and socially destabilizing effects of economic and political transformation. The EU had no policies to safeguard the existing social rights (to health services and to employment) of the new citizens of the EU. What was a collective responsibil-ity now became an individual one and individuals lacked the means to secure them. Third, the statist structures inherited from the socialist period left an imprint of different types of statist network associations – not autonomous civil society associations as found in liberal-type capitalist societies.

The new post-communist societies of the CEE countries lacked suf� cient political capacity to cope adequately with the social and economic turmoil that ensued with the move to a market society. The old had been swept away – the socialist state lost its redistributive character and service provision functions. The EU provided a model for the new but it could not be delivered. Autonomous CSOs were not appropriate vehicles for policy implementation and interest articulation. The types of associations promoted by Western agencies were incompatible with the legacy of a state-led form of socialism.

Possibly the neo-liberal political bias should have been countered by a more robust political opposition. But there was a political de� cit: there was insuf� cient social and political energy to resist conditions in the EU Acquis which did not meet the needs of the population. The activists who led movements for political reform bene� ted from it and were incorporated into it by the new ruling elites. Clearly, the EU elites de� ned the conditions of transformation. The installation of a social democratic welfare state might have been more in keeping with the former statist form of welfare. But the ascendancy of neo-liberalism both from executives of the EU and from transitologists in the USA precluded a social-democratic set-tlement.

As noted in the previous chapter, it is clear that the rise in wealth creation and living standards did not materialize as predicted by the reformers seeking to transform



state socialism; ‘civil society’ did not arise from the ashes of the latter; and the new forms of governance have not led to higher levels of democratization.

Systemic weaknesses of the new states were a consequence of the policies of transformation. 28 One might question whether conditions in the post-communist societies are appropriate for the development of a non-pro� t civil society sector as an alternative provider of services to the welfare state. Such attempts may weaken even further state provision which suffers under stringent budgetary reductions in keeping with neo-liberal economic doctrine. The in� uence of foreign donors has even more distorted the provision of services. It has also led to the criticism that the kind of civil society sponsored by the West is part of its political hegemony: ‘civil society begins to look less like a way of fostering democratic rights and responsive governments and more like part of the dominant ideology of the post cold war period: liberal market capitalism’. 29

Civil society promotion, as in the late Soviet period, again takes an ideological form, but in this case as part of a legitimation of a hegemonic power relation – the European Union. A greater reliance on the market and reduction of the state as an agent of redistribution and social provision increases levels of social inequality, which in turn leads to social stress and political instability.

Notes 1 A study of a number of encyclopaedias and dictionaries of political and social thought

of published before 1980 shows that ‘civil society’ was rarely mentioned. For example, in Alan Bullock and Oliver Stallybrass, Fontana Dictionary of Modern Thought , London: Fontana/Collins, 1977 4,000 key terms are included, but not civil society. Similarly, the concept is ignored in Julius Gould and William L. Kolb, A Dictionary of the Social Sciences , London: Tavistock, 1964.

2 J. C. Alexander, ‘Introduction’, Real Civil Liberties , London: Sage, 1998, p. 7. 3 Alexander, ‘Introduction’, p. 7. 4 Chris Hann, ‘Introduction: Political Society and Civil Anthropology’, in C. Hann and

E. Dunn (eds), Civil Society: Challenging Western Models , London: Routledge, 1966, p. 20. 5 See the discussion in Alvin W. Gouldner, The Two Marxisms , New York: Oxford

University Press, 1980, p. 355 (italics in original). 6 A. Pollis and P. Schwab, ‘Introduction’, in A. Pollis and P. Schwab (eds), Human

Rights: Cultural and Ideological Perspectives , New York: Praeger, 1979, p. xiii. 7 Petra Rakusanova, ‘European Civil Society: Reality or Wishful Thinking’, NEWGOV

Workshop, Berlin, May 2008. This paper shows how the views of the insurgent elites (Havel and Klaus) of ‘civil society’ changed after taking power, p. 9.

8 The EU Acquis refers to the legislation and legal acts that form the basis of European Union law. States seeking membership had to show that they had ful� lled, or were capable of ful� lling, the basic laws of the EU – discussed in Chapter 12 .

9 For a more detailed coverage see David Lane, ‘Civil Society Formation and Accountability in the New Post-socialist EU Member States’, in Heiko Pleines (ed.) Participation in Civil Society in New Modes of Governance: The Case of the New EU Member States , Forschungsstelle Osteuropa Bremen, Arbeitspapiere und Materialien, No. 74, February 2006, pp. 7–21; Petra Rakusanova, ‘European Civil Society’; Beate Sissenich, ‘Weak States, New Modes of Governance and Enlargement’, NEWGOV Workshop, Berlin, May 2008.

10 See www.worldvaluessurvey.org/ .


http://www.worldvaluessurvey.org/


11 Data taken from USAID 2003, see www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex.htm

12 See, for instance, I. Miles and J. Irvine, ‘The Critique of Of� cial Statistics’, in J. Irvine, I. Miles and J. Evans (eds), Demystifying Social Statistics , London: Pluto, 1979.

13 Data have been conveniently collected in M. M. Howard, The Weakness of Civil Society in Post-Communist Europe , Cambridge: Cambridge University Press, 2003, ch. 4 .

14 See Lane, ‘Civil Society Formation and Accountability’, pp. 11–13. 15 Calculations by the author based on data in the European Social Survey and World

Development Report 2004; GDP (PPP) data for 2002. 16 USAID, Bureau for Europe and Asia, 2006 NGO Sustainability Index for Central and

Eastern Europe and Eurasia , www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex/2006/index.htm

17 See report by David Stulik, USAID, 2006 NGO Sustainability Index , pp. 36–7. 18 Executive Summary, USAID, 2006 NGO Sustainability Index , p. 2. 19 USAID, 2006 NGO Sustainability Index , p. 20. 20 USAID, 2006 NGO Sustainability Index , p. 21. 21 Report on Slovakia, USAID, 2006 NGO Sustainability Index , p. 177. 22 USAID, 2006 NGO Sustainability Index , p. 39. 23 This is estimated at between 50 and 60 per cent of NGO income; USAID, 2006 NGO

Sustainability Index , p. 41. 24 USAID, 2006 NGO Sustainability Index , p. 40–1. 25 USAID, 2006 NGO Sustainability Index , p. 41. 26 USAID, 2006 NGO Sustainability Index , p. 22. 27 USAID, 2006 NGO Sustainability Index , p. 2. 28 See the conclusions in Beate Sissenich, ‘Weak States, Weak Societies: Comparing New

and Old Member States of the EU’, NEWGOV Workshop, Berlin, May 2008. 29 David Rieff, ‘Civil Society and the Future of the Nation-State’, 1999, www.

thenation.com . See also the criticism of ‘manufactured civil society’ in Jude Howell, ‘Manufacturing Civil Society from the Outside’, paper presented at EADI Conference, September 1999.


http://www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex.htm

http://www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex.htm

http://www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex/2006/index.htm

http://www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex/2006/index.htm

http://www.thenation.com

http://www.thenation.com

The end of the bi-polar world consequent on the fall of the Soviet bloc led to the hegemony of Anglo-American capitalism on the one hand and a move to eco-nomic and political regionalism (such as the European Union) on the other. Contemporary political developments are increasingly conditioned by the geo-political framework in which nation states are embedded. After the fall of state socialism, the post-socialist countries entered the world economy, though in dif-ferent ways. As we noted earlier, an aspiration of the radical reformers was a move to the world economy, which it was believed would enhance the economic development of the post-socialist economies. In this chapter, we examine the form, and the extent to which the post-socialist societies are integrated into the world economic system. Finally, the effects of the world economic crisis that began in 2008 are studied.

Economic corporations On entering the world economy, the post-socialist states copied the economic structures of the advanced capitalist countries; at the forefront is the rise of eco-nomic corporations. The theme of this chapter is that the post-socialist countries have been exposed to the world economy and have not gained very much from it. Russia has been able to promote a number of mainly energy corporations, but is a weak player, and the new member states of the EU are very small actors. Only China has a signi� cant presence.

The Forbes index of the world top 2,000 companies gives a good measure of the strength of the economic presence of a country in the world economy. Each company has an index derived from four major commercial components: sales, pro� ts, assets and market value. An element of caution is necessary, as wholly state-owned corporations and others with no publicly available accounts are excluded.

Figure 15.1 shows companies registered in various countries in the Forbes list of top 2,000 global companies. The chart includes all the post-socialist EU new member states and Russia, as well as the USA, Japan, UK, Brazil and India. While the USA and others of the neo-liberal core predominate on a world basis, the BRIC (Brazil, Russia, India and China) corporations have an important presence and

15 Post-socialist states in the world economy



they have been growing at a rapid pace. Such companies (in addition to nationally based ones) provide an economic base for substantial regional associations.

The Commonwealth of Independent States (CIS) countries possess considera-ble assets in the primary materials’ extraction sector, although their manufactur-ing and particularly high-tech manufacturing are in decline. Kazakhstan had only one company in 2009 and two in 2012. Russia was represented by 28 companies in both years and is the only serious player of any of the European post-socialist societies in the world economy; it is in the same category as Brazil (2009, 31 companies; 2012, 33). India, in this respect, is a stronger actor, with 47 � rms in 2009 and 61 in 2012. The sector breakdown shows that for Russia the largest group of companies is composed of oil and gas, followed by those in raw materi-als (iron, steel, aluminium, gold, nickel; there are four banks, three telecom com-panies, one utility, two in consumer durables and one in chemicals). 1

China has a signi� cant presence in the world economy. China economically has had the most successful transformation of its economy from a centrally planned one. Its manufacturing and exports have bene� ted from foreign direct investment (FDI). However, the state has maintained considerable control of the economy through its banking system and publicly owned corporations. Chinese policy was to allow the privatization of small and medium companies, but to keep large ‘strategic’ companies under state ownership and control. Of its ten top com-panies in the Forbes list, seven are in banking, one in materials, one in oil and gas and one in communications. Seven of China’s companies are in the top 100, compared to Russia’s four. The sheer size of the country gives it an enormous internal market. State-guided investment has been (and is) a key policy promot-ing development.

0

100

200

300

400

500

600N

o C

orps

2009

2012

USAJapanChi+HKUKS.KoreaIndiaBrazilRussiaNMS

Figure 15.1 Companies in the top 2000: post-socialist and leading Western countries, 2009.

Source: Forbes, The Global 2000 , Special Report, www.forbes.com/lists/2009.global-09 .


http://www.forbes.com/lists/2009.global-09

Post-socialist states in the world economy 235

China also has a signi� cant number of transnational corporations which pro-vide pro� t to the home country. In 2012, the number of global companies (136) surpasses Europe’s most globalized economy (UK with 93) 2 – when Hong Kong is added, China’s total rises to 222 (as shown in Figure 15.1 ), very nearly as many as Japan’s. Many of Hong Kong’s companies, of course, originated in the days of British colonial rule and are not owned by subjects in the mainland. Even if we exclude Hong Kong, China comes in third place, just behind Japan.

Even with the reservations noted about the omissions in the data sets, they show quite conclusively that the economic power of the post-socialist European states is qualitatively at a lower level than the advanced Western states. Russian economic power is limited to companies in the primary sectors – oil and gas and materials. China has clearly made considerable advances; while catching up with the European countries, the country is still economically far behind the USA.

Export pro� les The intention of the economic reforms of the early 1990s was to bring the post-socialist societies into the world economy. Competition and the opportunities of a wider market, as well as the availability of foreign direct investment, it was opti-mistically believed, would boost economic performance. Quite the opposite has happened. Under state socialism, the republics of the USSR had much higher technology manufacture, including a jet aircraft industry, manufacture of pharma-ceuticals, electrical goods and a nuclear industry. Consequently, they lost this manufacturing base. Russia’s industrial output in high technology manufacture was lower in 2010 than it was under state socialism. As can be seen in Figure 15.2 , Russia is distinguished by its extremely low level of high-tech manufacturing compared to other industrialized states, and well behind China.

0

5

10

15

20

25

30

Chi Hun UK USA Ger Czech R. Russ Fed

% m

anuf

actu

re

Figure 15.2 Production of high-technology manufacture: Russia, China and other advanced countries, 2010.

Source: Data for 2010, or latest data available, from www.worldbank.org/indicators


http://www.worldbank.org/indicators


Many writers have stressed the signi� cance of the role of energy exports as a source of Russia’s wealth (see Chapter 18 ). In a wider context of export depend-ency this is not a strength. A country with very large export earnings can be eco-nomically dependent on the quantity and price of its exports – especially if it has few internal resources. Just how important energy exports are in relation to other countries and to other types of exports is illustrated in Figure 15.3 , which con-trasts the types of exports of the Russian Federation with the USA, UK and China.

Russia has a particularly skewed distribution of exports. Its energy sector exports accounted for 62 per cent of merchandise exports in 2004 and 70.4 per cent in 2010. 3 Figure 15.3 brings out the asymmetric relationship of the type of exports between Russia, UK and USA. The top � ve traded products for Russia (value traded 2002–03) were crude petroleum (27 per cent), natural gas (14 per cent), ‘special transactions’ (arms) (12 per cent), petroleum products (11 per cent), and aluminium (3 per cent).

Not only is Russia’s manufacturing at a much lower level, but also the ‘high-tech’ component in manufactured ( Figure 15.4 ) exports is extremely low. 4 The high-tech component in manufactured exports is an indication of the extent to which the post-socialist countries can compete in the world market. Figure 15.4 shows in comparative perspective two major Western economies – UK and USA – and Russia and China. The USA’s exports were in high-tech commodities: 17 per cent of the world’s transistors and valves and 36 per cent of aircraft; the UK pro-duced 4.7 per cent of the world’s passenger vehicles and 9 per cent of pharmaceu-tical products. 5 The only major high-tech industrial power in the post-socialist world is China where automatic data processing equipment came to 15.56 per cent of world exports, and telecom equipment 11 per cent. 6 Moreover, Figure 15.4 shows that in the ten years between 1998 and 2007, Russia had a signi� cant decline in high-tech exports, whereas China had a considerable rise.

0

10

20

30

40

50

60

70

80

90

100

USA Chi UK Russ Fed

Prim

Manuf

Figure 15.3 Structures of exports for USA, UK, China and Russia, by primary and manu-facturing components, 2004–05 (per cent).

Source: UNDP, Human Development Report 2006 , New York: Palgrave Macmillan, 2006, p. 339.



The conclusion to be drawn from this analysis is that, with the exception of China and Hungary (not shown here) the post-socialist countries have entered the global system, but they are low in value added and are competitive only in low technology products. In this context, Russia is an economically weak country.

China has a stronger capacity, though a great deal of China’s exports of electronic and information technology products are derived from foreign-owned � rms and key components are imported. 7 Multinational companies account for over two-thirds of China’s high-tech output and over 90 per cent of its high-tech exports. 8 China’s industrial advance has been helped by the location of many Western companies, such as United Technologies, Apple, Dow Chemicals, General Electric and Volkswagen. China has not successfully bought up techni-cally advanced Western companies. 9 Af� liates of Chinese � rms have a negligible presence in the high-income countries. China’s 70-odd ‘national champion’ � rms are largely state owned and they receive state support. They are in industries such as banking, metals, mining, oil, power, construction, transport and telecom-munications. High-tech components are of foreign invention, though they may be produced in China. Their growth has been based on the rapidly growing home market.

Capital � ight While foreign direct investment (detailed in Chapter 13 ) is one consequence of the global system, capital � ight is another. The globalization of � nancial services and the free � ow of capital have led to considerable capital � ight in all the post-socialist countries. For Russia in 2008, the balance on capital and � nancial account was minus $131 billion; in 2009, minus $44.3 billion, and in 2010, minus $28.5

0

5

10

15

20

25

30

35

USA UK CHI RUS

1998

2007

Figure 15.4 High-technology exports, Russia, China, USA and UK, 1998, 2007 (percentage of manufactured exports).

Source: World Bank database, http://ddp-ext.worldbank.org/ext/ .


http://www.ddp-ext.worldbank.org/ext/


billion. 10 As shown in Figure 15.5 , all the exporting post-socialist countries have signi� cant capital � ight – particularly China and Russia.

Over the whole period of transformation from 1990 to 2010, the Tax Justice Network has estimated that $798 billion was transferred from Russia to foreign tax havens. 11 Russia’s foreign debt in 2011 was $489 billion – far less than capital export. 12 The population of Russia in 2010 was 143 million people; an equivalent of $5,580 per capita of Russia’s population has been transferred offshore during the period 1990 to 2010.

‘Globalization’ is not just about the advantages and disadvantages of trade, but disproportionately bene� ts classes: capital owners bene� t a great deal from the globalization of � nance. Ironically perhaps, international � nancial organizations criticize the developing and transitional societies for corruption and lack of trans-parency, concurrently with providing the � nancial architecture to promote the transfer of illicitly made funds to foreign tax havens. (Not all the data cited here, of course, represent illegal transfers.)

Dependence on the world system The post-socialist countries have different degrees of dependency on the world economy. Such dependency may be measured by the transnationality index (TNI). The index for a country is calculated as the average of four ratios: FDI in� ows as a percentage of gross � xed capital formation for the past three years; FDI inward stocks as a percentage of GDP in a given year; value added of foreign af� liates as a percentage of GDP in a given year; and employment of foreign af� liates as a percentage of total employment in a given year. A high index indi-cates that a country is largely dependent on foreign companies for employment and wealth creation. A low index implies that a country, which may have many

billion $

1189

798

242

168

167 138

Chi

Russ

Hun

Pol

Ukr

Kaz

Figure 15.5 Capital � ight: post-socialist countries .Source: Tax Justice Network Press Report, 22 July 2012, www.taxjustice.net . Note: China, Poland, Hungary, 1980–2010; Russia, Ukraine, Kazakhstan, 1990–2010.


http://www.taxjustice.net


foreign af� liates, nevertheless has a great deal of its national wealth generated by domestic production.

In 2005 the weighted average for developed countries was 12 and that for developing countries 14. Figure 15.6 illustrates differences between the post-socialist states. There is a great range between the exposure of developed econo-mies: lowest was Japan with 1, the USA had a low index (7) and the UK, one of the most internationalized of the advanced capitalist countries, had an index of 21. The new post-communist members of the EU were highly dependent on foreign companies (and much more so than the UK): for example, Hungary (34), Czech Republic (33). Russia had a fairly average exposure (11) (though for 2002 it was 18 due to the disproportionate contribution of FDI as a percentage of GDP). Belarus (3) was one of the lowest in the world. China also had a fairly average ratio – 12 (though it was only 8 in 2004). 13

One implication we may draw here is that the greater economic international integration of the new member states has led to their political and economic inclu-sion in the Western hegemonic bloc, whereas there has been a lack of integration of Russia’s military and political elites with those of the Western hegemonic states. As was noted in Chapter 12 , under Yeltsin in the early period of transforma-tion, Russia sought political inclusion. However, exclusion from the EU and the absence of any accommodation with NATO have left the military and political elites under Putin outside the Western hegemonic bloc – though clearly the demo-cratic opposition would wish this position to change. The inclusion of the elites of the post-communist states in the European Union and NATO has strengthened the international cohesion of these states (as represented by their elites) with the West, though the opposite is the case in Russia.

An assumption of many advocates of entry to the world economy, both before and after the fall of state socialism, is that participation bene� ts all. What is lacking

1

7

21

33 34

3

11 12

0

10

20

30

40Tr

ansn

atIn

dex

ChinaRussiaBelarusHungaryCzechUKUSAJapan

Figure 15.6 Transnationality indexes: Russia, China, USA, UK and other selected post-communist countries .

Source: UNCTAD, World Investment Report 2008 (data for 2005 or latest data available), www.unc-tad.org/en/publications/wir2008 , see p. 12 (data not included in WIR 2009, 2010 or 2011).


http://www.unc-tad.org/en/publications/wir2008

http://www.unc-tad.org/en/publications/wir2008


in these accounts is suf� cient recognition that the world economy is composed of rich and poor states, economically advanced and economically backward, militar-ily powerful and weak. Evidence suggests that the core countries extend their lead and keep to themselves research, design and development, � nance, and ownership of intellectual and physical property. Their economic power is a necessary condi-tion of their political hegemony.

Research and development One of the reasons for the lack of convergence of the post-socialist countries is the legacy of backwardness – economic, intellectual and cultural – which conditions the modernization of the economy.

One of the reasons for backwardness is low levels of research and innovation. As illustrated in Figure 15.7 , the USA, followed by the industrialized capitalist states, greatly outranks the remainder. The USA and Japan have a much higher absolute expenditure on R&D, and Japan has a much greater relative research effort than any other country. China and Russia are in a completely different league from the Western major powers. To bring home the signi� cance of the dif-ferences: in 2005, the Ford motor company spent $7.2 billion on research and development; the total for the Russian Federation was $4.3 billion – the same as for Volkswagen. 14

As the largest companies are located in the Western countries, it follows that they will dominate the R&D outlays. Of the 700 largest R&D spending � rms,

276

133

5029

15.64.3

2.792.82

1.82

1.47

1.12

3.45

0

50

100

150

200

250

300

350

USA Jap Germany UK China Russia

Bil$

0

0.5

1

1.5

2

2.5

3

3.5%

GD

P

Figure 15.7 Research and development: USA, Japan, Germany, UK, China and Russia. Sources: Total expenditure on research and development, UNCTAD, World Investment Report 2005 , Geneva and New York: United Nations, 2005, p. 105. Gross total expenditure on R&D (vertical blocks, left-hand axis), data refer to 2005. R&D as percentage of GDP (line on graph, right-hand axis), data for 2010 or latest available, World Bank, 2012 World Development Indicators , Washing-ton: World Bank, www.worldbank.org .


http://www.worldbank.org


296 are located in the USA and account for 42 per cent of the spending, followed by Japan (22 per cent), and Germany (7.6 per cent). China accounts for only 0.3 per cent (Russia’s expenditure is so small that it does not appear in the dia-gram). 15 If one considers the proportion of GDP spent on investment ( Figure 15.7 , right-hand axis), China and Russia are still (in 2010) way behind the Western countries.

If one takes other measures of innovation, such as patents, and the world rank-ing of universities, the post-socialist countries and China are found to be in a much lower league than the advanced Western ones. In 2006, of the world’s top research universities, the United States predominates, followed by Western European countries: of the post-communist countries, only Russia (Moscow State University ranked 70th) appeared in the top 100 educational institutions: Japan had six entries; of the top ten, the USA had eight, the other two being from the UK. 16 In a Newsweek survey of the top 100 universities conducted in 2005, in the top universities China and Hong Kong had three places. 17 By 2012, Chinese uni-versities had made a rise in rankings: Peking University was 46 in world ranking (based on 13 performance indicators), followed by Tsinghua University (52nd), Hong Kong University of Science and Technology (65th), and at 124 was the Chinese University of Hong Kong.

The European post-socialist universities lagged considerably behind. The top three were ranked as follows: in the 201–25 bracket, Lomonosov Moscow State; 226–50 bracket, Moscow State Engineering Physics Institute; and in the 351–400 bracket, University of Tartu, Estonia. 18 Even allowing for bias in the selection of sources (for example, the emphasis on English language literature) which might lead to the post-socialist states and China being undervalued, the degree of error would not account for the magnitude of the difference between them and the ‘core’ capitalist countries. The idea that ‘joining’ the open com-petitive world system would lead to intellectual and scienti� c advance was misconceived.

This analysis shows that the post-communist countries have moved into the world capitalist economic system; the central and Eastern European countries, now members of the EU, are particularly well integrated. Russia is becoming a mixed economy with a large primary exporting sector, and a declining manufac-turing one. The Russian energy sector is integrated into the world economy and signi� cant transnational companies are emerging. Since the fall of the Soviet Union, there has been considerable de-industrialization. The former state socialist countries in the CIS have a low component of high-tech industries in their export pro� les. The more successful post-communist countries now in the European Union have attracted manufacturing industry, which has enabled the Czech Republic and Hungary to produce high-technology products. However, all the post-socialist countries remain at a qualitatively lower level of research and indus-trial innovation than the core Western countries.

This is the world context in which the post-socialist states were embedded when the world economic crisis broke in 2008.



Effects of, and responses to, the global economic crisis In its World Economic Outlook , the IMF noted that the growth of world output had fallen from 5.4 per cent in 2007 to 2.8 per cent in 2008; in 2009 it was negative (–0.6 per cent), it recovered to 5.1 per cent in 2010, and fell slightly to 3.8 per cent in 2011. 19

The economic declines, however, were divided unevenly between different groups of countries. While all countries have suffered adverse effects of world recession, the advanced ones (at least initially) were more damaged than the emerging and developing areas. As detailed on Figure 15.8 , all the post- communist countries have experienced a reduction in growth rates until 2009, when some experienced severe declines.

Emerging countries, the central Asian post-socialist countries, as well as China, India and to a lesser extent Brazil, experienced a fall in growth, but their rates were always positive. These countries have (or potentially have) large internal markets which have been (or could be) stimulated to replace export losses. In 2009, all the European post-socialist countries, except Poland and Belarus, expe-rienced serious negative decline. Russia and China both have accrued considera-ble � nancial reserves and their relatively low country transnationality index minimized the effects of exit by foreign companies and investors.

What is clear from Figure 15.8 is that the world � nancial crisis had less effect on Brazil, India and China, and the former central Asian republics of the USSR (and Belarus), than it did on the new member states of the European Union (except Poland). The more neo-liberal economies of the USA, UK, Russia and Ukraine (at least initially) were also quite seriously affected. Generally, the lower the partici-pation in the world economy and the greater the size of the home market, the lower the impact of the world recession.

The economic depression post 2007 has led to higher unemployment. Even in the period between August 2008 and March 2009, unemployment increased con-siderably in all member states of OECD: in the European Union from 7 per cent to 8.3 per cent – a rise of 18.5 per cent. Data are not available for all the post-communist members, but the unemployment rate in Czech Republic rose from 4.3 to 5.5 per cent of the work-force – a rise of 28 per cent in the numbers unem-ployed. For comparison, in the USA the rise was even greater – from 6.17 per cent to 8.54 per cent, an increase of 38.4 per cent. For Russia, the total number of unemployed rose from 1.39 million (average for 2008) to 2.04 million in March 2009, a rise of 46.7 per cent. 20 In states with low employment protection (EU new member states and Turkey), the IMF recognized that unemployment would be likely to increase: in emerging Europe, ‘employment adjustment has been severe, and labor market � exibility will be key to the necessary reallocation and future job creation’. 21 In high labour protection countries, such as Germany, the effect on unemployment is lower and productivity per worker falls.

The world economic recession had many implications. It showed that some countries were less dependent on the global system than others and that countries were dependent in different ways. The Russian economy receives large payments



for energy exports; in the Baltic states, consumption has been driven by bank credit from foreign banks. When demand for energy fell, then export earnings declined; when foreign banks reduced advances or called in debts in foreign cur-rency, those who were unable to pay lost their assets.

The global � nancial crisis demonstrated that neo-liberal globalization had serious systemic weaknesses, that uncoordinated global markets could lead to collective irrationality, and that existing global institutions (International Monetary Fund, World Bank, United Nations) were unable to provide (or were prevented from providing) a global coordinating mechanism. The detrimental consequences have created conditions for a change in the dispositions and the

−15 −10 −5 0 5 10 15

Bel

Rus

Ukr

Lith

Pol

Cz

Hun

Turm

Uzb

Kaz

Chn

Ind

Bra

UK

Jap

USA

2011

2010

2009

2008

2007

Figure 15.8 Change in economic output of post-socialist countries, BRIC and others, 2007–11 (percentage change year on year).

Source: IMF, World Economic Outlook , October 2012, Washington DC: IMF, Statistical Appendix, Tables A2 and A4, www.imf.org/external/pubs/ft/weo .


http://www.imf.org/external/pubs/ft/weo


mental set of state-based political and economic elites on an international, regional and national basis.

Responses by national governments may be analysed under three different time constraints: � rst, the immediate reactions by established elites, who sought to stabilize the world economic system, which are considered below; second, medium-term policies designed to strengthen individual countries against interna-tional � nancial stress; and third, longer-term alternatives to the current global system of neo-liberalism, which we turn to in Chapter 20 .

Short-term reactions The initial responses of politicians to the economic crisis were demands to reform institutions, to strengthen the power and legitimacy of coordinating global institu-tions of world capitalism – organizations such as the International Monetary Fund, the World Bank and the World Trade Organization. One important strategy was to further greater mutual interaction between the core and semi-core coun-tries and to involve the latter in international policy-making. Countries like China, India and Brazil have bene� ted politically, and the G20, incorporating countries from the semi-periphery, has become a forum for a global economic response. It is likely that China and Japan will increase their powers in the global institutions of world capitalism at the expense of the European countries.

The fundamental inadequacy here is that the world economic system is based on markets and the driving institutions are corporations. Neither global markets nor transnational corporations are subject to democratic or institutional control or regulation – though they may be in� uenced by international bodies such as the IMF and individual politicians. The global system has weakened the coordinating powers of nation states both economically and politically.

Just how much power remains to nation states is a matter of contention. Writers such as Leslie Sklair 22 and Jerry Harris 23 consider dominant political and eco-nomic powers to rest with the global capitalist class and the transnational corpora-tion (TNCs). Paul Hirst and Grahame Thompson, 24 however, argue that the TNCs still have a national home base and political allegiance. Peter Dicken 25 provides a multi-factoral causal explanation, with a focus on the interaction of a trinity of interests – technology, the nation state and the transnational corporation.

The decline of the Westphalian international order (which recognized the sov-ereignty of nation states) was greatly accelerated by the dismemberment of the Soviet Union and its sphere of in� uence. Following its collapse, the hegemonic political and economic bloc of the USA and EU was able to exert greater power on the internal affairs of nation states. This was concurrently facilitated by the neo-liberal globalization of international relations which legitimated a shift of power from states to markets, as well as to coordinating bodies such as the IMF, World Bank and WTO.

While the IMF has a role in regulating the � nancial affairs of governments, it has had no authority over � nancial and non-� nancial corporations. Institutions such as the UN and the IMF have been unable to provide effective regulation of



the world economic and political system. The major strategy has been to in� uence the � nancial policy of governments. Consequently, global capitalism is as inher-ently unstable as national capitalisms, and incompatibilities may arise between the driving forces of a neo-liberal world economy and institutional regulation as proposed by the IMF. The outcome may be a failure of the hegemonic countries to accede to IMF-led global � nancial regulation.

As noted in Chapter 12 , the Russian Federation has a limited number of choices. Membership of the EU is not an option. In this context a type of national state-led capitalism 26 is an alternative to open participation in the global economy on the terms of neo-liberalism. Statist (or state capitalist) China rather than the neo-liberal West may be the model for Russia and its CIS allies to copy, and I return to the alternatives in the � nal chapter of this book.

The point here is that the groupings of post-socialist states (the post-socialist NMS of the European Union, the European CIS, Asian CIS and China) have dif-ferent balances of powers between the state and the global economy. The NMS have relatively little political space for negotiation; they are effectively economic dependents of the core states of the EU.

While the European Union has been enlarged to bind in the NMS and to create conditions to maintain stability, the reaction of Greece and Hungary to the eco-nomic recession illustrates that one cannot take for granted a docile apolitical public readily acquiescing to severe reductions in living standards and high levels of unemployment. However, most of the NMS appear to be likely to accept poli-cies of economic stringency (like Ireland). This is not out of preference, but because any alternative might be worse.

The economic zone of Russia, Belarus and Kazakhstan (formed in 2012) on the one hand, and China on the other, have considerable state power for economic direction; large internal markets present greater possibilities for the articulation of an alternative policy to neo-liberalism.

Notes 1 Forbes, The Global 2000 , data for 8 April 2009, Special Report; and The Global 2000 ,

www.forbes.com/lists/ . 2 Sector breakdown taken from Forbes list. 3 This may understate energy products, as enterprises will often classify goods derived

from oil and gas as part of another sector where tax is lower. See WTO trade pro� les, http://stat.wto.org/ .

4 The low share of high-tech component in exports also applies to the EU post-com-munist member states, with the exception of Hungary. See UNCTAD, Handbook of Statistics , New York and Geneva: United Nations, 2005, p. 168.

5 UNCTAD, Handbook of Statistics . 6 UNCTAD, Handbook of Statistics , p. 163. 7 See Peter Nolan, Crossroads: The End of Wild Capitalism , London: Marshall Caven-

dish, 2009, p. 140. 8 Data cited by Peter Nolan, Is China Buying the World? , Cambridge: Polity, 2012,

pp. 93–4. 9 Nolan, Is China Buying the World? , p. 109. 10 IMF, Country Reports: Russia, No. 11/294, 2011, Table 2, p. 36, www.imf.org .


http://www.stat.wto.org/

http://www.forbes.com/lists/

http://www.imf.org


11 Tax Justice Network Press Report, 22 July 2012, www.tax.justice.net . 12 Rossiyski statisticheski ezhegodnik , 2011. Moscow: Rosskomstat, 2011, p. 37. 13 UNCTAD, World Investment Report 2008 , New York and Geneva: United Nations,

2008, p. 12. Hong Kong had the largest ratio at 108. 14 UNCTAD, World Investment Report 2005 , p. 120. 15 UNCTAD, World Investment Report 2005 , p. 121. 16 Academic Ranking of World Universities, 2006, Institute of Higher Education, Shang-

hai Jiao Tong University, http://ed.sjtu.edu.cn/rank/2006/ARWU2006_Top100.htm . The formula takes into account alumni winning Nobel Prizes and Fields Medals (10 per cent), staff winning Nobel Prizes and Fields Medals (20 per cent), ‘highly-cited researchers in 21 broad subject categories’ (20 per cent), articles published in Nature and Science (20 per cent), the Science Citation Index, Social Sciences Citation Index, and Arts and Humanities Citation Index (20 per cent) and the size of the institution (10 per cent).

17 Newsweek , 13 August 2006. Newsweek uses similar indexes to the Shanghai index, but in addition includes percentage of international Faculty, percentage of international students, citations per Faculty member, ratio of Faculty to students and extent of library holdings.

18 Times Higher Education Supplement (London), rankings for 2012–13, www.timeshigh-ereducation.co.uk .

19 IMF, World Economic Outlook , October 2012, www.imf.org/external/pubs/ft/weo . 20 OECD statistics, Harmonized Unemployment Rates, www.oecd.org . Not all OECD

countries are shown on this table. 21 IMF, World Economic Outlook , Washington DC: IMF, 2009, p. 17. See also data in box

1.3 showing the rise in unemployment to be higher in ‘emerging Europe’ than in Latin America. (Registered) unemployment in August 2009 was 12 per cent for Latvia, 10 per cent for Hungary and 11 per cent for Poland (box 2.4, p. 77).

22 Leslie Sklair, The Transnational Capitalist Class , Oxford: Blackwell, 2001. See also, ‘The Emancipatory Potential of Generic Globalisation’, Globalizations , 6(4), 2009: 525–39.

23 Jerry Harris, The Dialectics of Globalization: Economic and Political Con� ict in a Transnational World . Newcastle: Scholar Press, 2006.

24 Paul Hirst and Grahame Thompson, Globalization in Question , Cambridge: Polity, 1999.

25 Peter Dicken, Global Shift , 4th edn, London: Sage, 2003. 26 I use the term ‘state-led’ to mean that the political powers either directly or indirect-

ly ensure collaboration with privately (or partly privately) owned business to further some national purpose. Corporatist is sometimes used interchangeably with state-led capitalism, though ‘corporatism’ usually includes organized labour as a stake-holder, which is not the case in Russia. Others use the term corporatism rather than state-led capitalism.


http://www.ed.sjtu.edu.cn/rank/2006/ARWU2006_Top100.htm

http://www.tax.justice.net

http://www.timeshigh-ereducation.co.uk

http://www.timeshigh-ereducation.co.uk

http://www.imf.org/external/pubs/ft/weo

http://www.oecd.org

A quarter of a century after the introduction of perestroika by Gorbachev, different forms of capitalist market societies are now the architecture of the post-socialist states: politically pluralistic countries that have joined the European Union and more statist hybrid market/administered economies in the countries constituting the Commonwealth of Independent States (CIS). In this chapter I summarize some of the major achievements and failures detailed in the previous four chapters and seek some explanations for the different outcomes.

Three transformation trajectories Despite differences between them, we may distinguish three sets of countries that have all set out on a transformation trajectory and have led to different results. First, there are those that have joined the European Union and have relatively suc-cessfully extricated themselves from state socialism. These countries have founded pluralistic political regimes, have restructured their economies in the direction of private ownership and marketization, have entered the world division of labour and, in doing so, have achieved modest positive rates of growth. The area of political freedom and social pluralism has increased, though civil society is relatively weak. There has been a slight convergence in living standards with the old members of the European Union. Signi� cant de-industrialization has taken place and high levels of unemployment have led to signi� cant out-migration.

Second is a group of countries that share some, but not all, of the economic features of Western-type societies – market mechanisms and equilibrium market pricing – which have established private limited liability companies and participa-tion in international trade. They still retain, however, considerable state owner-ship and control. Moreover, they have experienced severe economic depression and social deterioration. Politically, they have weak civil society organizations and ineffective pluralistic electoral processes.

Third are those countries that have instituted market reforms by relying on the introduction of the price mechanism. They have carried out small-scale privatiza-tion and participate in international trade, but have reconstituted, in one form or another, some of the previous political and economic institutions and processes of state socialism. They have closed, uncompetitive political institutions, often

16 Varieties of post-socialism



autocratic leaders, and a large public sector. They have been less affected by the global economic crises because they are relatively sheltered from the world economy.

Those countries in central Europe bordering on the European Union (Poland, Slovenia, Slovakia, Hungary, German Democratic Republic and Czech Republic) have all transformed to capitalism and electoral democracy more effectively than those in the former USSR. They have higher levels of gross national product, and more secure and stable electoral systems. Their populations were also less favour-ably politically disposed towards the communist system epitomized by the USSR, making its replacement easier. The external factors were also favourable for sys-temic change. The promise of membership of the EU required the ful� lment of economic, political and social conditions to bring them into line with those of the EU. The advantages offered by the EU in terms of economic help, and the promise of future ‘levelling up’ to Western European standards, legitimated the transition to markets and electoral democracy.

The new EU members have attracted investment from foreign corporations and have an even larger number of foreign af� liates than many established Western capitalist countries. The large number of takeovers has led to a growing preponderance of foreign companies in some of the central European states, though not so in the CIS. Foreign banks dominate in the � nancial sector of the new member states.

While the NMS have been integrated into the world economic system and its political and military (NATO) apparatuses, they are not equal to members of the dominant ‘core’ nations. The NMS have an independent political identity, though the state is subordinate to institutional and value con� gurations shaped originally by the ful� lment of the conditions of the EU’s Acquis Communautaire, and cur-rently by EU policy. The European Union new member states are integrated into world capitalism through the ownership of their assets by foreign companies, many of whom are multi-nationals. Their elites are bound politically, militarily and economically to the hegemonic world powers; they are highly dependent on them for trade and investment and political security.

As newly formed independent economies and political states, all the former republics of the USSR have had serious problems of adjustment. Politically, there has been a high level of civil strife, based (at least ostensibly) on ethnic and national differences. In the transformation process, the all-Union economic min-istries were divided between republics which lost their institutional coherence, whereas the central and Eastern European countries (excepting Yugoslavia) were economically autarchic and politically unitary states. Their public administration remained intact after transformation.

Economic and political transformation was concurrent with state-building. As the USSR internationally was led from Moscow, the international political and economic linkages were effectively controlled by the institutions of the USSR, not the Union republics. Unlike the central and Eastern European post-communist states, the new post-Soviet states founded on the territory of the USSR had had very few independent links with the West. Excepting Kazakhstan, the central


Varieties of post-socialism 249

Asian states started from a much lower economic and political base and were less directly involved in the world economic and political system.

The central Asian societies may be characterized as politically autocratic poli-ties, subjected economically to primary sector exports. The state remains the col-lective entrepreneur and economic regulator; it prioritizes investment and oversees the transfer of resources to the public sector. However, they cannot be said to form a homogeneous economic bloc or single ‘variety of capitalism’. Kazakhstan and Turkmenistan stand out as energy-exporting countries which ensure considerable foreign earnings. Such earnings, however, may have negative effects in terms of inhibiting other forms of domestic industrial production, akin to the process expe-rienced by energy-exporting countries. Uzbekistan has resisted more strongly the move to a free market society and has preserved to a considerable extent statist forms of politics which have successfully mediated the destabilizing effects of transformation. Turkmenistan also has maintained greater levels of state control.

The Commonwealth of Independent States is far less integrated into the world economic system. Its largest economy, Russia, is a hybrid economic system. The energy sector is integrated into the world economy and signi� cant transnational companies are emerging. Transnational companies, however, have relatively low penetration in the CIS, where domestic capitalists (‘oligarchs’) and signi� cant state ownership and/or control persist. Manufacturing and agriculture are local in character and are in decline.

Belarus and Ukraine have had divergent paths. The former has maintained the centralized politically-led redistributive economy and achieved signi� cant eco-nomic growth. Ukraine is much more pluralistic, with a competitive electoral system, but economic progress has been poor. Despite exposure to the global system, the states of the trading bloc of Russia, Belarus and Kazakhstan (Common Economic Space) still have a large domestic economic base. They are less inte-grated into the world economy. As their companies have relatively low levels of foreign ownership, they are not penetrated by the world capitalist class, and polit-ically they are not members of the hegemonic core. Countries with a low exposure are less affected by a major � nancial crisis in the world economy.

The transformation was not only a move to markets. It was also a battle for property – for the transfer of publicly owned assets to private ownership. This was a corrupt process. 1 The goal of actors was ‘to take control of property’ to achieve ‘economic and political power’. 2 Unlike the NMS, Russia (and to a lesser extent Kazakhstan) has enormous natural wealth. Putin, however (as we discuss further in Chapter 18 ), has succeeded in asserting state control over the business sector and he has partly renationalized and gained control over natural resources. A con-trolling interest has been secured in companies like Gazprom, Rosneft, Lukoil, Transneft and Sberbank. However, state coordination is limited and many aspects of the economy operate on neo-liberal principles. It is a hybrid economy.

The CIS countries have remained outside the economic and political core of the world economic system. They are subject to global economic accumulation, as well as domestic capitalist accumulation. The con� ict between the oligarchs (particularly Boris Berezovsky, who � ed the country, and Mikhail Khodorkovsky,



jailed for fraud) on the one side, and Vladimir Putin on the other, re� ects a chal-lenge for control of Russia’s immense material assets and, as I argue later, between a vision of a national capitalism (espoused by Putin) and a global neo-liberal form sought by people like Khodorkovsky, Berezovsky and Abramovich.

There is an important division between the energy-rich exporting countries and the others. The CIS countries are less exposed to global capitalist interests and have a potential for internally state-led economic development. This explains why Vladimir Putin and Dmitry Medvedev, who exercise considerable control over the energy sector, can adopt a more independent policy in international and internal affairs. The tensions between the Russian leadership and leading Western trading nations also re� ect the attempts of the Russian leadership to maintain a Russian national presence in strategic industries.

External class interests seek a place in these economies through ownership and control of the primary sector exporting industries which provide a � rm link to the hegemonic countries of the core. However, their penetration is much weaker than in the EU new member states; foreign ownership of banks is particularly low – though growing in Russia and Ukraine. Ukraine since 2004 has moved economi-cally and � nancially towards the neo-liberal model and liberalized its � nancial sector. Russia still maintains powerful traditional state banks, which may prove bene� cial. This should not de� ect attention from the severe problems, consequent on the ways transformation has been implemented – de-industrialization, high levels of unemployment and poverty (discussed in Chapter 17 ). But the major cause of deterioration may be attributed to transformation policies that have con-siderably weakened the economic capacities of the post-socialist countries to withstand external shocks.

China, and to some extent Russia, are in contradictory situations. They are both subject to exploitation by capitalist interests located in the hegemonic nations, but also have their own capitalists seeking to extract economic surplus in the world economy; the state too, as a major player, seeks to extract rents to utilize for redis-tribution. Clearly, the internal dynamics re� ect contradictions between three sets of economic interests: the home globalizing parent companies (including state-owned ones), the host af� liates’ companies, and other nationally based regional companies exercising accumulation in their home markets. We return to this topic in the � nal chapter.

Determinants of transformation trajectories How, then, may one explain the differences between the three forms of post-socialist transformation? Three observations might be made about the character of those states that have successfully consolidated capitalist revolutions. The � rst concerns their inherited level of economic wealth and values; the second, the impact of the West; and third, the footprint of state socialism itself.

Countries with the highest levels of economic development in Soviet times are the ones that have made the greatest strides to capitalism and political pluralism. These countries also have borders contiguous with the European Union.



Geographical proximity to the West has enabled institutions to spread more rap-idly to the central European countries. With the exception of Poland, they are also small countries and are able to exploit their economic comparative advantage by becoming closely integrated into the economies of the West.

But one must guard against a ‘geographical determinism’ which equates loca-tion with economic advance or decay. It is their cultural and political social capital that creates possibilities for investment and transfer of knowledge; this in turn makes these countries more open and more likely to prosper under a capitalist regime. Their prosperity provides the political space required to make effective a competitive parliamentary-type democracy. This impacts on the acceptability of these countries to the global market: it gives con� dence to Western investors, who in turn incorporate the host countries into capitalist world markets. The political culture and popular orientations in the central European states were more � tting to a move to capitalism and electoral democracy (polyarchy). They also have had a longer period of exchange with the Western capitalist countries before the col-lapse of the socialist polities.

In analysing these changes one has to bear in mind that economic and political transformations have taken place under conditions of increasing globalization and internationalization. The movement to the market in some of the new member states of the EU preceded the economic restructuring associated with the political changes following 1989. Under conditions of the transition from socialism to capitalism, international � nancial organizations such as the IMF, the European Bank for Reconstruction and Development (EBRD) and World Bank have been able to exert massive in� uence over developing and transitional economies. The ideological discourse has also been dominated by neo-liberalism: a belief in the relatively unrestricted role of the market under conditions of private property, pro� t maximization, stable currencies and free trade.

Coordinated and market economies Mark Knell and Martin Srholec have shown that in terms of the ‘varieties of capitalism’ approach, the European post-socialist countries have been greatly in� uenced by the neo-liberal model. ‘Policy advice from the international � nan-cial institutions and liberal market economists pointed to the American model … which eventually put most of the economies well beyond the United States on the liberal side’. 3 Taking multiple indicators to measure social cohesion, labour market regulation and business regulation, they show that up to 2004, Russia was one of the least regulated. (Their results are more in line with a neo-liberal model, because they take a wider range of variables than the EBRD data cited earlier.) It has low levels of social cohesion (high income inequality and regres-sive tax rates), low labour market and business regulation. For the period between 2001 and 2004, comparisons are shown in Figure 16.1 . When one takes into account social solidarity, business and labour regulation, Russia was even less regulated than the USA. Yeltsin was responsible for replacing the statist system with a non-regulated social and economic organism and much of this legacy



remains. Neo-liberal ideas captured the minds of the radical reformers and they removed the regulative mechanisms of state socialism and imposed the market. Belarus was the most regulated, followed by the central Asian republics of the former USSR and China.

Many of the countries that joined the Soviet bloc after the Second World War had a tradition of hostility to Russia and to communism; it was thus easier to implant Western values there. Except for the Baltic republics and Western Ukraine, countries in the former USSR did not have this tradition. Contrasting attitudes may be demonstrated with respect to privatization. Hilary Appel 4 compares the Czech Republic and Russia. In the Czech Republic, the privatizing elites around Vaclav Klaus articulated the positive virtues of private property. A private prop-erty regime, it was contended, would return the Czechs to their desired state of well-being – nearer to prosperous Western Europe of which they had previously been a part, and further from communism, which had been imposed. Workers and managers, being closer to the communists when in power, were then in a weak position to claim special treatment with respect to the division of property, and a general public privatization based on vouchers had more popular support.

In the Russian case there was no comparable Western European society to return to (there was no call from the European Union), and communism was a part of Russian political culture, rather than being a foreign import. Moreover, rights to private property had no generalized public support. In Russia and Ukraine, for example, at the beginning of the transition period, 84 per cent and 76 per cent, respectively, favoured state-run television, and 79 per cent and 73 per cent sup-ported government-owned automobile factories. 5

Bela

Sloven

Uzbek

China

Polan

Hung Lith

Russ

Fran

Ger

UK

USA−10

−8

−6

−4

−2

0

2

4

6

8

10

Figure 16.1 Index of coordinated and market coordination, 2001–04 . Source: Mark Knell and Martin Srholec, ‘Diverging Pathways in Central and Eastern Europe’, in D. Lane and M. Myant (eds), Varieties of Capitalism in Post-Communist Countries , Basingstoke: Palgrave Macmillan, 2007, pp. 60–1 Note: The lower the index, the greater the role of liberal market; the higher the number, the greater the level of strategic coordination.



Anatoly Chubais and other privatizers legitimated the transfer of state assets to the public domain by appealing to materialist sentiment. Possession of personal assets, it was proclaimed, would make everybody richer. Moreover, managers and workers, as crucial and legitimate parts of Soviet society, were able to claim spe-cial rights to property. Managers later, of course, were able to increase their own shares of assets through manipulating the subordinate workers.

While private property rights did not con� ict in any signi� cant way with peo-ple’s views in the Czech Republic, in Russia they did. Hence in the former there was compatibility between the private property reforms and popular beliefs, which did not exist in Russia.

External factors were more favourable for systemic change in the central European countries. The promise of membership of the European Union required the ful� lment of economic, political and social conditions to bring them into line with those of the EU. The advantages offered by the EU in terms of economic help, and the promise of future ‘levelling up’ to Western European standards, legitimated and made more attractive the transition to private property, markets and electoral democracy.

The central Asian countries of the former USSR were in� uenced by interna-tional developments, but not to the same degree as the European post-socialist countries. They started their transformation later. In the Gorbachev period, they were sheltered from international pressures by their place in the USSR, from which they were net bene� ciaries. They bordered to the south on Asian countries many of which were economically undeveloped and unstable. They had relatively small internal markets which subsequently did not encourage Western investment for domestic production. American policy also prioritized transformation in the central and Eastern European states, rather than in the former Asian ones.

China in comparison To the east, China provided a model of a politically unreformed but successful market economy. For the Chinese, the initial transformation experience of Russia and Ukraine presented a type of society not to be emulated. China learned from the failures of transformation in the post-socialist European states. China had moved both ideologically and economically from its early dependence on the Soviet Union. It had successfully entered the world economy, and had a very high rate of economic growth and a stable political order. There was no economic decline to reverse, and the critical intelligentsia (in the 1980s) was relatively weak.

From an economic point of view, the fall of state socialism in Europe had little economic effect on China. 6 The Chinese leadership utilized the break-up of the USSR in debates about the course of development in China itself. Gorbachev’s policy of glasnost (openness) was seen as a politically destabilizing course, lead-ing to political disintegration. This was used to legitimate the suppression of pro-testing groups in Tiananmen Square. As Wilson points out, the failure of Gorbachev’s political policy – the attempt to install ‘a humanitarian democratic



socialism’ – became a ‘compelling negative example’ and weakened those wish-ing to adopt similar policies in China. 7

The Chinese communists adopted a policy of inclusion which entailed recruit-ing the emerging bourgeois elites into the Party. The hegemonic state structure, ironically perhaps, defends their interests and ‘large-scale surveys repeatedly reveal that most professionals and entrepreneurs in China are sternly opposed to political liberalization, for fear that it would trigger tyranny of the lower classes and threaten their private gains’. 8

In the European post-socialist societies, the move to capitalism was not peace-ful: it was accompanied by civil strife and internal wars in Yugoslavia and in many of the former republics of the USSR – particularly in Chechnya, Dagestan, Kazakhstan, Kyrgyzstan, Moldova, Latvia and Estonia. The argument sometimes advanced that Yeltsin’s authoritarian rule ‘saved Russia from civil war’ rather overlooks the con� ict in Chechnya as well as his armed assault on the Duma which gave him victory in Moscow’s civil war.

For the Chinese leadership, the fall of European state socialism justi� ed their own form of market socialism and legitimated the continuing hegemony of the Communist Party. Ironically perhaps, the Chinese political elite’s interpretation of the convulsions in the former Soviet states delayed movements to greater pluralism.

The footprint of state socialism The footprint of state socialism was embedded in countries with different histories and traditions. The hegemonic Communist Party was rooted to varying degrees in the political support system, and the aspirations of populations for transformation and reform differed. The central European states had a history of opposition to Soviet hegemony; they also had experienced over a longer period economic and political reform within the context of state socialism. Spurred on by Gorbachev’s belief in pluralism and markets, a counter-elite emerged in support of capitalism and polyarchy. It is not surprising that they have carried out a capitalist transfor-mation, whereas the central Asian post-socialist countries, Russia and Ukraine have only partially done so.

In Russia and Ukraine, privatization is widely and strongly condemned as theft. This is derived from the socialist moral idea that even if the state legally privatizes property, it is an expression of class relations, and while such actions may be legal, they are not just.

Opposition to state ownership was expressed by less than a quarter of persons surveyed in 2005. 9 Support for market reforms was greater though signi� cantly related to social class. Taking occupation as a measure of class, there is a clear social division between those for and against reform.

As shown on Figure 16.2 , in both Russia and Ukraine, the higher the occupa-tional group, the greater the support for the introduction of a market economy. This is in line with the arguments made earlier in Chapter 9 about an acquisition class. In Russia, of businessmen and managers, 75 per cent were in favour, as were 74.4 per cent of students, followed by 68 per cent of professionals; at the



other end of the scale, only around 40 per cent of industrial and manual workers supported (either fully or partially) a market system. In Ukraine, with the excep-tion of the student group, in which only just over 10 per cent were opposed to the introduction of a market economy, in all other groups were substantial minorities in opposition. Particularly against were those in agriculture (51 per cent) and among the working class (37 per cent), though it should be noted that workers in the Ukraine were much more supportive of a market economy than those in Russia. The major supporters were students (a massive 88 per cent), businessmen and managers (82 per cent), and specialists and intellectuals (79 per cent).

When we turn to consider support for state ownership ( Figure 16.3 ), we note the same pattern. Business, professionals and students were more strongly biased against state ownership, whereas workers and peasants were overwhelmingly in favour.

0

10

20

30

40

50

60

70

80

90

100

BusMan Profs LNonM Wks Peas Studs

% o

f Occ

up G

rp

Rus

Ukr

Figure 16.2 Support for market economy by social class.

0

5

10

15

20

25

30

35

40

% o

f cat

egor

y

Rus

Ukr

StudsPeasWksLNonMProfsBusMan

Figure 16.3 Opposition to state ownership in Russia and Ukraine, by social class .



In the central Asian countries of the former USSR, the people had been bene� -ciaries of Soviet power and were predisposed to state redistribution. Two further political factors impeded more radical reforms. First, while there are internal managerial counter-elites, which in the oil and gas producing states have an inter-est in moving the economy in the direction of private property, they are not backed by a signi� cant intelligentsia and middle class predisposed to the West (the acqui-sition class de� ned in Chapter 9 ). Second, the political elites operate on regional and kin-based personal networks. The political elites had not experienced a major ideological shift towards the legitimation of a market society. Here they share features with North Korea. 10 The major attraction to the Western powers is the presence of raw materials, though the land-locked nature of their location makes bulk export a process negotiated by third parties. Hence Western penetration was much more dif� cult than in the European states.

The driving motors of internal reform of the socialist systems (the rise of political counter-elites and a population predisposed to a market system) were not present (or not to the same degree) in the Asian republics of the former USSR. The initial move to markets and electoral democracy did not have widespread pop-ular appeal. The state-led transformation of China, rather than the market-driven central European states, are more appropriate models for central Asia. It seems likely that they will consolidate into ‘hybrid regimes’ with elements of market eco-nomic relations concurrent with state rather than electoral political coordination.

Conclusions In all the post-socialist states the negative impact of the economic depression that began in 2007 has weakened the ideological and economic attraction of globaliza-tion in general and the neo-liberal market model of coordination on which it is currently based. The continental EU states – France, Germany and Italy – have revived a more regulated form of � nancial coordination which will lead to similar changes in the NMS. Despite the acceptance of the Lisbon Treaty, concepts of national identity have strengthened, leading to calls for national solidarity and national sovereignty. The severe economic dif� culties of the NMS, as well as southern European ones (particularly Greece), sharpen divisions within the European Union. In the CIS, Ukraine’s headlong leap after 2004 towards � nan-cialization has led to a greater economic decline consequent on global recession.

In Russia, national sovereignty, national distinctiveness and state identity are becoming more important organizing principles. With the advent of President Putin, Russian leaders have strongly advocated notions of ‘self-determination’ and ‘sovereignty’. 11 Russia’s utilization of its rents from energy exports, and its inheritance of the Soviet Union’s military arsenal, coupled to a more assertive foreign policy, have led many to consider Russia to be adopting a more hegem-onic role similar to that of the USSR. However, in a wider economic and social context, the neo-liberal model introduced by Yeltsin has had a signi� cant impact on the form of the Russian Federation. We return to discuss these topics in Chapter 18 .



The notion of the radical reformers that one could move from state socialism to a system of political pluralism and competitive capitalism, similar to the USA, or to a social-democratic model, as in Sweden, proved to be wishful thinking. What is missing in the arguments for the introduction of Western liberal democ-racy is an understanding of the institutions that hold capitalist societies together and enable them to function. These include entrenched and socially accepted pri-vate property rights and a legal system to enforce them; a dominant ideology based on individualism, consumerism and competition; an established ruling class that secures a consensus among the major political and economic elites; a strong state providing the basis for political stability; and an effective competitive market-oriented economy, to ensure economic wealth. Such institutions and norms were unevenly distributed among the post-socialist states.

One might generalize that a ‘system transfer’ to capitalism and polyarchy is likely to be effective when dismantling communism is led by a coherent political elite; when there is widespread rejection of the socialist regime; and when there is an elite or counter-elite with international support. Transition to capitalism becomes problematic when the rejection of the socialist regime is partial, when political elites are internally divided and when they lack consistent support from external backers. In such cases, transformation takes on a more path-dependent character and features of the old regime are reconstituted in many forms. In the case of China, the lessons of the disintegration of the European states led to the inclusion of the ascendant bourgeois class into the Party, which it has used to further its own variety of state capitalism.

Notes 1 For details see Andrew Barnes, Owning Russia: The Struggle over Factories, Farms

and Power , Ithaca, NY and London: Cornell University Press, 2006. 2 Barnes, Owning Russia , p. 140 3 Mark Knell and Martin Srholec, ‘Diverging Pathways in Central and Eastern Europe’,

in D. Lane and M. Myant (eds), Varieties of Capitalism in Post-Communist Countries , Basingstoke: Palgrave Macmillan, 2007, pp. 46–7.

4 Hillary Appel, A New Capitalist Order: Privatization and Ideology in Russia and Eastern Europe , Pittsburgh, PA: University of Pittsburgh Press, 2004.

5 R. Rose, W. Mishler and C. Haerpfer, Democracy and its Alternatives , Baltimore, MD: Johns Hopkins University Press, 1998, p. 11.

6 See Jeanne Wilson, ‘The Impact of the Demise of State Socialism on China’, in Lane and Myant, Varieties of Capitalism in Post-Communist Countries .

7 Wilson, ‘The Impact of the Demise of State Socialism on China’, p. 282. 8 H. Hung, ‘Rise of China and the Global Overaccumulation Crisis’, Review of Interna-

tional Political Economy , 15(2), 2008: 149–79, cited by K. van der Pijl, ‘Is the East Still Red?’, Globalizations , 9(4), 2012: 503–16, p. 158.

9 The data in Figures 16.2 and 16.3 are based on two surveys I organized. In Russia, under the Levada Centre in April 2005, 1,600 people aged 18 and over were selected randomly from the population. In Ukraine, a similar survey of 2,015 people was con-ducted in September 2005 and carried out by the Institute of Sociology in the Academy of Sciences. For further discussion on this topic see David Lane, Elites and Classes in



the Transformation of State Socialism , New Brunswick, NJ: Transaction, 2011, ch. 10 , from which these � gures have been derived.

10 Soyoung Kwon, for example, points out that the country preserves many of its previous features: a formal hegemonic single Party, an of� cial dominant ideology, a dominant state sector and public ownership. She notes that, unlike the European state socialist countries, the ruling elites have been closed for a long period and succession has fol-lowed a kin-based trajectory. See S. Kwon, ‘Change and Continuity in North Korea’, in David Lane (ed.), The Transformation of State Socialism , Basingstoke: Palgrave Macmillan, 2007.

11 See the discussion in Grani globalizatsii , Moscow, 2003, esp. ch. 9 ; and V. Yu. Surkov, Osnovnye tendentsii i perspektivy razvitiya sovremennoy Rossii , Moscow: Sovremen-naya gumanitarnaya akademiya, 2006.


What gave state socialism its character and appeal was the fact that it was not just a variety of capitalism, but a new political and economic social system claiming to combine industrialism with rationality and equality. State socialism put politics in command over the economy; it broke the autonomous power of private capital. This qualitative difference is acknowledged by writers ranging from Sidney and Beatrice Webb to Richard Pipes.

Whether this led to a new civilization or to an intolerable tyranny has divided commentators. The transformation of state socialism raises the question of whether a post-socialist system based on markets and private property can over-come socialism’s distortions and inef� ciencies. If you take away the communist polity and planned economy and institute markets and private property, do you have anything better? This question is not now a theoretical counter-factual. After 20 years of transformation, state socialism may be considered in a new light. How does the imperfect society created by the communists compare to that of the neo-liberals?

Initially, the fall of the socialist states was widely hailed in the West as a ‘tri-umph’. This triumph is usually phrased in terms of the victory of democracy and freedom, and the signi� cance of the collapse is often considered as being even greater than that of the Russian Revolution of 1917 itself. For Francis Fukuyama, the end of the Soviet Union led to ‘the universalization of Western liberal democ-racy as the � nal form of human government’. 1 Neo-liberal philosophy, which underpinned the ‘triumph of the West’, was ‘underwritten by the abundance of a modern free market economy’, 2 secured by liberal democracy as a political pro-cess, and legitimated by consumerism as an economic value. Other writers, such as Zbigniew Brzezinski, 3 have claimed that communism, as a form of political and economic order and Marxism, as a theory, are � nished. Dahrendorf solemnly pronounced that ‘socialism is dead’. 4 Put in a different light, these writers substi-tute a market capitalist society, legitimated by classical economics and neo- liberalism, for the Marxist long-term goal of communism, except that it has already arrived.

For those on the non-communist Left, its fall was no less important, but was considered a disaster. For Fred Halliday, the collapse of such societies has been ‘nothing less than a defeat for the Communist project as it has been known in the

17 What capitalism delivered



twentieth century and a triumph of the capitalist’. 5 On a world basis, the collapse of the communist system and the recognition of its inadequacies have had a pro-foundly negative effect on the quest for a socialist society. It has contributed to the moral, intellectual and political disintegration of the Left. 6

The collapse of state socialism has led to a public policy predicated on neo-liberalism. As noted in earlier chapters, to a greater or lesser extent, all the post-socialist countries have opened their economies to the world market, privatized public assets, organized electoral polyarchies, monetarized social provision, and established a free labour market. Consumerism has become a dominant pervasive ideology.

Have these measures led to the expected levels of improvements in personal wealth, well-being and public welfare as proclaimed by the neo-liberal advocates of transition? The answer suggested in previous chapters is that it depends on who you are and which country you live in. Has there been a convergence to the standards of the post-industrial Western European states? Again, the discussion in earlier chap-ters indicates that in some cases maybe slightly, but in many cases – probably not. Alternatively, is there something to be learned from the experience of state social-ism? Here we turn to examine in more detail these claims in the light not only of the structural changes, but in what ways the public in these countries have gained or lost.

Evaluating the social changes: the views of the public State socialism has been evaluated negatively by most Western commentators and by many in these states themselves. But the experience of market reforms has led to a recon� guration of personal views on life under state socialism. Public opinion polls are our major source of information concerning the public’s evaluation of life under communism, and after its transformation.

Researchers at the Pew Center studied public opinion in the post-socialist countries in 1991 and 2009, and their � ndings provide a good measure of public attitudes towards various aspects of the transformation experience. This work is supplemented here by other research conducted by the author in Russia and Ukraine. These studies draw a picture of divided societies. Over time enthusiasm for change has diminished, as the Pew Global Attitudes Project rather aptly puts it: two decades after the fall of the Berlin Wall, ‘The end of Communism [is] cheered, but now with reservations.’ 7 We can elaborate on this conclusion by studying popular sentiments about electoral democracy, market capitalism, eco-nomic welfare and perceptions about who were the winners and losers. We then consider these � ndings in the light of measures of social well-being.

As can be seen from Figures 17.1A and 17.1B , a change to a multi-party system and market economy in 1991 was widely approved in most of the post-socialist countries; reservations about the changes have increased between 1991 and 2009; support for change is much greater in the new member states of the EU than in Russia and Ukraine. Finally, as noted in Figure 17.2 , despite the increases in GDP noted in the reports of the EBRD and IMF, there is a widespread perception that economic conditions under communism were better.


What capitalism delivered 261

Over the whole period, only Slovakia and Poland had any positive increase in the approval of change and this was in the area of multi-party politics. In Ukraine, Bulgaria, Lithuania and Hungary there were notable falls in public con� dence in the multi-party system. Approval for the capitalist system was relatively less than for competitive democracy in all the post-socialist states, and particularly so in the three former republics of the USSR. Moreover, in all the post-Soviet societies support for capitalism fell between 1991 and 2009; in Hungary, Lithuania, Russia and Ukraine approval rates dropped to 50 per cent or less of the respondents.

Surprisingly, perhaps, the economic situation is universally regarded as being better under communism. In answer to the question, ‘Would you say that the eco-nomic situation for most people in ( country of survey ) today is better, worse, or about the same as it was under communism’, in not one post-socialist country did more than half of the population believe that it was better in 2009. Figure 17.2

0

20

40

60

80

100

E.Ger

Cze Bul Lith Hun Ukr Slok Pol Rus

0

20

40

60

80

100

Cze E.Ger

Hun Pol Lith Bul Slok Rus Ukr

1991 2009

1991 2009

Figure 17.1 (A) Approval of multi-party system, 1991 and 2009 (B) Approval of capitalist system, 1991 and 2009.

Source: Pew Global Attitudes Project 2009 , www.pewglobal.org , p. 1.


http://www.pewglobal.org


shows that in 2009, in Hungary 72 per cent, and in Ukraine and Bulgaria 62 per cent, believed that the people are worse off than they were under communism. Even in the most successful countries (Czech Republic and Poland), between one-third and two-� fths of the respondents felt that they were better off under com-munism.

When we consider people’s perceptions about who actually bene� ted from the transformation, the picture is one of signi� cant divisions between the elites and the people. As indicated in Figure 17.3 , in only the Czech Republic did a (bare) majority of respondents believe that ‘ordinary people’ had bene� ted from the changes, whereas in all countries (except Hungary) over 80 per cent of the respond-ents believed that business owners had bene� ted, and for nearly all countries the gains of politicians were even more widely recognized. Clearly, the overwhelming majority of the population considered that the gains had been unevenly divided. In the public consciousness, class is a major determinant of who bene� ts from the transformation.

Public opinion polls conducted in Russia come to similar conclusions – shown in widespread nostalgia for the Soviet system. In January 2005, for example, the Levada Centre found that more than half of people surveyed in Russia believed that it ‘would have been better if everything had stayed the way it was before 1985’. 8 Stephen White’s data illustrate that in 2005, the ‘best’ features of com-munist rule were job security (31 per cent of responses), inter-ethnic peace (20 per cent), economic stability (17 per cent), law and order (13 per cent), and more equality (14 per cent); only 2 per cent of respondents thought that the Soviet system had no good features. The worst features of communist rule were too much bureaucracy (27 per cent), economic stagnation (25 per cent), oppressed human rights (14 per cent), corruption (8 per cent), and pollution (7 per cent); 10 per cent opined that it had ‘no bad features’. 9 In comparing ‘the most characteristic’

7262 62

48 48 45 39 35

1618 13

1518 15

12 12

8 13 1223 29 33

45 47

Hun Bul Ukr Lith Slok Rus Cze Pol

worse the same better

Figure 17.2 Economic situation today compared to under communism . Source: Pew Global Attitudes Project 2009 , www.pewglobal.org , p. 5 .




features of communist and post-communist rule in Russia in 2005, White reports that for communist rule, 34 per cent regarded it as being close to the people, 30 per cent de� ned it as bureaucratic, 30 per cent as being ‘strong’ or ‘� rm’, 28 per cent for its legality, 26 per cent for it being ‘our own or familiar’.

In evaluating the post-communist period, there were many more negative con-notations: the most characteristic feature of post-communist rule was its criminal-ity and corruption – 62 per cent in 2005, its remoteness and alien nature (42 per cent), its irresolution (29 per cent), weakness and powerlessness (20 per cent – though this had been 30 per cent in 1998; no doubt President Putin had made a difference).

While there is a more positive attitude to the political changes, the social and economic shortcomings of the transformation have led to widespread public dis-approval. Signi� cant proportions of the population even complain that they have ‘less in� uence over the making of public policy than they enjoyed in the commu-nist period, in spite of the introduction of competitive elections’. Western-type competitive democracy is not widely regarded positively in Belarus, Ukraine and Russia. 10 Put simply: it does not turn public aspirations into political output.

There were important differences between different strata on the demise of the USSR. In Russia, 69 per cent of women in 2005/06 regretted its fall, as did 82 per cent of people aged 60 or above, 82 per cent of people with only primary educa-tion, and 76 per cent of those on low income. Even of people under 30 (a group most opposed to the USSR) 44 per cent regretted its demise, and of those with higher education the � gure was 62 per cent. 11

By 2010, in Russia, 34 per cent of a similar sample entirely or partly agreed that ‘it is a disaster that the Soviet Union no longer exists’ (46 per cent of those aged over 60 and 28 per cent of those aged between 18 and 30). In Ukraine, the � gures were similar: 45 per cent for the total population, 63 per cent for those aged over 60 and 27 per cent for those under 30. 12 The major factors giving rise to support for the Soviet Union were the provision of ‘full employment, low prices,

0 20 40 60 80 100

Cze

Slok

Hun

Ukr

Politicians

Business

People

Figure 17.3 Who gained most from the transformation? Source: Pew Global Attitudes Project 2009 , www.pewglobal.org , p. 31. Note: The question was: ‘Who bene� ted from changes from 1989?’ (Ukraine and Russia, since 1991.) Data refer to ‘a great deal/a fair amount’.




comprehensive social welfare and a state that took responsibility for economic management’. There was much support ‘in retrospect, for many of the principles on which [the Soviet Union] had been based’ 13 (see Table 17.1 ).

Other perceptions of life ful� lment show general dissatisfaction with living conditions in Russia and Ukraine. Surveys conducted by the Levada Research Centre found that in Russia only 6 per cent of the population in 1998 was satis� ed or mostly satis� ed with life in general; this had risen to only 26 per cent in 2005; at the other end of the scale, 26 per cent in 1998 were either completely or for the most part dissatis� ed with their life conditions and, by 2005, the proportion had risen to 34 per cent. 14 When we disaggregate these responses, there is a clear cor-relation between social position and economic hardship: of people who described themselves as ‘hardly able to make both ends meet, there is not enough money even for food’, 32 per cent of the unemployed were in that category, 37 per cent of pensioners, 22 per cent of housewives, 31 per cent of unquali� ed workers, 14 per cent of skilled workers, 12 per cent of unskilled non-manuals, but only 6 per cent of ‘specialists’ (employees with professional quali� cations) and 5 per cent of managers. 15

In 1995, only 11 per cent described their life situation as being ‘not so bad and I can manage’, rising to 17 per cent (average) in 2005; at the other end of the scale, in 1995 and 2005, 35 per cent and 25 per cent respectively responded that ‘it’s impossible to bear our disastrous situation any longer’. 16

Turning to Ukraine, surveys show similar forms of disenchantment. In answer to the comment, ‘With everything so uncertain these days, it almost seems as though anything could happen’, 85.7 per cent agreed in 1999; this fell to 72 per cent in 2005. To the question, ‘The trouble with the world today is that most people really don’t believe in anything’, in 1999, 86 per cent answered in the af� rmative and 76 per cent in 2005. Of ‘satisfaction with life in general’, in 1994, 49 per cent of respondents were either completely or somewhat dissatis� ed, falling to 45 per cent in 2005 – a slight improvement. When asked about insuf� ciencies in their lives, in 1995, 48 per cent mentioned their health, rising to 51 per cent in 2005; for jobs, the � gures were 42 per cent and 46 per cent; and ‘necessary clothing’ 48 per cent

Table 17.1 Opinions on the Soviet Union: Ukraine and Russia, 2010 (per cent)

Ukraine Russia

A. ‘Disaster that the USSR no longer exists’Disagree completely or partly 47 58Agree completely or partly 45 34

B . Name ONE best feature of the USSRMore equality 15 17Peace between nations 10 17Economic stability 24 16Guaranteed employment 31 28Didn’t have any good features 3 2

C. USSR didn’t have any bad features 14 9



and 31 per cent. When asked whether they felt able to ‘live under new social condi-tions’, in 1995, 47 per cent said they were unable, falling to 35 per cent in 2005 – another improvement, and the � gures for those who felt that they were able to cope rose from 13 per cent and 24 per cent – another improvement. 17

Over the whole period of transformation, in Ukraine there has been an increase in public dissatisfaction with, and opposition to, the major economic components of capitalism. As indicated in Figure 17.4 , opposition to privatization of large enterprises rose from 31.6 per cent of the population in 1992 to 61.3 per cent in 2010; opposition to land privatization increased from 13.9 per cent to 51.4 per cent in the same time period; support for a return to ‘a planned economy with complete government control’ rose slightly from 29.3 per cent to 31.6 per cent, whereas at the other end of the scale support for ‘the government’s role should be minimized and the market should regulate everything’ fell from 6.5 per cent to only 5.3 per cent.

Figure 17.5 illustrates the disenchantment with electoral democracy over time. The number of people believing that Ukraine did not need a multi-party system rose from 29 per cent to 46 per cent between 1994 and 2010. Respondents having con� dence that their member of parliament was able to represent their interests fell from 23 per cent to 13 per cent.

The Pew Center research found very high levels of public dissatisfaction fol-lowing the world economic depression. In its 2009 survey it found that a negative

0

10

20

30

40

50

60

70

1992 96 2000 2005 2010

PrivLarEns

LandPrivn

RetGovCon

MarkPred

Figure 17.4 Lack of support for the capitalist economy in Ukraine. Source: National Academy of Sciences of Ukraine, Institute of Sociology, Ukrainian Society 1992–2010, Kiev 2011, pp. 7–8, 10–11 Notes : PrivLarEnd = Negative attitude to privatization of large enterprises LandPrivn = Negative attitude to land privatization RetGovCon = Return to planned economy with complete government control MarkPred = Market should regulate everything



evaluation of the ‘current economic situation’ was made by 94 per cent of the population in Hungary, 93 per cent in Lithuania, 91 per cent in Ukraine, 84 per cent in Bulgaria, 81 per cent in the Czech Republic. Even the most favourably disposed populations had well over half of the respondents viewing economic conditions as bad: they were in Slovakia (73 per cent) Russia (68 per cent) and Poland (59 per cent). 18

When we consider the situation in 2011, there were similar responses. Those answering that their country’s economic situation was good came to 88 per cent in China, 29 per cent in Russia, 26 per cent in Poland, 9 per cent in Lithuania and 6 per cent in Ukraine; comparable � gures for the UK were 15 per cent and the USA 18 per cent. 19 (No data are available for the former central Asian republics of the USSR.)

Similar results are found in answers to questions on ‘overall, are you satis� ed or dissatis� ed with the way things are going in your country’. 20 China comes out remarkably well in these surveys. In 2011, 85 per cent of Chinese respondents replied that they were ‘satis� ed’, compared to 32 per cent in Russia, 30 per cent in Poland, 14 per cent in Lithuania. Ukraine was at the bottom of the list with only 9 per cent; comparable � gures for the UK and USA were 32 per cent and 21 per cent respectively. 21 While Western media are infatuated with the lack of electoral democracy, the Chinese system would appear to have widespread legitimacy

0

10

20

30

40

50

60

1994 98 2002 6 2010

MultiPtySy

MPs repres

Figure 17.5 Lack of support for electoral democracy in Ukraine. Source: National Academy of Sciences of Ukraine, Institute of Sociology, Ukrainian Society 1992–2010, Kiev 2011, pp. 7–8, 10–11 Notes : Number of respondents = 1,800 MultiPtySy = ‘In your opinion, does Ukraine need a multi-party system?’ (percentage of respondents answering ‘No’). MPs repres = ‘Can you say that the member of parliament elected in your district is capable of repre-senting your interests in parliament?’ (percentage of respondents answering ‘Yes’).



among the people. The underlying assumptions of the Washington Consensus (that state planning, a large state sector and monolithic party control are inimical to eco-nomic growth and public satisfaction) would appear to be fundamentally � awed.

If we pose the question of whether transformation was worth the sacri� ces it has required, the public would appear divided. In all post-communist societies, the new political system is more popular than the economic, though there is a very high level of scepticism about the effectiveness of electoral democracy. In the new member states of the EU, more people think that the move to capitalism was worth the sacri� ce, compared to those in the states of the former USSR. However, in all societies there were winners drawn disproportionately from the professional and new business classes; the losers were concentrated among the working classes. Signi� cant proportions of the population are disillusioned with the pro-cesses and outcomes.

Evaluating the changes: effects on social well-being Above we considered the subjective views of citizens; now we turn to objective criteria. Before the fall of state socialism, the socialist states varied considerably in their economic, political and social development. There were diverse starting points. This was not only the case for the central European states, but within the USSR there were great disparities. One of the objectives of the reform and conse-quent transformation of state socialism was to increase the levels of well-being. As noted earlier, over the 20 years or so of transformation, GDP has increased, though people’s perceptions indicate disappointment with standards of well-being under market conditions.

Why, then, is there an apparent discrepancy? The answer is that GDP is too narrow a measure to capture well-being: it ignores the distribution of income and the ways that income is used. Gross domestic product per capita simply measures total goods and services production divided by the number of people in the country – not how the product is distributed between people or what kinds of goods and services are produced. Also, well-being has to be evaluated in comparative perspective. The reference points in the post-communist countries have to be made with respect to the post-industrial countries of the West, which have also changed since transformation began. Hence the convergence of the state socialist societies to the standards of capitalist countries has to be analysed not only in terms of the condi-tions of 1989 or 1991, but to conditions of today. If we take these as measures, then the transformation may be seen in a clearer light.

The Human Development Index produced by the United Nations Development Programme provides a composite ranking of countries based on four components: life expectancy at birth, adult literacy, primary and tertiary education enrolment, as well as gross domestic product per capita. 22 This we may take as a benchmark to measure the comparative levels of development of the NMS, states of the former USSR and China, and to assess the effects of changes entailed in the transforma-tion process. The data may be incomplete and subject to changes in methodology over time. However � awed, these data are the best measures we have available.



I discuss the levels of well-being as measured by the index from two points of view: � rst, changes in well-being in the post-socialist countries over time, and second, how these changes relate comparatively to other countries. These meas-ures enable us to detect the extent to which well-being improved within the post-socialist countries over time, and whether they converged (or diverged) with the more advanced countries.

Figures 17.6A – C show the trends of human development, either from just before the fall of the state socialist countries (1985), or from 1990 to 2007. A word of caution may be necessary: the data are not produced by UNDP compilers but are derived from statistics provided by individual states, and there may be under-reporting. Again the data do not measure psychological attributes, such as levels of stress, which were probably lower under state socialism (given provision of employment and welfare). Overall I believe that the � gures are consistent with our knowledge of the societies in question (increasing death rates, falling educa-tional enrolments and falls in GDP) and illustrate the general picture.

I have divided the countries into three groups and in each I have selected a number of states: new member states of the EU; the European CIS states; and the central Asian states. For comparison, I have included China in all three � gures. Figure 17.6A plots a downward movement initially in all four NMS of the EU (Poland, Hungary, Latvia and the Czech Republic). All these countries had sig-ni� cant declines in human well-being up to 2002, when there was an improve-ment. The deterioration was particularly strong in Latvia. Despite the reversal of this trend from around 2002, for all these countries the starting position had not been attained by 2007.

Figure 17.6B illustrates developments in four European CIS states: Russia, Belarus, Ukraine and Armenia. Here a much more regressive decline occurred, with Armenia and Ukraine having a particularly steep fall. Belarus also had a fall in standards, but rather less than the other states here. In all these countries the levels of the Soviet period were not regained even by 2007.

On Figure 17.6C the central Asian republics of Kazakhstan and Uzbekistan as well as Azerbaijan and China are depicted. Uzbekistan had a much shallower fall

0.5

0.6

0.7

0.8

0.9

1

1987 1990 1992 1995 2002 2005 2007

Pol

Hun

Lat

CZ

Chi

Figure 17.6A Human Development Indexes: Poland, Hungary, Latvia, Czech Republic and China, 1987–2007.



in standards; and all these countries have reached or even surpassed the standards of the Soviet period. Most impressive of all is the consistent improvement of con-ditions in China, which has pursued an inexorable ‘catch-up’ with all the former European and central Asian countries.

A second question is the comparison of the post-socialist countries and China with the rest of the world. Is the ranking any better after transformation compared to other countries than it was before transformation? This provides a robust meas-ure of convergence. Here we compare the ranking of these countries in interna-tional perspective. In the Human Development Index (HDI) the most developed country is given a rank of 1. On a world scale, European and Anglo-Saxon coun-tries occupy the top positions (the only exception is Japan which is in the top ten countries). In the world order, in the late 1980s, Czechoslovakia, (ranked 27), followed by Hungary (30), and the USSR (31), had the highest level of human development of the socialist countries (the German Democratic Republic was also in this group). At this time, all the European socialist countries (except Romania) were in the ‘high human development category’ – comprising 53 countries

0.5

0.6

0.7

0.8

0.9

1

1987 1990 1992 1995 2002 2005 2007

Bela

Ukr

Arm

Rus

Chi

Figure 17.6B Human Development Indexes: Russia, Belarus, Ukraine, Armenia and China, 1987–2007 .

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0.85

1987 1990 1992 1995 2002 2005 2007

Uzb

Azer

Kaz

Chi

Figure 17.6C Human Development Indexes: Uzbekistan, Azerbaijan, Kazakhstan and China, 1987–2007.



(Romania was 58). Non-European socialist countries were in the medium devel-opment echelon: Cuba (62), North Korea (74) and China (82); only Vietnam was in the ‘low human development’ category (99).

Unfortunately for the comparative study of post-socialist developments, the republics of the former USSR were not differentiated from the USSR aggregate data until they became independent states in 1992. A further complication arises when we attempt to compare differentials between countries after 1992, as the rankings of countries refer to a different number of states. (Many new states were created during the period of transformation.) I have, therefore, had to rework data from the USSR to differentiate between the European and Asian republics. I also had to allocate the new post-socialist European states (such as Slovakia) to a posi-tion in the index. On this basis we are able to construct a truly comparable table showing the rankings between contemporary states and how they have changed over time.

Differences in GDP between the Soviet republics were substantial. Such data were not published in the annual statistical reports of the USSR. However, one measure that re� ects economic standards is the earnings of manual and non- manual workers. I have therefore calculated the ratio of average earnings between the republics and the USSR average: the European republics being at the top and the central Asian ones at the bottom. 23 For an index of health I have used the life expectancy and infant mortality � gures. 24 Data were collected on the educational levels of people with higher and specialist education working in the economy in each republic. Finally, to measure economic development I used the level of retail trade turnover. 25 These four indexes (infant mortality, level of education, average wages, and retail trade turnover) were aggregated to form a composite picture of the republics of the USSR, before the reforms of Gorbachev of the mid-1980s began to bite. On this basis, we are able to construct a ranking of human develop-ment of the republics of the USSR. This analysis enables one to allocate the cen-tral European countries, those of the former USSR, and China to the world ranking of states in terms of human development. 26

The rankings in 1990 are shown on Figure 17.7 in vertical columns and the comparable ranking in 2009 is shown as lines. For illustrative purposes selected states are shown from the NMS, European CIS, Asian CIS and comparisons with USA, China and Cuba. By contrasting the data for 1990 and 2009 (the difference between the lines and the vertical blocks) we have a measure of convergence or of divergence from world rankings.

Only three post-socialist countries have improved their positions in the world order – China, Cuba and Poland. The European CIS have all had serious declines, Ukraine and Russia falling by some 40 places in their international rankings. The central Asian republics, especially Uzbekistan and Turkmenistan, also had sharp falls. A second group of countries has experienced a relatively minor but signi� -cant drop in their international rankings: Hungary, Czech Republic and Belarus.

Clearly, the expectations of those who sought a positive transformation in human development consequent on a move to capitalism have been somewhat disappointed. As can be concluded from the data in Figures 17.6 , by 2007 for most



post-socialist countries, the levels of human development were not much better than they were in Soviet times. As noted earlier in this book, the much hoped for and proclaimed convergence to the living standards of the West has not occurred. The distance between the former socialist countries and the industrialized West has not decreased to any substantial degree. The comparative rankings have fallen and in many cases signi� cantly so. In some aspects, as is shown below, life condi-tions have worsened.

Inequality Critics of Soviet-type systems, ranging from Anthony Giddens 27 to Ferenc Feher, Agnes Heller and Gyorgy Markus, 28 have argued that state socialism replaced capitalist exploitation with political domination and thereby perpetuated social exploitation. The evidence of the past 20 years allows us to estimate the effects of the reversal from political control to that of the market. The evidence has not substantiated the view that economic exploitation has decreased. On the contrary, inequalities and poverty have increased at an exponential rate in the former state socialist societies. A new class of super-rich business oligarchs has arisen and mass unemployment coupled to the fall in state welfare provision has led to the growth of a large stratum of the population in poverty.

0

20

40

60

80

100

120

1990 2009

CUBCHIKAZAZTURUZRUSARUKBECZLATHUPOLUS

Figure 17.7 Human Development Indicators: post-socialist countries, USA and China, country ranks, 1990, 2009 .

Source: UNDP, Human Development Report 2009 , http://hdr.undp.org/en/statistics/ ; Human Develop-ment Report 1991 , New York: UNDP, 1991, pp. 119–21; USSR disaggregated by author. Note: Countries are ranked in order of development, 1 being the highest. In 1990, there were 177 countries, in 2009, 182. The lower the rank, the higher the human development.


http://www.hdr.undp.org/en/statistics/


The two major causes of gross income inequality under a market capitalist system are unequal private ownership of productive assets (giving rise to pro� ts) and unemployment, which cuts the income stream. The state socialist countries had neither of these and consequently they were equalitarian in income and wealth distribution and had relatively little poverty. One of the objectives of the reform programme was not only to increase wealth but also to redistribute it in such a way as to provide economic incentives to encourage initiative and reward hard work. Reformers conceded that a move to the market would entail greater ine-quality of income and wealth but argued that the inequality in turn would stimu-late economic ef� ciency, from which all would gain.

Gini indexes measure the distribution of income: a � gure of 0 represents per-fect equality (everybody receives the same); whereas 100 represents perfect ine-quality (the rich receive the total, the poor nothing). The Gini index measures money income and but not other forms of well-being (state provision of educa-tion, health care, housing). The way statistics are collected rather underestimates the very rich and the very poor: the former may deposit wealth abroad through ‘capital � ight’ (detailed in Chapter 15 ) and individual incomes are not fully revealed; and the very poor (people in transit, migrants) often have no income or are not enumerated for income purposes. Hence inequalities are generally higher than in the Gini calculations. Money income, however, is the major component of inequality and allows comparisons to be made both between countries and over time. In highly polarized societies, such as the USA, the index is in the 40s, whereas for welfare states, such as Denmark, the � gures are in the 20s.

Inequality has risen greatly since the fall of state socialism. 29 In 1987–88, the median Gini coef� cient for the USSR and central European socialist countries was 23, Russia being 24, Ukraine 24; the lowest was the Czech Republic with 19 followed by Slovakia with 20. In the period after 2000 (the latest dates available in 2010), three countries had indexes over 40: China, Turkmenistan and Russia. Excepting for countries such as the USA (41) and capitalist developing societies, such as Brazil (59), most industrialized Western countries are in the 20s (Germany 28, Denmark 25). After 2000, nine of the post-socialist countries were 30 or under: Uzbekistan, Albania, Ukraine, Belarus, Croatia, Slovenia, Slovakia, Hungary and the Czech Republic. Figure 17.8A illustrates the increases over time for selected countries; Figure 17.8B shows the proportion of income for the high-est and lowest 10 per cent of the population, as well as the Gini coef� cient (not all post-socialist societies are given in the sources) for the latest year available in 2010. Here we may note that in Russia, the top 10 per cent of income recipients receive nearly 35 per cent of the income, whereas the bottom 10 per cent obtain only 2 per cent.

The transformation undoubtedly led to an enormous increase in poverty. According to data collected by Branco Milanovic, in 18 central and Eastern European countries, before the transition, there were 14 million people in poverty (4 per cent of the population); this � gure rose to 168 million or 45 per cent of the population in 1993–95. 30 The level of poverty rose from 1 per cent of the popula-tion in Hungary in 1987–88 to 2 per cent in 1993–95; in Estonia the rise was from



1 per cent to 37 per cent; in Russia there was an enormous leap from 2 per cent to 44 per cent; and in Ukraine the rise was from 2 per cent to 63 per cent. Poverty here is de� ned as an income of less than US$120 per person per month. By the year 2000, poverty had declined, but still remained high in some countries. The proportion of people living below the national poverty line was 11 per cent in the

0

5

10

15

20

25

30

35

40

45

50

Rus Chin USA UK Lat Est Lith Pol Slven Kaz Hun Bel Ukr Slka Den

Gin

i coe

ff

87-88 04-

0

5

10

15

20

25

30

35

40

45

% in

com

e/G

ini c

oeff

Low10% High10% GiniLatst

DenSlkaUkrBelHunKazSlvenPolLithEstLatUKUSAChinRus

Figure 17.8 (A) Income inequality: Gini coef� cients for selected socialist countries, 1987–88, 2004–

(B) Income inequality: Gini coef� cients for top and bottom deciles and post-socialist countries post-2004.

Source: World Bank Development Report 2010 , Washington DC: World Bank, 2010



Russian Federation, 7.9 per cent in Ukraine, 16.6 per cent in Poland, 23.6 in Georgia, though only 5.4 per cent in Belarus. 31

In Russia, very high income and wealth is related to the privatization of valu-able natural resource assets (particularly oil and gas, and metals) leading to a small number of massive incomes in this sector. Unemployment and low pay give rise to a large stratum of very poor people. 32 Russia and Turkmenistan are among the top � ve exporting countries of primary products, which include Moldova and Kazakhstan; these all have very high Gini coef� cients. The correlation between share of primary exports and inequality is very high at +.689. This is probably explained by the low labour costs as well as the small number of workers required to produce oil and gas, and the high incomes from oil pro� ts enjoyed by a few people, consequent on privatization.

By 2012, Russia had 101 men (out of a total of 1,153) in the Forbes list of world billionaires, and the journal claimed that Moscow had the greatest number of rich men in any world city, though the USA had many more in the list. Russia’s top man was Vladim Lisin, ranked 14th, with assets of $24 billion. This compares with the richest man, Carlos Slim Helu (Mexico), who had $69 billion, and the number 2, Bill Gates, with $61 billion.

Other Russians included Roman Abramovich, now resident in London. In 2012, he was ranked the 53rd richest man with a ‘net worth’ of $13.4 billion; in 2008 he was ranked 15th with $23.5 billion. 33 Abramovich made his money ini-tially through oil export and then bought into the oil and later the metals industry. He is well connected politically and has not only been given a state honour by Vladimir Putin but was appointed by him as governor of Chukotka autonomous okrug (in Siberia) – illustrating the fact that Putin cultivates loyal oligarchs. His expenditure is lavish; he has the largest sea-going yacht in the world; the accumu-lated losses (2003–11) for Chelsea (London) football club which he owns came to some $1,000 million; just two players (Shevchenko and Torres) cost $120 million. Such employees can earn sums of $300,000 per week. Consider the gap with the citizens in Chukotka. In 2006, the average income per person in Chukotka was $976 (25,703 rubles) per annum, when 13 per cent of the population living there were below the of� cial Russian minimum living income. 34 These � gures bring out the difference not only between the poor and the rich but also the impact of pri-vatization on levels of inequality.

Factors that in� uence the extent of inequality include differentials between the private and the state sectors. The state sector has been subject to budget restraint – a policy much favoured by neo-liberals and the IMF – which has led in many coun-tries to wage arrears. In� ation has also been high and has led to a decline in real earnings.

Inequality is lower in the new member states of the European Union. They have higher levels of GDP than the countries of the CIS and China. The higher levels of foreign direct investment and its wider spread have led to the formation of a more prosperous private sector middle class, which is notably lacking in the CIS countries, and leads to a more equal income distribution.



One might conclude that in the more successful and urbanized transition coun-tries (Hungary, Czech Republic), the privatization of assets by foreign � rms led (at least initially) to a labour market raising wage levels and providing employ-ment. Other contextual factors would need to be examined to explain other cases. Belarus, for example, clearly has a state suf� ciently strong to maintain low income differentials through price and wage controls and has a relatively low level of poverty. At the other end of the spectrum, Turkmenistan has not developed the private sector and has either been unwilling or unable to prevent high income dif-ferentials, which are probably due again to the peculiarities of an energy-exporting economy.

China is more comparable to Russia; here movement to the market has improved economic growth and the ef� ciency of distribution. However, it has led to a country with one of the greatest ranges between the rich and the poor. China also has a signi� cant presence in the Forbes list, with 96 billionaires, the top one being Rohin Li with a total worth of $10.2 billion. Chinese billionaires made their money in a wide range of industries – technology, manufacturing, beverages, real estate, agribusiness, internet, pharmaceuticals and telecom equipment being prominent. One must bear in mind that levels of inequality in China, shown in the Gini statistics, re� ect the very large proportion of the population living on low incomes in the countryside. It also creates the paradox of a Communist Party-led economy where production workers earn around $450 per month and Louis Vuitton bags go on sale in the shops for $4,500 each. Whatever the virtues of the Chinese form of development it has not led to a very equalitarian society.

The changes in economic welfare in the 21 post-communist countries have been summarized by Carola Gruen and Stephan Klasen 35 which con� rm the trends outlined above. They conclude that by 2008, in half of these 21 countries, eco-nomic welfare of the population was similar or below that of the 1988 level. Kyrgyzstan, Ukraine and Tajikistan experienced a decline in GDP which has made welfare even worse when rising inequality is taken into account. In Moldova, Russia and Uzbekistan, despite a rise in national levels of GDP, when income distribution is considered, living standards are again lower than in 1988; in Bulgaria, Latvia, Lithuania and Romania, conditions for most of the population were about the same after the transformation. In the European Union new member states (excluding those in the Baltic, Romania and Bulgaria), living standards had improved.

Public welfare: unemployment In addition to the level of GDP and its distribution, health and level of mortality are important indexes of effective economic adaptation. Equity is not only related to income distribution but also is conditioned by how states cope with employ-ment and poverty and provide health services. A major feature of the previous state socialist economies was the provision of a comprehensive state � nanced and delivered health system and full employment. The post-communist societies have attempted in different ways to subject labour to the market, and to graft private



provision onto, or to replace, the former state health system. In both respects the innovations have not made any signi� cant improvement, and in many ways the provision of public welfare is much worse.

The post-socialist countries have adopted not only the virtues of markets but also one of its major social evils: structural unemployment. Without the system of state planning, all the post-socialist countries were intentionally left subject to market forces and, consequently, to increases in unemployment.

The amount of unemployment may be measured in two ways: � rst, by study of the numbers of people employed (i.e. the proportion of the population in paid work) and second, by assessing the level of registered unemployment. The latter estimation of unemployment is to some extent dependent on administra-tive arrangements for the collection of data (for example, how people are de� ned as ‘actively seeking work’), and generally understate the levels of real unemployment.

Changes in the size of the employed labour force are a good indication of real unemployment levels. Figure 17.9 shows the numbers of people of working age employed in the economies of selected post-socialist countries since 1989. It shows the tremendous drop in employment levels between 1989 and 1999. There were particularly steep falls of 21.7 per cent and 17.9 per cent in Hungary and Poland respectively, and 13.3 per cent and 15.2 per cent in Russia and Ukraine. Tens of millions of people lost their employment status. In neo-liberal economics, such losses indicated that the state socialist regime had ‘overemployment’ and that the market was realizing more effective labour utilization.

What also needs to be considered are the social costs that are involved. Reduction in the labour force participation rate particularly affected women. Under state socialism women had one of the highest labour participation rates in

50.00

55.00

60.00

65.00

70.00

75.00

80.00

85.00

90.00

1989 1999 2005 2008 2010

Cz

Hun

Pol

Lith

Bel

Russ

Ukr

Kaz

Figure 17.9 Employment ratio (number of employed as percentage of population, aged 15–59) .

Source: TransMonEE 2012 database, www.unicef.org/ceecis


http://www.unicef.org/ceecis


industrial societies; in 1979 in the USSR it came to 83.1 per cent of the female population of working age. 36 By 2009, labour force participation rates in Russia had fallen to 57.5 per cent for women and 69.2 per cent for men; for Poland the comparable � gures were 46.2 per cent and 61.9 per cent; and for Hungary 42.5 per cent and 58.8 per cent. 37 This was a massive decline consequent on the introduc-tion of neo-liberal economic policies and has involved a process of ‘domesticiza-tion’ for women and enforced idleness for many men.

Taking the EBRD transition indicators for 2003 (the sum of 9 indicators), the correlation between rate of decline of the labour force and progress to transition was +0.58: the greater the neo-liberal reforms, the greater the fall in levels of employment. This is what one would expect as neo-liberal policies are designed to increase labour productivity at the expense of employment. While the initial decline in employment recovered somewhat after 1999 (as shown in the graph) it has failed to compensate for the job losses through the creation of new jobs.

When we turn to consider the levels of unemployment, a similar but not such a strong trend is apparent. As we note from Figure 17.10 , registered unemployment (according to the Labour Force Survey – LFS) 38 rose greatly in the early years of transformation – Poland had particularly high rates of over 15 per cent between 2000 and 2005. The rapid move to the market created huge problems: to take one example, the Nova Hutta steel complex in Poland employed over 40,000 workers before transformation; by 2008, its workforce had shrunk to around 5,000.

The correlation between level of unemployment and transition indicators is again positive, but lower. If we consider the average increase in unemployment between 1993 and 2008, the correlation between level of country unemployment and EBRD indicators is 0.2 for 2009 and 0.3 for the year 2003. We might note here that the least reformed countries (Belarus, Turkmenistan and Uzbekistan) are

0.0

5.0

10.0

15.0

20.0

25.0

Cz Hun Pol Est Lat Lith Russ Ukr Kaz

199319962000200520082010

Figure 17.10 Annual unemployment rate for selected NMS and CIS, 1993–2010, based on LFS (average percentage of labour force).

Source: TransMonEE 2012 database, www.unicef.org/ceecis ; Transition Report 2003 , London: EBRD, 2003, p. 16; Transition Report 2009 , London: EBRD, 2009, p. 9 (Russian edition). Note: Unemployment is de� ned as not being in paid work and looking for work in the last four weeks.




omitted from the calculations as no unemployment � gures are available for these countries. It seems likely (in view of the � nding above) that unemployment would be lower and hence the correlation higher.

The levels of youth unemployment in the post-socialist states are again extremely high, indicating that new work statuses are not being created. In Poland, rates were over 40 per cent in 2001 and 24 per cent in 2010, and in Lithuania over 30 per cent in 2001 rising to 35 per cent in 2010. 39 Such unemployment was a ‘push’ factor in the emigration of young people as these countries moved towards, or received, membership of the European Union. Again the � gures are highly cor-related with the introduction of neo-liberal economic policies. The correlation coef� cient between youth unemployment in 2005 and EBRD indicators in 2003 was 0.42; in 2008, the correlation is 0.44. Again we must bear in mind that the transition laggards (Belarus and Uzbekistan) provided no unemployment data, and it seems likely that they would have had less unemployment – hence raising the index.

Study of individual countries throws light on the effects of policies. In the central European NMS of the EU (Hungary, Czech Republic and Poland), rela-tively high levels of FDI, as well as structural adjustment funds from the EU, initially enabled transformation to take place relatively successfully. Hungary and the Czech Republic are small states with considerable industry which was privat-ized by European companies. The increased wealth, even if it led initially to unemployment, sustained a state of well-being which had been induced by the politically inspired transformation process. The European Union also created a free market in labour and this enabled the unemployed or potentially unem-ployed to move to other parts of the European Union, which they did in large numbers.

In the longer term, however, the neo-liberal economic philosophy applied by the European Union to the new member states is shown to be de� cient on two counts. First, the restrictions on state support led to factory closures on a vast scale. Companies in the old member states secured their own interests by prevent-ing the rise of state corporations in the NMS, and they were able to buy assets cheaply. Second, the provision of new occupational statuses to replace the jobs lost through individualistic economic ‘entrepreneurship’ by the unemployed (i.e. forming their own businesses) was completely inadequate. There is a limit to the number of new businesses that can be created in a depressed industrial area and it is pure fantasy to expect most factory workers to be interested in, or be able to form, new businesses. 40

One detects an ambiguity in the underlying philosophy of the European Union. On the one hand, it is projected as a Union with a commitment to social rights and a social charter guaranteeing rights. On the other hand, it is devoted to promoting freedom of movement and a competitive market economy. Marketization and competition effectively limit social rights. To ful� l the need for work, people are given the right to free mobility. In other words, move from an area of low employment to an area with a demand for labour. Such movement has high social costs, which are borne by the migrant. The unemployed person carries the burden of uncertainty



and risk. The social charter did not (and does not) guarantee the provision of a livelihood through work (or welfare compensation).

Governments which did not adopt neo-liberal policies had a lower fall in employment levels. Countries like Turkmenistan, Belarus and Uzbekistan had paternalistic regimes which retained elements of statist economies to ensure social stability.

Structural problems of the economy, general economic slowdown, the immo-bility of the population, low and thinly spread foreign investment in the European states of the former USSR, explain their higher unemployment rates. Many regions experienced a collapse of manufacturing and agriculture, and the jobs that go with them. The greatest losers in employment are the former states of the USSR, particularly Russia and Ukraine. Marketization and privatization were suf-� cient to destroy the previous economies, but economic renewal created insuf� -cient new jobs to replace the losses in enterprises that had closed through marketization.

The role of the state in securing income transfer to the unemployed is crucial to the maintenance of social order. President Putin’s statist policy and the increase in transfer payments from tax receipts to the population, as well as his curbs on the excesses of the oligarchs, goes a large way to explaining his popularity, espe-cially in the early period of his rule – discussed in more detail in the next chapter.

Health and public welfare Life expectancy is a major measure of human well-being. Under state socialism, despite the lower level of income, life expectancy ‘was remarkably high, and was related to low inequality, good health access, full employment and high economic stability’. 41 Economic uncertainty and poorer health provision have led to a fall in life expectancy in the early years of transformation (until around 1995).

The experience of the post communist countries is very mixed with respect to life expectancy. Larry King and David Stuckler have pointed out that 15 years after the beginning of transformation, 11 out of 25 countries had failed to retain even their pre-transition levels of life expectancy; 42 and they contend that the declines in some of the post-communist countries represent ‘a peacetime mortal-ity crisis unparalleled in modern history’. They link this decline causally to neo-liberal theories. ‘We � nd … that those countries that implemented the neo-liberal inspired mass privatization programmes had greater declines of life expectancy than countries that pursued different types of privatization.’ 43 They found that ‘mass privatization programmes were associated with an increase in short-term adult male mortality rates of 12.8 per cent’. 44

After the mid-1990s, a rise in life expectancy has occurred for women, though in many countries men have experienced a continuing downward spiral. By 2011, life expectancy in general had risen in Poland from 71.8 years in 1990 to 76.1 years; comparable � gures for Hungary were from 70.9 to 74.4. However, in the European countries of the former USSR there had been a fall from 70.6 (for USSR) in 1990, to 68.8 in Russia, and 68.5 in Ukraine, though Latvia has risen to



73.3 (Latvia probably had a longer lifespan in Soviet times). China followed its usual improvement, from 70.1 to 73.5. 45

Another measurement of the effects of human development and health care on people’s lives may be derived from an index of the probability of persons dying before the age of 60. For comparison, in the UK, of people born between 2000 and 2005, only 8.7 per cent are likely to die before the age of 60; in Germany the � gure is 8.8 per cent, in Sweden 7.2 per cent; the USA is one of the highest in the developed world – 11.8 per cent. 46 The rates for the post-communist societies, on which data are available, are very much higher than the OECD countries: only Albania (11.4 per cent) and Slovenia (11.8) ranks with the lowest OECD country (USA) at 11.8 per cent; Hungary is 18.3 per cent, Poland 15.1, Russia and Ukraine are a 31.6 and 31 per cent respectively. In other words, just under a third of babies born in Russia and Ukraine between 2000 and 2005 have a probability of dying before reaching the age of 60.

Comprehensive mortality rates are shown on Figure 17.11 . (Mortality rates measure the probability that a 15-year-old will die before reaching the age of 60, per 1,000 of the population.) I have clustered the countries into groups of the NMS and CIS (and a comparison with Western states). In each group of countries I have included China as a measure of comparison.

The data illustrate the higher death rate for men compared to women; in some cases (nearly all the post-socialist European states and Kazakhstan of the CIS) men had more than twice the death rate of women. The groups of countries show a progressively higher mortality rate as we move from the Western advanced cap-italist countries such as the USA and UK. China compares extremely well with all the country groups, only bettered by Cuba, Japan and the UK. Even when we study the advanced capitalist group, China has a mortality pro� le just below that of the USA.

Reasons for the rise of mortality among men include the deterioration of the health services brought about by constraints on government spending and many of the factors mentioned above – unemployment, the rise of a signi� cant propor-tion of the population in poverty, and stress consequent on the destabilizing effects of transformation policies. 47 Neo-liberal policies shifted responsibility away from the state to individuals, and comprehensive national provision was transferred to economic enterprises or local authorities – neither of which was able to � nance the previous level of social services, and the delivery of socially provided goods and services has declined. 48 For example, in Russia, the health care reforms of 1993 diversi� ed and decentralized the federal government’s � nancial obligation for health care. Based on the liberal market idea of competition and fee-for-ser-vice, Russia’s regions were made responsible for health care. Insurance funds were set up and � nanced through an employers’ payroll tax, as well as regional and federal government contributions. Private insurance companies also were introduced. As a consequence of underfunding, health became restricted to ability to pay. The previous comprehensive health service was destroyed and a frag-mented system took its place. This gave rise to ‘enormous gaps and inequalities’, 49 in which the elderly and unemployed received poor treatment.



On the basis of detailed research in Poland, Peggy Watson has brought out the inadequacy of private health service delivery which has been grafted onto the previous comprehensive (though inadequate) health system. She points to a greater differentiation in the health system driven by market and class forces. By giving the individual responsibility under conditions where many people do not have the resources to exercise that responsibility, the neo-liberal strategy creates serious health hazards for the poorer groups in the population. Market transforma-tion, therefore, ‘ignores justice, need and equality’. The capacities of people are

0 100 200 300 400

Cz

Pol

Chi

Hun

Lat

Chi

Arm

Bela

Rus

Ukr

Cub

Chi

Viet

Azer

Uzb

Kaz

Japan

UK

USA

Chi

Bra

FemaleMale

Figure 17.11 Mortality for men and women in post-socialist societies, with comparisons, 2009 (per 1,000 of the population).

Source: UNDP, Human Development Report 2011 , hdp.undp.org


http://www.hdp.undp.org


conditioned by their market position and have led to a negative evaluation of health provision after the reforms. 50

The rise in life expectancy noted above is probably caused by the better and more varied supply of food. Women’s life expectancy has generally increased. This may be because women have found alternative psychological and life satisfaction through their extended family networks; unemployment has been accompanied by domesticization which has compensated for the loss of work.

Similar developments have taken place in China. The move to the marketiza-tion of health services has not been bene� cial. What was once a model to be emulated by organizations such as the World Health Organization, by 2000 had fallen in evaluation and China was placed at 188th on a world country scale. The move to neo-liberalism led to the American disease of ‘low ef� ciency, and unfair-ness’. From health professionals ‘serving the people’ they have become part of a ‘service sector’ subject to commodi� ed practices, products and institutions. According to surveys, Mei Zhan points out that some 90 per cent of people are dissatis� ed with the market reforms. 51

Transformation policies did not take suf� cient account of the fact that social welfare in the state socialist societies started from a different basis from that in the Western European capitalist countries. In the latter (though much less so in the USA), public provision widened citizen rights and limited class inequalities, whereas in the post-socialist societies, they started from a base in which there was a relative equality in the � rst place. The shift to the inequality of the market has anchored rights in property and created class rights that are re� ected in the provi-sion of health. Hence, the marketization of health care exacerbated inequalities of health access by imposing a class-based form of inequality.

Conclusions: the balance sheet State socialism was based on the idea that all persons have a right to employment, and to an occupation, and an entitlement to a comprehensive range of social ser-vices – to meet collectively, through the activity of the state, their needs. In repu-diating the role of the state to achieve self-realization, the transformation of state socialism has undermined collective agency and sought to replace communalistic orientations with individualistic competitive ones. Where it has been successful is in providing a belief in diversity and market choice; it has appealed to those who seek individualistic solutions to public problems.

Electoral democracy in the framework of a capitalist system was widely sup-ported by the population in the early days of the transformation. Then people in the post-socialist states had positive sentiments towards markets and reforms. 52 What people aspired to was a successful ‘good capitalism’ – as mirrored in the mass media’s portrayal of consumerism in the West and particularly in the USA – which consequently has been delivered by markets working on neo-liberal capitalist principles.



In both Western Europe and the post-socialist states, traditional self-styled left-wing parties have accommodated to neo-liberalism: the leadership of many of the post-communist parties in the new member states and social democratic parties in the West have adopted the essence of neo-liberal reform and accepted a move to de-statization, privatization and the market. A neo-liberal assumption behind this thinking is that ‘the state’ cannot act like an entrepreneurial capitalist and that state enterprise and service delivery is conditioned by politicians and civil serv-ants acting corruptly or bureaucratically.

In reality, privatization in the post-socialist states has not contributed signi� -cantly to economic growth or high levels of welfare. The experience of China indicates quite the opposite: public enterprise facilitated growth and welfare. Moreover, the shift in Chinese policy to greater marketization has been accompa-nied by increasing inequality and declining public con� dence in the ways that services are delivered.

The causes of popular discontent are de� ned in terms of ‘identity’ politics – the butt of discontent is projected onto ethnic minorities and government corruption, rather than against the market system based on private ownership. As David Ost has contended, this has occurred in the post-socialist societies because of the associa-tion of public property and non-market relations with the anti-democratic commu-nist order. Private property then is considered a constituent part of a truly democratic society, which can only be brought about by a transition to capitalism. To oppose the market and private property is labelled derogatively as ‘populist’ and ‘anti-democratic’. This was the basis of an elite consensus in the central and Eastern European post-socialist societies. The corruption of the market (and especially state corruption of the market), rather than the market itself, is interpreted as the cause of public disenchantment. However, over time this linkage has weakened, and wide-spread public scepticism of the market and private property has increased. The speculative nature of capitalist � nance and banking and the effects of the global economic crisis have shown market capitalist society in a new negative light.

What has not arrived with the transformation is what state socialism provided – societies that could experience comprehensive development, secure employment and stability. The new system has had mixed effects. As I re� ect on 20 years of transformation, I recall my prediction of 1996: Like believers in Cargo Cults, the assumption that the boat of capitalism will return, bringing in it all that was taken away or lacking under socialism, may on examination turn out to be � awed. 53 The returned boat of capitalism has delivered ample unearned wealth to some, but not to the majority. The market delivers goods to the shops but people lack the money to buy them. All countries have experienced high levels of unemployment, which has led to poverty and social stress.

We may note differences between groups of post-socialist states. The new member states of the European Union have been more successful in moving towards electoral democratic structures and open economic markets; support for electoral democracy and capitalism is stronger in the NMS than in the post-socialist countries excluded from the EU. However, in terms of well-being, a convergence to



the levels of the advanced European states has not taken place. The post-socialist states (excepting Poland) have fallen in world ranking. Convergence has taken other forms. The class structure has greater similarities and there is a growing polarization of wealth, giving rise to a rich globalized leisured class on the one hand and unemployed and low-paid people on the other. This has occurred even in China where the leadership of the Communist Party has moved in a neo-liberal direction. The countries of the European parts of the Commonwealth of Independent States have had even greater shocks consequent on the transformation. Their living standards have fallen even more and disenchantment with electoral democracy is even greater.

In all the post-socialist states, the intention of the elites and classes leading transformation was to instigate a Schumpeterian form of ‘creative destruction’. The result everywhere has been more destruction than creation. There are simi-larities with the de-industrialization that has occurred even in the core countries in the EU, such as the UK. The privatization of assets and public services has resulted in the rise of a rent-seeking capitalist class led by grossly overpaid executives.

Another part of the story is the reversion to traditional values. There is a wide-spread attempt by the political and media elites to occlude socialist history or to attribute to state socialism the cause of the faults and failures of transformation. Piotr Sztompka has advanced the notion of ‘civilizational incompetence’ stem-ming from the communist past. As Peggy Watson puts it: ‘civilisational incom-petence, which is claimed to be the legacy of real socialism, is the antithesis of the civilisational competence that is the prerequisite for true modernity and authentic democracy in post-communist society’. 54 This line of thinking is a sociological legitimation of transformation to a neo-liberal market society. As noted in Chapter 14 , the substitution of civil society associations for state activi-ties entails forms of demodernization. Neo-liberalism is not the end of ideology, but another ideology.

Such an approach ignores aspects of modernity which communism brought and which have been abandoned. People as citizens have lost their rights to work and to state-funded social provision (health care, higher education, pensions). While the moral capital of the West – rights, democracy and civil society – are mobilized for international display, internally traditional values of religion and nationalism have been adopted to � ll the gap left by communism.

Anthropologists such as Katherine Verdery contend that privatization, the pres-ence of the ma� a, increasing polarization of wealth and particularly the emerging forms of ‘suzerainties’ in the countryside are leading to a reversion to feudalism. 55 This perhaps was more apparent in the early days of reform, in the early 1990s, but in a metaphorical way this idea does bring out some of the chaotic practices and retrogressive nature of transformation. There has been what Mieke Meurs and Rasika Ranasinghe have termed a ‘de-development’ in many of the post-socialist countries, 56 illustrated by the considerable falls in the human development indica-tors noted above. Rural areas of the post-socialist societies have done badly and this explains the high support there for the successors to the communists. Don Kalb has summed up this position when he comments that the introduction of civil



society policies has negatively affected the ‘rural population … small town indus-trial workers, the less-educated, women and children’; for many ‘it has con-sciously taken away some of the tools and public goods previously taken for granted as the basis for life projects’. 57 This has accompanied the monetarization of social provision which previously was provided as the right of a citizen.

The responses of the population have been uneven. On one side, it must also be acknowledged that many people in the socialist states, especially among the younger generation, rejected the equalitarianism, collectivism, statism and control associated with the Soviet system. They idealized market capitalism. They rejoice when Prospekt Lenina is renamed Ronald Reagan Street. They have no nostalgia for the past; they look to the future. Though the Soviet system is positively viewed by many of the younger generation, by far the majority of this group does not. The generations socialized under the campaigns for socialist industrialization and the Great Patriotic War have either passed away or have reached pensionable age.

For the younger generation, particularly among students in higher education, there is an aspiration for the af� uence of the West, for prosperity and consumer choice. They favour an ‘ef� cient capitalism’ – not what they see as a corrupted capitalism endemic to post-socialism. The pervasive commercial media have ensured that a ‘consumerist ethic’ has taken hold. Individualism has captured the younger generation who, on balance, feel better served by the neo-liberal system. The generations socialized under state socialism in the former USSR are the most nostalgic for socialism. But social class plays a most important role in de� ning these divisions: the higher the current social class, the greater the af� nity with market capitalism. The lower the social class, the greater the loss. Youth’s appetite for capitalism might be short-lived if it does not deliver.

Fukuyama was right to acknowledge the spread of individualism to replace collectivism, the aspiration for diversity in place of uniformity, for freedom rather than equality, for private choice rather than public welfare. The ubiquitous use of the mobile phone is a symbol of such freedom. Where he and others have erred is in overstating the possibility of the post-Soviet economies to provide the material and moral basis for such consumerism. We have noted in earlier chapters that bank lending for domestic credit ful� ls short-term expectations, but fuels disen-chantment when repayment fails. Consumerism lacks a moral dimension which has not been � lled by electoral competitive democracy – but by nationalism, reli-gion and, ironically perhaps, by a growing nostalgia for communism.

On the other side, personal discontent has increased greatly and led to resent-ment by a considerable part of the population, and this disenchantment is grow-ing. Alienation from society is widespread. Between a third and a quarter of the population live in relative poverty and suffer physical and psychological stress. There is nostalgia for the world they have lost. We can conclude with con� dence that the promises of the radical reformers and their Western advisers have not resulted in a convergence to the living conditions of the advanced capitalist states. What has been lost is a sense of moral community. As one study has put it, ‘the market and pluralist democracy have not … ushered in new moral forces compa-rable to those [of socialism] which have been displaced’. 58



The liberal transitologists in the central and Eastern European states have insti-tuted a political and economic system modelled on market structures and private property. What has been achieved in the process of transition in the post-Soviet societies is a dual system of power: a political assembly with a popular franchise and an economy with private ownership 59 of assets responsive to a market. Electoral democracy has been unable to exercise popular control over the latter. Consequently, the social outcomes of transformation have led to widespread scep-ticism concerning the ef� cacy of competitive democracy. Underlying the political and economic changes are the asymmetrical effects of privatization, the ineffec-tiveness of electoral democracy to turn public aspirations into effective political policies, the inadequacies of the labour market leading to unemployment, and the withdrawal of the state as provider of comprehensive welfare. Signi� cant parts of the population still support distribution based on need, a strong role for govern-ment in control of the economy and a full employment policy. 60 These are the conditions that make what Olga Kryshtanovskaya (referring to Russia) has termed another pre-perestroika political situation; the public is prepared for change, but has no clear idea of where to go.

While ‘statism’ is widely unpopular, ironically, public provision is still widely favoured. In China and the societies of the post-USSR, there is a public expecta-tion that the state has a responsibility for social welfare.

Were the costs of transformation worth it? It depends. For those who have gained property, for professionals working for foreign companies, for the younger student generation from rich families, the answer is a resounding ‘yes’. For the manual and non-manual semi-skilled and unskilled employees in services, industry and agriculture, and for the older generation, the answer is positively ‘no’.

My contention is that a wide spectrum of citizens in the European post-socialist societies is predisposed once more to radical social change. What kind of change is the subject of Chapter 20 . 61

Notes 1 Francis Fukuyama, ‘The End of History?’, The National Interest , Summer 1989, p. 4. 2 Fukuyama, ‘The End of History?’, pp. 1, 8. 3 Zbigniew Brzezinski, The Grand Failure , London: Macdonald, 1990. 4 R. Dahrendorf, Re� ections on the Revolution in Europe , London: Chatto and Windus,

1990, p. 38. 5 Fred Halliday, ‘The Ends of Cold War’, in Robin Blackburn (ed.), After the Fall ,

London: Verso, 1991, p. 86. 6 See also for a similar appraisal, John Saville, ‘The Communist Experience: A Personal

Appraisal’, in Ralph Miliband and Leo Panitch (eds), The Socialist Register 1991. Communist Regimes: The Aftermath , London: Merlin, 1991, p. 7.

7 Pew Research Center, The Pew Global Attitudes Project, Two Decades after the Wall’s Fall , Washington DC: 2 November 2009, www.pewglobal.org .

8 Stephen White, ‘Communist Nostalgia and its Consequences in Russia, Belarus and Ukraine’, in David Lane (ed.), The Transformation of State Socialism , Basingstoke: Palgrave Macmillan, 2007, p. 36.

9 White, ‘Communist Nostalgia’, p. 42.




10 White, ‘Communist Nostalgia’. 11 White, ‘Communist Nostalgia’, p. 46. 12 Based on surveys conducted by public opinion poll organization for Stephen White

in Russia and Ukraine in 2010; N = 2,017 Russia, N = 1,200 Ukraine. My thanks to Stephen White for the data.

13 White, ‘Communist Nostalgia’, p. 55. 14 Vestnik obshchestvennogo mneniya , 77, May–June 2005, Table II, p. 73. 15 Vestnik , p. 87. 16 Vestnik , p. 74. 17 Data in this paragraph from N. Panina, Ukrainian Society 1994–2005 , Kiev: Institute

of Sociology, 2005, pp. 35, 36, 60, 61. 18 Pew Research Center, The Pew Global Attitudes Project , p. 75. The actual question

asked was: ‘Now thinking about our economic situation, how would you describe the current economic situation?’

19 Pew Global Database, ‘Country’s economic situation’, www.pewglobal.org/database , data for 2011.

20 Pew Global Attitudes Project , p. 73. 21 Pew Global Database, ‘Satisfaction with country’s direction’, data for 2011. 22 Human Development Report 2005 , www.hdr.undp.org/reports/global/2005 (reference

for 2005). In the following diagrams the issues for 2001 (referring to the year 2000) and 2005 (referring to 2003) have been utilized. There is also a hardback publication: UNDP, Human Development Report 1991 , New York and London: Oxford University Press, 1991; UNDP, Human Development Report 2011 , New York and London: Palgrave Macmillan, 2011.

23 The top rankings were Estonia, Russia, Latvia, Lithuania; Turkmenistan and Kazakhstan were just below the top four European republics, and the poorest republics were Kyrgyzstan, Uzbekistan, Tajikistan, Azerbaijan and (bottom) Moldavia; Trud v SSSR, Goskomstat SSSR, Moscow, 1988, pp. 154–5. Collective farmers (peasants) are excluded from these � gures. This is because they derived income from collective farms and individual plots. With the possible exception of Georgia, earnings in agriculture were very much less than in industry and services; and social and economic conditions were also very much inferior.

24 The lowest infant mortality was in Latvia, followed by Lithuania, Belarus, Ukraine, Estonia and Russia; at the other end of the list were Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan and (bottom) Turkmenistan; data for 1987, Naselenie SSSR, Moscow, 1988; Goskomstat SSSR, 1989. For life expectancy see p. 492; infant mortality, pp. 680–4.

25 In 1988, for the USSR, there were 53 per 10,000 inhabitants; in the Russian Federation, there were 70 per 10,000; the respective numbers in Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan and Turkistan were 20, 25, 24, 18 and 16. These � gures include employees with higher specialist education working in pure and applied research and higher level teaching; Nauchnye kadry SSSR, Moscow: Mysl’, 1991, p. 110. For retail trade turnover see Narodnoe khozyaystvo SSSR, 1985, p. 466.

26 I have standardized the number of countries to coincide with those included in the Human Development Report for 2003 (HDR 2005). I have added to the list 18 new states (and excluded the USSR); the total number of states in the Report was 260 in 1990 and 277 in 2003.

27 Anthony Giddens, The Class Structure of the Advanced Societies , London: Hutchinson, 1973, p. 294.

28 Cited by F. Feher, A. Heller and G. Markus, Dictatorship over Needs , Oxford: Blackwell, 1983, p. 299.

29 Sources used are Human Development Reports for 2002 and 2005 – these are published annually for the United Nations Development Programme (UNDP) – New York: Oxford


http://www.pewglobal.org/database

http://www.hdr.undp.org/reports/global/2005


University Press, 2002, 2005; World Development Report 1996, New York: Oxford University Press, 1996, Table 5; post-2004 data taken from Human Development Report 2010 , Washington DC: World Bank, 2010; Branko Milanovic, Income, Inequality and Poverty during the Transition from Planned to Market Economy . Washington DC: World Bank, 1998, p. 41; data for 1987–88, for an overview and explanation see Thomas F. Remington, The Politics of Inequality in Russia , Cambridge: Cambridge University Press, 2011.

30 Milanovic, Income, Inequality and Poverty , p. 67. 31 UNDP, Human Development Report 2011 , New York: Palgrave, 2011, p. 143. This

source lists only selected countries. 32 Larry King, ‘Shock Privatization: The Effects of Rapid Large-Scale Privatization on

Enterprise Restructuring’, Politics and Society , 31(1), 2003: 3–30. 33 www.forbes.com/wealth/billionaires/list?country=195&industry=-1&state= 34 Data for Chukotka from Rossiyski statisticheski ezhegodnik 2007 , Moscow: Rosstat,

2007, pp. 186, 201. Abramovich bought Chelsea for £210 million in 2003; data on Chelsea in The Guardian (London), 6 March 2012.

35 Carola Gruen and Stephan Klasen, ‘Has Transition Improved Well-being?’, Economic Systems , 36, 2012: 11–30; see p.18.

36 See Anna-Jutta Pietsch, ‘Shortage of Labour and Motivation Problems of Soviet Workers’, in David Lane (ed.), Labour and Employment in the USSR , Brighton: Harvester Press, 1986, p. 179.

37 UNDP, Human Development Report 2011 , pp. 139–40. 38 Labour Force Survey: unemployment is de� ned as not being in paid work and

looking for work in the last four weeks. These data underestimate the real levels of unemployment, as ‘looking for work’ is socially constructed.

39 For full details see TransMonEE 2012 database, www.unicef.org/ceecis . 40 For a detailed account of the impact of factory closure in Poland see Vera Trappmann,

Fallen Heroes in Global Capitalism: Workers and the Restructuring of the Polish Steel Industry , London: Palgrave Macmillan, 2013.

41 Gruen and Klasen, ‘Has Transition Improved Well-being?’, p. 23. 42 L. King and D. Stuckler, ‘Mass Privatization and the Post-communist Mortality Crisis’,

in Lane (ed.), The Transformation of State Socialism , p. 197. 43 King and Stuckler, ‘Mass Privatization’, p. 198. 44 For details see: D. Stuckler, L. King and M. McKee, ‘Mass Privatization and the Post-

communist Mortality Crisis: A Cross-National Analysis’, The Lancet , No. 373, 2009: 399–407, p. 399.

45 Data for 1990, UNDP, Human Development Report 1992 , p. 127; data for 2011, HDR 2011 , p. 127.

46 See Human Development Indicators, UNDP, Human Development Report 2005 , pp. 230–1.

47 For a comparative study of Belarus, Lithuania and Russia, see Pavel Grigoriev et al ., ‘Mortality in Belarus, Lithuania, and Russia: Divergence in Recent Trends and Possible Explanations’, European Journal of Population , 26, 2011: 245–74.

48 See Elena Vinogradova, ‘Provision of Social Bene� ts by Russian Enterprises’, in M. P. Posusney and L. J. Cook (eds), Privatization and Labour: Responses and Consequences in Global Perspective , Cheltenham: Edward Elgar, 2002.

49 Michele Rivkin-Fish, ‘Rethinking Problems Surrounding Access to Care: The Moral Economies Shaping Health Care Workforces in Russia and the USA’, in P. Watson (ed.), Health Care Reform and Globalisation , London and New York: Routledge, 2012, see pp. 44–5, 48. See also Ministerstvo razvitiya sistemy zdravookhraneniya v Rossiyskoy Federatsii do 2020g , Moscow: Ministerstvo zdravookhraneniya, 2009.

50 Peggy Watson, ‘Inequalities in Health and Health Care in Post-Communist Europe’, in Lane (ed.), The Transformation of State Socialism .


http://www.forbes.com/wealth/billionaires/list?country=195&industry=-1&state=



51 Mei Zhan, ‘Human Oriented? Angels and Monsters in China’s Health Care Reform’, in Watson (ed.), Health Care Reform and Globalisation .

52 See David Lane, ‘The Social Bases of Reform and Anti-Reform in Russia and Ukraine’, in Lane (ed.), The Transformation of State Socialism ; David Ost, ‘Social Forces and the Post-Communist Transition: Why Labour Turns Right’, in Lane (ed.), The Transformation of State Socialism .

53 David Lane, The Rise and Fall of State Socialism , Cambridge: Polity, 1996, p. 199. 54 Peggy Watson, ‘Catastrophic Citizenship and Discourses of Disguise: Aspects of Health

Care Change in Poland’, in Watson (ed.) Health Care Reform and Globalisation . She relies on the following article: P. Sztompka, ‘Civilizational Incompetence: The Trap of Post-Communist Societies’, Zeitschrift für Soziologie , 22(2), 1993: 85–95.

55 Katherine Verdery, What was Socialism and What Comes Next? , Princeton, NJ: Princeton University Press, 1996, pp. 205–7.

56 Mieke Meurs and Rasika Ranasinghe, ‘De-Development in Post-Socialism: Conceptual and Measurement Issues’, Politics and Society , 31(1), 2003: 31–53.

57 Don Kalb, ‘Afterword: Globalism and Postsocialist Prospects’, in C. M. Hann (ed.), Postsocialism , London and New York: Routledge, 2002, p. 319.

58 C. Hann, C. Humphrey and K. Verdery, ‘Introduction’, in Hann (ed.), Postsocialism , p. 11.

59 Ownership may take the form of private ownership but also state capitalist ownership. 60 See David S. Mason, ‘Attitudes Toward the Market and Political Participation in the

Postcommunist States’, Slavic Review , 54(2), 1995: 388–90. These conclusions are based on comprehensive interviews in the post-communist societies.

61 My thanks to Ha-Joon Chang for comments on an earlier version of this chapter.


By far the major player in the post-socialist states is the Russian Federation, the successor state to the USSR. Mikhail Gorbachev put in place the legitimacy of markets, conditions for a move to private property and a political settlement with the West. Boris Yeltsin (see Chapter 12 ) and Vladimir Putin continued the revolu-tion in property relations though with different consequences, and both subordi-nated constitutional procedures to achieve their political and economic objectives. Yeltsin’s objective was to divest state ownership to the ascendant capitalist class, while Putin sought to strengthen the Russian state initially within the context � rst of a capitalist neo-liberal economy, then he adopted a more statist policy. A major difference between the two leaders lies in their foreign and international policies: Yeltsin’s primary concern was to secure recognition of Russia as a capitalist democracy by the West; Putin has sought respect for Russia as a civilization, as a world power. In terms of political economy, Putin moved Russia away from a chaotic economic formation in the direction of a state-led form of corporatist economy and to greater powers being exercised by the President. Politically, the country moved in the direction of competitive authoritarianism. In the � rst part of this chapter, I outline the rise of Vladimir Putin and consider his policies. In the second part, I turn to the broader picture and consider the political and economic framework in which his policies are embedded.

PART 1: THE RISE OF VLADIMIR PUTIN Vladimir Putin, with the support of President Yeltsin and the Russian economic oligarchs, arrived on the Russian political scene as appointed Prime Minister in August 1999, and jumped immediately onto the international stage when he was made Acting President on 31 December 1999. He was elected President in 2000 when the economic, political, international and moral standing of the Russian Federation could not have been lower. 2 Russia had neither the economic basis, political will, military resources nor the moral con� dence and leadership to exert much in� uence in international affairs. Internally, the federal government had great dif� culty in collecting taxes, and state chinovniki (executives) were strongly in� uenced, if not controlled, by the leading capitalists. Western powers had

18 The reconstitution of RussiaA new hegemon? 1



backed the election of the discredited Yeltsin, the economy was in freefall and the IMF constrained the state’s budget.

However, there remained elements from the Soviet period that de� ned the country as a world power. Russia possessed nuclear armaments. Though there had occurred some decommissioning, over 3,000 strategic nuclear warheads remained. Russia had inherited the Soviet Union’s position as a permanent member of the United Nations Security Council. It has the largest land mass of any country in the world and is richly endowed with natural resources.

Putin’s background followed that of a previous General Secretary of the Communist Party of the Soviet Union, Yuri Andropov, who had served as the head of the Committee for State Security (KGB). Putin was not really comparable as he had been a lower level executive stationed in the German Democratic Republic; his highest post was below managerial level. 3 He was unlike the typical new elites who were recruited from the new capitalist class, the pro-capitalist liberal reform-ers or pro-Western intelligentsia. He was sponsored not only by Yeltsin but also by some of the leading economic oligarchs, such as Boris Berezovsky. Initially, he did not challenge the oligarchs, and one of his � rst acts was to grant Yeltsin immu-nity from prosecution (which secured his rights to property).

Putin inherited challenges on all sides: the expansion of NATO into Hungary, Poland and the Czech Republic; NATO strikes against Serbia; internally, a grow-ing Islamist secessionist threat in Chechnya and Dagestan; and, perhaps the most important threat of all, the withholding of taxes by major companies and regional governments. Putin’s position as President was undermined by business interest groups who bribed deputies to defeat his proposals to increase taxes. Without an adequate tax base, any government is powerless. Consequently, Putin adopted a more confrontational policy against oligarchs. His statist policies had implica-tions for foreign investment in the energy industry and he sought to change the terms of investment with the large foreign investors who had bene� ted dispropor-tionately by contracts made under the Yeltsin regime.

Putin’s early policies Unanticipated by the capitalist oligarchs who had supported his nomination, it became apparent that Vladimir Putin was developing a set of policies and forms of state enforcement quite different from those of Yeltsin. His vision was to re-establish Russia as a major world power. To do so, he adopted a number of inter-related policies: to establish the authority of the federal government in Russia over the regions and over the political and economic elites; to create a new moral ethos and political ideology which would legitimate a politically-led economy; to rebuild the economy through the transfer of energy wealth to strategic industries, science and research; and to restore the Russian Federation as a world power in foreign affairs.

Putin adopted one of the West’s ideological strategies of ‘soft power’, seeking to create an image of the Russian state in terms of its culture, political values and policy. 4 This has involved a realignment of Russia away from the USA and


The reconstitution of Russia 293

European states towards the BRICS 5 countries (particularly China and India). However, he had no intention of breaking up the privatized market economy. When interviewed in 2000, he stated that he was opposed to nationalization and ‘the con� scation of property’. 6

To achieve these goals, Russia’s policies under Putin have involved economi-cally the establishment of state in� uence over leading Russian companies and their oligarchic owners; the renationalization of some strategic energy companies; a renegotiation of energy contracts with foreign companies; greater state leader-ship of Russian companies; and strategic appointments to the boards of public, private and semi-private companies (i.e. those with joint public and private ownership).

On coming to power, Putin was confronted by a capitalist bloc of ‘oligarchs’ with control over the crucial energy sector, who also had signi� cant ownership and control of the mass media. For example, Vagit Alekperov was a major owner in Lukoil, Imperial Bank and Izvestiya newspaper; Boris Berezovsky controlled Sibneft and had interests in ORT television and Nezavisimaya gazeta ; Vladimir Gusinsky was a key owner of Most-bank as well as Segodnya newspaper and had shares in NTV television; Mikhail Khodorkovsky had a major interest in Yukos as well as controlling Independent Media group; Vladimir Potanin had large share-holdings in Oneximbank, Komsomolskaya Pravda and Russki Telegraf; Alexander Smolensky was linked to SBS-Agro Bank and Kommersant newspaper. Such con-trol was used to voice their own views of the world and they had an effective ‘veto’ over political leaders. A correspondent of the British weekly New Statesman commented that Khodorkovsky had ‘toured the country, lecturing Russians on the danger of an insurgent Kremlin [under Putin]’. Khodorkovsky, he opined, ‘had been so powerful that he had, in effect, his own foreign policy’. 7

Putin sent a strong message to this class when Khodorkovsky was displayed on TV in handcuffs and later brought to trial on changes of tax evasion, which was widespread among the oligarchs. It was a charge not without foundation. As an authoritative account in the Stanford Law Review puts it:

For 1996, Yukos’s � nancial statements show revenue of $8.60 per barrel of oil – about $4 per barrel less than it should have been. Khodorkovski skimmed over 30 cents per dollar of revenue while sti� ing his workers on wages, defaulting on tax payments, destroying the value of minority shares in Yukos and its production subsidiaries and not reinvesting in Yukos’s oil � elds. 8

This extract helps explain the popular Russian sentiment that Khodorkovsky is ‘a thief who should be in prison’. Khodorkovsky contended that the charges against him were normal business practice, the logic of which perhaps is that he should have been sharing the court with others. His trial in 2004 was subject to irregu-larities and is widely considered to be ‘politically motivated’. He was sentenced to nine years’ imprisonment for embezzlement, fraud, tax evasion and failure to pay taxes. 9 While his supporters in the West portray him as a businessman-philan-thropist subjected to political persecution, Putin regards him of being guilty



‘repeatedly and grossly’ of economic crimes and being associated with groups accused of murders.

Others would have followed Khodorkovsky to the dock, but many � ed the country. In 2012, some 30 were settled in London; despite Putin’s claim that they have committed serious crimes, they have not been extradited by the British authorities. 10 Ironically, Boris Berezovsky (a London-based oligarch), in bringing a case for damages against Roman Abramovich, was found by the English judge to be ‘an unimpressive and inherently unreliable witness, who regarded truth as a transitory, � exible concept, which could be moulded to suit his current purposes’. He continued: ‘The evidence which he gave was deliberately dishonest; some-times he was clearly making his evidence up as he went along in response to the perceived dif� culty in answering the questions.’ In response to the dismissal of his claim, he replied ‘Sometimes I had the impression [that] Putin wrote this judgement.’ 11

However, Putin was not simply vindictive. Politically, he sought to make an elite ‘contract’ or ‘pact’ with other independent sources of power (business lead-ers and the media in particular) and has asserted his authority over political com-petitors and economic interests. At a meeting of business leaders he con� rmed that there would be no reversal of property rights and that he would create a ‘favourable investment environment’. There would be a division between politics and business: he told the oligarchs present, ‘if it’s business you have chosen, stick to business’. 12

This statement illustrates a more profound shift in the philosophy of govern-ance under Putin. Khodorkovsky and the oligarchs had come to expect a realm of freedom in which they had almost complete rights to operate without interference from the state. This practice lacked a sense of duty and obligation. 13 Putin sought to ensure a state-led pattern of development in which citizens (including oli-garchs) had not only rights but duties and obligations to the state. This might be translated into Western business parlance as ‘the social responsibility of industry’.

‘Sovereign democracy’ In terms of world politics, Putin opposes the ‘unipolar world’ dominated by the USA. He has sought to counter American ‘soft power’ image by portraying Russia as a world power. He has promoted an image of Russia as a country with its own moral values, as a civilization. Here a previous presidential spokesman, Vladislav Surkov, advocated ‘democracy and sovereignty’ as legitimating concepts for Putin’s power. 14 For Surkov, ‘sovereignty is a synonym for political competitive-ness’ ( konkurentosposobnost ). 15 In a wider context, the Putin leadership is attempting to displace the supposed superiority of Western liberal values. He is contesting the widespread intellectual hegemony of the ‘end of history’ advocated by writers such as Fukuyama.

The current Russian political leadership views ‘democracy’ not as competitive electoral processes but in terms of the social outcomes of politics and their accept-ability. In this it shares a similar world-view to the communist leaders in China.



‘Democracy’ is regarded as the state functioning ‘with the consent of the people’ and promoting their welfare. Vladislav Surkov views democracy in rather a dif-ferent way from that modelled on the institutions promoting ‘electoral democ-racy’, which have been exported to, and copied by, the post-communist European Union countries. The Western version of democracy excludes the conditions entailed by ‘maximalist’ de� nitions of democracy which focus on socio-economic equality and the societal outcomes of politics. 16

Surkov, for example, refers to ‘democratic institutions’ � ghting terrorism, extremism and corruption. Poverty, also, he maintains, must be removed by democracy: ‘Our democracy must show its effectiveness’ in combating poverty. 17 A democratic society is one that promotes the people’s interests and well-being with their consent. Consent is indicated by the election/endorsement of the President. For the presidential administration, ‘sovereign democracy’ in Russia will ensure development, ‘economic prosperity’, ‘political stability’ and a high cultural level. 18 Whether it can deliver is another matter. The crucial point here is that this kind of democracy is based on different assumptions and leads to differ-ent expectations on the part of the population. The test of the government is not the electoral process, but the results of policy.

In political science terms, what Surkov refers to is not the strictly political ‘democratic’ electoral credentials of the system (where Russia is clearly lacking in some important respects), but other politically desirable outputs – the condi-tions necessary to the making of a ‘good life’, including the provision of adequate public and private services for the population. This is not so different from Western socialist ideas about ‘real democracy’ which promoted the people’s welfare.

The presidential administration would contend that the pro-government bias in the media of communications is not undemocratic if the President is acting with the people’s consent and if he enjoys electoral support. As illustrated below, public opinion polls and electoral results con� rm public support. 19

Clearly, Surkov, Putin and Dmitry Medvedev seek to de� ne the Russian system as ‘democratic’ in their own terms, as democracy is the only politically acceptable global ideology. In this respect they are no different from other contemporary political leaders. Democracy is a legitimating ideology that can take different forms. Nevertheless, the presidential administration shares some ideological values in common with the Western conception, particularly those of rule by con-sent and legitimation of rulers through an electoral process. On the criteria legiti-mating electoral and sovereign democracy, both systems fall short in meeting the public’s expectations.

In political science terms, the political system might be classi� ed as a form of electoral collectivist authoritarianism. 20 The Russian system is not simply ‘author-itarian’ in the sense that the government is controlled by a political leader (or elite) which has uncontested political power as the President and the parliament are subject to popular election. One cannot say that opposition is repressed. However, social control through the media, and political control through the President’s of� ce, is stronger than in electoral democracies. It is authoritarian in the sense that the form of rule emphasizes collective values (the Russian nation or narod and its



civilization) rather than individualist ones. However, as is shown in Part 2 of this chapter, the political system is pluralistic, not monopolistic and the leadership is constrained both by interest groups and an electoral process. Elections are also crucial to the legitimacy of the power-holders.

Electoral politics Putin is popular in Russia. He received 52.9 per cent of votes cast in the presiden-tial elections of 2000 (Zyuganov came second with 29.2 per cent); in 2004 he received 71.3 per cent of the vote (Mironov was runner up with 13.7 per cent); in 2012 he polled 63.8 per cent (Zyuganov gained 17.2 per cent, Prokhorov 7.98, Zhirinovski 6.22 and Mironov 3.85). 21 In 2012, the voting turnout was on average 65.25 per cent for the Russian Federation; in Chechnya it was 99.61 per cent, of whom 92.84 voted for Putin; similarly in Dagestan, there was a 91.10 per cent turnout with a pro-Putin vote of 92.84 per cent. However, it is pertinent to point out that these constituencies were experiencing strife of civil war proportions and in these circumstances voting against Putin might be regarded as being an act of treason. In all constituencies, except Moscow where he received only 46.95 per cent of a 57.95 per cent turnout, Putin returned over 50 per cent of those voting.

These results are better by far than the electoral support sustained by Western leaders for second terms; Margaret Thatcher’s party, for example, often received a minority of votes cast. Elected US Presidents have never received a majority of votes in all states. The closest a US President has ever got to Putin’s 2012 electoral triumph was when Richard Nixon in 1972 won every state except Massachusetts and the District of Columbia. As Putin entered his third term as President, the Western media questioned his right to such an extended term. They forget that it is no longer than that of President Helmut Kohl of Germany who was Chancellor for 16 years, and who was applauded by George Bush as the greatest European leader of the twentieth century.

But to what extent are the presidential election results reliable? In indepen-dently organized public opinion polls, Putin has had a consistently high rating. It is true that in the parliamentary elections of 2011, there is evidence that Putin’s supporters appear to have secured a number of fraudulent votes. It is also widely believed (and true) that United Russia uses undue in� uence to ‘get out the vote’. 22 A study by Anatoly Karlin looked at exit poll and actual results and found that there was a difference of over 5 per cent (5 per cent or below being an acceptable statistical difference) only in some districts in the Volga Region, the North Caucasus (as noted above) and Moscow.

In the presidential election of 2012, though the foreign-sponsored Golos agency complained of fraud, a million monitoring observers, 23 in addition to monitoring cameras in all the voting stations, contributed to a fair outcome. Moreover, exit polls con� rm the of� cial results. VTsIOM (the Centre for the Study of Public Opinion), which gave Putin one of the lowest votes, on the basis of 63 regions, registered 58.3 per cent for him (compared to the of� cial � gures of 63.8 per cent); his closest rival Zyuganov, the Communist candidate, received only 17.7 per cent. 24



A general problem with exit polls is the objectivity of the interviewers (whose appearance and demeanour may in� uence the response), and a very large number of voters are suspicious of the exit polls and refuse to reveal their voting prefer-ences. In the case of the VTsIOM exit polls in 2012, for example, 31.7 per cent of voters approached refused to answer, giving rise to doubts if such a high absten-tion rate can result in reliable polls. The FOM opinion poll reported a 37 per cent refusal rate to answer the pollsters, which again diminishes their credibility. 25

Certainly, if voting is very close (say by a few percentage points), exit polls cannot be used as a check on the of� cial results. As we shall see in Chapter 19 , opposition movements can use the call of ‘election fraud’ to nullify elections the results of which they do not like. Regular public opinion polls, however, con� rm the general picture, which is that Putin has consistently had a high popularity among the population. He has won elections by a very large margin over his rivals. Not all agree with Putin and his government. The communists are the most vociferous opponents and command by far the most opposition votes (over 17 million in 2012). One might argue that the elections are biased towards the presidential candidate, but one cannot say that the opposition is repressed. Russia is not Saudi Arabia.

Internally, Putin is the repository of (unsubstantiated) accusations of corrup-tion as well as discontent about the low standard of living. This is often verbalized as the regime being ‘undemocratic’ – in the sense of not serving the people. A more general complaint about the election process – articulated by the commu-nists, as well as the Western of� cial observers – is that Putin is able to use the apparatus of the state in support of his campaign. This is true. And it also applies generally to presidential as well as party-based elections in polyarchic systems where the (private) money available to, and the media backing of, candidates is manifestly unequal and unfair.

Russia as a new world power? Unlike the policy of the former Soviet Union, and taking its cue from China, Russia seeks participation in the world economic system, as exclusion would weaken it. Russia’s application for membership of the World Trade Organization succeeded in December 2011 and was endorsed by the Russian parliament in 2012.

However, the Putin leadership contends that the country must retain its ‘sov-ereignty’ which is threatened by a neo-liberal global order. State sovereignty is a necessary condition for ‘competing’ in the international political and economic system. To achieve sovereignty entails countering foreign in� uences within Russia’s borders, whether they are transnational corporations or foreign inspired and � nanced civil society organizations which might undermine the state. The ‘coloured’ revolutions are one such manifestation, which are discussed in Chapter 19 .

Ideologically, Putin has legitimated state politics in terms of sovereignty and a presidential type of rule. On taking power, as Acting President in 1999, 26 he



declared that ‘Russia was and will remain a great power, preconditioned by the inseparable characteristics of its geopolitical, economic and cultural existence’. 27 His policy poses the question of whether these changes have made Russia a ‘world power’ posing a threat to the West.

The foreign policy of the Russian Federation is spelled out in the Foreign Policy Concept of the Russian Federation, approved by the President on 28 June 2000. Its objectives are:

To ensure reliable security of the country, to preserve and strengthen its sov-ereignty and territorial integrity, to achieve � rm and prestigious positions in the world community, most fully consistent with the interests of the Russian Federation as a great power, as one of the most in� uential centres of the modern world, and which are necessary for the growth of its political, eco-nomic, intellectual and spiritual potential …

At the same time, new challenges and threats to the national interests of Russia are emerging in the international sphere. There is a growing trend towards the establishment of a unipolar structure of the world with the eco-nomic and power domination of the United States. In solving principal ques-tions of international security, the stakes are being placed on western institutions and forums of limited composition, and on weakening the role of the UN Security Council. 28

The thrust of the policy statement is to claim greater recognition of Russia’s position in world politics, to emphasize the importance of state sovereignty, which was being eroded by international institutions, to call for strengthening the United Nations, and to criticize the domination of the United States and the operations of NATO.

Putin has reiterated Gorbachev’s claim that Russia � rst of all is a ‘powerful European nation’, ideologically and culturally. 29 Politically, however, Putin has emphasized the importance of European contacts at the state level, particularly with France, Germany, Britain and Italy. The objective was to move from a unipo-lar world, dominated by the USA, to a multi-polar one, in which Russia would have in� uence. The Russian National Security Concept (2000) identi� ed ‘attempts to create an international relations structure based on domination by developed Western countries in the international community, under US leadership and designed for unilateral solutions (including the use of military force) to key issues in world politics in circumvention of the fundamental rules of international law’. 30

Putin successfully reversed Russia’s decline. The country’s rate of economic growth has averaged around 6.5 per cent per annum since 1998 (in 2007, Goskomstat claimed an 8.1 per cent rate of growth). 31 The country had amassed $430 billion in currency reserves and had established a $120 billion Stabilization Fund. Levels of inequality and poverty had fallen: in January 2001, there were 9.1 million unemployed and 39 million people (27 per cent of the population) were living below the minimum of� cial subsistence level. By 2010, the latter had fallen to 12.8 per cent of the population, 32 the number of unemployed was some 5.6 million



(a considerable decline, though both � gures greatly underestimate the real level of unemployment). 33

Despite the progress that has been made, the Russian population remains one of the poorest in Europe; its birth rate is shrinking and emigration is high: the nominal average wage in 2007 was only $419 per month (it had risen to $646 by 2010). 34 Economic advances on balance have been positive, but, as noted in Chapter 17 , income distribution remains highly polarized: some have done excep-tionally well but most people are not much better off than during the time of the Soviet Union, and a large number of people, especially among the old and those living in the countryside, are much worse off.

Despite these shortcomings, many Western writers, in assessing Putin’s Russia, have labelled the country as ‘a re-emerging great power’. 35 Nikita A. Lomagin writes:

In the early 1990s some foreign affairs experts in the United States warned that the Soviet threat would reappear in a revived nationalistic, authoritarian Russia, with the natural resources, people and nuclear weapons again to chal-lenge American principles and threaten American security. It seems that by 2006 this prognosis has become a reality. 36

Russia’s assertiveness, indicated in the Foreign Policy Concept, led to the sound-ing of alarm bells in Western academia and media, which at best regarded Russia as claiming a responsible place among the world’s powers and at worst saw its leaders as autocrats seeking to inaugurate a Russian empire.

While Yeltsin had been instrumental in the destruction of the Soviet Union, Putin recognized the damaging consequences of its demise for Russia. Putin has been widely reported in acknowledging that ‘the collapse of the Soviet Union was a major geopolitical disaster of the century’. 37 Western writers have con� ated Putin’s remarks about the consequences of collapse with the desire to perpetuate empire. Mark R. Beissinger, for instance, presumes that in this statement there was an ‘unspoken… assumption’ that the ‘persistence of the Soviet empire’ would have been preferable to the rise of democratic states. 38 The comparison is really about the dismantling of the Soviet Union leading to the rise of a weak state with an impoverished people.

Putin was complaining about the dire consequences for Russia following the disintegration of the Soviet Union. This is clear in the continuation of his speech:

As for the Russian nation, it became a genuine drama. Tens of millions of our co-citizens and compatriots found themselves outside Russian territory. Moreover, the epidemic of disintegration infected Russia itself.

Individual savings were depreciated, and old ideals destroyed. Many institu-tions were disbanded or reformed carelessly. Terrorist intervention and the Khasavyurt 39 capitulation that followed damaged the country’s integrity. Oligarchic groups – possessing absolute control over information channels – served exclusively their own corporate interests. Mass poverty began to be



seen as the norm. And all this was happening against the backdrop of a dra-matic economic downturn, unstable � nances, and the paralysis of the social sphere. 40

All these points are well taken. Beissinger also documents other leading American writers and pundits who

have noted a ‘revival of Russian imperialism’. Zbigniew Brzezinski, for example, he points out, has written about Russia’s current ‘nostalgia for an imperial status’. 41 Loading the concept of empire onto contemporary Russia, he implies that it pursues an illegitimate form of domination over peoples outside its terri-tory. For many such writers, Russia is not just a political empire but an economic imperial one.

One might concede the ‘nostalgia’, which was detailed in Chapter 17 . But there is very little evidence that the Putin leadership has any serious policy for reconstructing the USSR (though economic and political cooperation along the lines of a revitalized CIS is more probable); and even the claims that it is an ‘empire’ are empirically very weak. 42

Putin in the Western media President Putin has had a hostile portrayal in the Western media, which has in� u-enced public opinion. On 13 December 2006 the cover of The Economist con-tained a picture of Vladimir Putin in a trilby toting a petrol pump as a light machine gun, with the caption, ‘Don’t Mess with Russia’. The paper’s Central and Eastern Europe correspondent, Edward Lucas, published The New Cold War (London: Bloomsbury, 2008), which purports in its blurb to show ‘how the Kremlin men-aces Russia and the West’. Mass media accounts in the Western international qual-ity papers, such as The Economist and the Financial Times , portray Russia under Putin as moving towards authoritarianism and even fascism.

History also offers a term to describe the direction in which Russia sometimes seems to be heading: a word that captures the paranoia and self-con� dence, lawlessness and authoritarianism, populism and intolerance, and economic and political nationalism that now characterize Mr Putin’s administration. It is an over-used word, and a controversial one, especially in Russia. It is not there yet, but Russia sometimes seems to be heading towards fascism. 43

This line has been developed by Luke Harding and Edward Lucas, who derogate the Putin administration as a ‘ma� a state’ intent on enriching its members. 44 Its security services are a ‘private money-making business’ which protects gangsters. The evidence provided by these journalists is subjective and echoes the views of Putin’s opponents in the political elite – particularly Boris Nemtsov, Gary Kasparov, Mikhail Kasyanov and Vladimir Milov. As Alex Bayer put it, writing in the Moscow Times on 25 June 2012: ‘Reagan called the Soviet Union what it was – “the evil Empire” – and Obama should not shrink from calling Putin’s



Russia what it is, a ma� a state.’ Accounts by journalists of a ‘ma� a’ state certainly stick in the public mind; they become a form of soft power – in this case becoming part of the public’s ‘taken for granted’ assumptions about ‘the other’.

Putin’s assault against hostile oligarchs led to restrictions on the media (from which he had had hostile comment) and an increase in state-controlled TV sta-tions. Gusinsky and Berezovsky lost their channels. One might concede that there is a bias in the media in support of government policies. 45 In all modern societies the hegemonic media attempts to capture the public’s mindset. As Castells has put it, ‘What does not exist in the media does not exist in the public mind.’ 46 Putin also controls the United Russia Party, which effectively is a ‘party of the state’. 47 Through it he can channel resources as patronage as well as to in� uence elections.

But Western accounts give a misleading impression and underestimate the degree of openness in Russia. Gordon Hahn has complained about the ways in which in the USA ‘“news” reporters continue to distort or ignore the continually-changing Russian reality’. He writes:

Debates and discussions [in the Russian media] cover all the hottest topics in Russian politics: Russia’s pervasive corruption, bureaucratic arbitrariness and privilege, the rise of the new opposition, and the need for democracy, judicial reform, implementation of the new police reforms, and so on. Nothing is taboo any longer. These discussions include calls for Putin to resign, claims he has amassed tens of billions of dollars illegally, and much else. They include various top leaders of the nascent white ribbon revolution’s street opposition (the so-called ‘non-system’ or ‘outside parliament opposition’). Just in the last few days Vladimir Ryzhkov, Boris Akunin, Sergei Udaltsov, Ilya Yashin, Ilya Ponamarev, Boris Nadezhdin, among others have appeared on these programs. These opposition leaders have had access to state-run media for years, and on Ekho Moskvy radio … Last week, there was a live interview with the son of imprisoned oligarch Mikhail Khodorkovskii. 48

Another example is the ‘Pussy Riot’ phenomenon. In 2012 a punk band provoca-tively performed and blasphemed in a Russian cathedral; their very short perfor-mance earned them a jail sentence of two years. This event was held to show the authoritarian ways of the new Russia and Putin’s control of the courts.

But consider Charlie Gilmore, a Cambridge history student who was sentenced to 16 months’ imprisonment for ‘outrageous and offensive behaviour’. During a student demonstration in London on December 2011, he was photographed hang-ing on a Union Jack on the Cenotaph, and was alleged to have thrown a bin at a car escorting the Duke and Duchess of Cornwall and had also been reported as kicking at a shop window. He shared a similar position to the Pussy Riot participants – the � rst offence of a person of good character who had caused no bodily harm and had apologized for the � ag hanging (though other facts were contested). The difference was that the sentence did not bring British justice into disrepute in the view of the mass media – unlike its widespread condemnation of the severity of the Pussy Riot sentence. One can debate the merits of the cases, but



the verdicts signal that courts in both countries are in� uenced by the context of alleged crimes and the expectations of the public as well as the political elites.

Clearly, the Western media’s agenda is not motivated solely by a concern about the limitation of democracy in Russia. The major party of opposition, the Communist Party of the Russian Federation, receives far less media coverage in Russia and in the West than its liberal rivals, even though its candidates polled 17 million votes in the federal elections of 2012. The Western media frames what we think about and in� uences the ways we think about it. Personalities, rather than their policies, dom-inate the discourse; and journalists play the trick of attacking the character of the leader, which is then attributed to the quality of his/her policy. Putin is portrayed � ooring judo opponents and given the appellation of an ‘alpha-dog’.

Corruption is also a charge levelled at the Putin regime. 49 Angus Roxburgh, for example, has illustrated the extent of corruption with reference to the setting up of IKEA in Russia – literally millions of dollars were required in bribes. Russia ranks very low on the World Bank index of ease of doing business. 50

These journalistic accounts, moreover, lack any kind of underpinning theory, and appeal to distant legacies in Russian history or the personal role of Putin and his immediate associates. State of� cials have no doubt bene� ted from corrupt practices. Whether Putin himself is involved (Harding asserts that he has assets of $40 billion – greater than the richest Russian names in the Forbes list in 2011) is a matter of speculation and does not seem credible (the � gures were derived from an off-the-cuff statement by Stanislav Belkovski). It all adds up, however, to a ‘soft politics’ campaign in the Western media to discredit Putin.

Financial corruption is a consequence of the hasty, unjust, haphazard and spon-taneous privatization carried out in the Yeltsin period, which in� uenced the mores of society. Corruption is much wider than state of� cials using public property for their private interest; privatization involved the seizure and fraudulent procure-ment of state property with no proper accountability and consequently led to the formation of a capitalist rentier class. We have data on the enormous levels of capital � ight ($798 billion – see Chapter 15 ), which is very rarely part of the jour-nalistic ‘state corruption’ narrative. This process became a role model and has infused personal relationships since. It has to be seen in the context of what Alena Ledeneva has referred to as the renewal of ‘informal practices’ to make Russia work – the persistence of ‘poor corporate governance, selective law enforcement, and corruption’. 51 Russia has been enabled to work in the interest of a new rent-seeking capitalist class. Framing the discussion in the context of political leader-ship corruption occludes the process of class formation and exploitation which takes place under such leadership. Corruption is a symptom, a consequence of the seizure of public property by capitalist means. And Western capitalism of the neo-liberal variety promotes individual and corporate greed.

An energy superpower? In the more academic discourse, the crucial de� ning character of Russia’s newly found political power under President Putin is neither its military capacity nor its



infractions of electoral democracy, but the utilization of its oil and gas wealth to ‘assert [its] geo-strategic interests’. 52

The most detailed and in� uential version of the rise of Russia as a global power has been developed by Marshall Goldman 53 in his book Petrostate: Putin, Power and the New Russia . 54 Goldman’s argument is that Russia is ‘again a superpower … an energy superpower’. 55 While others have pointed to the importance of Russia’s material resources, Goldman’s contention is that ‘Gazprom, and by extension, the Russian government, are already beginning to enjoy a power over their European neighbours far beyond the dreams of the former Romanov Czars or the Communist Party Secretaries’. 56 Such power is derived, according to Goldman, from state ownership of Gazprom and Rosneft.

The potential for Russia’s political power, Goldman points out, was recognized during the Cold War when the Reagan administration sought to weaken the USSR by denying Western technology and also by lowering the world price of oil (to reduce the value of Soviet exports). Even in early post-Soviet times, some Western academics viewed the emerging de-statized oil companies as acting as an arm of the government of the Russian Federation. 57 This argument is updated to contend that natural gas and oil pipelines to Europe give Russia ‘unchecked powers and in� uence that in a real sense exceed the military power and in� uence [the USSR] had in the Cold War’. 58 The stoppage of gas to Ukraine in 2005 is a case used to support this position.

Supplies to Ukraine were cut off because the Ukrainian importers had not paid for received deliveries. Gas, however, continued to be pumped by the Russian exporters along the pipeline for delivery to other consumers. These supplies did not arrive. The evidence shows that the gas was despatched. The supplies were siphoned off in Ukraine. Russian exporters then completely cut off supply to the pipelines.

No doubt Gazprom was in� uenced by the Russian government in its dispute with Ukraine. But, in the context of free market economics, it does not seem unreasonable to secure a market price for one’s product and to cut off supplies when debts are not paid after repeated requests. Ukraine held Russia (and its customers further along the pipe chain) to ransom over the supply of energy to Western Europe. When Gazprom started negotiations with Ukraine to raise prices in March 2005, its price to Ukraine was � ve times less than to neighbours Turkey, and Ukraine’s customers were paying less for fuel than were Russian consumers. 59

In the agreement that preceded the resumption of supplies, Ukraine was able partially to offset the price rise by increasing considerably the transit payments. Price increases also followed for Belarus (not a pro-EU market economy) in 2006; and even under supposedly pro-Russian Prime Minister Yanukovich, Gazprom again raised its prices to Ukraine in 2007.

Arguments depicting Russia as the villain do not explain why the Russian gov-ernment would want to cut off its energy supplies to the West. Energy exports are Russia’s greatest income earner. It is in their economic and political interest to maintain a reliable supply of fuel. Ironically, perhaps, it is transit countries like



Ukraine that have incentive to use pressure to cut off supply, as they can use pur-chasers further along the pipeline in support. Yet Ukraine was framed by the West as a victim of Russia rather than a cause (non-payment and theft) of the shortfall of deliveries. It is important to note that when we say that ‘Ukraine’ is withhold-ing or stealing gas, the agents involved are companies (not states) who pro� t from the consequent (and illegal) sales. The policy has proved to be short-sighted and counter-productive, as the dispute has spurred Russian companies and importers in Western Europe to construct conduits bypassing Ukraine.

What makes the situation qualitatively different from earlier times is the demand for energy, which enormously raises the value for Russian exports. Goldman contends that energy income makes Russia a ‘� nancial power-house’, giving Putin the con� dence to challenge the WTO and to describe the IMF in June 2007 as ‘archaic, undemocratic and awkward’ 60 – views widely shared, of course, outside the circles in support of the Washington Consensus.

In 2006, the Polish government, led by President Lech Kaczynski, adopted a similar political and ideological stance and, to curb Russian power, proposed the setting up of an ‘Energy NATO’, as a component in the proposed European Energy Security Treaty, which could use force against any country that threatened to cur-tail energy supplies to NATO and other associated countries, such as Ukraine. 61

It is certainly true that European countries are dependent on external supplies of energy and particularly on Russia. But the argument is one-sided as it grossly exaggerates the power of the Russian government consequent on its energy exports and reserves.

All governments defend their own countries’ companies. 62 There is nothing particularly perverse in seeking oversight of companies in which the state has an interest. Western governments act in support of their own companies when con-fronted with countries that threaten their interests. They boycotted the purchase of Iran’s oil, for example, when (democratically elected) Mohammed Mossadeq nationalized the Anglo-Persian oil company (predecessor of BP); the British and Americans then funded a coup which brought down Mossadeq. If the purpose of the American-led task force in Iraq was to secure the West’s energy supplies, it is here that one should look to the use of force to secure economic interests. While much has been made of the gas dispute between Russia and Ukraine, it was resolved in three days (between 1 and 4 January 2006). By comparison, Mossadeq was imprisoned for three years and then kept under house arrest until his death.

Certainly, Russian companies seek markets and af� liates abroad and receive assistance from the Russian government to pursue this aim. As we shall see in the next section, Western companies, to a much greater extent than Russian ones, extend their sphere of activities globally. (In 2012, BP, for example, was depend-ent on its Russian subsidiary TNK-BP for 29 per cent of its production and 27 per cent of its reserves. 63 ) This is not something that is novel to the Putin regime. Indeed, the global reach of Russian energy companies is incomparable to that of American corporations. Moreover, the Russia government has assets in fewer state-owned transnational corporations than China and many European countries, including France, Norway and Germany (detailed below and in Chapter 15 ).



State ownership Writers critical of Putin’s Russia contend that unlike Western companies, which enjoy the ownership and control of resources and act autonomously as economic agents, Russian companies operate internationally as political actors. Russia’s power is derived from its state control over resources. This is a theme that under-lies a great deal of the rhetoric of Western concern about the real or supposed power of the Russian government. It informs the widespread interpretation of Putin’s Russia as ‘undemocratic and authoritarian’. The Western concept of democracy is based on the presence of autonomous associations and institutions (crucially business � rms). State-owned and/or controlled companies lacking autonomy are thus de� ned as antithetical to democracy, whereas private big busi-ness is de� ned as a constituent part of democracy.

Putin’s critics contend that his strategy is not that of an economic actor (as would be that of a pro� t-maximizing private company) but that of a politician. There is an unstated ideological assumption here, derived from economists like Hayek and Kornai, that state corporations cannot act like business � rms. They divert economic resources to the advantage of self-interested politicians or higher civil servants ( chinovniki ), and ‘corruption’ is a major characteristic of such own-ership forms. This is a widely shared supposition of neo-liberals, rather than an established empirical fact. By de� ning corruption as endemic to public servants as a major consequence of state activity, the lesson for public policy (according to neo-liberals) is to minimize the activity of the state in its administrative and own-ership relations and to replace public ownership with private. This is at least a contentious and probably an erroneous view. Joseph Stiglitz (former chief econo-mist at the World Bank), basing his observations on Norway’s nationalized oil industry, contends that the Norwegian example ‘destroys the shibboleth that ef� -ciency and welfare maximization can only be obtained through privatization’. 64

By legitimating the concept of national resources, and changing the previous ruling elite con� guration, Putin has sought to move Russia in the direction of a political world power. This is, however, an objective rather than a current eco-nomically attained position. Putin reversed Yeltsin’s policy and in doing so fol-lowed world trends. Due to mismanagement and asset-stripping of private � rms, Putin nationalized many private companies, including Yukos, in which Khodorkovsky had a major interest. He renegotiated and strengthened state con-trol over Western oil companies with interests in Russia.

In 2011, some 85 per cent of world energy resources were owned by state � rms. De� ning exactly the ‘state share’ in oil production involves complicated calculations of ownership. According to Heiko Pleines, in Russia, state ownership of oil resources rose from 13 per cent in 2004 to 40 per cent in 2011. 65 Nat Moser, 66 on the basis of oil production and company reports on ownership, has calculated that the � gures for 2004 and 2007 respectively were 15 per cent and 37 per cent for state-owned companies; after the TNK-BP purchase by Rosneft, he fur-ther estimates that the state’s share will rise to 55 per cent in 2013. The gas indus-try, even under Yeltsin, remained under state control and accounted in 2007 for



85 per cent of production. These � gures show a remarkable (though on world standards, not unusual) rise in state ownership of oil production under Putin.

As a ‘world threat’, Russia’s actual and potential foreign economic interest is again exaggerated by critics. If we consider state-owned transnational corpora-tions, through which government policy might most effectively be channelled, Russia is a small player. Such companies are de� ned as the government (national or regional) having a controlling interest (full, majority or signi� cant minority shareholding) in the parent (home-based) company. Russia’s share is only 2.1 per cent of the world total (only 14 companies). European countries have far more: Denmark has 36 (5.5 per cent), Norway has 4.1 per cent, France 3.2 per cent. China is a much more important player with 50 companies – 7.7 per cent of the world total. In the top transnational companies, Russia has only Lukoil, in which the Russian Federation owns 13.4 per cent of equity; Norway’s Statoil is 67 per cent state owned. By comparison, China has three companies (CITIC group, China Ocean Shipping and the China National Petroleum Corporation) all being 100 per cent government owned. 67 The states of the European Union have owner-ship stakes in 223 TNCs, 34.2 per cent of the total. (France has around 900 state-owned companies, and China 154,000 in 2008.) 68

The view of ‘state-owned’ companies lacking in economic virtues is strongly coloured by American exceptionalism. In 2011, the USA only had three state-owned TNCs. Moreover, its government is a reluctant owner; in the case of General Motors, state ownership was a consequence of its bankruptcy during the � nancial economic crisis. Russia is quite unexceptional with respect to the owner-ship of state-owned TNCs.

Putin has strengthened the role of the state over privately (or partially pri-vately) owned companies which operate in a formally capitalistic and market economy. He has asserted the responsibility of companies to society. For example, when a factory in Pikalevo closed, it laid off thousands of workers and reneged on the payment of bills to local utility companies, which cut off supplies, leaving the population with no hot water and heating. Putin is reputed to have ordered the owners to pay immediately arrears of salaries amounting to 41 million rubles, ‘You made thousands of people hostages to your ambition, incompetence and greed. It’s absolutely unacceptable!’ 69 Here Putin considers that, regardless of ownership, the state has the right to regulate the process of development in the interests of society as a whole. (He invokes a statist version of what in Western business might be called the ‘social responsibility’ of companies.)

Despite the potential provided by the supply of energy, Russia is far from a world economic power. Saudi Arabia, on the periphery of the world political system, illustrates the political and economic limitations of a world major energy supplier. Russia has not been able to turn its energy wealth into a viable competi-tive economy: it lags considerably behind the Western countries and is outstripped by China. But, as is clear from the foregoing discussion, Russia is seen as a polit-ical threat.

My contention is that opposition to Putin is not solely concern about Russia’s economic power which is problematic, but has to do with an alternative politics



and ideology which provide a challenge to the neo-liberal policies guiding the Western powers and to the form that globalization has taken under the hegemony of the USA.

PART 2: DIVISIONS WITHIN THE POLITICAL ELITES Putin’s statist policies and authoritarian control are emphasized by the liberal opposition both in Russia and the West. Under Putin, a ‘militocracy’ has been put in place. Drawing on the work of Stephen White and Olga Kryshtanovskaya, 70 Goldman contends that associates from the power ministries (police, security and army), the siloviki , are not only recruited to government, but are appointed to the boards of companies in which the government has an interest. 71 The power of energy supply translates into other aspects of policy: as the ‘puppet-master’, Putin controls the strings that can close of� ces of the British Council in Moscow (as in a cartoon in the Financial Times , January 2008).

However, these writers do not give suf� cient attention to the entrenched inter-ests of private corporations with which Putin must contend. Money gives power. The regime’s policies have been a mixture of neo-liberalism and state direction. Currently Russia is a hybrid economic system with two main political constituen-cies among the elites. If it is an authoritarian system then it is a competitive one. The ruling faction co-opts competing elites.

Vladimir Putin represents a faction of the ruling class or political elite which seeks to assert a state-driven variety of capitalism. He is dependent for support on a circle of directors of state-owned companies, chinovniki (state of� cials) of the higher rank, and friendly oligarchs. These include ministries and companies in the � nancial block (German Gref), transport bloc (Igor Levitin), agrarian bloc (Viktor Zubkov), communications (Igor Shchegolev), security and technology (Anatoliy Serdyukov), building bloc (Dimitri Kozak). 72 Other supporters include Igor Sechen (Rosneft), and siloviki such as Mikhail Fradkov (Foreign Intelligence Service). Through joint ownership and overlapping directorships, the govern-ment seeks to exert in� uence over the Russian capitalist class. Private compa-nies become dependent on the state for contracts and � nance. This is one side of the picture.

On the other side, the neo-liberal alternative vision sees Russia’s interest in a global economy with open free markets and foreign direct investment opening up the country to foreign � rms. Dmitri Medvedev leans to this direction. Signi� cantly, he opposed Surkov’s and Putin’s ideas on ‘sovereign democracy’ and he views the components of democracy like a Western liberal – being a market society, the rule of law and accountability of government to society. 73 In this context, liberal political actors become also a major determinant of the direction of economic change.

Internally, Medvedev has the support of political liberals such as Vyacheslav Lebedev, and people in the federal government legal system such as Aleksandr Konovalov, and others with pro-American leanings such as Aleksandr Voloshin, Arkadiy Dvorkovich and Sergey Prikhod’ko. Dmitri Medvedev



represents a more American-oriented neo-liberal market ideology. He is reputed to have a rapport with US President Obama, but is derided on critical TV programmes as an ‘American Boy’. 74 Unlike Putin, he lacks a strong polit-ical base – Putin has the backing of the leading party and considerable electoral support.

Medvedev’s liberalism is expressed in a greater concern than Putin for prop-erty rights, the rule of law, greater pluralism and democratization, and a more positive attitude to the West, particularly the USA. 75 This dualism, between Putin’s statism and Medvedev’s liberalism, represents the hybrid character of Russian politics.

Unlike the early reformers such as Gorbachev and Yeltsin who cultivated a positive image of ‘the West’, Putin has de� ned the USA and its hegemony as ‘the other’, as something not to be associated with. (Western viewers of the Russia Today news programmes have a � rst-hand view of this outlook.) Resistance is not envisaged in a military dimension, but economically, politically and morally. The standpoint of Edinaya Rossiya, 76 which re� ects Putin’s policy perspective, pro-vides an empowering ideology to those who oppose the West’s hegemony. The current political leadership (Putin more than Medvedev) offers a critique and an alternative, phrased in terms of a corporate economy, a presidential type of politi-cal leadership, self-determination and sovereignty.

One of Putin’s tasks was to change Russia’s dependence on foreigners. This was not a turn to socialism (like that of Chavez in Venezuela) or a return to state socialism, but more a move to a type of national capitalism in which a national loyal capitalist class has a prominent place. Politically, it is a cooperative venture, with Putin having the charisma, public and institutional support to drive the rela-tionship. Medvedev is a more acceptable face to the West as a democratic leaning liberal. Indicative of this relationship is the fact that US Vice President Joe Biden’s visit to Moscow in May 2011 was hosted by Medvedev, who was praised by Biden for his personal leadership. Biden also courted the democratic opposition during his visit.

Business interests In this context, the siloviki have a place as loyal Putin supports. However, Russian political scientists have expressed doubt about their supposed dominance in Russian politics. 77 The evidence of Western writers on elite transformation under Putin is not very convincing. Goldman’s table giving details of siloviki in busi-ness 78 lists only 12 current politicians with positions on the boards of companies – one is the chairman of Sheremetego airport, and another Chairman of Tvel, the nuclear fuel trading company.

On the other hand, O. F. Shabrov claims that the siloviki have always been far outnumbered by businessmen in the political elite. He contends that the dominant group was, and still is, composed of people from business corporations, and generalizes from this that Russia is a corporate state. 79 These � ndings are



important because they bring to the forefront the role of capital (rather than of� -cials or the police) in the political elite. It also draws attention to actual and potential differences of economic interest among members of the economic and political elites.

Russia is a state-led economy in which signi� cant areas are subject to markets. Under Putin no controls have been exercised over capital export to restrict prop-erty rights of Russian and foreign owners. Between 1990 and 2010, capital export from Russia amounted to $798 billion. Russia joined the WTO in 2011 (rati� ed in 2012) after protracted negotiations carried out under Putin and Medvedev. In January 2013, Medvedev declared the importance of Russia joining the Organization for Economic Co-operation and Development, which promotes a free market economy. A signi� cant � nancialization of social services has occurred. Privatization (discussed below) has increased under Putin.

The Russian globalized neo-liberal capitalist class can shelter under the Putin/Medvedev tandem. During the economic crisis of 2008, for example, Russia’s oligarchs doubled the amount of cash � ows diverted offshore while concurrently demanding � nancial support from the administration, which they received. Their foreign debts increased and credit which could have been utilized for domestic economic support was siphoned off in pro� ts. 80 A capitalist class is able to assert an area of autonomy against the Putin administration. Any concerted attack by the political leadership against the oligarchs as a class would undoubtedly have for-eign repercussions and lead to internal instability.

As a form of competitive authoritarianism, Putin has not only co-opted com-peting elites, he has conceded their rights to assets and wealth. The Putin/Medvedev tandem is the public face of this elite-run political system.

Putin has strengthened Russia’s political image and he has criticized against Western policy in the Middle East. His widening of the Russian market in the Common Economic Space of Belarus, Kazakhstan and Russia, and the move to stronger links with China in the Shanghai Cooperative Agreement, strengthen Russia’s position in the global economy.

His social policy has been somewhat mixed. Initially, he secured a slight equali-zation in income distribution and rises in state pensions. The state administration was able to increase state handouts as a consequence of rises in energy earnings. However, this has to be considered in the context of the � nancialization of social services.

President Putin might like to move in the direction of a national capitalist eco-nomic formation, combining a state-led economic formation with signi� cant pri-vate, as well as state-owned capital. But he and his circle are currently limited by the constraints of the domestic and global capitalist class.

The tensions between the Russian leadership and leading Western trading nations re� ect the attempts of President Putin to maintain a Russian national pres-ence in strategic industries and to support the emerging transnational energy com-panies. Here he envisages the state with a hegemonic role supporting national capitalism. The economic basis is composed of home-based transnational corpo-rations and national companies.



Russian corporate capitalism? Whereas the post-socialist new member states of the European Union have become part of the neo-liberal global economy, Russia’s initial move to capitalism led to a chaotic economy concurrent with exposure to the uncertainty of world markets. Coordination in all modern economies is based on a combination of market, state, competitive and cooperative economic institutions. President Putin has moved the country in the direction of a state-led corporate cooperative capital-ism having an electoral authoritarian shell.

He envisages an alternative scenario for the stability of Russia as an economy with a market economy, a regulative state and a politically led ‘pact’ between fac-tions of the political elites – oligarchs and leaders of political parties. As Western media point out, the operation of market capitalism has been restricted; Putin has limited the power of ‘media merchants’ (TV and press) and exercised controls over foreign companies.

The articulation of a national state-led model of development is the key to under-standing why Putin’s policy is distorted by many Western writers and opposed in the West, particularly by the neo-liberal press. Russia does not have the economic power to pose an economic or military ‘threat’ to the West. In terms of defence expenditure, in 2011, Russia spent $71.9 billion, only 10 per cent of the USA’s $711 billion, and other NATO partners spent $62.7 billion (UK) and France $62.5 billion (China’s expenditure was $143 billion). 81 Considering the total number of nuclear warheads, in July 2010, Russia had 369 at its disposal, compared to 5,966 available to the USA; the UK had 512, France 288 and China only 240. 82 This does not amount to much of a threat to the West; in terms of military hardware, the threat is the other way around.

What Russia does pose is an articulated form of opposition to the hegemony of the USA and its neo-liberal order.

A corporate state involves a market economy with partnership between state and private ownership, in which the state is the major instrument of coordination. It is neither state socialist, nor does it threaten the capitalistic nature of the economy. Neither Putin nor Medvedev are socialists. As Putin put it when addressing the US Congress in 1992, ‘freedom and communism are incompatible’, 83 and Putin endorses freedom.

He has maintained and even extended a market economy. At the beginning of his presidency he legalized the privatization of land. He has not seriously under-mined the ownership rights of the oligarch-controlled companies. The leadership has also carried out a monetarization of social bene� ts 84 – restricting travel passes for veterans and pensioners, for example. These developments within ‘soft’ author-itarian rule are concessions to opponents, which promote the leadership’s survival.

Despite the well-publicized renationalization of some oil companies, as noted above, state ownership of oil resources is lower than the world average. Other pro� table industries, such as metallurgy and timber processing, food products, drinks and tobacco have a low level of state ownership. Indeed, the privatization of state property has increased during the Putin/Medvedev leadership. Figure 18.1 compares the number of state-owned, private and mixed-owned enterprises



between 1995 and 2010. It shows the regular decline of nationalized companies concurrent with the rise in private ones. The economy is predominantly privat-ized. Except for a dip in private ownership in 2006, the Putin/Medvedev adminis-tration continued the general trend towards privatization. The state does own a signi� cant number of companies (119,000 in 2010) and the federal government has stakes in some big ones such as Sperbank and Yukos, but the private sector is constituted of over 4 million enterprises.

The number of economic enterprises with foreign capital also rose fairly stead-ily from 16,196 in 2005 to 19,650 in 2010. 85 Excluding the Virgin Islands and Cyprus, by 2010, the major investments in Russian companies came from Germany (1,487), China (1,210), UK (808) and USA (822); the CIS contributed 1,138 from Ukraine, 797 from Belarus, 447 from Kazakhstan and 229 from Uzbekistan. 86

One has no indication of any major changes of policy. The government’s eco-nomic strategy is summed up in Strategy 2020: New Growth Model, New Social Policy statement published in April 2011. Its policy has been strongly in� uenced by neo-liberal (rather than corporatist) thinking. Clearly, neo-liberal advisers to Medvedev have played an important part in its making. Its main provisions are summarized as follows. 87

1 Unwind the recent increase in the payroll tax rate, and cut health-care pro-curement costs by 15 per cent.

2 Develop a system to follow up on corruption complaints.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1995 2000 2005 2006 2007 2008 2009 2010

No

of e

nter

pris

es (

1000

)

Private All Others State

Figure 18.1 Private and state ownership of Russian companies . Source: Rossiyski statisticheski ezhegodnik 2011 , Table 12.2 , www.gks.ru/bgd/regl/b11_13 Note: All Others = federal, regional state, municipal, mixed, or joint ventures. State refers to all state ownership (federal, regional and municipal) but not mixed or joint ventures (which are included in All Others).


http://www.gks.ru/bgd/regl/b11_13


3 Review business regulations to identify those obstructing business and investment activity.

4 Appoint an investment ombudsman in each federal district to facilitate busi-ness development.

5 Reduce interference of the state in private business through: – further privatization efforts; – replacement of government regulators on boards of state-owned enter-

prises with independent directors; – more transparent public communication regarding government procure-

ment plans. 6 Improve access of minority shareholders to corporate information. 7 Establish a state-backed private equity fund to facilitate foreign direct invest-

ment in non-natural resource sectors. 8 Reduce the authority of the state commission on foreign investments in stra-

tegic sectors. 9 Improve public services for businesses. 10 Involve the President’s Of� ce in monitoring the quality of public service.

These points indicate that the political leadership anticipates an important sphere for the private sector. One might note the mention of ‘further privatization’, the weakening of state control of state-owned enterprises and encouragement of for-eign investment.

The commitment to capitalism is further shown when we consider what the Medvedev/Putin leadership has not done. During the period of economic crisis, they could have followed the example of UK Prime Minister Gordon Brown and President Obama by extending nationalization of enterprises and thus further reducing the power of the oligarchs. But they chose not to do so, though they did bail out failing private enterprises with some 200 billion rubles.

Moreover, tax policy favours the rich. In 2012, there is a � at regressive 13 per cent income tax and dividends are only taxed at 9 per cent. Standard rate of Russian corporate pro� t tax is 20 per cent. Companies pay only 9 per cent on dividend income. Capital gains are 13 per cent for residents and pro� t on real estate held for more than three years is exempt tax. 88 The new bourgeoisie is well established under the Putin regime. It is, however, subject to state direction and control. Just how much control depends on the constellation of forces within the political and economic elites.

A hybrid economy Putin and Medvedev govern a hybrid economic formation. It contains elements of a corporative type of capitalism with an independently functioning private sector. But, in distinction from the West, Vladimir Putin has emphasized the collectivist (as well as the corporatist) nature of Russia. In 2000 he con� rmed that the state should not ‘command business’ but it should listen to ‘both workers and trade



unions as well as the representatives of big business and associations of entrepre-neurs’. 89 In a speech on 30 December 1999, he said:

The [Russian] public looks forward to the restoration of the guiding and reg-ulating role of the state to a degree which is necessary, proceeding from the traditions and present state of the country.

Social Solidarity. It is a fact that a striving for corporative forms of activity has always prevailed over individualism. Paternalistic sentiments have struck deep roots in Russian society. The majority of Russians are used to connect improvements in their own condition more with the aid and support of the state and society than with their own efforts, initiative and � air for business. And it will take a long time for this habit to die. 90

His pursuit of a statist policy is one of the reasons for Putin’s popularity in Russia. Putin has pushed the economy in the direction of national capitalism. This is an

economic system legitimating private property and the market with signi� cant state control. The state has two major forms of control, the � rst of which is ownership of property, which gives the government signi� cant revenue independent of taxes. Surplus (pro� t) accrues directly to the state through the state’s ownership stake in corporations, such as Gazprom. Here Russia is not unlike other energy-rich econo-mies, though as noted earlier, state ownership of oil is below the average of energy-rich states. Second, political power is secured through administrative control. Putin, through the political party United Russia, is able to control the Russian par-liament as well as the regional governments and is able to mobilize an electoral base. Through the tax system and the security services he has powerful instruments of control over competing elites. The government is suf� ciently powerful to direct privately owned national companies to ful� l state objectives. Putin changed the relationship, which had developed under Yeltsin, between business and the state.

Under Western and Russian capitalism, there are two frameworks of power: in the West, business limits the scope and activity of the state; in Russia, under a commanding political leadership, the state has a stronger coordinating role over business activity. Putin has not undermined capitalism – the state may strengthen it through � nancial support, contracts and subsidies. There is a potential here for con� icts with companies and their shareholders, if or when the state intervenes to direct their resources to politically inspired (though legitimate) goals, or when it rede� nes relationships with foreign capitalist interests. However, Russia is not a state capitalist formation, as China, because the private sector and private busi-ness are much more strongly entrenched.

Counter-elites The Putin administration is not without its neo-liberal critics and we may note that the Strategy 2020 document proposes to reduce state guidance. Implementation of



this strategy could lead in different directions; the government includes neo-liberal reformers (supported by external bodies such as the IMF) in the Ministry of Finance.

While Dmitri Medvedev has been belittled somewhat in the Western media and portrayed as a soft-pedalling partner on a tandem (a Putin Batman and Medvedev Robin partnership), his policies are more liberal and Western-leaning than those of Putin. He has consistently advocated more liberal policies and as President was supported by more neo-liberal members of the political elite. According to Aleksey Mukhin, 91 these include Yuri Petrov of RFFI (the Russian Fund for Fundamental Research) and the Ministry of Economic Development, Igor Shuvalov (Vice Prime Minister) and Sergey Brilev (RTP – a leading invest-ment company).

Medvedev’s neo-liberal outlook was expressed by his address at the World Economic Forum at Davos in 2011. He condemned ‘populist’ solutions, particu-larly policies of nationalization and bank nationalization and supported develop-ments in the private sector. He also endorsed austerity measures which were necessary to ‘live within one’s means’. He emphasized that his policy in Russia was to ‘privatize major state assets’, to involve ‘leading global banks’ in manag-ing Russian privatization. He stressed the importance of ‘integrating Russia into the global economy’ and making the ‘Russian judicial system more effective for � nance sector companies’. He envisioned Russia joining the EBRD and endorsed the principles of the EU in promoting the ‘free movement of people, capital and goods’. On 22 June 2012, Medvedev announced that the following privatiza-tions would take place: 50 per cent of Sovkom� ot, 7.58 per cent of Sperbank, 25.2 per cent of VTB (bank), all of United Grain Co, 49.9 per cent of Rosalroleasing, 10 per cent of nanotechnology holding Rusano and 25 per cent of Russian railways. 92

Within the Russian Federation and through international media, the new liber-als seek to discredit Putin personally and politically. As noted earlier, he is alleged to be a major source of corruption as a head of a ma� a state. The proposed anti-dote is further privatization and minimizing the role of the state.

His regional policy (involving the Common Economic Space of Russia, Belarus and Kazakhstan) has been (unfairly) ridiculed and his economic policy is characterized as another form of Brezhnev’s zastoi or stagnation; the security ser-vices are depicted as a ma� a similar in form to that of Brezhnev’s based in Dnepropetrovsk. He is criticized for authoritarian trends – the imprisonment of Khodorkovski and Nemtsov is ‘politically inspired’. Chubais coined the idea of the fascist state in Russia, which was taken up by many Western journalists, such as Edward Lucas and Luke Harding. Massive Western media campaigns delegiti-mate the election process by amplifying the extent of election fraud.

However, liberal-democratic advocates standing for election against Putin received a derisory share of the vote, even compared to the second largest party, the KPRF (Communist Party of the Russian Federation). A policy based on the Washington Consensus or the strictures of the IMF would be poorly received by the Russian electorate. Neo-liberalism is highly dependent on Western moral and political support. The neo-liberal tendency has concentrated on the weaknesses



and de� ciencies of Putin, whose policy they de� ne as at the root of Russia’s problems.

Internally, a democratic opposition has arisen in a somewhat haphazard coali-tion of civil society groupings. One leader is Mikhail Kazyanov, a previous Prime Minister under Yeltsin, who has consistently campaigned against Putin and has declared invalid the elections of 2011 and 2012. He formed a new political party (RPR-PARNAS) jointly with Nemtsov and Ryzhkov in 2012. Among his demands are a new round of market reforms, a move to an American type of corporate economy and the institution of the rule of law. Under the banner of Freedom House and the UK Foreign Policy Initiative, he has criticized Putin’s ‘illusion of democracy’.

The liberal movement is weak and divided. Even if one concedes that the elec-tions are biased against Putin’s challengers, he is clearly favoured by public opin-ion and has had landslide victories. While there is an indication in these demonstrations that the tactics of a ‘coloured’ revolution were copied, they failed to reverse the election results. The West has been unable to penetrate civil society organizations and there is no political ballast of a middle-class or nationalist movement which could be mobilized by a potential coloured revolution. Whether the RPR-PARNAS under Kazyanov, who has considerable US connexions and support, will be able to do better, remains to be seen.

Putin has also � rmly controlled the state media and limited foreign-based NGOs. He has been able to secure political control: he has destroyed vocal oppo-sition (such as Khodorkovsky) of the economic oligarchs, and co-opted others. His compact with the oligarchs has allowed them to keep their assets and pro� ts and he has maintained political order. Should the Putin faction remain in com-mand, something other than a neo-liberal programme is likely, particularly if it coincides with decline of the hegemonic USA. I return to this topic in the � nal chapter.

State-led development The federal administration has utilized economic surpluses, earned from export of materials industries, for social support, innovation and renewal. Clearly, a state-led development policy has problems in selecting winners. But so do mar-ket-driven states: the induction of the new member states into the EU, as well as the southern tier of EU states, has led to de-industrialization. Russia has suf-fered considerable de-industrialization as a consequence of neo-liberal policies: even in 2010, 45 per cent of Russia’s imports were of machinery, equipment and vehicles. 93

By seeking greater state coordination, Putin has had to reverse some of the outcomes of the early transition policies of Yeltsin. It is widely recognized that modernization has not been successfully pursued – as illustrated by the fall in high-tech exports, discussed in Chapter 15 . Gennady Zyuganov, the Communist leader, has complained about the pro� igacy of the Putin/Medvedev administration:



The Soviet Union assembled 1,500 aircraft a year at � fteen factories. With Putin … ten factories assembled 13(!) planes last year [2011] … The author-ities set aside 90 billion rubles for the space industry. Putin said we had had three launch explosions of late. Where did he get this estimate? We encounter trouble at every second launch … It already cost us 40 billion rubles…

The problem for Russia is not just ‘choosing the winners’ but the footprint of trans-formation which has impoverished the economy and led to the rise of rent-seeking capitalists. To take Zyuganov’s example of the aircraft industry. Very few countries can compete with Boeing and Airbus, as both have massive research and develop-ment programmes and both are � nanced either indirectly (through the United States government’s procurement and research support) or directly subsidized (by governments of the European Union). The initial fault was that of the Yeltsin administration in opening up the economy to foreign competition in the � rst place and not protecting the post-Soviet Russian aircraft construction industry.

Putin, to achieve what he has called ‘real democracy’ and ‘real sovereignty’, has adopted two interrelated measures to assert the power of the state against systemic opposition. First, internally, he sought to reduce the political power of the oligarchs; and second, he sought to curb the external threat, not only by for-eign transnational companies by also by ‘global democracy’. Both these policies have worked against Western interests and, I would claim, explain why Putin’s policy is so vehemently opposed abroad.

The economic system that has evolved under Putin has strengthened a state-led component of a hybrid economy. It preserves the economic interests of those who gained under the privatization of Yeltsin. Economic elites (or potential counter-elites) have been co-opted into the competitive authoritarian system. The electoral system is weighted towards presidential power. It is not an authoritarian one-party system like China, or a type of dictatorial rule like Saudi Arabia. The leadership is subject, from time to time, to election.

Putin’s goal is foremost to modernize and develop the country and concur-rently to place it as a major power in the international political and economic system. 94 In the West, Russia is portrayed as an economic and military threat and it is my contention that such views have no substantive basis. Why Putin and his associates are regarded so disapprovingly is because they challenge the hegemony of the USA and NATO, as advocated academically and pursued politically, by the driving forces in the West in the extension of the global system. However, this form of collectivism, opposed to Western individualism, coexists with more lib-eral orientations, represented by Medvedev. It is a system of competitive electoral authoritarianism.

Notes 1 My thanks to Heiko Pleines for some pertinent points on an earlier draft of this chapter. 2 On Putin see Richard Sakwa, The Crisis of Russian Democracy: The Dual State,

Factionalism and the Medvedev Succession , Cambridge: Cambridge University Press, 2011; Angus Roxburgh, The Strongman: Vladimir Putin and the Struggle for Russia ,



London and New York: IB Tauris, 2012; J. L. Black, Vladimir Putin and the New World Order , Lanham, MD: Rowman & Little� eld, 2004; Stephen White, Understanding Russian Politics , Cambridge: Cambridge University Press, 2011; Marshall I. Goldman, The Piratization of Russia , London and New York: Routledge, 2003; V. V. Putin, First Person , London: Hutchinson, 2000.

3 Putin, First Person , p. 72. He did routine work collecting information and did not consort with political leaders like Hans Modrow.

4 The best-known formulation is that in Joseph Nye, Soft Power: The Means to Success in World Politics , New York: Public Affairs, 2004.

5 Brazil, Russia, India, China and South Africa. 6 Putin, First Person , p. 181. 7 Oliver Bullough, New Statesman (London), 5 March 2012, p. 29. 8 B. Black et al ., ‘Russian Privatization and Corporate Governance’, Stanford Law

Review , 52, 2000: 1731–808, pp. 1736–7, cited in Richard Sakwa, The Quality of Freedom: Khodorkovsky, Putin and the Yukos Affair , Oxford: Oxford University Press, 2009, p. 48.

9 For details see Sakwa, The Quality of Freedom , pp. 206–13. 10 Cited in Roxburgh, The Strongman , p. 179. 11 As reported in The Guardian (London), 1 September 2012. 12 Cited in Roxburgh, The Strongman , p. 73. 13 Sakwa, The Quality of Freedom , p. 5. 14 V. Yu. Surkov, Osnovnye tendentsii I perspektivy razvitiya sovremennoy Rossii ,

Moscow: Sovremennaya gumanitarnaya akademiya, 2006, pp. 13–16. See also Grani globalizatsii , Moscow, 2003, esp. ch. 9 .

15 Surkov, Osnovnye tendentsii , p. 14. 16 This distinction is well made in M. Steven Fish, Democracy Derailed in Russia: The

Failure of Open Politics , Cambridge and New York: Cambridge University Press, 2005, pp. 17–19.

17 Surkov, Osnovnye tendentsii , p. 14. 18 Surkov, Osnovnye tendentsii . 19 As Richard Rose, William Mishler and Neil Munro have pointed out, the political

regime under Putin is likely to endure and is endorsed by around two-thirds of the population: Popular Support for an Undemocratic Regime , Cambridge: Cambridge University Press, 2011.

20 See S. Levitsky and L. Way, ‘The Rise of Competitive Authoritarianism’, Journal of Democracy , 13(2), 2002: 51–65.

21 See www.vybory.izbirkom.ru (of� cial site of the Russian electoral commission, accessed 10 March 2012).

22 See White, Understanding Russian Politics , ch. 2 . On election fraud in general see Mikhail Myagkov, Peter C. Ordeshook and Dimitri Shakin, The Forensics of Election Fraud: Russia and Ukraine , Cambridge and New York: Cambridge University Press, 2009.

23 According to Rossiiskaya gazeta , 5 March 2012, p. 3: ‘about a million active citizens participated in the monitoring’. My thanks to Stephen White for pointing to this reference.

24 Press-vypusk , No. 1970, see www.wciom.ru . 25 These results are taken from Anatoly Karlin, Truth and Falsi� cation in Russia , www.

aljazeera.com/indepth/opinion/2011/12 . 26 He was subsequently elected President and inaugurated in May 2000. 27 Cited in Ingmar Oldberg, ‘Russia’s Great Power Ambitions and Policy under Putin’, in

Roger E. Kanet (ed.), Russia: Re-Emerging Great Power , Basingstoke and New York: Palgrave, 2007, p. 13.

28 Foreign Policy of the Russian Federation, accessed at www.russiaeurope.mid.ru/RussiaEurope/concept.html (note that these documents are not always kept at the site).


http://www.vybory.izbirkom.ru

http://www.wciom.ru

http://www.aljazeera.com/indepth/opinion/2011/12

http://www.aljazeera.com/indepth/opinion/2011/12

http://www.russiaeurope.mid.ru/RussiaEurope/concept.html

http://www.russiaeurope.mid.ru/RussiaEurope/concept.html


29 This is made clear in his speech of 25 April 2005. Printed in Aleksey Chadaev, Putin. Ego Ideologiya , Moscow: Evropa, 2006, p. 188.

30 Russian National Security Concept, www.russiaeurope.mid.ru/russiastrat2000.html 31 See detailed data on VTB Press Release, February 2008. VTB’s own estimate for 2007

is a more modest 6.2 per cent. 32 www.statrus.info/catalog/readbook.jsp?issue=701736 (website of the Russian

statistical of� ce). Data for 2010 from Rossiyski statisticheski ezhegodnik 2011 , Moscow: Rosstat, 2011, p. 31.

33 www.statrus.info/catalog/readbook.jsp?issue=159551 . 34 Rossiyski statisticheski ezhegodnik 2011 , p. 33. 35 As in the title of Roger E. Kanet’s book: Russia: Re-Emerging Great Power , Basingstoke

and New York: Palgrave Macmillan, 2007. 36 Nikita A. Lomagin, ‘Forming a New Security Identity Under Vladimir Putin’, in Kanet

(ed.), Russia , p. 33. 37 Speech to the Federal Assembly on 25 April 2005, www.kremlin.ru/eng/

speeches/2005/04/25/2031_type70029type82912_87086.shtml (website of presidential administration of Russian Federation).

38 Mark R. Beissinger, ‘The Persistence of Empire’, NewsNet , 48(1), 2008, Boston, MA: AAASS, p. 3.

39 The agreement ending the First Chechen War was signed in Khasavyurt on 30 August 1996, and endorsed by President Yeltsin in 1997.

40 Federal Assembly speech, 25 April 2005. 41 Z. Brzezinski, ‘US/Russia: Zbigniew Brzezinski Assesses US-Russian Relations’,

RFE/RL 11 May 2005, cited in Beissinger, ‘The Persistence of Empire’, p. 2. 42 A bizarre example, sometimes cited in support of this view, is the planting of a Russian

� ag on the North Pole. 43 ‘A murder, a grudge, deportations and what they say about Russia’s worrying political

direction. Is it time to use the f-word?’, The Economist , 12 October 2006. 44 Luke Harding, The Ma� a State , London: Guardian Books, 2012; Edward Lucas,

Deception , London: Bloomsbury, 2012. 45 The power of the press and (generally unsuccessful) attempts to curb it are not restricted

to Russia. At the Press Standards Enquiry, Rupert Murdoch, the owner of News Corp, alleged the following of Gordon Brown when Prime Minister: ‘You have declared war on our government, we have no alternative but to declare war on your company’ (verbatim report shown on BBC Newsnight , 15 April 2012). The Murdoch press, which controlled 40 per cent of British print media, switched to support the Conservatives when they came into of� ce cut the BBC’s licence fee and sanctioned the takeover of BSkyB by Murdoch.

46 M. Castells, ‘Communication, Power and Counter-power in the Network Society’, International Journal of Communication , 1, 2007, p. 241.

47 This is a party, according to Paul Cammack, which is subordinated to the government executive and ‘endorses and promotes’ its policies. See ‘Globalization and the Death of Liberal Democracy’, European Review , 6(2), 1998: 249–63.

48 Gordon Hahn, ‘They are Still At It: Mainstream Media Continues to Distort Russian Reality’, in Johnson’s Russia List, 2012-#58, 29 March 2012, originally published in Russia: Other Points of View , www.russiaotherpointsofview.com .

49 Such accusations have to be taken in the context of a widespread suspicion of governments. Even the prominent public � gure Lord Puttnam opined on BBC TV that in the UK, ‘We have a corrupt police, corrupt politicians and a corrupt press’ (BBC Newsnight , 24 April 2012).

50 Roxburgh, The Strongman , pp. 284–6. 51 Alena V. Ledeneva, How Russia Really Works , Ithaca, NY and London: Cornell

University Press, 2006, p. 11. This has been developed in Ledeneva, Can Russia Modernise? , London: Cambridge University Press, 2013.


http://www.russiaeurope.mid.ru/russiastrat2000.html

http://www.statrus.info/catalog/readbook.jsp?issue=701736

http://www.statrus.info/catalog/readbook.jsp?issue=159551

http://www.kremlin.ru/eng/speeches/2005/04/25/2031_type70029type82912_87086.shtml

http://www.kremlin.ru/eng/speeches/2005/04/25/2031_type70029type82912_87086.shtml

http://www.russiaotherpointsofview.com


52 Beissinger, ‘The Persistence of Empire’, p. 6. 53 Marshall Goldman is the former Director of the Davis Russian Research Center,

Harvard University, and an in� uential economist with many publications on the USSR and Russia.

54 Marshall Goldman, Petrostate: Putin, Power and the New Russia , Oxford and New York: Oxford University Press, 2008.

55 Goldman, Petrostate , p. 14, italics in original. 56 Goldman, Petrostate , p. 3. 57 Jean-Christophe Peuch, in an article published in 1999, with respect to Russia’s policy

towards the Caspian Sea area, wrote that ‘the presence of American and European major corporations around the Caspian Sea is seen by the Kremlin not as potential competition to Russian oil companies but as a strategic threat which should be put at the same level as “western cultural and ideological expansion in Russia”’ (‘Russian Interference in the Caspian Sea Region’, in David Lane (ed.), The Political Economy of Russian Oil , Lanham, MD: Rowman & Little� eld, 1999, pp. 191, 205–6). Citation from Anatoli Gusher, ‘On Russian-Iranian Relations’, International Affairs , No. 2, 1997.

58 Goldman, Petrostate , p. 15. 59 For an account see Simon Pirani (ed.), Russian and CIS Gas Markets and Their Impact

on Europe , Oxford: Oxford Institute for Energy Studies, 2009. 60 Vladimir Putin, cited in Goldman, Petrostate , pp. 207–8. 61 The upshot, however, was that the proposal was not supported by other leading

European countries such as Germany. I am indebted to Mattias Roth for bringing this to my attention.

62 The British Conservative government in the 1980s, under the in� uence of Michael Heseltine, prevented Ford from buying out the British � rm, Rover. The European Union has decreed conditions for foreign ownership of energy companies in its territory. The French government places its representatives on the boards of companies in which it has a stake. The British government, when it had signi� cant shares in British Petroleum, and since 2008 when it nationalized failing banks, also placed representatives on the Boards.

63 Cited in Financial Times (London), 25 July 2012. 64 For an overview of Russian energy see Heiko Pleines, ‘Developing Russia’s Oil and

Gas Industries’, in J. Perovic, R. Orttung and A. Wenger (eds), Russian Energy Power and Foreign Relations , London: Routledge, 2009; Stiglitz quotation p. 72.

65 My thanks to Heiko Pleines for these data taken from the University of Bremen database.

66 Research Fellow in Russian and CIS Energy, University of London. My thanks to Dr Moser for providing me with these data; he also estimates that state-owned companies accounted for approximately two-thirds of world production in 2012.

67 UNCTAD, World Investment Report 2011 , pp. 30–1. The minimum threshold of government ownership is 10 per cent of equity. Of the total number of companies (653 with over 8,500 foreign af� liates), governments owned over 51 per cent in 58 per cent of the companies. Bear in mind that the data refer to the ownership of af� liates abroad by the host country ( www.unctad.org/en/publicationslibrary/wir2011 ).

68 UNCTAD, World Investment Report 2011 , p. 31. Data for Russia not given. 69 Angus Roxburgh, The Strongman , p. 276. 70 O. Kryshtanovskaya and S. White, ‘Putin’s Militocracy’, Post-Soviet Affairs , 19(4),

2003, p. 294. 71 See Goldman, Petrostate , Table 7.3 , p. 193. 72 Alexei Mukhin, Lovushka dlya presidenta , Moscow: Algoritm, 2011, p. 91. 73 See discussion in White, Understanding Russian Politics , pp. 360–1. 74 Mukhin, Lovushka dlya presidenta , pp. 135–6. 75 See account in Sakwa, The Crisis of Russian Democracy , pp. 345–8. 76 Edinaya Rossiya (United Russia) is the political party formed in support of Putin.




77 See for example, O. V. Gaman-Golutvina, Rossiyski parlamentarizm v istoricheskoy retropspektive i sravnitel’noy perspective , Moscow: Polis, 2006, No. 2–3; and O. F. Shabrov, ‘Dinamika izmeneniya udel’nogo vesa i vliyaniya korporativnogo komponenta politicheskoy elite postsovetskoy Rossii’, in O. V. Gaman-Golutvina (otv.red), Elity i obshchestvo v sravnitel’noy izmerenii , Moscow: Rosspen, 2011, pp. 309–19.

78 Goldman, Petrostate , p. 193. 79 See Shabrov, ‘Dinamika izmeneniya’, Fig. 2, p. 314 and p. 315 on corporate state. 80 Post-Pikalevo Russia, www.krichevsky.ru/images . For a brief account, see Sakwa, The

Crisis of Russian Democracy , pp. 338–9. 81 Data cited in Johnson’s List, 21 April 2012. 82 Data cited in Izvestiya , 30 November 2010, p. 11. 83 Cited in Sakwa, The Quality of Freedom , p. 10. 84 See Andrea Chandler, ‘The Social Promise: Rights, Privileges and Responsibilities in

Russian Welfare Reform Since Gorbachev’, in Thomas Lahusen and Peter H. Solomon Jr (eds), What is Soviet Now? Identities, Legacies, Memories , Berlin: LIT Verlag, 2008.

85 Rossiyski statisticheski ezhegodnik 2011 , Table 12.9 , www.gks.ru/bgd/regl/b11_13 . 86 Numbers refer to organizations with participation of foreign capital; Rossiyski

statisticheski ezhegodnik 2011 , Tables 12.10 and 12.11 . 87 As summarized by the IMF: IMF Country Report No. 11/294, September 2011, www.

imf.org.external/pubs/ft/scr/2011 . 88 www.worldwide-tax.com . 89 Putin, First Person , p. 187. 90 Speech, 30 December 1999, www.geocities.com/capitolhill/parliament/3005/poutine.

html . This source is from an American site. I have searched Putin’s speeches on the Kremlin website, with no success.

91 Mukhin, Lovushka dlya prezidenta . 92 Moscow Times , 25 June 2012. 93 Rossiyski statisticheski ezhegodnik 2011 , p. 713. 94 See Sakwa, The Quality of Freedom .


http://www.krichevsky.ru/images

http://www.gks.ru/bgd/regl/b11_13

http://www.imf.org.external/pubs/ft/scr/2011

http://www.imf.org.external/pubs/ft/scr/2011

http://www.worldwide-tax.com

http://www.geocities.com/capitolhill/parliament/3005/poutine

The transformation of the central and Eastern European state socialist countries, though encouraged and supported from the outside, was largely carried out by internal counter-elites to the communist leadership. The new member states of the European Union succeeded in making the transition to capitalism and electoral democracy. As noted in Chapter 12 , the remaining post-socialist European states remained only partially economically and politically reformed.

In some of these countries, attempts have been made to oust incumbent leaders through popular revolutions ‘from below’ in the form of ‘coloured’ revolutions – in Serbia (2000), Belarus (2001 and 2006), Georgia (2003), Ukraine (2004) and Kyrgyzstan (2005). These public protests have adopted a colour (orange for Ukraine, rose for Georgia) as a symbol to identify their supporters and the charac-ter of the movement. In other countries with a similar economic and political tra-jectory (Russia, Uzbekistan and Kazakhstan) comparable events were initiated, though they were thwarted before they occurred or were successfully suppressed. 2 These processes have been linked to the earlier wave of ‘transitions from auto-cratic rule’. 3 They sought to complete the transformation of these societies to the more open capitalist polyarchies that have arrived in the central and Eastern European post-socialist countries.

‘Coloured’ revolutions – the objectives The activities given the popular appellation of ‘coloured’ revolutions all had in common a proposed socio-political transformation intended to introduce ‘democ-racy from below’ and to carry forward the transformation of the state socialist countries to free market capitalism and competitive electoral democracies. Though differing in content, they shared a common strategy: mass protests occurred within the constitutional framework to widen forms of public participa-tion in the regimes; they were legitimated as a movement for ‘greater democracy’; they were all targeted on removing the incumbent political leaderships. Electoral procedures, allegedly fraudulent, were a regular focus for the insurgents, and large public gatherings were constituted with a base of young people, particularly students. Compared to traditional political demonstrations, a novel feature was the orchestration of events through the use of modern media technology – mobile

19 ‘Coloured’ revolutionsPolitical coup or people’s revolution? 1



phones, the internet and assistance from local and foreign media. The demonstra-tions, in support of a supposedly democratic champion, once under way, were accompanied (to a greater or lesser degree) by mass cultural events – rock and pop music, for example, which helped mobilize, create solidarity, and entertain mass audiences. While these protests were legitimated in democratic terms, it is debat-able whether this type of political event constituted a people’s revolution or, as I shall argue, a form of coup d’état .

The promotion and organization of these popular social movements required considerable resources: propaganda, musicians, entertainers, and even the organ-izers and participants received payment and subsistence during the events. As we noted in Chapter 14 , Western interests played an important role in promoting civil society associations to pursue, by peaceful and legitimate means, regime change in authoritarian states.

An international perspective Since the end of the Cold War, the foreign policy of the USA has shifted to pro-mote ‘soft power’ in addition to the use of armed force. As William Robinson has put it: ‘Under the rubric of “promoting democracy”, the United States has inter-vened in the crises, transitions and power vacuums resulting from the breakup of the old order to try to gain in� uence over their outcomes.’ 4 George W. Bush, in his inaugural address in 2005, made clear that ‘it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture’. 5 ‘Democratization’ abroad is an important part of the neo-conservative policy of creating an international order of values associated with American (and its allies’) ways of doing things. 6 While the ways that George Bush effected his policies has been criticized, writers and policy-makers, such as former policy adviser Michael McFaul, contend that sponsoring democracy will not only strengthen American values but also make Americans ‘safer and richer’.

The opposition movements have emphasized their support for freedom, rights to private property, market mechanisms and opposition to autocratic rule and state regulation. Moreover, in appropriate cases, they have advocated support for join-ing Western alliances (such as NATO and the EU). Such movements have had mixed outcomes. 7

Proponents of democracy promotion have widely utilized the work of, and protest techniques de� ned by, Gene Sharp’s Theory of Power (1973). All had moral and � nancial support from external sources, particularly Western founda-tions supporting democratic institutions and processes. A form of ‘soft’ political power was utilized by the West to undermine established governments. Such policy is derived from the ideas of writers such as Joseph Nye ( Soft Power: The Means to Success in World Politics , 2004), who have advocated a shift from the use of military force and coercion to the promotion of internal change through manipulation of the norms and values of citizens. ‘Attraction’ to the West can refer to political values (democracy, freedom, justice), cultural artefacts (pop music, art) and consumption articles (McDonald’s, mobile phones).


‘Coloured’ revolutions 323

The countries that are likely to gain from soft power are those closest to global norms of liberalism, pluralism, and autonomy; those with the most access to multiple channels of communication; and those whose credibility is enhanced by their domestic and international performance. These dimensions of power give a strong advantage to the United States and Europe. 8

Promotion of internal change by in� uencing the world-view of citizens is a major strategy.

Most Western interpretations of the ‘coloured’ revolutions (academic and jour-nalistic alike) have emphasized their positive intentions and consequences and legitimate them as part of the Third Wave of democratization. They ‘remov[ed] authoritarian leaders from political power … What we have witnessed in the post communist world, therefore, is an unexpectedly successful diffusion of electoral revolutions … where illiberal leaders were replaced by their liberal counterparts.’ 9 Such writers project ‘the electoral model of regime change’; 10 ‘elections are the indicator of democracy – a form of government that has become a global norm’. 11

Such writing borders on the political authorization of an electoral process which is a tool in neo-conservative politics. By limiting the de� nition of ‘democracy’ to an electoral political mechanism taking a particular competitive form, 12 the concept is emptied of any policy outcomes on, and continuous deliberation of, public issues. 13

Critics argue that what appear to be popular revolutions are disguised coups d’état . Oppositional forces or counter-elites who are unable to mobilize effec-tively against incumbent governments organize revolutionary events to galvanize support and legitimate a transfer of power through popular elections. Nataliya Narochnitskaya 14 argues that the ‘voice of the people’ is an illegitimate use of modern media technology (television, radio and the press) to create or manipulate public opinion to force political change. Non-governmental organizations, with powerful sponsors, become political bodies working through networks and the media – rather than being rooted in a genuine civil society and acting on behalf of citizens. Sponsors, 15 directly or indirectly � nanced by outside governments, become involved in insurgent activity, de� ning democracy in terms of their own conceptions and magnifying election frauds to promote and legitimate a coup d’état to their political advantage.

The accusation of ‘fraud’ is often made before the election results are announced and follows a campaign of discrediting the incumbent powers. Exit polls are an instrument of politics: once election fraud is declared, it is ampli� ed by the media. These claims set the political scene – the ‘taken for granted’ political assumptions – that election fraud had taken place. Ukraine’s Orange Revolution is an iconic case and will be the � rst focus of this chapter, which is followed by an analysis of the coloured revolutions as a wider political phenomenon.

THE CASE OF THE ORANGE REVOLUTION Ukraine displays the formal features of an electoral democracy and market soci-ety: transformation has secured relatively high levels of price liberalization and



small business privatization, and some enterprise restructuring. Politically, the country has a multi-party system with competitive elections which have secured a turnover of leadership in the elected parliament and presidential power (ful� lling one of the conditions for a stable democracy). 16 While democratic institutions are becoming ‘consolidated’, there remains extensive disenchantment with politics consequent on the outcomes of political and economic reforms. 17 The reform pro-gramme and the introduction of capitalism had very damaging effects on the well-being of the population. Even by 2005, Ukraine’s GDP was only 59 per cent of the 1989 level. 18 As noted in chapter 17 , the collapse in living standards led to public resentment against reform and the bene� ciaries of privatization.

Ukraine, like the other ‘partly reformed’ countries of post-communism, pre-sents a challenge to the international order and particularly to the hegemonic powers of the West in the form of the European Union and the United States. As a country strategically situated to the east of the Mediterranean and with borders to both the European Union and Russia (whose southern � eet is based in the Ukrainian port of Sevastopol in Crimea), it presents a desirable strategic asset or, if in alliance with Russia, a possible security threat. The size of the country (50 million) puts it below France but above the highest populated NMS of the European Union (Poland, at 39 million). Its incomplete transition to capitalism not only entailed widespread poverty but also an ailing industrial sector and agri-culture needing modernization on a massive scale. While the sentiments of the elites in most of the EU states (and even more so the USA) were in favour of Ukrainian EU membership, they have baulked from promising it; though NATO membership was (and is) a real possibility.

The contest for the presidency in 2004 presented two candidates: Viktor Yushchenko, favourably disposed towards both the EU and joining NATO, and the Russian-leaning Viktor Yanukovich. 19 The United States and Russia came out clearly in favour of Yushchenko and Yanukovich respectively. There were then important international players seeking to in� uence Ukrainian politics. Soft power was clearly a potent instrument for use in Ukraine. 20

Alleged election fraud The declared victory of Yanukovich in November 2004 led to public demonstra-tions in Kiev and other areas of Ukraine, which have become known as the Orange Revolution. 21 The mass protests sought to secure a change of election result through a novel type of public mobilization in the form of mass political gather-ings entertained with rock music, provided with free (tent) accommodation, food and even pocket money for participants. The demonstrations, managed by the Yushchenko team, were directed against the Electoral Commission and, legiti-mated by exit poll estimates, sought to overturn its ruling. The events had a wider political signi� cance in that they envisaged a major reorientation towards the West of Ukraine’s internal and external policies.

It was widely held by commentators that these happenings signalled the begin-ning of a new era of Ukrainian nationhood: ‘The Orange Revolution marked a



new stage of Ukrainian society development and identi� ed the end of the previous political epoch of the hybrid Soviet-type system.’ 22 The country should, and would, move towards its European home as well as, it was hoped, secure libera-tion from the corruption 23 and stagnation left by the Kuchma regime. The sweep of revolution beginning in 1989 was now taking root in Ukraine:

… the orange revolution had set a major new landmark in the post-commu-nist history of Eastern Europe, a seismic shift Westward in the geopolitics of the region. Ukraine’s revolution was just the latest in a series of victories for ‘people power’ – in Poland, Hungary, and Czechoslovakia in the late 1980s and, more recently, in Serbia and Georgia. 24

Prominent advocates of its positive effects are Andrew Wilson, Anders Aslund, Michael McFall and Taras Kuzio. 25 The present chapter attempts to evaluate such views through the study of public opinion polls taken soon after the events. 26 To give a qualitative dimension of the political process, reference is also made to the testimony of respondents at focus group meetings organized by the author in Ukraine. 27 Using cross tabulations of the public opinion poll data, one is able to study the social characteristics of groups favourably disposed and opposed to the events.

Bearing in mind that even the largest of public demonstrations can only include a relatively small portion of the population, participation in the protest actions, subsequently known as the Orange Revolution, was on a large scale. Of the 1,800 people surveyed in 2005, 4.8 per cent reported that they had taken part in the pro-test actions in Kiev, and another 12.8 per cent took part in other towns and locali-ties (these, of course, include some who may have participated in ‘anti-Orange’ demonstrations, or in meetings associated with Yushchenko’s opponent, Yanukovich); 5.2 per cent actively aided the protesters (with food, money, etc.).

Large as was the participation, the population was by no means fully in support of the demonstrations. As shown in Figure 19.1 , over a quarter of people surveyed in 2005 did not support the events, and a further one-� fth was uncommitted. Moreover, following the actions, there has been a considerable decline in commit-ment: by 2006, nearly 40 per cent of the population claimed that they had not and did not support the leaders of the Orange Revolution. Already, some six months after the events of November 2004, nearly 4 per cent of previous supporters were disillusioned, rising to 15 per cent in 2006.

Participants in the focus groups explained how they felt. Vladimir, a driver in Kiev, said: ‘Everyone thought that it was a revolution at that time. Everybody hoped that something will change … A kind of change happened; people believed … that each person is worth something.’ Oleksandr, a businessman respondent in one of the focus groups in Lvov, declared: ‘I believe that revolution is when there is a result … We have not started living better; on the contrary, we live in the same country, even a worse one than before … Many people in western Ukraine at the beginning wanted to go to Kiev and make a revolution, but in the middle of all this we had tours, a banal betrayal of people who went to [make a] revolution. In reality



it was a well-staged technology [event] which ended in � asco. And nothing changed in people’s consciousness’ (2 October 2006).

Motivation of participants What, then, had been their expectations and why had they become disenchanted? We have some useful indications of what motivated the participants when we consider the responses to the following question asked in the opinion polls: ‘In your opinion, what were the main factors [motivating] the political activities of citizens during the Orange Revolution? (No more than three responses were allowed; the questions was surveyed in 2005 and not repeated in 2006.)

Protest against the authorities and non-acceptance of one of the presidential candidates (presumably Yanukovich) came high in the priorities (41.9 per cent), followed by economistic motives (30.4 per cent). These criteria do not envisage a revolutionary change. As Nadezhda, a middle-class grandmother working for a consumers’ association in Kiev put it: ‘The events were partly a revolution because people believed that they were overthrowing the old regime and installing a new one which would protect their interests. I say partly because people put in a new person, hoped for improvements, though no improvements were achieved’ (October 2005).

Protest against ‘injustice’ was mentioned by 20 per cent of polled respondents. Geopolitical orientations (5.2 per cent) were even lower than ‘the wish to partici-pate in a spectacular event’ (9.9 per cent). As there was a relatively low number of people (2.1 per cent) making alternative suggestions and 15.7 per cent did not respond, we may conclude that the major reasons were given in the survey.

There was no general consensus about the role of the Orange Revolution in nation-building. Just over one-third of the respondents (37 per cent) agreed that the ‘Orange Revolution gave birth to a political nation in Ukraine’. One of these

40.7

3.87.7

26.8

20.7

29

15.1

5.8

38.7

11.3

0

10

20

30

40

Supportedand continue

to support

Supportedbut do not

support now

Did notsupport butsupport now

Did notsupport and

do notsupport now

Difficult tosay

Per

Cen

t

2005 Survey 2006 Survey

Figure 19.1 Support for the Orange Revolution, 2005, 2006 .



was Igor, a university lecturer in Kharkov, who said: ‘There were some revolu-tionary elements … it [was] undoubtedly a national revolution … The Ukrainian people for the � rst time remembered a hymn of Ukraine and learnt it at that time … In this sense this revolution was a bourgeois-democratic and national revolution but unfortunately un� nished’ (April 2007). This view is re� ected in the Western literature: Andrew Wilson, for example, refers to ‘Yushchenko’s value-based campaign, which helped consolidate a new version of the “national idea”’. 28

However, 20 per cent of those polled did not know what a ‘political nation’ was, 15 per cent did not agree with the assertion, and 29 per cent found the ques-tion ‘dif� cult to answer’. These opinions re� ect divisions in Ukrainian society. As Roman, a plant sciences researcher from Kharkov, pointed out: ‘I think a revolu-tionary situation existed but no revolution occurred in reality. There was a wish by people and [then] people lost patience, it was necessary to change something. Everybody sensed that it was necessary to create changes but no changes occurred at the end.’ The ambiguous nature of the ‘revolution’ is indicated here, as this participant clearly envisaged a social revolution, though the outcome did not sat-isfy protesters supporting the election of Yushchenko.

The divisions between personal opinions are illustrated by the following state-ments from members of one of the Kharkov focus groups. First, Dariya, a student of journalism, who said: ‘The Orange Revolution was an event. Some think it was positive, some think it was negative but it was a great event for Ukraine and the world. And many students … supported Yushchenko, voted for the Orange for different reasons … The most positive feature of the revolution is not that Yushchenko became President but because of that solidarity. Everybody sup-ported each other. I was proud at that time that I was a Ukrainian. It’s an incom-municable feeling to be proud of being Ukrainian’.

Second, the point of view of Tatiana, a student at Kharkov Polytechnic: ‘I did not feel proud that I was a Ukrainian during the Orange Revolution. I think that the world got to know Ukraine from the worst side. And there was no solidarity. I was at Maidan [the scene of major demonstrations] at that time and I saw how some people cheered for the “orange” before 5 pm and after for the “blue” [i.e. Yanukovich]. They stood where they got paid for.’ Third, Vitaliy (another Kharkov student): ‘This was a velvet revolution. There were people for the idea, but … very many people just went there to earn money. Both sides did that. There were ideological people there and they got what they wanted and it’s good for them’ (Kharkov, April 2007).

Coup, spontaneous protest or protection of rights? The political character of the events is a disputed one. Clearly, for a demonstration of this magnitude some form of organization was required. Was it organized by the participants (an autonomous ‘civil society’ event) or manipulated from above – or a combination of both?

There has been a great deal of journalistic discussion of this point. Notably, Jonathan Steele and Mark Almond of The Guardian (London) (26 November 2004 and 7 December 2004 respectively) came out on the side of manipulation. Western



interests, particularly American ones, put literally hundreds of millions of dollars into democracy promotion in one form or another. As Andrew Wilson puts it, promoting Western values is ‘nothing to apologize for’. 29 Other ‘coloured’ revolu-tions followed a similar path, with Western advice, � nance and information tech-nology in support of local counter-elites challenging incumbent political leaders. Outcomes, however, differed.

Taking a random sample of the population gives the possibility of determining the spread of opinions about the character of the November events and the social background of supporters and opponents. The respondents were given a number of alternative interpretations of the events – from a coup d’état supported by the West to a conscious struggle by citizens to protect their rights. The main results are shown on Figure 19.2 , with the proportion of the respondents being in favour of each one: 45.2 per cent regarded the happenings as a ‘bottom-up’ activity (11.8 per cent plus 33.4 per cent); 36.4 per cent an elite-led coup (24 per cent plus 12.4 per cent); 18.3 were undecided. The image of the Orange Revolution being a spontaneous ‘people’s event’ is widely put in question.

Many writers contend that the Orange Revolution ‘will positively in� uence the development of democratic movements … in post-Soviet space’. 30 Adrian Karatnysky opines:

Ukraine had bene� ted from more than a decade of civil-society develop-ment, a good deal of it nurtured by donor support from the United States, European governments, the National Endowment for Democracy, and pri-vate philanthropists, such as George Soros. Although such sponsorship was nonpartisan, it reinforced democratic values and deepened the public’s understanding of free and fair electoral procedures. Authentic democratic values were being reinforced by a new generation that had grown up initially

24

12.4 11.8

33.4

18.3

0

10

20

30

40

Coup d’etat,supported by

the West

Coup d’etat,supported by

politicalopposition

Spontaniouspublicprotest

Consciousstruggle bycitizens to

protect rights

Difficult tosay

Per

cen

t

Figure 19.2 Public evaluation of type of political activity: coup, spontaneous protest or protection of rights .

Note: The question asked was, ‘What type of event was the Orange Revolution?’



under glasnost, and later with a broad awareness of democratic practices around the world. 31

Such views, I contend, exaggerate the positive potential of civil society. The idea of 1989 being a ‘people’s revolution’ has been popularized by jour-

nalists such as Timothy Garton Ash, 32 and later ampli� ed by others until it became a taken for granted assumption. The data presented in this chapter contest the widely held view, as articulated by writers such as Aslund and McFaul, 33 that the Orange Revolution was an event motivated by civil society. Such positions grossly understate the implications of sponsor-led organizations and the weakness of autonomous civil society associations. Certainly, they played a part in social mobilization, but this was a top-down movement inspired by the leadership of sponsored non-government organizations (such as the youth group Pora), not a spontaneous upsurge of ‘people’s’ power. Participation in ‘civil society’ associa-tions in Ukraine is one of the lowest in Europe, with 84 per cent of the population having no membership of any association in 2005 – less than in 1994. 34 USAID’s NGO Sustainability Index 2003 commented that, in Ukraine, NGOs were only at the ‘transition’ stage and highly dependent on foreign sponsors. They often (not always, of course) intervened in the electoral process to procure success for their favoured candidates. 35

The West, in the form of engagement in ‘soft politics’, has supported forces in opposition to many non-democratic governments which have triggered off ‘col-oured’ revolutions. ‘Democracy promotion’ in political terms involved backing leaders and parties approved by the West. By the same logic, those in the host countries who lose as a consequence of Western policy will oppose the imposition of alien values and seek their own champions outside (in this case, Russia), thereby creating conditions of instability. In Ukraine, the ‘Orange’ did not lead a democratic revolution. The expectations of the protesters were not ful� lled. The results of opinion polls and the testament of members of focus groups show that the outcome was not a step to democracy, but disappointment leading to disillusionment.

A revolutionary coup d’état My own view is that the coloured revolutions are a novel type of activity, a revo-lutionary coup d’état , facilitated by modern communication technology. A revo-lutionary coup d’état is a change of the political leadership instigated by internal or external counter-elites through the agency of mass popular support. Such an event has high elite (or counter-elite) participation, and high public (mass) involvement, but of an ‘audience’ type. The intentions of the insurgents are to redress public grievances, to promote the objectives of transformation, and to do this through elite renewal, not through the reconstitution of the social economic order. Real economic and social grievances about falling living standards, health care, distribution of wealth and land, and unemployment may underpin the pro-tests for the mass participants, but they are not addressed by the consequent policies



of the new incumbents of political power. Hence the phenomenon is not a social revolution.

Viewed as a revolutionary coup, we may � t into place the domestic elite-led character of, as well as the foreign support for, the coloured revolutions. It gives a place for organizations such as the Organization for Security and Cooperation in Europe (OSCE) and USAID and foreign-sponsored NGOs to set the agenda, and thus act for the West as agents of soft politics – ‘democracy promotion’. The OSCE and related organizations such as the Of� ce for Democratic Institutions and Human Rights (ODIHR) have prioritized democracy promotion which it de� ned in terms of promoting electoral rights and curbing government corruption. They have said very little about social security, rights to work or welfare; and made no criticisms of economic fraud which occurred on a massive scale in the process of privatization.

The coloured revolutions were sequential in character; the ‘success’ of one precipitated action for others to follow. 36 However, the structural and psychologi-cal predispositions of the population are also important determinants. The mobili-zation of mass support against the regime is shaped by underlying social and economic inadequacies, or unful� lled expectations on which the counter-elites may capitalize. Differences in these structural and psychological attributes help explain the success and failure of the outcomes of the mass protests.

OUTCOMES OF ‘COLOURED’ REVOLUTIONS What is portrayed in the media as ‘people’s power’ is in reality an elite-manipu-lated demonstration. While the masses may be captivated by euphoric revolutionary ideology, they are in political terms instrumentalities of indigenous counter-elites, often encouraged by foreigners with their own agendas. If successful, rather than such revolutions leading to signi� cant socio-political change, a circulation of elites follows the ousting of former rulers or their co-option into a new elite structure.

Evidence for the successful ‘revolutions’ to be considered as a coup is found in the background of the leaders who came to power after the events. In Serbia, the opponents of Milosevic were leading politicians. Vojislav Kostunica, for example, who stood as the candidate opposing Milosevic, had been the founder of the anti-communist and pro-Western Democratic Party. Another prominent member of the opposition was Tomislav Nikolic, who had been a deputy prime minister in the coalition government of Yugoslavia from 1999 to 2000. In Georgia, those who came to power as a consequence of the disturbances were Zurab Zhvania, Nino Burjanadze and Mikheil Saakashvili, all of whom had held posts in Parliament, and Saakashvili had been a minister (of justice) under Shevardnadze. In Ukraine, Viktor Yushchenko had been head of the National Bank as well as Prime Minister under Kuchma; he was joined by Yulia Tymoshenko herself a leading economic ‘oligarch’. In Kyrgyzstan, a former Prime Minister with roots in the Soviet period, Kurmanbek Bakiyev, and Roza Otunbaeva, a previous foreign minister, played leading parts in the movement to bring down the government of Askar Akayev. Much of the positive



evaluation of the ‘people’s revolutions’ ignores the literature on elite competition and the clan-like nature of politics in Georgia, Kyrgyzstan 37 and Ukraine.

Figure 19.3 distinguishes between the different outcomes of ‘coloured’ revolu-tion activity. It differentiates between changes in political elite composition and consequent political/economic developments. It analyses the countries by the extent of mass participation. ‘Mass participation’ should not be con� ated into ‘people’s democracy promotion’. Such participation might be motivated by other grievances – of a regional, ethnic, class or generational kind, or it may be emo-tional or mercenary.

Five countries (Belarus, Russia, Kazakhstan, Azerbaijan and Uzbekistan) had failed popular protest(s) against the regime. China had a relatively high level of protest (in the sense that the centre of the capital was paralysed by demonstrators; the remainder of the country was relatively undisturbed 38 ) but there was no signi� -cant change of regime. In Ukraine, the demonstrators succeeded in changing a major actor in the political elite – in the form of the election of President Yushchenko. Subsequent political policy led to changes in administrative personnel and a more neo-liberal economic policy (the effects of which were noted in Chapter 13 ).

In Kyrgyzstan, the Akayev clan was ousted as a consequence of a protest movement originating from the south of the country and other clans came to power. The Tulip Revolution was driven by ‘independent business interests, infor-mal networks and patronage ties … [which] remained strong after [the exit of the former President Akaev]’. 39 The aftermath of the revolution did not reverse the previous patterns of corruption: ‘the March events appear … mostly to have wors-ened Kyrgyzstan’s political instability, with rising numbers of assassinations and unruly crowd actions’. 40 Akayev’s successor, Bakiyev, recognized a ‘dubiously elected’ parliament (the election results of which had been invalidated by the Supreme Court) and the new regime acted as ‘a means to protect its members’ private interests’. 41 As Radnitz puts it, there was not a regime change, but ‘a trans-fer of power’. 42 Even in terms of electoral procedures, the 2007 election was faulted – the governing party received 71 of the 90 seats after receiving only 49 per cent of the vote, and the main opposition party received no seats at all. These results were derived from an electoral system that required a qualifying threshold

Level of Public Participation in MassActivity

Change of RulingElite

Low High

Subsequentpolitical systemchange

Nil BELA, RUSS,KAZN, UZB,AZERB

CHINA Nil

Some change andcontinuity

UKRAINE,KYRGYZ

Low

High SERBIA,GEORGIA

High

Figure 19.3 Outcomes of coloured revolutions .



for seats of 5 per cent and another 0.5 per cent in each of the regional voting constituencies – a system that clearly discriminated against regionally based par-ties. The OSCE preliminary report tamely described the election as ‘a missed opportunity’ and the electoral system as ‘unusual’. 43

The opposition in Serbia and Georgia was successful in effecting a major change of government personnel. In Serbia, a signi� cant Westward shift in orien-tation in foreign affairs occurred. In Georgia, under Mikhail Saakashvili, a more neo-liberal course was followed concurrently with the strengthening of the state. While President Saakashvili came to power as a lauded democratic reformer, he was soon castigated by the opposition as persecuting opponents and curbing media freedom. 44 Following the unsuccessful offensive against the separatist South Ossetia in 2008, opposition leaders have organized demonstrations of some 20,000 calling for ‘presidential and parliamentary elections, election legislative reforms, media freedom and the freeing of political prisoners’. 45 The opposition led by the United National Movement has alleged political killings, as well as the taking of political prisoners by the Saakashvili regime. 46

Clearly, regime change following the coloured revolutions has not unequivocally led to greater democratization, even in terms of a narrowly de� ned ‘electoral politics’.

Conditioning factors for success and failure The political and sociological puzzle is to explain why, if the objectives of the insurgents were similar (i.e. democracy promotion), the outcomes were different. Three major conditioning factors may be singled out which help to explain the success or failure of democracy promotion, as proposed by coloured revolution activity. These are elites and a population predisposed to radical change; ideo-logical mobilization and policy promotion; and practical political alternatives to the status quo. If we examine these three factors in relation to the post-socialist countries, we are able to understand why coloured revolutions occurred and the extent of their success or failure.

Predisposition for change is to a considerable extent a consequence of the effects of transformation. It is assumed that where transformation policies have led to unemployment, poverty and a decline in living standards, then there is a predisposition by the population to protest. Of the countries under discussion, Belarus and China have had least disruption to economic life and have retained many of the economic and political structures of state socialism. Russia, Georgia, Ukraine and Serbia all initially suffered considerable declines in GNP and a large proportion of the population lived in poverty.

National opinion polls conducted in 2005, after the Orange Revolution, revealed widespread social and political disillusionment. Only 23 per cent of the population believed that they had the ‘ability to live under the new social condi-tions’, 51 per cent felt that their health care was ‘insuf� cient’, and 44 per cent were absolutely or somewhat dissatis� ed with life in general. 47

These data provide an empirical backing to a condition of ‘detrimental relative deprivation’ as de� ned by Ted Gurr. 48 In this case, people’s expectations remain



constant (or may even rise, in anticipation of gains to be made from the end of communism) but the capabilities to meet them decline. Such conditions lead to civil strife. In the Ukrainian case, to use Gurr’s terms, welfare (economic), politi-cal and interpersonal opportunities declined, and constituted conditions predis-posing people to political protest.

Here we note some of the deteriorations in living standards for the post-socialist societies which predisposed citizens to collective action. Figure 19.4 shows that life expectancy declined considerably even during these four years: only China, Belarus and Kazakhstan had an increase in life expectancy.

Figure 19.5 shows the relationship between GDP and national well-being. The index subtracts the rank of human development from the rank of GDP: hence a low rank in GDP (say 100) minus a high rank in HDI (say 25) gives an index of 75. The higher the index, the better the use made of GDP to promote human devel-opment. We note that with the exception of Kazakhstan and the Russian Federation, all the post-socialist countries had a relatively high index. Moreover, with the notable exceptions of Uzbekistan and Belarus, both of which have retained a con-siderable role for state redistribution, all have suffered considerable reductions between 2000 and 2005.

These data indicate that general social conditions were worsening in all the countries with the exception of Belarus, Uzbekistan and Kazakhstan. Russia is a particularly striking case: its income has risen, but it has experienced a fall in life expectancy and its GDP-HDI index (in both 2000 and 2005) is negative.

These � gures would lead one to suppose that there has been a rise in the condi-tion of ‘decremental relative deprivation’ as de� ned by Ted Gurr. 49 People’s expectations remain constant (or may even rise, in anticipation of gains to be made from the end of communism) but, despite a rise in overall GDP between 2000 and 2005, the capabilities to meet them have fallen. In Gurr’s terms, as noted

56

58

60

62

6466

68

70

72

74

Life

Exp

ecta

ncy

Year

s

2000 2005

KaznRFTurkKyrgy*UkrBelaUzbChinAzerGeo

Figure 19.4 Life expectancy in 2000 and 2005. Sources: UNDP, Human Development Report 2007/08 , http://hdr.undp.org/en/media/HDR_20072008 , pp. 228–30; Human Development Report 2002 , New York: Oxford University Press, 2002, pp. 149–50.


http://www.hdr.undp.org/en/media/HDR_20072008

http://www.hdr.undp.org/en/media/HDR_20072008


above, this decline in welfare (economic), political and interpersonal opportuni-ties have produced conditions predisposing people to political protest. There has been a weakening in the levels of loyalty and trust in government and a critical fall in support for the regime.

Ideological mobilization and policy promotion Not all the states we have examined have experienced insurgency; in the ones that have, it has occurred to varying degrees. Relative deprivation may predispose to insurgency but is not suf� cient to cause it. For Lenin an iskra (spark) was neces-sary; the activists behind the coloured revolutions provided this spark to ignite popular anger at supposed election fraud. The strategy of the coloured revolutions is Leninist in conception and Leninist in inspiration: they provide organization and bring ideology to a receptive mass. However, I have demonstrated that there was not a nationwide mass mobilization – either geographically or socially. Only students could be considered a socially mobilized group, particularly in Kiev and West Ukraine. Students were to Yushchenko what the working class was for Lenin. ‘Soft’ politics had an uneven effect. As one youth organizer has put it, the resistance movement has three components: unity of opposition, discipline and a good strategic plan. 50 Both organization and people predisposed to participate in civil strife are necessary for protests to occur.

The protagonists of coloured revolutions not only delegitimated the existing regimes – usually through accusations of electoral irregularities – but provided an alternative set of values: an ideological rationalization of radical change. ‘Democracy promotion’ means, as Wilson approvingly points out, ‘the West pro-moting its own values [and] … help[ing] other countries [to] live up to these values’. 51 This involves in� uencing elections and backing those parties approved

−10

−5

0

5

10

15

20

25

30

35G

DP

-HD

I ran

k

2000 2005

RFKaznChinBelaTurkUkrUzbAzerKyrgy*Geo

Figure 19.5 GDP per capita (PPP, US$) rank minus HDI rank for 2000 and 2005 .



by the West’s leaders. What is ignored in much of the ‘diffusion of democracy’ literature is the power of Western governments and international organizations to in� uence political outcomes in host states. 52

Consider, for example, Serbia. Valerie Bunce and Sharon Wolchik see change in Serbia as a case of collaboration between local and international actors. 53 However, the US and the EU pursued an aggressive policy of system change. As Christopher Lamont points out, both the USA and the EU concerted their efforts to ‘push Milosevic “out of power, out of Serbia and in [to] the custody of the war crimes tribunal”’. Madeleine Albright and German Foreign Minister Joschka Fishcher formulated a strategy that combined economic sanctions and engage-ment with opponents of Slobodan Milosevic (in Serbia).

The United States not only invested heavily in funding opposition groups, but also opened a proxy of� ce in the US Embassy in Budapest to coordinate efforts to bring about regime change in Belgrade. 54 Moreover, the policy advocated by the EU Presidency made clear that ‘elective sanctions aimed at the regime will remain a necessary element of EU policy as long as President Milosevic stays in power. The European Council appeals to the Serbian people to take their future into their own hands and to reclaim their place in the family of democratic nations. The EU for its part will not only continue to support the democratic opposition, but will also develop a comprehensive dialogue with civil society.’ 55 System change was promoted and supported � nancially by such organizations as the German Marshall Fund, the Project on Transitional Democracies, the Westminster Foundation and the International Center on Nonviolent Con� ict.

Money � ows from interests. The lack of foreign support for resistance and democracy promotion may occur in countries where the US and its allies already have secured economic bene� ts (particularly stakes in energy companies). Opposition movements to governments supporting the terms of foreign extraction of energy supplies do not receive the same level of foreign support as that pro-vided to opponents of government not favoured by the West. As Wojciech Ostrowski has pointed out, in Kazakhstan, Nazarbayev at the time of the coloured revolutions was ‘seen as the best guarantor of Western investments and interests. Thus from the Western – and most importantly the US perspective – political change at the apex of power in Kazakhstan was undesirable.’ 56

Testimony to this effect is also available from Azerbaijan. In the documentary � lm The Democratic Revolutionary Handbook , 57 the youth movement Magam was turned down for � nancial support by the Western foundations, including the Programme on Transitional Democracy. Its director, Bruce Jackson, explained that ‘Washington was not completely sure that it was the opposition’. An alterna-tive explanation advanced by Magam was that President Aliev had negotiated oil deals with the multi-nationals, which needed political stability: ‘if a change in power took place, all contracts would be worthless’. The upshot of demonstra-tions in Azerbaijan (2005) (as well as in Kazakhstan) was a complete rout of the democratic opposition.

For mobilization of the population in support of democracy promotion to take place, there must be a counter-elite available and willing to accept � nancial and



moral support from both internal and Western sources. By the same logic, those in the host countries who lose as a consequence of Western policy will oppose the imposition of alien values. They will assert their own values and seek their own champions, including those located outside. The political and economic processes of the West, and particularly the image of the USA, are not universally acclaimed, making questionable the assumptions of ‘soft politics’ theorists, such as Nye, that ‘the West’ is likely to win a soft politics war. American hegemony (which is not the same as its consumption culture), which threatens some countries, is seen in a negative light by elites as well as public opinion in Russia, Belarus and China.

‘Soft politics’ in terms of the positive image of the West and particularly the USA can succeed in a society with a population predisposed to change, which is relatively undivided and where there is no alternative ideological challenge. In the case of Ukraine, not all these conditions prevailed. The alternative of a statist economy in Belarus, and a state-led culturally Orthodox society in Russia, had a greater af� nity with the Russian-speaking population which was exposed to alter-native media.

The aftermath of the Iraq war and involvement in the Balkans and Afghanistan also makes questionable the assumption of Nye and others that ‘the West’ is any longer likely to win a ‘soft politics’ war. The use of media technology and the promotion of Western values fail when the real intentions of counter-elites are exposed and the expectations of the mass of supporters are not met.

Why no coloured revolution in Russia? This analysis helps to explain why there has not been a ‘coloured’ revolution in Russia. The data on Russia in Figure 19.5 and our discussion in Chapter 18 indicate that many people might be predisposed to change. However, attempts to foment similar movements to Ukraine have failed.

Based on a survey of the Russian population in July 2009, and two focus groups in Moscow in January 2010, I explored attitudes to the Orange Revolution in Ukraine. 58 The population was highly sceptical of the authenticity of the revo-lution in Ukraine. As can be seen from Figure 19.6 , over 55 per cent of the respondents considered it to be a coup d’état of one sort or another. 59 A very small percentage believed the process to be one of citizens protecting their rights. The � gures were even more skewed when we consider the social background of respondents. As illustrated by the breakdown of those with higher education, over 67 per cent believed that the demonstrations were a contrived coup and only just under 5 per cent believed that the demonstrators were part of a conscious struggle to protect rights.

These views were echoed in the focus groups. As Viktor, a manager with higher education and member of the United Russia Party, put it: ‘The aims of the col-oured revolutions were to harm those states … It is always a provocation … The West has its own economic and political interests [to promote]’. Andrei, a 26-year-old with higher education and a member of Zhirinovski’s party (LDPR), and an assistant auditor by profession, said: ‘I think the aims were a change of power, a



more convenient manipulation of these countries and a seizure of power, I mean, control from the West, America.’

Russian public opinion saw few positive results of the Orange Revolution. The outcomes were considered to be generally negative for Ukrainians. Of the respondents (N = 1,600), only 2.3 per cent thought it was ‘mostly positive for the Ukrainian people’, whereas 33.4 per cent thought it ‘mostly negative for them’. (Another 14.6 per cent believed the process had both positive and negative features.) 60 When asked whether the coloured revolutions had ‘done any good’, Yulia, an administrator with incomplete higher education and a member of Yabloko, said: ‘I think that they were only disruptive and ordinary, normal common people suffered the most’; according to Viktor (see above), ‘The in� u-ence of the West became stronger, but people live worse, earn less, work less’.

Incumbent leaders can learn from their opponents’ methods and can use media technology; they can also learn from the success of the insurgents, thus limiting the potential for success of future coloured revolutions. The reaction of authoritar-ian regimes in Russia, China and Belarus in pre-empting dissident movements has been widely covered in the press in the West. Measures taken against potential coloured revolution organizers include the banning of exit polls, and the repres-sion of opposition parties and leaders. In Russia, under Putin and Medvedev, it has become increasingly dif� cult for anti-statist (and pro-Western) counter-elites to organize and articulate an alternative ideology, although, as noted in Chapter 18 , candidates do campaign against the leadership and mass rallies take place.

Repression alone cannot explain social stability. Repression can only be effec-tively carried out in the context of the predisposition of elites and publics to oppose collective anti-regime activity. 61 As Elena Korosteleva, with respect to Belarus,

Total population Of those with highereducation

N= 1600Per cent

330Per Cent

Coup, supported by Western countries

Coup preparedby political opposition

A spontaneousprotest

A conscious struggleof citizens to protecttheir rights

Difficult to answer/don’t know

38.1

17.1

9.6

5.5

29.6

47.3

22.0

7.9

4.6

18.1

Figure 19.6 The character of the Orange Revolution: perceptions of the Russian public, 2010 (per cent) .

Note: The question was, ‘Which of the following is the most important feature of the Orange Revo-lution in Ukraine?’



has put it: ‘The speci� city of Lukashenko’s regime lies with the electorate: it is the contentment of many Belarusians and their identi� cation with the President that de� nes the regime’s most enduring feature – its genuine legitimacy.’ 62

When Russians were questioned in January 2010 as to why there had not been a coloured revolution in Russia, by far the most popular reason was ‘because Putin and Medvedev are widely supported by Russian citizens’ (33.1 per cent); the possibility of repression came second (21.2 per cent); and the better economic situation in Russia was third (19.4 per cent); only 16.4 per cent believed that the Russian opposition had no support from the West; and 27 per cent did not know or were unable to answer. 63

As Gyorgiy, a 19-year-old student member of the LDRP (Zhirinovski’s party), put it in one of the focus groups: ‘[In Ukraine] the soil was heavily fertilized. But here, if we were given 1,000 rubles now and asked to go to the Kremlin and shout that Medvedev is an idiot, we most likely would not go. But they went. [There] the situation was unstable, when people have no bread, they want to change some-thing’. Respondents in the focus groups referred to the better economic situation in Russia (than Ukraine or Georgia) and the lack of interest of people in politics beyond their economic needs. When asked what kind of conditions would lead to a revolutionary development in Russia, Ekaterina, an engineer with higher educa-tion and member of Edinaya Rossiya Party, opined: ‘No money in the country and no stability and that’s it.’ And Elena, a 20-year-old economist with incomplete higher education, said: ‘No jobs, no welfare, and no social opportunities for people.’ In 2009, another public opinion poll found that 70 per cent of respondents were unlikely to participate in demonstrations, strikes or protests. 64

Public opinion polls in Ukraine also show a very high rating for Alexander Lukashenko (the Belarus President) and Putin as leaders – consistently higher than even the champion of the Orange Revolution, Viktor Yushchenko. Yushchenko’s standing after his election was 5.6 compared to President Kuchma’s 2.7 in 2005 (based on average answers of respondents, 65 on a 10-point scale). In 2006, however, Yushchenko’s ranking had plummeted to 3.8; Putin’s, in both 2005 and 2006, was higher (6.0 and 6.3 respectively) – even after the con� ict over the price of energy between the two countries. Even more remarkable is the popu-larity of Lukashenko, who had a higher standing in Ukrainian public opinion in 2005 (5.8) and 2006 (6.3) than Yushchenko even in 2005. A statist national wel-fare regime has considerable public appeal in Belarus, Ukraine and Russia.

Political alternatives Elite consensus and division are important components of a revolutionary situa-tion. In Ukraine and Serbia, there were divisions, whereas in Georgia, there was a fairly united elite who regarded Western support as a condition for economic and political security. Moreover, joining the West, in the form of membership of the European Union, was a possible alternative for Serbia. Political strategies, which could be followed by Eastern European post-communist countries, involve mem-bership of NATO and/or the EU. Joining these institutions provides a positive



end-game for democracy promotion – an option not open to countries such as Russia and Belarus. In Serbia, elites were divided between those favouring the market, with stronger links with the European Union, on one side, and the tradi-tional leftist leaders supporting state redistribution and a nationalist ideology. Kyrgyzstan had no real options to join either the EU or NATO; ‘democracy pro-motion’ occludes a form of clan or interest politics, with a distinctive regional character. 66

Ukraine is a more complicated case. Juxtaposed between Russia and the European Union, there is a choice – even if the pro-Western elites magnify and distort the likelihood of EU membership, which has been promoted by the USA. The interests of different economic elites with bases in different parts of the coun-try overlap with forms of ethnic identity: Western Ukrainians oriented to the West, and Russian-speaking Ukrainians in the East looking to Russia. 67 Moreover, youth leadership in Ukraine was radicalized against the regime and Western-sponsored civil society organizations have been used positively in support of ‘the Orange’. The youth movement Pora, for example, supported by the Westminster Foundation, brought in Serbian agitators to train 200 activists to organize the events that con-stituted the Orange Revolution. 68

In Russia, Belarus and China, if outside participants are suspected to operate in organized opposition groups they are severely constrained, whereas in Serbia, Ukraine and Georgia, there were particularly strong pro-Western interests able to coordinate oppositional interests, and strata in the population were predisposed to these values. Conditions enabling mass demonstrations to take place were present in Ukraine.

It is widely believed that demonstrations are not possible in Russia, though this is a questionable assumption. Massive demonstrations have been held in Russia in support of pensioners’ rights and in opposition to the monetarization of social service bene� ts, as have political rallies in support of candidates opposing the present regime. The latter may not have been effective, but they were held. 69 Coloured revolution activity would certainly be broken up by the police, and they would have the authority (in terms of public sentiment) to do so.

The ‘demonstration effect’ of the coloured revolutions does not always have positive results. The lack of success in Russia has to do with the legitimacy of the political elites and the formation of a dominant ruling elite consensus under Putin.

Figure 19.7 shows the combinations of predispositions, af� nity to the West and possibilities for political and social mobilization. Countries in which elites (or counter-elites) have a strong af� nity to the EU or to NATO (such as Georgia) are clearly targets for successful democracy promotion as a form of ‘soft power’. But even where the predisposition for change may be strong (as by the discontented in Russia), a counter-elite lacks the alternative policy objective of joining the lead-ing institutions of the West – the EU and NATO. The failures of the market to enhance living standards, as well as the illegitimacy of the privatization process, have weakened the standing of neo-liberal capitalism. In Georgia, however, pre-dispositions as well as mobilization of the public are strong and economic and political elites can advocate an alternative outcome – membership of NATO and



EU. Belarus has weak predispositions and public mobilization for democracy pro-motion and no policy option of membership of either NATO or the EU. Its alli-ance rests with Russia. The initial success of coloured revolution is where these four factors have a positive effect: strong public dispositions for change and high public mobilization, together with an alternative political policy – usually in terms of membership of NATO and or the EU; or more generally, a Western-type of modernization based on the market and private property.

Future scenarios What is common to all the post-socialist countries outside the European Union is a partial transition to capitalist democracy. In these post-socialist regimes, many of the government’s opponents contend that there has been a move back towards a statist framework involving limitations on pluralism, the installation of authori-tarian rule and a return to statist forms of redistribution (including corruption by state of� cials). Advocates of coloured revolution see it as one way to correct the transformation outcome: to oppose the corrupt incumbent elites concurrent with a renewed effort towards modernization along Western lines – greater pluralism, electoral democracy, strengthening of the market, and entry into the world econ-omy with a Western political alignment.

Many accounts provide a rather simplistic version of events promoting demo-cratic change in terms of electoral revolutions. They envisage a push from below seeking to introduce democracy, civil rights and well-being against an illiberal autocratic regime riddled with corruption. The push is considered to be relatively autonomous, though stimulated by the pull of the movers of the coloured revolutions – internal reformers often sponsored by Western civil society organizations.

The reality is that the thrust for change comes from counter-elites, originating from within the ruling political class, or from outside, or from both working together, who seek to replace (or join) the existing elites. Legitimacy is achieved through democracy promotion. Where internal regime change is precluded by the institutional structure, counter-elites sponsor and utilize a mass movement, and

EliteAffinityto EU

Negativeor N/A

Predisposition for change –Consequent on Effects ofTransformation

Strong Strong Weak

PopularAffinityto NATO‘TheWest’

NegativeKYRGYZ RUSSIA BELARUS

Divided UKRAINE, SERBIA

Divided

Positive GEORGIA Positive

High Low Low Mobilisation of Public forDemocracy Promotion

Figure 19.7 Conditioning factors promoting/retarding democracy .



legitimate protest as democracy promotion. Regime weakness is greatest at times of elections, which then become a focus for political change. Allegedly fraudulent election results are the trigger for protest. Success leads to the fall of the incum-bent elite and its replacement with another. The social consequences, however, are far from ‘revolutionary’ – existing institutions retain their structures, though the personnel may change. The ‘democratic revolution’ fails to democratize the elec-toral structure, and may even lead to new forms of electoral discrimination (as in the case of Kyrgyzstan). The new elites act in a similar way to the previous ruling elite, albeit as in Serbia, Ukraine and Georgia with a more pronounced lean towards the West in political and economic policy.

Successful coloured revolutions involving elite replacement and policy change can occur not only when the population is predisposed to, and mobilized for, change but also when there are alternative policy options on offer – particularly a move to join the economic and security organizations promoted by the West. The revolutionary coups d’état I have described involve the rise of different elite groups, clans or families, which seek to redistribute the assets of the previous regime. ‘Electoral revolutions’ are one of the means used to install them in power. Western interests are involved in these processes – in support of groups, in Margaret Thatcher’s terms, ‘with whom we can do business’, or from a geo-strategic point of view, to change allegiances in favour of the West.

There are two unintended consequences to the efforts of democracy promotion through coloured revolution activity. First, incumbent governments learn from their opponents’ methods and their use of media technology; they also learn from their opponents’ success. In strengthening their own hold over their populations they too create their own youth/student organizations, they manufacture their own forms of ‘soft power’, they de� ne the ‘hostile others’ in the form of rapacious Western interests and aggressive US-led military offences. A consequence of the coloured revolution movements has been the closure of genuine benevolent and positive non-confrontational forms of civil society development – the curtailment of open press and television, as well as genuine religious associations. 70

Sitting leaders concoct their own counter-ideologies: they condemn the global hegemony of the West and advocate their own forms of sovereignty, democracy and civil society. In Russia, the Putin leadership adopted traditional values embodying national sovereignty, and a political system which ensured stability; he increased transfer payments to the population. This has the effect of eclipsing the rise of a counter-elite which can be labelled as unpatriotic and motivated by foreign interests. Strong leaders, such as Putin, can enforce sanctions on oppo-nents, and in such circumstances attempts to instigate coloured revolutions become counter-productive and strengthen the incumbent regime.

Second, internal resistance to Western ‘democracy promotion’ increases. Citizens of many states (Russia, Belarus and Uzbekistan) do not share many of the values of Western democracy, they are sceptical that it will bring well-being. It is widely believed in the countries concerned that the opposition’s allegations of vote rigging are fabrications 71 . Hence, the promotion of ‘electoral democracy’ is undermined as a political strategy. Public opinion polls in Russia, Ukraine and



Belarus have shown an af� nity with a different type of national welfare regime – a political system that ensures stability in the form of the provision of welfare legitimated by some form of national and/or religious values. Where conditions were not appropriate, attempts to instigate coloured revolutions have been counter-productive and have strengthened incumbent leaders. In others (such as Ukraine) a consequence of a revolutionary coup d’état has been a signi� cant fall in public support for the movers of such social movements. In these cases it resulted in a successful elite circulation that did not deliver the promised revolu-tionary reforms.

Notes 1 My thanks to Tonia Tereshchenko for her general assistance, and to the staff of the

Institute of Sociology at the Ukrainian Academy of Sciences and Bashkirova and Part-ners for organizing the opinion polls and focus groups. Also I acknowledge � nancial support from the British Academy to carry out the research.

2 Such phenomena, moreover, are not restricted to the former state socialist societies; Lebanon had its ‘Cedar’ Revolution in 2005 and George Bush referred to the ‘Purple’ Revolution in Iraq as the coming of democracy after the 2005 elections.

3 Philippe C. Schmitter and Terry Lynn Karl, ‘What Democracy is … and is Not’, in Larry Diamond and Marc F. Plattner (eds), The Global Resurgence of Democracy , Baltimore, MD: Johns Hopkins University Press, 1993, p. 49.

4 William I. Robinson, Promoting Polyarchy: Globalization, US Intervention and Hegemony , Cambridge and New York: Cambridge University Press, 1996, p. 2.

5 George W. Bush, Inauguration Speech 2005, cited in Aidan Hehir, ‘The Myth of the Failed State and the War on Terror: A Challenge to the Conventional Wisdom’, Journal of Intervention and Statebuilding , 1(3), 2007.

6 M. McFaul, Advancing Democracy Abroad: Why We Should and How We Can , Lanham, MD: Rowman & Little� eld, 2010.

7 See V. J. Bunce and S. L. Wolchik, Defeating Authoritarian Leaders in Postcommunist Countries , Cambridge: Cambridge University Press, 2011.

8 Joseph Nye, ‘Why Military Power is No Longer Enough’, The Guardian (London), www.guardian.co.uk/world/2002/mar/31/1 .

9 V. J. Bunce and S. L. Wolchik, ‘International Diffusion and Post-Communist Electoral Revolutions’, Communist and Post-Communist Studies , 39, 2006: 283–304, p. 284.

10 Bunce and Wolchik, ‘International Diffusion’, p. 288. 11 Bunce and Wolchik, ‘International Diffusion’, p. 295. 12 See the discussion in M. Steven Fish, Democracy Derailed in Russia , New York:

Cambridge University Press, 2005, p. 18. 13 John Dunn, ‘Capitalist Democracy: Elective Af� nity or Beguiling Illusion?’ Daedalus ,

2007, p. 10. 14 Nataliya Narochnitskaya (ed.), Oranzhevye Seti: ot Belgrada do Bishkeka , St

Petersburg, 2008. 15 Active in Ukraine, for example, were Soros’s Renaissance Foundation, USAID, Free-

dom House, the Carnegie Foundation, the National Endowment for Democracy, the German Marshall Fund, the National Center on Nonviolent Con� ict, Project on Trans-national Democracies, and Westminster Foundation.

16 The Bertelsmann Political Transformation Index (considering levels of political participation, the rule of law, the stability of democratic institutions and levels of social and political integration) gives Ukraine a score of 7.1, just below the threshold (8) of a democratic regime; data for 2006 from D. Berg-Schlosser, ‘The Quality of


http://www.guardian.co.uk/world/2002/mar/31/1


Post-Communist Democracy’, in Stephen White, Judy Batt and Paul G. Lewis (eds) Developments in Central and East European Politics , Basingstoke: Palgrave Macmillan, 2007, p. 269.

17 Only 12 per cent of people surveyed considered that their elected member of par-liament could represent their interests, and 30 per cent of the population in 2005 believed that ‘Ukraine needs a multi party system’ (36 per cent thought not); N. Panina, Ukraynsk’e suspil’stvo: sotsiologichni monitoring 1992–2006 , Kiev: Institute Sotsiologii NAN Ukraini, 2006, p. 25.

18 For the economic conditions see Transition Report 2006 , London: EBRD, 2006, p. 32. 19 Even prior to 2004, Ukraine’s leaders (including Yanukovich) aspired to membership

of the European Union. It was generally recognized in the West that Yushchenko was more likely to accede to EU conditionality than Yanukovich.

20 Joseph Nye, Soft Power: The Means to Success in World Politics , New York: Public Affairs, 2004.

21 Estimates of from 500,000 to 1 million people, many dressed in orange, assembled in the Maidan square in the centre of Kiev to protest at the of� cial victory of Yanukovich. For overviews of the Orange Revolution see A. Wilson, Ukraine’s Orange Revolution , New Haven, CT: Yale University Press, 2005; T. Kuzio, ‘Democratic Revolution in Ukraine: From Kuchmagate to Orange Revolution’, in Communist Studies and Transition Politics , 23(1), 2007; A. Aslund and M. McFaul (eds), Revolution in Orange: The Origins of Ukraine’s Democratic Breakthrough , Washington DC: Carnegie Endowment, 2006.

22 V. Stepanenko, ‘How Ukrainians View their Orange Revolution: Public Opinion and the National Peculiarities of Citizenry Political Activities’, Demokratizatsiya: The Journal of Post-Soviet Democratization , 13(4), 2005: 595–618, p. 614.

23 On the relevance of corruption, see L. A. Way, ‘Rapacious Individualism and Political Competition in Ukraine, 1992–2004’, Communist and Post-Communist Studies , 38(2), 2005: 191–205.

24 A. Karatnysky, ‘The Fall and Rise of Ukraine’s Political Opposition: From Kuch-magate to the Orange Revolution’, in Aslund and McFaul (eds) Revolution in Orange .

25 Aslund and McFaul (eds), Revolution in Orange ; Kuzio, ‘Democratic Revolution in Ukraine’; Wilson, Ukraine’s Orange Revolution .

26 In this research I utilize the results of polls conducted in 2005 and 2006, from N. Panina, Ukraynsk’e suspil’stvo: sotsiologichni monitoring 1992–2006 (2006). Data for some of the tables are available only in the edition for 2005. Cross tabulations in the tables are not shown in the published data and have been calculated separately for this paper. Data for 2007 were published only in Ukrainian in Natsional’na Akademiya Nauk Ukraini , Kiev: Institut Sotsiologii, Ukrains’ke suspil’stvo, 2007.

27 The focus groups were initiated by the author and organized by the Institute of Soci-ology of the Ukrainian Academy of Sciences and Kharkov National University. The focus groups were composed of political activists, drawn from students, and manual and non-manual working classes. The idea was to bring together political activists at the grassroots of politics, divided in their attitudes to the transformation of Ukrainian society: in each city groups were organized on the basis of two middle class and two working class; each class group then was selected on the basis of being in favour of, or opposed to, the movement to market reforms; in addition, one politically mixed student groups was organized (this was used as a pilot group). I do not claim that these opinions can be truly representative of the total population, but they provide a qualitative dimension to our understanding of politics. My thanks to Tonia Tereshchenko for acting as moderator and secretary.

28 Wilson, Ukraine’s Orange Revolution , p. 210. 29 Wilson, Ukraine’s Orange Revolution , p. 187. Compare, however, with William

Robinson ( Promoting Polyarchy ), who considers this policy to retain ‘elite-based and undemocratic status quo policies’.



30 Stepanenko, ‘How Ukrainians View their Orange Revolution’ p. 614. 31 Adrian Karatnycky, ‘Ukraine’s Orange Revolution’, Foreign Affairs , March/April

2005, www.foreignaffairs.org . 32 T. Garton Ash, We, the People: The Revolutions of ‘89 . Harmondsworth: Penguin,

1990. 33 ‘Ukraine possessed the most mature civil society of any post-Soviet state’ and non-

governmental organizations ‘spearheaded the protest movement against the regime’ (Aslund and McFaul (eds), Revolution in Orange , pp. 5–6).

34 Panina, Ukraynsk’e suspil’stvo , p. 23. 35 In 2004, for example, the American National Endowment for Democracy alone made

available $15 million for support of the democratic process; National Endowment for Democracy Report, cited in D. Lane, ‘Civil Society Formation and Accountability in the New Post-Socialist EU Member States’, in H. Pleines (ed.), Participation in New Modes of Governance: The Case of the New EU Member States , Bremen: Forschungsstelle Osteuropa, 2006, see p. 17. On the basis of data in the European Social Survey, I calcu-lated that Ukraine, in terms of civil society participation in human rights activity, came below Romania, Latvia, Croatia, Czech Republic and Slovenia (see p. 12). The index of participation in such associations in Ukraine was nine times less than the median score in the old member states of the EU – a clear ‘civil society’ de� cit.

36 Mark R. Beissinger, ‘Structure and Example in Modular Political Phenomena: The Dif-fusion of Bulldozer/Rose/Orange/Tulip Revolutions’, Perspectives on Politics , 5(2), 2007, p. 260.

37 Radnitz contends (in line with the reasoning of this chapter) that local elites, losing candidates, their acquaintances, neighbours and extended families were the driving forces in the Kyrgyz revolution; see Scott Radnitz, ‘What Really Happened in Kyrgyz-stan?’, Journal of Democracy , 17(2), p. 137.

38 There were some disturbances in Shanghai, for example, but these were peacefully contained by the authorities.

39 Radnitz, ‘What Really Happened in Kyrgyzstan?’, p. 132. 40 Radnitz, ‘What Really Happened in Kyrgyzstan?’, p. 133. 41 Radnitz, ‘What Really Happened in Kyrgyzstan?’, p. 140. 42 Radnitz, ‘What Really Happened in Kyrgyzstan?’, p. 133. 43 Based on a report by election observers: Clive Payne, ‘A Visit to Kyrgyzstan’, Nuf� eld

Newsletter , Issue 4, 2008. 44 Laurence Borers, ‘After the “Revolution”: Civil Society and the Challenges of

Consolidating Democracy in Georgia’, Central Asian Survey , 24(3), 2005. 45 Opposition leader Eka Beselia, quoted in the Morning Star (London), 8 November 2008. 46 Eka Beselia, ‘Accidental Murders, Coincidence or Not?’, interview in humanrights.

ge, web portal on human rights in Georgia, 11 November 2008, www.humanrights.ge/index.php?a=article&id=2444&lang=en .

47 See Panina, Ukraynsk’e suspil’stvo . 48 See T. R. Gurr, Why Men Rebel , Princeton, NJ: Princeton University Press, 1970, ch. 1 . 49 Gurr, Why Men Rebel , ch. 1 . 50 This strategy was used in the Serbian, Ukrainian, Georgian and Azerbaijan protests and

illustrated in a documentary � lm by Tania Rakhmanova, The Democratic Revolution-ary Handbook , France, 2006.

51 Wilson, Ukraine’s Orange Revolution , p. 187. 52 Other writers have emphasized the role of international links, even considering the

international element to be a fourth component of transformation. See M. A. Orenstein, S. Bloom and N. Lindstrom (eds), Transnational Actors in Central and East European Transitions , Pittsburgh, PA: University of Pittsburgh Press, 2008.

53 Bunce and Wolchik, ‘International Diffusion’, p. 291.


http://www.foreignaffairs.org

http://www.humanrights.ge/index.php?a=article&id=2444&lang=en

http://www.humanrights.ge/index.php?a=article&id=2444&lang=en


54 Christopher Lamont, ‘Contested Sovereignty: The International Politics of Regime Change in the Federal Republic of Yugoslavia’, in David Lane and Stephen White (eds), Rethinking the ‘Coloured Revolutions’ , London: Routledge, 2010.

55 Presidency Conclusions, Lisbon European Council, 23–24 March 2000. Cited by Lamont, ‘Contested Sovereignty’. This is also the source of the other quotations from his paper.

56 W. Ostrowski, ‘The Legacy of the “Coloured Revolutions”: The case of Kazakhstan’, in Lane and White, Rethinking the ‘Coloured Revolutions’ .

57 Rakhmanova, The Democratic Revolutionary Handbook . 58 This was a random sample of 1,600 persons across the whole of the Russian Federa-

tion. The polling was carried out by Bashkirova and Partners, Moscow, and � nanced by a grant from the British Academy. My thanks to Elena and Maria Bashkirova and Svetlana Romenenko for their assistance in Moscow and also to Tonia Tereshchenko for her assistance and especially for doing the transcripts.

59 Respondents were asked to give one answer which they thought the most appropriate description.

60 Poll carried out for author by Bashkirova and Partners, January 2010. Respondents were allowed multiple answers (N = 1,600).

61 See, for example, Beissinger, ‘Structure and Example in Modular Political Phenome-na’, pp. 268–70, who calls the process ‘elite learning’ to limit the spread of insurgency. The crucial question is why some elites should ‘learn’ and seek to restrict ‘revolu-tionary success’, whereas others may copy the process. On Belarus see Vitali Silitski, ‘Preempting Democracy: The Case of Belarus’, Journal of Democracy , 16(4), 2005: 83–97. On China see J. Wilson, ‘Coloured Revolutions: The View from Moscow and Beijing’, in Lane and White (eds), Rethinking the ‘Coloured Revolutions’ .

62 E. Korosteleva, ‘Was There a Quiet Revolution? Belarus after the 2006 Presidential Election’, in Lane and White (eds), Rethinking the ‘Coloured Revolutions’ .

63 Poll carried out for author by Bashkirova and Partners, January 2010. Respondents were allowed multiple answers (N = 1,600).

64 Poll carried out by Bashkirova and Partners, January 2010 (sample of 1,600). 65 ‘How would you evaluate Leonid Kuchma’s actions as President?’ 1 as lowest grade

and 10 the maximum; Panina, Ukraynsk suspil’stvo . Data for some of the tables are available only in the edition for 2005.

66 On the clan-like nature of political power see Kathleen Collins, ‘Clans, Pacts and Politics in Central Asia’, Journal of Democracy , No. 13, 2002: 137–52.

67 See David Lane, ‘The Orange Revolution: “People’s Revolution” or Revolutionary Coup?’, British Journal of Politics and International Relations , 10, 2008: 525–49.

68 Ukrainian Pora leader speaking in the Rakhmanova documentary, The Democratic Revolutionary Handbook .

69 See, for example, the website of A-INFOSNEWSSERVICE at http://ainfos.ca . It car-ried accounts of demonstrations in Murmansk in 2005 attended by 2,000 participants and organized by the Party of Pensioners and the Communist Party, as well as anar-chists.

70 This is detailed for Russia and China in Wilson, ‘Coloured Revolutions’. 71 IISEPS poll, cited by Silitski, ‘Preempting Democracy’, p. 90.


http://www.ainfos.ca

I have de� ned three major groupings of states which have been reconstructed from the dismantled socialist societies: the new member states of the European Union, and the European and the central Asian countries of the Commonwealth of Independent States. While there are considerable differences between the econo-mies and polities constituting these three blocs, they all share some common char-acteristics. All have introduced market systems at the expense of planning, and in some cases this has led to a modest rise in gross national product. Most have experienced signi� cant de-industrialization, and many de-modernization. The economic results have not met expectations. The political results include the installation of a competitive electoral system coupled to signi� cant political free-doms, albeit with weak interest articulation and considerable public disenchant-ment. In some states competitive electoral democracy coexists with authoritarianism, giving rise to a liberalized autocracy. Socially, all have witnessed the rise of propertied classes with ensuing high differentials of income and wealth. Many have experienced declines in human well-being and nearly all have had a fall in their relative ranking of human development in the world order, some of signi� cant proportions. A few states have achieved a modest convergence to Western standards, while for many there has been a divergence. In the social sphere, private self-interest rather than collective public welfare is the motivator of individual action. Throughout the book I have made comparisons with China, which has taken a statist passage away from state socialism; on all economic counts, as well as social well-being, China has surpassed the former European socialist societies.

The new member states have market economies with a predominantly privat-ized economy embedded in competitive polyarchic political systems. They are highly integrated into the world economy and experience high mobility of labour and capital – particularly within the European Union. Both the European and Asian blocs of the Commonwealth of Independent States are hybrid economies: they have made partial transitions to competitive market economies, although considerable state ownership and state coordination of the economy continue. Their polities have � awed competitive electoral systems and elements of auto-cratic rule usually embedded in a presidential structure. The transition has ushered in much higher levels of freedom and mobility of people.

20 What comes next?



The expectations of the elites and public for a stable, prosperous and participa-tory society have been partially met – more so in the new member states (NMS) than in the CIS. In all the post-socialist states there is a growing disappointment by many groups in the population with the post-socialist political and economic settlement – with the rise of a wealthy business class and corruption on the one hand, and a low wage economy, unemployment and poverty on the other.

In this � nal chapter we consider what alternatives, if any, are available to the three blocs de� ned above. The destruction of state socialism in Europe has led to all the post-socialist states being dependent – though in different ways and to dif-ferent degrees – on the global economic and political system. The post-socialist states share similar problems as comparative established countries of world capitalism in which some have more economic and political space for manoeuvre than others.

Prior to the world economic crisis which began in 2007, while some were sceptical about the ef� cacy of the globalized neo-liberal model, there was general agreement on the part of major governments (such as the G8) that it was a model to be emulated. The global economic crisis has led to a destabilization of the world economic order, especially in the core hegemonic countries. In the absence of effective global � nancial government, the harmful effects of neo-liberalism and the crisis have led countries to strengthen national sovereignty and regional eco-nomic partnerships. As countries are embedded in international trade and subject to the international division of labour, reversion to economic autarchy is imprac-ticable, even if it were desirable. The effects of the crisis and, more importantly, the reasons for the crisis, have weakened considerably the appeal of the interna-tional division of labour, and many states have begun to consider alternative forms of economic coordination and political management. The hegemonic states of the EU (France, Germany and the UK) recognize the importance of revising the EU forms of coordination – though in different directions. Whether this will lead to a revival of the ‘social model’ of coordination or more liberalism and stronger political and � scal union is still to be decided, but in either case there will be con-sequences for the post-socialist new member states. In what ways, if any, can the post-socialist countries adapt to conditions of the world economic crisis?

The post-socialist member states of the European Union In the post-socialist EU new member states, the negative impact of the economic depression has weakened the ideological and economic attraction of globalization in general and the neo-liberal market model of coordination on which it is cur-rently based.

The NMS are closely bound into the economic and political framework of the EU, which effectively limits their autonomy of political and economic action. While most of the core states of the EU experience severe economic problems, the consequences of EU membership look decidedly less attractive than they did in the early days of transformation. It is likely that popular ‘scepticism’ in the


What comes next? 349

member states about the integrity of the European Union will intensify. The harsh economic dif� culties of the new member states, as well as of many old members (Portugal, Ireland, Greece and Spain), sharpen divisions in the European Union, and require the weaker states to adjust to the � nancial demands of the European Union and IMF. One important economic measure taken by governments follow-ing the economic crisis is the ruthless reduction in state welfare payments and social support. National identity is strengthened, leading to calls for national solidarity.

National sovereignty in the form of economic self-suf� ciency is unlikely to be adopted, as the NMS are strongly embedded in regional and international net-works and countries are too small and economically dependent on the EU to sustain economic autarchy. They have little room for independent manoeuvre within the European Union. Enclosure in the economic and political structures of the EU successfully binds the NMS and effectively precludes any movement back to socialist forms of state control. Policies in countries within the eurozone are also limited by legal and � nancial requirements of the European Union. The NMS are highly integrated economically into the hegemonic core of the old members. The EBRD Transition Report for 2012 concedes that dependency on the eurozone is a handicap for the CEEC transitional economies. 1 While developed economies (such as the UK) might challenge the conditions of the EU, the small economies and politically weak NMS could not do so alone, unless allied to a major power.

Moreover, since the break-up of state socialism, the economic and political elites of the NMS are generally united in their support for the European Union. The political and economic space afforded by membership of the EU is insuf� -cient to allow a great deal of manoeuvre. While Euroscepticism is widespread, alternative scenarios are limited. Adjusting to the political and economic demands of the EU along the lines of Ireland (with the passive acceptance of signi� cant cuts in public expenditure) is much more likely than a repetition of the Greek scenario (which led to widescale strikes and public disturbances, but eventually acceptance of EU � nancial policy).

One alternative, even within the EU, would be the revival of a state-regulated Keynesian type of economy. The values here are those of traditional social-democracy operating within the capitalist system. A major objective of the state is the provision of employment and a welfare-oriented policy ensuring lower levels of economic inequality and individual risk. Such policies have appeal in some of the new member states. However, the need for � nancial austerity, as well as the market orientation of the dominant elites in the EU, make the implementation of such policies unlikely. Their fate is bound up with that of developments in the European Union.

While reformist social-democratic policies are currently weakly articulated, a worsening of unemployment, further economic decline and relentless reductions of social transfers on the one hand, and excessive earnings of banking and other executives on the other, could exacerbate public discontent leading to a signi� cant policy change. Modi� ed forms of decoupling from the European Union are pos-sible for relatively strong states, such as the UK, but are not realistic possibilities



for the NMS. A more likely scenario is a strengthening, � scally and politically, of the economic core of the European Union and further integration of the NMS.

Formation of counterpoints The economically hybrid and less globally integrated countries of the former USSR (Russia, Ukraine, Belarus and Kazakhstan), have greater possibilities to develop alternative economic policies. The state is a strong and deep-seated insti-tution and it is premature to consider the governments of these countries to be powerless in the global order. Russia (and China) are able to exert their own hegemony on a regional basis. Their governments are less constrained by demands externally from organized business, or internally from civil society, which is rela-tively weak. What is a more likely alternative here is the strengthening of regional blocs concurrent with increased state control. Regional groupings may be associations of states organized on the basis of different ‘varieties’ or ‘diversities’ of capitalism – or even mixtures of capitalism with elements left over from state socialism.

The economically hybrid state-led energy-exporting countries like Russia and Kazakhstan face a real possibility that liberal market capitalism might ensure a permanent state of retarded or one-sided development (as noted in Chapter 15 ). Unlike the NMS, the Common Economic Space (Russia, Kazakhstan and Belarus) has a large population and immense natural resources. Neo-liberal capitalism is less entrenched and the countries are less integrated into the global political and economic systems. Although narrowed somewhat since 2012 by membership of the WTO, there is room for alternative policies.

For post-socialist Russia and China, strengthening regional cooperation opens the way to the formation of regional blocs within the contours of the present world system. The development of regions allows for the coexistence of different eco-nomic and political formations. A movement to regional blocs both in the core and semi-core is one pattern of adjustment and provides (or could provide) some secu-rity for states in the global system. There are a number of alternative ways in which regionalism can relate to the world system. It may be a ‘stepping-stone’ (to use Bjorn Hettne’s term) to further integration. Or it may be a ‘counterpoint’ – that is, a more regulated form of ‘inter-regionalism’ with countries forming a bloc of protection from exposure to the world market. 2

The idea advanced by Immanuel Wallerstein 3 and Hettne that the ‘semi-periphery’ is a transient formation (leading inexorably to their inclusion either in the core or the periphery) is over-determined. Some states (or groups of states) have the strength to reproduce themselves as economic formations. China and Russia have signi� cant national and international companies and form part of what I de� ne as a semi-core (detailed below). Economies in the semi-core have effective produc-tion capabilities of a national character and could be developed. Regional companies and political actors have considerable scope for action independently of the global economy. 4

For world system theorists, the theoretical underpinning of the ‘semi-periphery’ is predicated on countries that have their own national companies and are also



subject to exploitation by transnationals. According to world system theorists, such states will be absorbed into the core (as the NMS) or fall into the periphery (Georgia would be an example here).

The term ‘semi-core’ better captures the economic and political power of countries like Russia, China, India and Brazil (BRIC group). Semi-core coun-tries have their own transnational corporations which have outgrown, and should not be con� ated with, their national companies. Countries with semi-core status also are hosts to the af� liates of core transnational corporations. In the semi-core countries, this three-sided economic con� ict (between national companies, international corporations, and foreign af� liates) leads to contradic-tory economic dynamics and also to shifting allegiances between political and economic elites.

For many countries in the world system, regionalism enables groups of states to strengthen their position against neo-liberal hegemonic powers. Developments such as the formation of the Customs Union and Common Economic Space (Belarus, Kazakhstan and Russia), the Shanghai Cooperation Organization, 5 the Collective Security Treaty Organization, 6 the Eurasian Economic Community 7 and the Organization of Central Asian Cooperation 8 are evidence of the rise of regional economic and political blocs including the CIS countries. (Trading blocs outside include ASEAN 9 and MERCOSUR 10 and, of course, the EU.) President Putin has strongly argued for the strengthening of the Common Economic Space and this makes very good economic sense (note the positive appraisal by the EBRD) 11 . Such blocs and individual countries can develop economic and political formations with a different character from those of the core capitalist countries. China, Russia, India, Brazil and Venezuela, by virtue of their size and the strength of their economies (as well as considerable state ownership and control), have varying degrees of autonomy from the core.

However, Russia and China both contain contradictory economic dynamics. A growing number of their transnational corporations favour neo-liberal policies that would facilitate their expansion and the repatriation of company pro� ts (from which states also bene� t somewhat). Concurrently, their home economies are sub-ject to af� liates of Western-based capitalist corporations which extract pro� ts and are often in competition with their own � rms operating on a national basis. There is then a triangle of interests: globalizing parent � rms, comprador international af� liates and national companies (see Figure 20.1 ). The companies and their respective stake-holders favour different forms of economic coordination and state policies. The TNCs with af� liates in the host country would be companies such as IBM, Shell and McDonald’s. The Russia parent TNCs would include compa-nies such as Lukoil (see Chapter 15 ). National corporations include all companies trading solely on their own territory. The trend is for transnational com-panies to supplant the latter, who turn to their government for protection.

The statist character of China and Russia may restrain their own transnational companies from full integration into the world economy. The USA and EU (usu-ally on the grounds of ‘national security’ against ‘state-controlled’ companies) sometimes discriminate against Russian and Chinese companies seeking to



acquire Western assets (particularly in high technology) through mergers and acquisitions.

Such regional formations may have (or further develop) their own speci� c character, in ways discussed below. Whatever the economic outcomes, they have different political and social identities from those of the hegemonic Western powers.

This kind of scenario leads to a reformulation of the core, semi-periphery and periphery notions suggested by the world system theorists. While many nations on the periphery and semi-periphery, when confronted with the economic, politi-cal and military power of the core states, have little alternative than to accede to their political demands, those in the semi-core have more options.

Moreover, not only do the BRICS 12 countries have high-tech manufacturing capacity (less, of course, than the core countries but still a signi� cant level, espe-cially in China), they also have large internal markets and abundant natural and human resources. A regional bloc composed of China and countries from the CIS would present a formidable trading partnership having a continuous market (in terms of population) greater in size than that of the USA and EU combined. Russia and China also possess formidable military capabilities (including nuclear weapons).

The development of regional associations would make them less dependent on the world market for imports and exports. State-owned (or controlled) banks also provide credit and separate the economies from contagion from global � nancial interests. For Russia, the CIS (presently composed of Russia, Belarus, Kyrgyzstan, Kazakhstan, Armenia, Azerbaijan, Moldova, Tajikistan and Uzbekistan, with Turkmenistan and Ukraine as associated members), the Shanghai Cooperative Organization and the Eurasian Economic Community provide the main areas of economic cooperation. Political collaboration could be a next step.

How and in what form these regional organizations might � t into the world system is a debatable matter. We evaluate here three main political orientations. These are considered in the context of Russia (or the Eurasian Economic

Figure 20.1 Russia and China: competing corporate interests .



Community), which seems to be the most likely actor. First, an elite formation of an American-oriented neo-liberal business and middle class; second, a move to a national state capitalism; and third, a popular-based state-socialist and nationalist political movement.

‘Stepping-stones’ to neo-liberal integration? In the West, the most popular economic scenario, painted by organizations such as the EBRD and IMF, is to regard these emerging blocs as ‘stepping-stones’ to the neo-liberal world system. This is in line with the outlook of Dmitry Medvedev in Russia, as well as many liberal reformers in China. Regional blocs would cumu-latively implement policies congruent with the hegemonic powers of the world system. Neo-liberal policies would be favoured as advocated by international coordinating bodies (EBRD, WTO and IMF).

Practical policies would include more marketization and de-statization, adher-ence to the monetary policies dictated by the IMF, open privatization and a legal system ensuring property rights to foreign owners. Such policy would strengthen transnational companies and attract foreign investors. The ‘market’ would be the major coordinating instrument and the state would have minimal functions. The conditionalities (such as a competitive electoral democratic political shell) would be those de� ned by transnational monitoring bodies such as the IMF.

In the post-socialist countries, powerful transnational corporations (such as Lukoil) favour such neo-liberal policies, which would facilitate their expansion and the repatriation of pro� ts. Russia (and China) have their own business oli-garchs who aspire to join the global capitalist class. Transnationals which are foreign-owned and have af� liates in the post-socialist countries also support this position.

These interests would push their respective countries more � rmly into the world economy and a rapprochement with the hegemonic powers. Within the ruling elites are signi� cant interests sympathetic to these objectives who would move in the direction of a neo-liberal economy (for Russia, these were detailed in Chapter 18 ). There are clearly divisions in outlook and interest between members of the dominant elites. Support for neo-liberalism is relatively weak in Russia and is highly dependent on Western moral, economic and political backing.

Regional blocs as alternatives Regional blocs are not only ‘stepping-stones’ to the neo-liberal economic order but may be ‘counterpoints’ to it. ‘Semi-core’ countries such as Russia and China have advanced industries and large economies, though they are not integrated into the hegemonic bloc of the capitalist core. Both have more collectivist value sys-tems and share a history of communist planned economy, and both are currently hybrid economies that combine market relationships with signi� cant state regula-tion. They are hosts to Western-based capitalist corporations as well as having their own national and international corporations. The type of economic coordination



also differs: the political elites are divided about the virtues of neo-liberalism. President Putin is particularly concerned to develop independent national indus-tries, with national champions trading in a multi-polar world. China has state ownership through which national control of its global corporations is exerted. Its political leadership articulates national forms of politics (‘democracy with Chinese characteristics’) which legitimate higher levels of state control.

The CIS countries, as well as China, are less exposed to the global capitalist class and thus have more potential for internally led economic development. Following writers such as Leslie Sklair, 13 the capitalist class may be analysed not only as a state formation but also as a transnational one. For Sklair, the transna-tional capitalist class (TCC) is at the root of capitalist globalization. Its power and resources are located in the transnational corporations and their local af� li-ates. 14 The TCC is composed of four factions: 15 at the core are those who own and control major transnational corporations and their local af� liates; other fac-tions include globalizing state and inter-state politicians and of� cials, globaliz-ing professionals, and merchants and media who promote and gain from consumerism.

Russia and China are not penetrated by these class interests to a similar extent as the EU new member states. The latter have become economically and socially penetrated by the hegemonic members of the EU, making them highly globalized and dependent economies. I contend that regional interests led by Russia and China could develop as regional powers, or counterpoints, independently of the hegemonic capitalist core.

As noted in Chapter 15 , the transnationality index of Russia and China is rela-tively low. They are not part of the dominant military alliance of NATO. As their economies have a secure basis from export-led revenues as well as large internal markets, they are much more resistant to pressures of global organizations such as the IMF and the World Bank. They severely limit the activities of foreign-spon-sored NGOs (Sklair’s ‘globalizing professionals’). In China, international TV is not of� cially allowed, though it can be, and is, widely received. In Russia it is allowed, but the mass media in Russia (since the rise of Putin) and China are mainly under state ownership and control. Western ‘media merchants’, such as Robert Murdoch’s News International, are not allowed in these markets. The political socialization process takes a different form.

Regionalization opens the way to the formation of blocs within the contours of the present world system. The development of regions allows for the coexistence of different economic and political formations, and for different varieties of capi-talism or for mixtures of capitalism and socialism. The adoption of a neo-liberal market world economy is not predetermined.

What are the alternatives open to the semi-core? I suggest two theoretical possibilities: national organized capitalism and socialism. These are ‘ideal’ types, as all economies contain elements of state ownership and control, state governance and market regulation. What I am concerned with are alternative directions that can guide economic and political policy – not political blueprints for immediate use.



National capitalism? One alternative would be a move towards a nationally organized capitalism. Though recognized by Francis Fukuyama that ‘only systematic nationalism can qualify as a formal ideology on the level of liberalism or communism’, 16 a national-capitalist economic order is rarely mentioned in Western academic dis-cussions as a serious option to neo-liberalism. 17

This scenario involves an economy with market relations and companies pro-ducing for pro� t concurrent with a regulative state. In the case of Russia, President Putin appears as a likely advocate of this policy. State management in the form of higher level government executives already has an important place in the Russian Federation, and asset ownership is in the hands of interconnected state and private businesses and � nancial institutions.

State-led capitalism ensures accumulation, which is exempli� ed by China. Unlike China, however, where transnationals are state owned, national capitalism ensures and even extends private property rights. (For developments see Chapter 18 .) It would, however, channel economic rents earned from export-oriented industries to ends identi� ed by the state. A state-led development policy would involve � nan-cial support for home industries in general. In Russia, for example, it might involve state investment in the space and nuclear industries, computer construction and software, arms production and aircraft. It would also include considerable invest-ment in research. Under national capitalism, the private sector gains through state institutions and banks; the government would provide the long-term � nance required to develop these industries. It is not restricted to promoting national cham-pions, but also protects home-based companies and regional markets.

One such model would be national capitalism with Russian characteristics. The key components of such a state-led system would be:

• Driving forces : the federal state, led by the presidential apparatus. • Policy objective : state-led capitalist modernization. • Stakeholders : leading capitalists (in state-owned or sponsored companies

and loyal oligarchs in the private sector), government-friendly media, higher state officials ( chinovniki ), a ‘loyal’ intelligentsia, a government-sponsored political party.

• Culture : Russia as a civilization – nationalist, traditional, collectivist, Orthodox.

• Solidarity : Social compact (politics and business), paternalist state welfare, nationalism.

• Political legitimacy : sovereign democracy. • World system : autonomy and exchange.

The ideological shell differs from neo-liberal capitalism. Both in China and in Russia a type of national government is evolving that seeks to legitimate a state-led economic order. It challenges the American model of liberal values and political pluralism. It has taken the form of an electoral authoritarianism that has considera-ble popular support.



A new political shell National capitalism involves a shift away from Western electoral democracy. The socio-economic base of democratic regimes (market, private property, law and autonomous associations making up civil society) is one of the major conditions required by Western governments and international institutions, such as the IMF, to further the transformation process. Contemporary Western democracy is a political regime supporting free, fair and open electoral competition for the peo-ple’s vote – and the subsequent acceptance of the results. 18 Schmitter and Karl make it clear that by ‘attaining democracy’ a society will not necessarily resolve its political, economic, social, administrative, and cultural problems: 19 ‘democra-tization will not necessarily bring in its wake economic growth, social peace, administrative ef� ciency, political harmony, free markets or “the end of ideol-ogy”’. 20 Quite. The point is also unambiguously put by Samuel Huntington: ‘Democracy is only one public virtue, not the only one, and the relation of democ-racy to other public virtues and vices can only be understood if democracy is clearly distinguished from the other characteristics of political systems.’ 21

National capitalism is legitimated in terms of the results of government poli-cies. ‘Serving the nation’ is an alternative justi� cation for a corporatist state-led economy. It is precisely the outputs described above, which are often missing from competitive electoral systems, that national capitalism seeks to ensure.

Decline of US ‘soft power’ Moreover, such an option might not only have popular appeal but would � ll the gap left by the decline of Western moral authority. Western writers such as Joseph Nye assume that the values of ‘the West’ (epitomized by the USA) have universal appeal. Its projected ‘soft power’, in terms of a consumer society and the values of freedom, private property, human rights and political pluralism, is an image that inspires (or is claimed to inspire) reformers. 22

The tide, however, may have turned against this American version of modern-ism. 2013 is not the same as 1989. I have pointed out that at the end of state social-ism, the publics in the socialist countries had a respect for the USA, and its ‘soft power’ was effective: ‘America consumer artefacts from jeans to jeeps upgraded the USA in the hierarchy of states and downgraded the USSR.’ 23 Now China makes the jeans and is the world’s foremost exporter of manufactured goods; Japan out-produces the USA in car manufacture.

The consequences of the free market system (stemming from the ‘Anglo-American’ model of speculative banking capitalism) have led to severe economic disruption in the core of the world economy and to signi� cant contagion in the dependent countries. The appeal of liberal capitalism as a moral order has been clouded through the scandals of Lehman Bros and European banks (RBS, UBS and Barclays) who by fraudulently manipulating the Libor rate of exchange have been accused of � nancial crimes by the US Justice Department. Though one of the world’s richest countries, the provision of health care in the USA leaves a signi� cant proportion of the population without services, and the country has a



low world ranking in life expectancy. 24 The proposition that US ‘smart power’ (the combination of ‘soft power’ and economic and political clout) gives rise to effective policies looks rather feeble when viewed against the failures of US-led interventions in Vietnam, Iraq and Afghanistan. The deprivation of civil rights and imprisonment of suspects without charge in Guantanamo Bay, the state assassination of Bin Laden, and the degrading treatment of prisoners at Abu Ghraib (to cite but a few examples) undermine the positive ‘soft power’ image projected by American political scientists of their own country. One must seri-ously doubt whether the USA any longer de� nes the norms of acceptable conduct in the international system. It has certainly fallen in the public’s ranking of respected societies.

In the ideological sphere, however, neo-liberalism still dominates public dis-course and informs policy-makers. A possible ideological alternative to the Washington Consensus, which drives Western policy, is the world outlook pro-vided by the Beijing Consensus. 25 This political orientation (it is not a state policy) challenges the assumption that Western neo-liberal economics is a universal eco-nomic standard, and that gross domestic product should be the main criterion of economic progress. It is also a challenge to present policy in China and Russia. In this way of thinking, a greater emphasis is put on economic development and social security – the provision of employment, more equal distribution of income and wealth, less poverty, and the expansion of local and regional industries. Moreover, the Beijing Consensus viewpoint entails prohibition of interference into the domestic affairs of foreign countries, military interventions and trade embargoes.

This ideology provides a basis for an alternative to neo-liberalism – a national form of capitalism. Such an alternative would not be without its own drawbacks. Greater autarchy might lead to economic decay. A statist polyarchy, like a demo-cratic one, needs to be made accountable to public control. A capitalist class would still be in place and might not only extract surplus pro� ts, thus exacerbat-ing income inequality, but could become a driving force for geo-political expan-sion. My claim here is a modest one – national capitalism is a feasible alternative to neo-liberal capitalism.

A return to socialism? A second scenario would rely on a move to install some components of socialism. The transition to capitalism entailed the privatization of public property and the dismantling of the planning mechanism in favour of the market. A movement to socialism would involve a reverse transformation. The arguments in favour of a market socialist society were rehearsed in Chapter 4 . The objective here would be to provide greater economic stability and development and to utilize pro� ts for public, rather than private interest. Unlike the national form of capitalism, which would keep a capitalist class and production for the market in place, it would prioritize equality, full employment and social security of citizens. More social-ism would entail state ownership of assets subject to public rather than shareholder



control. Planning would take over many of the functions presently performed (or not performed) by the market. The main difference with the national capitalist alternative is that public ownership and socialist objectives would prevail. Political democracy would not be con� ned to the electoral system but would be measured in terms of socio-economic equality and the societal outcomes of politics. 26

Such a movement, which could be introduced in stages, would be quite practi-cal in the context of the present hybrid economic formation: planning could coex-ist with the market. The state would control the allocation of investment, money supply and interest rates, and the division of national product between economic and social expenditure. Taxation would be progressive. A major economic objec-tive would be the provision of adequately paid work. Distribution in the retail market would be managed by the market.

A socialist policy could revive the practice of planning, which would be the basis of economic coordination. There would be a return to greater regional self-suf� ciency for many supplies of non-capital goods and services (food, repairs, clothing, building materials, personal services) and the objective of planning would be to provide a variety and dispersion of economic activities within each economic region. 27 If one considers the economic footprint of the USSR, under the republics and local soviets, small and medium-sized enterprises were formed to absorb labour and to produce for the local market. Local industrial production included electricity generation, gas, coal, steel, machine tools, tractor production, textiles, cranes, paper, cement, silk, shoes (and so on). 28 Regional planners could encourage a greater range of local industrial and agricultural production.

A move in this direction would involve the restoration of a state monopoly over utilities, and the renationalization or mutualization of most of the banks (to follow the Chinese pattern). Other policies could include the institution of exchange control, strengthening of customs barriers (such as around the common economic space) to protect regional industries; reversal of � nancialization of ser-vices and greater use of public provision ( obobshchestvlenie ) (e.g. domestic energy use, public transport); and greater government control of prices, wages and unearned income (excessive fees, salaries and pro� ts).

In addition to public ownership and a government ensuring minimum levels of social security, state corporations would be required to ful� l obligations of social responsibility to their stakeholders unrestrained by the need to prioritize pro� ts for shareholders. In Marxist economic terminology, the production of use value would play a greater role in the economy and exchange value less.

While the political thrust for a move to national capitalism would come from established economic and state interest, that for state socialism comes from those negatively affected by transformation – state employees (in education, health, culture, police and military), pensioners, underpaid members of the intelligentsia and the unemployed. It would be opposed by those who have bene� ted from the transformation: employees of foreign companies and associations, rentiers, higher state of� cials and owners of privatized assets. It would also bring with it problems that were present under statist forms of socialism. Notably, how does society



formulate an economic plan? How can the planners be controlled? How does exchange with the core of the world economy proceed? How does one ensure that ‘real democracy’ will prevail?

Market socialism has many forms. What I am suggesting is that the goal should be to make planning the principal form of economic coordination. The context in the post-socialist countries is also quite different from post-war discussions of market socialism. Then the market had to be grafted onto the planned economy; now it is the other way around. The market would be secondary and prevail as a distributive mechanism (as discussed in Chapter 4 ). The Communist Party of the Russian Federation (KPRF) would be the most likely political movement to carry Russia in this direction.

Under present circumstances, however, such a scenario does not look very likely. It would involve a return to many of the features of the Soviet period, which are associated with repression. It would require a sea-change in intellectual and political thinking, which could only occur consequent on some national or international disaster or an accumulation of contradictions entailed by the global economic crisis.

The introduction of either of these options would be conditioned by, and in turn would impact on, the structure and process of the world system. Whatever the character of the new social formation (national capitalism or socialism), it would form a counterpoint to the current hegemonic capitalist core.

Conclusions What these alternative approaches share in common is a shift away from the hegemony of markets to a state-led economy exerting different degrees of control. Rather than a focus on monetary regulation and market coordination, as entailed in the neo-liberal model, an alternative involves prioritization of economic devel-opment and provision of employment through administrative forms of economic coordination.

What has dominated mainstream economic thinking after the Second World War is classical economics, and in the � nal quarter of the twentieth century, neo-liberal economics. On this edi� ce a neo-liberal political policy has been con-structed. An alternative way of looking at the economy is in terms of developmental economics advocated by Friedrich List 29 and the German Historical School (Adolph Wagner, Werner Sombart), and UK writers such as Arther Lewis and Ha-Joon Chang. 30 An alternative economic policy would revive academic interest in the economics of planning.

Political distinctions between alternatives involve a national state-led capital-ism based on private ownership on the one hand, and market (or state) socialism based on collective ownership, with a politically led ruling socialist elite, on the other. These counterpoints involve different combinations of state ownership, control, regulation and planning. Such economic formations could include oppor-tunities for more public participation and the recognition of the interests of stake-holders. Under such conditions (even in the national capitalist variant), companies



could be required to exercise greater social responsibility – to employees, con-sumers, suppliers, the local community and more generally to the environment. Initially at least, these would be hybrid capitalist economies, with private and state corporations, and socialist components in different proportions.

The formation of regional blocs would be important to provide markets big enough to be effective. Current academic discussion recognizes the role of the US hegemon in shaping regional formations (such as NATO 31 ). The approach here departs from that of writers who conceptualize regions ‘primarily as zones of eco-nomic activity in the world system and in that sense driven by markets rather than states’. 32 To remedy the failure of neo-liberal globalization, a more active role of states is necessary to create new types of political economy organized on a regional basis and reversing policies of privatization, de-statization and deregulation.

To be successful, corporatist or socialist policies would need to be accommo-dated by the core Western capitalist states, which cannot be taken for granted. 33 Effective exchange with the hegemonic capitalist states would have to be ensured. The semi-core countries are in a period of transformation. A crucial political vari-able is the extent to which Russia’s and Kazakhstan’s energy companies may remain under government ownership and control; greater foreign ownership would shift the balance of economic forces in the direction of neo-liberalism and to a ‘globalizing world’. This is the line favoured by many around Putin, includ-ing Medvedev. In China, one again witnesses a hybrid system, with important divisions contained by and re� ected in the Communist Party of China. There is a strong political faction in place that seeks to further movement into the world neo-liberal economy and to strengthen market principles.

One scenario for Russia and China is to strengthen their regional economic and political associations, which would secure their own sovereignty and legitimate both international and national accumulation for their own national companies. This development would underpin the rise of a nationalist capitalist system. A movement to national capitalism would no doubt be supported by a large propor-tion of the population. Such a corporatist 34 economic and political system, with a strong element of state control, adopting Keynesian policies channelling the investment of state and private companies on a regional basis and thus creating employment, would be widely supported. If it worked, it would be a more accept-able type of capitalism than that currently in place.

This tendency is confronted by more traditional collectivist interests support-ing socialist public ownership and development of state welfare. Crucially, if this left-wing faction can regain control then China would move away from its current market-driven predisposition, towards a more state socialist or market socialist structure. Such a development would shift the balance towards a more socialist planned economy, with market elements. It would act as an example to other soci-eties. In Russia, under present conditions, a turn towards state socialism – with its state ownership, planned economy and comprehensive welfare – is unlikely. Russia lacks a socialist faction in the ruling elite. At most, socialistic elements could be grafted onto the hybrid economy to move to a form of market socialism (as discussed in Chapter 4 ).



It seems more possible that a ‘within systems’ change, led by factions within the ruling elites (such as the armed forces/security forces, home-based companies, managers from state corporations) might advance a type of national corporate regime. Private ownership of corporations in a market economy would continue but with greater state control and direction linked to national goals. At best one might envisage a managed type of democracy providing a shell for a corporatist type of political system.

A movement away from neo-liberalism would be accelerated by further failure of neo-liberal capitalism in the core states and contagion in the semi-core coun-tries. Latin American countries, such as Brazil, Cuba and Venezuela (MERCOSUR countries), constitute a trading bloc having less dependency on the hegemonic capitalist core.

Whether these policies could form the basis of an alternative bloc (provided by the BRICS countries) seriously challenging the current hegemonic core is conten-tious. As noted above, the current internal class contradictions in countries like China and Russia could equally be resolved in favour of their emerging capitalist classes who support private property, free markets and entry into the world system.

The most likely regional counterpoints, favoured by current political elites, are capitalist alternatives – including Keynesianism and national capitalisms. A longer-term strategy, for countries such as Russia, China and Latin America, is a political shift to a mixed economy with private and state companies in the form of market socialism. This could become a realistic alternative, which would have considerable popular support – but would only be likely if the current hegemonic economic core were to experience further economic crisis and disintegration.

Notes 1 See EBRD, Transition Report 2012 , London: EBRD, ch. 2 , available on EBRD website

in pdf format. 2 Mary Farrell, Bjorn Hettne and Luk Van Langenhove (eds), Global Politics of Region-

alism: Theory and Practice , London: Pluto Press, 2005, p. 279. 3 Immanuel Wallerstein, The Capitalist World Economy , Cambridge: Cambridge Uni-

versity Press, 1979. On the unity of the world system, see p. 271. See also his World Systems Analysis , Durham, NC and London: Duke University Press, 2004.

4 For further discussion see H. Kitschelt, P. Lange, G. Marks and J. D. Stephens, ‘Con-vergence and Divergence in Advanced Capitalist Democracies’, in H. Kitschelt, P. Lange, G. Marks and J. D. Stephens (eds), Continuity and Change in Contemporary Capitalism , Cambridge: Cambridge University Press, 1999.

5 Composed of China, Kazakhstan, Krygyzstan, Russian Federation, Tajikistan and Uzbekistan.

6 Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan. 7 Russia, Kazakhstan and Belarus. 8 Russia, Turkmenistan, Tajikistan, Kazakhstan, Uzbekistan and Kyrgyzstan. 9 Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Laos,

Myanmar and Cambodia. 10 Brazil, Cuba and Venezuela. 11 EBRD, Transition Report 2012 , ch. 4 . 12 Since 2011 BRICS includes South Africa in addition to countries de� ned earlier.



13 Leslie Sklair, The Transnational Capitalist Class , Oxford and Malden, MA: Blackwell, 2001; and ‘The Emancipatory Potential of Generic Globalization’, Globalizations , 6(4), 2009: 525–39. Other writers taking a similar line include William I. Robinson and Jerry Harris, ‘Towards a Global Ruling Class? Globalization and the Transnational Capitalist Class’, Science and Society , 64(1), 2000: 5380–411; William I. Robinson, Promoting Polyarchy , Cambridge: Cambridge University Press, 1996.

14 Sklair, ‘The Emancipatory Potential of Generic Globalization’, pp. 528–9. 15 Sklair, ‘The Emancipatory Potential of Generic Globalization’, p. 529. See also Sklair,

The Transnational Capitalist Class , p. 17. 16 Francis Fukuyama, ‘The End of History?’, The National Interest , Summer 1989,

p. 14. 17 The New Plan, brought in by the National Socialists in 1930, effectively eliminated im-

ports to the German home market, and the Ministry of Economic Affairs took strategic control over (though not ownership of) German industry. See Adam Tooze, The Wages of Destruction , London: Penguin, 2007, pp. 106–7.

18 Most American and British political scientists currently take this approach, derived from Joseph Schumpeter who de� nes democracy as ‘that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote’ (Schumpeter, Capitalism, Socialism and Democracy , London: Allen and Unwin, 1943, p. 269). Positively quoted and developed in P. C. Schmitter and Terry Lynn Karl, ‘What Democracy is … and is Not’, in Larry Diamond and Marc F. Plattner (eds), The Global Resurgence of Democracy , Baltimore, MD: John Hopkins University Press, 1993, p. 61, fn. 3.

19 Schmitter and Karl, ‘What Democracy is’, p. 59. 20 Schmitter and Karl, ‘What Democracy is’ p. 61. 21 Samuel P. Huntington, The Third Wave: Democratization in the Late Twentieth

Century , Norman: University of Oklahoma Press, 1991, pp. 9–10. 22 Joseph Nye, Soft Power: The Means to Success in World Politics , New York: Public

Affairs, 2004. 23 David Lane, ‘Explaining the Transformation from State Socialism’, in Sven Eliaeson

(ed.), Building Democracy and Civil Society East of the Elbe , London: Routledge, 2006, p. 136.

24 See Wendell Potter’s overview, ‘Producing Public Opinion: How the Insurance In-dustry Shaped US Health Care’, in Peggy Watson (ed.), Health Care Reform and Globalisation: The US, China and Europe in Comparative Perspective . London and New York: Routledge 2013.

25 This is usually attributed to Joshua Cooper Ramo’s paper, ‘The Beijing Consensus’, London: Foreign Policy Centre, 2004.

26 This distinction is well made by M. Steven Fish, Democracy Derailed in Russia: The Failure of Open Politics , Cambridge and New York: Cambridge University Press, 2005, pp. 17–19.

27 On regional development in the former USSR, see the discussion in Maurice Dobb, Soviet Economic Development Since 1917 , London: Routledge, 1966, pp. 444–5.

28 See Narodnoe khozyaystvo Uzbekskoy SSR v 1987g , Tashkent: Goskom UzSSR po statistiki, 1988, p. 53.

29 Ben Selwyn, ‘An Historical Materialist Appraisal of Friedrich List and his Modern-Day Followers’, New Political Economy , 14(2), 2009: 157–80.

30 Ha-Joon Chang, Kicking Away the Ladder , London: Anthem Press, 2002. 31 See, for example, the overview by Rick Fawn, ‘Regions and their Study: Wherefrom,

What For and Whereto?’, Review of International Studies , No. 35, 2009: 5–34, esp. p. 26. He cites Katzenstein who found that American policy ‘made regionalism a central feature of world politics’.



32 Raimo Vayrynen, ‘Post-hegemonic and Post-socialist Regionalisms: A Comparison of East Asia and Central Europe’, in B. Hettne, A. Inotai, and O. Sunkel (eds) Comparing Regionalisms , Basingstoke: Palgrave, 2001, p. 137.

33 Chinese and Russian companies are often prevented from buying up Western compa-nies. See, for example, P. Nolan, Is China Buying the World? , Cambridge: Polity, 2012.

34 By corporatist I mean the interaction of the most important stake-holders in society – in particular, private and state business, central and local government institutions and organized political groups. The importance of, and balance between, these groupings changes between societies and over time.


Abalkin, L 93 Abramovich, R 250, 274, 288, 294 acceleration 94, 98–9, 169 acquisition: class 14; rise of 133–5;

stratum 132, 136–7, 139; see also intelligentsia

administered society 31 administrative command system 83, 100,

138 administrative redistribution, 33, 137 administrative stratum 131–2, 134, 137–9,

149; see also ascendant class Aganbegyan, A 93,124 agri-business 170 agriculture: 16, 25, 28–30, 36, 43, 58, 61,

67, 249, 255, 279, 286–7; decline of, in post-Soviet states 249, 279; employment in, in China 118; growth in early stages of USSR 30; de-collectivization of, in China 71–2, 75; reform in, in post-socialist countries 186; reform in, under perestroika 92; in reformed state socialism 169–70; see also collectivization of agriculture

Albright, M 335 Alekperov, V 293 Alexander, J 64, 93, 155, 216, 230, 293, 338 Aliev, G 335 Almond, G 24, 49, 52, 327 alpha-dog 302 alternative regime 13, 112 alternatives 21, 65, 95, 103, 111, 124, 163,

165, 167, 169, 171–2, 184, 244–5, 257, 332, 338, 348, 353–4, 359, 361

American exceptionalism 306 American National Endowment for

Democracy 344 Andropov, Y 39, 86, 292 Anglo-American model 176

anti-communist 3–4, 12, 35, 41, 45, 102, 106, 108, 144–5, 148, 154, 157–9, 183; movements 12

Arendt, H 44–5, 51 Armenia 16, 181–2, 199–200, 202, 268–9,

352, 361 ascendant class 8, 47, 123, 130–2,

139–40, 144 Ash, T 145, 160, 329, 344 Aslund, A 65, 96, 194, 325, 329, 343–4 Asselain, J 134, 141, 172 authoritarianism, in Putin’s Russia 291,

295, 300, 309, 316, 347, 355 autonomous associations 215, 219,

228, 305, 356

Bakiyev, K 330–1 Baltic states 5, 16, 51, 101–2, 107, 146,

189, 208, 210, 243 bank credit 63, 166–7, 192 banking system 197, 209, 234 bankruptcy 92, 166, 306 Barber, B 51, 172 Bayer, A 300 Beijing Consensus 357, 362 Beissinger, M 110, 122–6, 163, 171–2,

299–300, 318–19, 344–5 Belarus: 9–11, 222–3, 336–42, 345, 350–2,

361; failed coloured revolution in 321, 331; gross national income in 203–4; lack of democracy in 337, 339–40; lack of foreign companies in 205–6, 209–10, 239; lack of political and economic reforms in 17, 199–201, 249, 252, 279, 332; levels of inequality in 272–5; levels of public well-being in 268–9, 333; low domestic credit in 211–2; participation in CIS 181; participation in dissolving USSR 162; relations with Russia 303, 309, 311

Index

BK-DEP-LANE-131012-Index.indd 365 10/11/2013 12:49:26 PM

366 Index

Belkovski, S 302 Belovezha Accord 162 Berezovsky, V 249–50, 292–4, 301 Berliner, J 95, 158 Bertelsmann Political Transformation

Index 342 Beselia, E 344 billionaires 274–5, 288 Blackburn, R 65, 124, 159, 286 Bloom, S 143, 158, 344 Bolshevik movement 7, 9–11 Bolshevik policies 23–5, 28, 30, 128,

175, 197 Bowles, P 73, 80 Brazil 19, 178, 193, 206, 233–4, 242, 244,

272, 317, 351, 361 breakdown of the USSR 106, 157 Bremmer, I 123, 126 Brezhnev, L 64, 84, 87–8, 96, 109, 114,

134–5, 146–8, 314; Brezhnev doctrine 64, 146, 148

BRIC(S) 233, 243, 351, 361 brigades 69, 84, 170 Brilev, S 314 Brown, A 36, 52, 66, 95, 100, 110, 160,

162, 172, 312, 318 Bruszt, L 177, 193 Brzezinski, Z 44–5, 47, 51–2, 124, 159,

259, 286, 300, 318 Bullock, A 230 Bunce, V 108, 110, 335, 342, 344 bureaucratic state capitalism 34, 127, 129 Burlatski, F 87 Burton, M 160 Bush, G 37, 90, 105, 146–7, 159, 168, 296,

322, 342

Callinicos, A 129–31, 140 Cammack, P 318 capital gains 312 capitalism: 5–10, 15–18, 20–2; alternatives

to 163–5, 167–9, 354–61; appeal of 85, 116, 144–6, 356; civil society as component of 215–9, 228, 230; class explanation of transition to 131–9, 149; compared with state socialism 25–8, 47–8; development in Tsarist Russia of 8; factors of successful transition to 17; globalization of 237–8, 151, 157, 244–5; imperialism as form of 8; incomplete transition to 5, 16, 249, 254, 321; intelligentsia support for 123, 133; Marxist analysis of 7, 56, 130–1, 137; as necessary context for socialist revolution

7, 10; neo-liberal doctrine of 179–80; public sentiments about, in post-socialist states 18, 260–1, 265, 267, 270, 282–3, 285; reversion of USSR to 85–6, 94, 102–4, 115, 165–6, 171; in Russia under Putin 307–13, 355; social-democratic forms of 176–7; state-led coordinated, in China 176; in post-socialist societies 176, 182, 185–6, 188, 190, 201, 233, 248, 250–1, 254, 257, 283, 324, 339, 348, 350; Russia’s ‘chaotic’, 176, 191–3, 310; see also bureaucratic state capitalism

Cargo Cults 283 Castells, M 301, 318 Ceausescu, N 155–6 Central Asian countries 253, 255, 269, 347 Chang, H 21, 359, 362 chaotic capitalism 191 chaotic economic formation 291 Chechnya 182, 254, 292, 296 China: 11–12, 15, 49–51, 54, 58, 60,

63–5, 67–81, 83, 86–8, 94, 99, 113–18, 120–1, 125, 139, 152, 165, 167–8, 171, 176, 178, 182, 193, 199–210, 213–14, 233–42, 244–5, 256–7, 266–72, 274–5, 280, 282–4, 286, 289, 293–4, 297, 304, 306, 309–11, 313, 316–17, 331–3, 336–7, 339, 345, 347, 350–7; China Communist Party in 4–5, 42, 44, 70–1, 75–8, 121, 254, 284, 360; cultural revolution in 69–70; domestic banks in 210; education in 69, 76–7; gross domestic product in 113; in� uence of Soviet model in 42–3, 67; levels of inequality in 275; Maoism in 67–71; political and economic reform in 71–9; rise of communism in 41–4

Chomsky, N 158 Christianity 170 Chubais, A 253, 314 Chukotka 274, 288 civic forum 155 civil society: 4, 15–16, 24, 27, 31, 175,

179–80, 186, 188, 190–1, 213, 215–21, 223–31, 247, 284, 362; absence in communist countries 45, 48, 50, 75, 78; inheritance from Tsarist Russia 24; under perestroika 100, 102, 137, 162; in Putin’s Russia 297, 315; Western promotion of 149, 151, 175, 179–80, 186, 188, 190, 215–30, 322–3, 327–9, 335, 339–41, 356; weakness of in post-socialist states 247, 284, 350; and civilizational incompetence 52, 284, 289

clans 177, 331, 341, 345


Index 367

class see social class Cliff, T 127–30, 140 coercion 4, 27, 35, 322 Cohen, S 21, 95, 124, 172 Cold War 14, 45, 149, 182–3, 230, 303, 322 collectivization of agriculture 25, 28–30,

43, 58; in Yugoslavia 58; in Czechoslovakia 61

collective farms 29, 33, 43, 71, 170, 287; market 28,167

collective identity 49, 107, 124 collectivism, rejection of ideology of 285 coloured revolutions: 18, 339–42, 345;

absence in Russia of 336–8; and civil society 227, 315; external in� uence in 322–3, 335–6; factors for success and failure of 332–4; outcomes of 330–2; see also Orange Revolution

Comecon (Council for Mutual Economic Assistance) 153

Cominform 59 Committee for State Security (KGB) 292 commodity prices 209 Common Economic Space 194, 309,

314, 350–1 Commonwealth of Independent States

(CIS): 16; extraction sector of 234; foundation of 107, 181; lack of integration into world economic system of 16, 202, 205, 210, 249; social effects of changes in 268, 270, 274, 278, 280

Commonwealth of Independent States (CIS) 16, 180, 188, 234, 247

communes: in China 69; in Yugoslavia 58 communism: development of 5–7, 34, 41;

in China 41–2, 68–9; in Czechoslovakia 63; in Yugoslavia 58; effects of collapse on 260–2, 284–5; fall in Eastern Europe of 12, 17, 111, 149, 152–7; public opposition to 252; reform of 89, 98, 120, 150–1; Western attitude toward 45, 90, 145–6, 150

Communist Manifesto 20, 103, 172 Communist Party: in China 4–5, 42, 44,

70–1, 75–8, 121, 254, 284, 360; in Czechoslovakia 61, 63, 155; in German Democratic Republic 154–5; in Hungary 153–4; impact of political reform and fall of 12, 14, 88, 99–102, 106–8, 150–1; in Poland 152–3; proscribed in Russia 106; in Romania 156; in USSR 4, 9, 12, 14, 24, 26, 34, 50, 83, 97, 135–6; in Yugoslavia 58, 156; leading role of 59, 63, 71, 95, 99–101, 152–3,

155–6, 180; of a new type 9; social class composition of 135–6

companies: multinational 237; parent 205, 250; parent country 205; host country 205, 319, 351

competition 25–7, 48, 62, 76, 85–6, 89–90, 122, 129–30, 148–9, 151, 162, 164–6, 176, 186, 188, 235, 257, 278, 280, 316, 319, 331, 343, 351, 356

Competitive Authoritarianism 291, 309, 317 competitive elections 4, 75, 87, 149,

152–3, 156, 162, 263, 324 competitive electoral democracies 321 competitive electoral processes 15, 294 confrontational policies 151, 160 constitution of the USSR 99, 101 consumer sovereignty 27, 35, 85 consumerism: political power of 116, 144,

257, 259; rise in state socialist countries of 13, 260, 282, 285

consumerist ethic 285 convergence 18, 137, 199, 203–5, 213,

240, 247, 260, 267, 269–71, 283–5, 347 contradictory economic dynamics 351 contrary class interests 138 cooperation 26, 43, 46, 89, 147, 149, 183,

185, 189, 216, 300, 330, 350–2 cooperatives: in China 210; in USSR 43,

91–2, 109, 167 core states of capitalist system: 40, 114–15,

122, 138, 170; hegemony of 14, 205, 208, 233, 240–1, 245, 250; competition of socialist states with 114–5; and semi-core countries 19, 244, 350–4, 360–1

corporatist 17, 109, 115, 167, 176, 188, 227, 246, 291, 311–12, 356, 360–1, 363

corporatist type of state capitalism 167 counter elites 112 counter-culture 7, 120, 136 counter-elites 6, 12, 18, 323, 328–30; in

coloured revolutions 18, 323, 328–30, 336, 339–40; in dismantling state socialism 12, 105, 108, 156–7, 321; in Russia 313–15, 337; lack of, in Asian republics of USSR 255

counter-revolution 3, 6, 13–14, 20, 171 counterpoints 50, 350, 353–4, 359, 361 countervailing elites 168 coup d’etat 156, 328 creative destruction 13, 284 crises 13, 85, 112, 136, 210, 248, 322 Croatia, independence of 156 CSCE 147, 183 cult of personality 88


368 Index

cultural revolution 4, 28, 30; in China 41–2, 54, 68–71

Curtis, M 51 Czech Republic and Czechoslovakia: 18,

108, 177, 183, 187, 202–3, 208, 210, 214, 242, 248, 252–3, 262, 266, 268, 270, 272, 275, 277–8, 292, 344; 1968 events in 63–4, 155; Communist Party in 63; development of communism in 40; economic outcomes of transformation in 202, 204; effects of transformation on public welfare in 269; fall of communism in 155; market socialist proposals in 61–4; political and economic reform in 54, 61–4, 155; termination of reform in, 64

Dahrendorf, R 259, 286 Davos World Economic Forum 176, 314 Dawisha, K 159–60 de-industrialization 188, 241, 247, 250,

284, 315, 347 de-modernization 227, 347 death rate for men 280 democratic centralism 26, 151, 161, 165 democratic revolution 329, 341, 343 democratic reform: lacking in China 76–7;

in USSR 97–9; and coloured revolutions 332

democratization 12, 18, 332, 343, 362; of Eastern European states 148; lack of, in China 77, 78; lack of, after coloured revolutions 332; public disenchantment with 18; of USSR 12, 97–8, 101, 105, 136; western policy of 322–3

de-modernization 227–8 demographic changes 133 demonstration effect 150–1, 339 demonstrations 104, 106, 154–6, 315, 321,

324–5, 327, 332, 336, 338–9, 345 Deng, Xiaoping 71, 75 desirability of jobs 33 destabilizing elements 104 Devine, P 65 Dicken, P 125, 246 Dickson, B 77–8, 81, 121, 125 differences in GDP 224, 270 disenchantment 3, 11, 18, 115–16, 264–5,

283–5, 324, 347 disequilibrium 111, 124 disintegration 260, 299, 361; causes of, of

state socialism 13, 101, 108, 117, 151, 157, 171, 253; coup as attempt to halt, of USSR 105; China’s reaction to, of state socialism 253, 257; of the USSR

14, 101, 151, 163; prevention of under state socialism 14–15, 161, 163

dismantling 5, 12–13, 80, 86, 91, 94, 100–1, 124, 127, 136, 139, 149, 171, 185, 197, 215, 220, 257, 299, 357; of the apparatus of state socialism 91

distribution: ef� ciency of, in market economy 167, 170; of income and wealth 31, 33, 34, 62, 134, 267, 272, 274, 275, 299, 309, 329, 357; under market socialism 56–7, 60; in planned economy 12, 26, 28, 49, 50, 53, 114, 129, 166, 218; policies in China 72, 74–5, 167

divergence 21, 205, 213, 270, 288, 347, 361 diversities of capitalism 350 see also

varieties of capitalism dividends 312 domestic credit 211–13, 285 domination 8, 45, 128, 133, 271, 298, 300 Dubcek, A 64, 155 Durkheim, E 177

Eastern Europe: China’s differences from 42, 70, 76, 78, 118; effects of perestroika in 4, 12–13, 54, 148–50, 152–6, 162, 170; end of state socialism in 14, 107, 157, 175; expansion of communism to 3, 11, 39–41; formation of blocs in 180, 183–7; lack of Russia’s in� uence in 189; civil society in 218, 221, 224; integration into world economy of 241; social classes in 4, 134–6, 138; movements for reform in 100, 104, 108, 110, 112, 120, 123, 139, 148; Western policy toward 14, 90, 116, 140, 146, 253; economic effects of transformation in 113–15; levels of inequality in 272; political alternatives in 338; urbanization and industrialization in 117; see also Yugoslavia, Czechoslovakia, Hungary

EBRD 186, 197–9, 202, 209, 211–14, 251, 260, 277–8, 314, 343, 349, 351, 353, 361

economic coordination 59, 201, 218–19, 221, 348, 351, 353, 358–9

economic decline: as factor in fall of state socialism 112–16, 120; and global economic crisis 242–3, 256; halted in China 113, 252–4; in Russia 191–3

economic depression 18–19, 242, 247, 256, 265

economic development 8, 24, 29, 51, 78, 87, 123, 125, 141, 167, 181, 186, 201, 210, 217, 226, 250, 270, 314, 354, 357

economic footprint 358


Index 369

Economic Forum at Davos 314 economic growth 11, 13, 29, 54, 57, 71,

74, 83, 87, 99, 112, 115, 122, 149, 166, 168, 177, 253, 275, 283, 356

economic mechanism 56, 62, 65, 83, 90, 153, 168, 170

economic recovery 203 economic rents 19, 26, 63, 355 ‘economic’ civil society 229 education: in USSR 26, 30, 33, 43; in

China 43–4, 69, 77; rise in Eastern European levels of 118–19; nationalist movements and levels of 122–3

electoral collectivist authoritarianism 295 elections 87, 102 electoral democracy 4, 17, 41, 48, 78, 104,

149, 155, 164–5, 167, 170, 183, 185, 191, 199–200, 216, 219, 221, 228, 248, 251, 253, 256, 260, 265–7, 283, 286, 303, 323, 340, 347, 356

electoral revolutions 341 elite: disintegration 108, 157; dissention

107; ministerial 98; replacement 341 Ellman, M 93, 95–6, 110 emigration 17, 25, 34, 60, 154, 190, 277, 299 Engels, F 7, 20, 25, 36, 110, 128 Enlai, Z 71 enlightenment revolutionism 172 ethic of communism 11, 95–6 Eurasian Economic Community 352 Eurocommunist 151 European Bank for Reconstruction and

Development 147 European Union 5, 15–17, 19, 46, 64, 85;

Acquis of 229–30; economic effects of membership in 199, 201–3, 213, 241–2, 245, 247–8, 253, 274–5, 277–8, 283–4, 349; economic problems within 256, 348–9; membership as political alternative for outside countries 228–9; membership of post-socialist countries 182–9; political effects of membership in 199, 239, 247–8, 250, 253, 349; Russia’s relationships with 189, 252; Ukraine as a challenge for 324; new member states (NMS) of 16, 182, 187, 348; old member states of 228

European Values Survey 221–2 Euroscepticism 349 ex-ante coordination 27 ex-post coordination 27 exchange value 26, 127, 131, 358 exit polls 296–7, 323, 337 exploitation 7–8, 56, 61, 68, 89, 127, 133,

140, 205, 250, 271, 302, 351

exports 73, 94, 234–7, 243, 245, 249, 256, 274, 303–4, 315, 352

extended family networks 282

Fainsod, M 46 fall of communism 36, 46, 111, 143, 152,

193; external environment, as factor 117, 143–52

famine 24, 29, 34, 36, 71 farmers 28–9, 33, 78, 85, 109, 135, 287 fascism 41, 44–7, 101, 144, 165, 300 Fawn, R 362 federative state 163, 165 Feher, F 125, 133, 140, 271, 287 Fewsmith, J 80–1 focus groups 325, 327, 329, 336, 338, 342–3 footprint of state socialism 11, 250, 254 Forbes Index 233–4, 245, 274–5, 302 foreign affairs 58, 64, 101, 148, 155, 170,

190, 292, 299, 332, 344 foreign banks 208–10, 243, 248 foreign donors 226–7, 230 foreign interests 150, 215, 341 foreign investment 16, 73–4, 168, 201, 279,

292; foreign direct investment (FDI) 187, 201–2, 205, 214, 235, 237–9, 274, 307, 234, 277

foreign ownership 16, 205, 208–9, 249–50, 319, 360

foreign policy 41, 58, 89, 112, 143–4, 150, 159–60, 165, 189, 256, 293, 298–9, 315, 322, 362

Foreign Policy Concept 299 Fortune Index 207–8 fourth dimension of transition 143, 158 Fradkov, M 307 frameworks of power 313 Freedom House 199–200, 226 Friedrich, J 44–5, 47, 51–2, 359, 362 Fromm, E 44 Fukuyama, F 259, 285–6, 294, 355, 362 full employment economy 19, 90, 116

G8 348 G20 244 Gallagher, M 51, 78, 80–1 Gaman-Golutvina, V 319–20 Garthoff, R 96, 158–9 GATT 59 Gazprom 207, 249, 303, 313 General Motors 109, 306 geographical determinism 251 Georgia 16, 107, 124, 274, 287, 344, 351;

civil war in 182; coloured revolution


370 Index

in 321, 325, 330, 331, 332; economic outcomes of transformation in 202, 274, 332; nationalist movement in 162; participation in CIS 181; political reforms in 199, 227; under Saakashvili 332, 339–41

German Democratic Republic 148–9, 248, 269, 292; civil society in 222; economic reform in 167; fall of communism in 154–5; as economically developed state of socialist bloc 40, 61, 177; reuni� cation of, with Federal Republic 4, 155

Giddens, A 7, 133, 140, 287 Gierek, E 136 Gilley, B 79–81 Gilmore, C 301 Glasnost 12, 89, 98–100, 120–1, 134, 148,

171, 253 global competition 130, 176 global economic crisis 242, 348 global economy: position of post-socialist

countries in 180, 245, 310; Russia’s involvement in 19, 245, 307, 309, 314; Yugoslavia’s involvement in 60

global markets 243–4 global military competition 129–30 global political elites 131 Goldfarb, J 45–7, 52, 136 Goldman, M 303–4, 307–8, 317, 319–20 Gonzales, Felipe 151–2 Gorbachev, M: political policy of

perestroika by 97–104, 161, 253; economic policy of perestroika by, 83–95, 133, 167; Western in� uence on 14, 144, 147, 149–52, 162, 308; opposition to 105–7, 109, 123; policy in Eastern European states 108, 148–9, 152–7, 170; political elite under 159

Gosplan 83 Grachev, A 159–60 gradual process of reform 167 Great Leap Forward 67, 71, 80 Greece 171, 245, 256, 349 Gref, G 307 Grigoriev, P 288 gross domestic product: in China 73,

113, 127; in state socialist countries 178, 267

gross national product 94, 202, 213, 248, 347; see also gross domestic product

Gruen, C 275, 288 gulags 35 Gurr, T 332–3, 344

Hahn, G 301, 318 Hajda, L 122, 125–6 Haller, M 141 Halliday, F 147, 159, 259, 286 Hann, C 216, 230, 289 Harman, C 130–1, 140 Harris, J 244, 246, 362 Havel, V 155, 221, 230 health: in China 79; deterioration of

provision 134, 171, 191, 264, 270, 275–6, 279–82, 284, 329, 332; in state socialist countries 41, 116; in USSR 31, 33, 43, 120

health care 43, 272, 280, 282, 284, 288–9, 332, 356, 362

hegemony 201, 230, 233, 240, 254, 294, 336; of Communist Party, in China 4, 75, 77–8, 167–8, 182, 254; in USSR 11–12, 57, 89, 93, 97, 99, 102, 121, 169; in Yugoslavia 59–60; opposition to Soviet 67, 184, 254; Western economic and political 108, 336: Russia’s opposition to 17, 307–8, 310, 316, 341, 350

Heilmann, S 77, 80 Helsinki Human Rights’ Agreement 146 Hettne, B 350, 361, 363 high-technology 234–7, 241, 245, 315, 352 Higley, J 110, 160 Hirst, P 193, 244, 246 Hitler, A 11, 35, 46–7 Holmes, L 50–1, 124–5 Honecker, E 154 Hong Kong 49, 72–4, 207, 235, 240, 246 Hu, S 75, 80–1, 224, 271 Hughes, TJ 51 human development 18, 80, 177–8,

194, 203–4, 236, 267–71, 280–1, 284, 287–8, 333

Human Development Index 178, 204, 267, 269

human liberation 27 human rights 146–7, 186, 217, 223–4,

330, 344; assertion of 45, 147, 186; individualistic and collectivist assumptions about 217; lack of, under communism 262; US policy agenda in terms of 144, 356

Hungary 275–7, 279–80, 292, 325; civil society in 222, 225, 227; class composition of political parties in 136; development of communism in 41; economic outcomes of transformation in 202–5, 275–7; emigration from GDR through 147, 154; effects of transformation on public welfare in


Index 371

268–70, 279–80; European integration of 183, 185–7; fall in communism in 153–4; production of high technology by 237, 241; fall of public support for democracy and capitalism in 261–2, 266; reform movement in 114; rise of Western mass communications in 145

hybrid capitalist economies 360 hybrid economic formation 312, 358

Iakovlev, A 159 identity with socialism 17 ideology of dissent 102 illiteracy 70, 246, 251, 260, 274, 292, 304,

314, 320, 349, 353–4, 356 impact of the West 250 imperialism: Lenin’s theory of 7–10;

revival of Russian 300 income differentials 31, 60, 73, 85, 275 income tax 312 industrial society 6, 28, 61, 77, 117 industry: in China 43, 67–8, 71–2, 75; in

post-Soviet Russia 192, 274, 292, 305, 316; in Tsarist Russia 42; in USSR 28–9, 109, 118, 129, 166, 235

India 17, 19, 29, 31, 34, 233–4, 242, 244, 293, 317, 351

industrial ministries 91, 95, 97 inequality 140–1; income inequality 251,

272–3, 357; increased levels of, as consequences of market reforms 18, 103, 167–8, 192, 251, 271–5, 282; increasing, in China 77, 79, 275, 283; decreasing, in Putin’s Russia 298

injustice 326 Inkeles, A 37 innovation 19, 57, 63, 92, 240–1, 315 institutional design 176 institutionalist approach 177 insurgents 5–6, 13–14, 106, 108–9, 112,

128, 144, 146, 321, 329, 332, 337 intelligentsia 255, 292, 355, 358; as

acquisition class 14, 68, 132–3, 137; size of, in China 42, 121; growth of, in China 77; growth of, in state socialist countries 117–8; increasing role in political institutions 135–6, 292; role in nationalist movements 123; support for reforms 4, 47, 60, 75, 109, 134–6, 152, 175, 254–5 see also middle class

internal markets 245, 253, 352 internal wars 184, 193, 254 International Monetary Fund (IMF) 143,

147, 151, 176, 181, 186, 189–90, 192, 209, 214, 242

international TV 354 internationalization of the economy 73 Iraq war 336

Jackson, B 335

Kaczynski, L 304 Kadar, Janos 153 Kalb, D 284, 289 Kanet, R 317–18 Karatnysky, A 328, 343 Karl, T 342, 356, 362 Karlin, A 296, 317 Kasyanov, M 300 katastroika 94, 100, 167 Katyn 35, 38 Keynes, JM 35, 37 Keynesian economy 187, 349, 360 Khasavyurt 299, 318 Khodorkovsky, M 192, 195, 249–50,

293–4, 305, 315, 317 Khrushchev, N 3, 45, 61, 67–8, 75, 83,

86–7, 98, 100, 116, 118, 120, 134–5, 145, 151

Klasen, S 288 Klaus, V 221, 230, 252 Knell, M 251–2, 257 Kohl, H 149, 154, 159, 296 Kolodko, G 165, 172 Konrad, G 138, 141 Kontorovich, V 93, 96, 101, 110 Kornai, J 57, 63, 65, 166, 170, 172, 179,

194, 305 Korosteleva, E 337, 345 Kostunica, V 330 Kosygin, A 87, 114 Kozak, D 307 Khozraschet 90–1, 98, 123 Kravchuk, L 162 Kryshtanovskaya, O 96, 286, 307, 319 Kurashvili, B 87 Kuzio, T 325, 343 Kwon, S 258

labour force participation rate 276 labour force survey (LFS) 277–8 labour market: in USSR 33, 132, 137;

economic reform in state socialist countries 187, 251, 260, 275, 286; and ‘shortage economy’ 57, 84; see also occupations

Lange, O 12, 56–7 labour regulation 251 Lamont, C 335, 345 land privatization 265


372 Index

Latvia 119, 186–7, 200, 202–5, 210, 225, 227, 246, 254, 287, 344; effects of transformation on public welfare in 268, 278–80; European orientation of 180; internal nationality confrontation in 182, 254; nationalist movement in 101

League of Yugoslav Communists 59 leasing of land 71 Ledeneva, A 177, 193, 302, 318 legitimacy crisis, as factor in fall of state

socialism 107, 120 legacy of backwardness 240 Lenin, V 7–10, 20, 23, 29–30, 50, 77, 101,

120, 128–9, 197, 334; statues of 107 Levitin, I 307 Lewis, A 65, 160, 343, 359 liberalization 59, 73, 78, 94, 155, 188, 197,

199, 254, 323 life expectancy 70, 120, 191, 267, 279,

282, 287, 333, 357 Ligachev, Y 102, 121, 125 Lindstrom, N 143, 158, 344 Lisbon Treaty 256 Lisin, V 274 literacy: low level of 24; in USSR 30, 43;

in China 70 Lithuania 104, 186–7, 200, 287–8; civil

society in 223, 225; economic outcomes of transformation 202; effects of transformation on public welfare in 275, 277; European orientation of 180; fall of public support for democracy and capitalism in 261, 266; independence of 104

Lomagin, N 299, 318 loyalty-solidarity crisis, as factor in fall of

state socialism 13, 134 Luard, DET 51 Lukashenko, A 338 Lukoil 207, 249, 293, 306, 351, 353

Mach, B 141 Magam 335 Maidan 327, 343 Man of the Decade 100 Man of the Year 34, 39, 75, 100 Mandel, E 65, 131, 137, 140 manual workers 26, 31–3, 62, 70, 117–18,

135, 255, 270 Mao Z 42, 44, 50, 67–71, 121, 127 Maoism 42, 67–71 Marcuse, H 45, 127 market: coordination 166, 252, 359;

domestic 74, 176; imperfections 62; quasi-market 114

market socialism 12, 60–2, 64–5,79, 89–90, 99, 149, 167, 254, 359–61; in China 69, 79, 254; in Czechoslovakia 61–7; under Gorbachev 12, 89–90; in Russia 359–61; theory of 55–7; in Yugoslavia 58–60

marketization: inequality effects of 278, 282; in China 4, 73, 76, 282–3; in post-socialist countries 154, 188, 190, 198–9, 220, 247, 279, 353; in USSR 85, 105; social support for 136

Marx, K 7, 8, 25, 127, 128, 129, 133, 139, 172

Marxism-Leninism: as basis of state socialism 34, 49, 120, 169; erosion of ideology of 12, 14, 88, 99, 112, 120–1; ideology of 10, 28; totalitarian analysis and 44–7

Marxist political party 10 Marxist theory: extension by Lenin 7;

Soviet Marxism 25 Mason, D 141, 289 mass media 30, 106, 158, 354; oligarchic

ownership of, in Russia 293; portrayal of consumerism in 116, 282; Putin in Western 299–302; state control of 50, 165, 191, 254; undermining regime by 121

McFaul, M 158, 322, 329, 342–4 McGwire, M 150, 158–60 media merchants 310, 354 media technology 321, 323, 336, 341 Medvedev, D 17, 250, 295, 307–12, 337–8;

liberalism of 307–8, 314, 316, 353, 360 Mensheviks 10, 127, 128 MERCOSUR 351, 361 Meurs, M 284, 289 middle class 13, 114, 118, 123, 255, 274,

343, 353 see also intelligentsia Milanovic, B 272, 288 Miliband, R 95, 124, 286 military capacity 151, 302 Mill, J 98 Millar, J 37, 133, 140 Mills, CW 45, 51 Milosevic, S 330, 335 ministries, All-Union 108, 124 Mironov 296 mobilization of resources 112 Modrow, H 148, 155, 160, 317 Moldova 181–2, 200, 254, 274–5, 352 Moor, B 49, 117 moral capacity 120 mortality 120, 270, 275, 279–81, 287–8 mortality crisis 288


Index 373

mortality rates 279–80 Moser, N 305, 319 Mossadeq, M 304 motivation of participants 326 motivations of counter-elites 108 Mukhin, A 314, 319–20 multi-party system 64, 97, 99, 149, 153,

260–1, 265–6, 324 multi-polar world 354 multinational companies 237 Murdoch, R 318, 354

Narochnitskaya, N 342 nation-building 326 national capitalism 130, 250, 308, 313,

355–60 national champions 354 national corporatism 19 national distinctiveness 19, 256 national identity 8; in break-up of USSR

31, 122–3, 133, 164; in Eastern European and Baltic states 140; in global economic recession, rise of 256, 349; in post-Soviet Russia 192, 256; in USSR 119, 122

nationalism, as legitimization of new order 8, 101–2, 123, 133, 156, 284 see also national identity

nationalization 29, 34, 73, 293, 312, 314 national liberation 42, 44, 162 national movements 124 national self-awareness 164 national sovereignty 19, 184, 256, 341,

348–9 national state-led model of development 310 nationalism 8, 101–2, 110, 123, 125–6,

133, 172, 284–5, 300, 355 nationalist movements 101, 122, 124,

162, 164 nationalization 29, 34, 293, 312, 314 Nazarbayev, N 335 negotiated settlement 107, 157 neo-liberal globalization 243–4, 360 neo-liberal market model 19, 256, 348 neo-liberal world system 353 neo-liberalism 6, 282–4, 307, 314, 348,

353–5, 357, 360–1; approach to transition in post-socialist countries 176, 179, 191, 229; and civil society 215–6, 218, 221; globalization of 243–4, 251, 256, 307

new capitalist class 68, 190, 292 New Labour 88 new member states (NMS) see European

Union NGO sustainability 225–6, 231, 329

Nolan, P 245, 363 Nomenklatura 14, 130, 132, 135, 137, 165 North Korea 4, 115, 171, 199–200, 255,

258, 270 Norway 221, 304–6 nostalgia 17, 262, 285–7, 300 nuclear armaments 292 Nye, J 317, 322, 336, 342–3, 356, 362

Obama, B 64, 300, 308, 312 occupations: and changing social structure

13, 46, 112, 117–18, 132–3; income and status differentials in USSR 31–2; and support for reforms 139, 254

October Revolution (1917) 3, 5–7, 10, 23, 27, 29–30, 128, 144

OECD 37, 115, 151, 242, 246, 280 oil production 305–6 old EU member states see European Union oligarchs 315–16, 355; bringing Putin to

power 291–2; crackdown on 249–50, 294, 299, 316; loyal oligarchs 274, 315; Tymoshenko, Y 330; in Yeltsin’s Russia 190–2

Open Society Foundation (Soros) 226 opposition parties 99, 148, 154, 337 oppression 11, 24 Orange Revolution 209, 343–4; causes of

323–4; nation-building 326–7; political character of 327–30; public protests and 325–7

Orenstein, M 143, 158, 344 organizing principles 19, 41, 47–8, 56, 86,

90, 98, 102, 107, 156, 163, 256 orthodox 7, 20, 24, 58, 88, 336, 355 Ost, D 37, 283, 289, 319, 323, 362 Ostrowski, W 335, 345 Otunbaeva, R 330 overcentralization 90

pact(s) 64, 106, 148, 151, 153, 157, 163, 168, 170, 183–4, 294, 310; negotiated 157

Pakulski, J 110, 160 Panina, N 287, 343–5 Panitch, L 95, 124, 286 Parankulangara, B 81 paranoia 35, 300 partial transition 340 party system 63–4, 97, 99, 149, 153, 164,

260–1, 265–6, 324, 343 path-dependency 15 peasant family 24 peasants 10, 13, 28–9, 33, 43, 70, 73, 76,

78, 136, 255, 287


374 Index

Pei, M 77–8, 80–1,125 people’s democracy promotion 331 People’s Liberation Army 69 people’s revolution 329 Perry, E 77, 80 personal discontent 285 Petrov, Y 314 Pew Global Attitudes Project 18, 261–3,

286–7 Pikalevo 306, 320 Pipes, R 46, 52, 124, 158, 160, 172, 259 Pirani, S 319 planned society 26 planning 11–12, 25–8, 34–5, 39, 48, 54–7,

61–2, 65, 68, 72, 75–6, 79, 83–8, 90, 92–5, 103, 107–8, 120, 133, 138, 144, 148–9, 161, 164, 166–70, 177, 247, 267, 276, 347, 357–9

Pleines, H 172, 230, 305, 316, 319, 344 plurality of interests 121 Poland: changing occupational structure

in 117–8; civil society in 225; class composition of political institutions in 136; development of communism in 35, 41; economic outcomes of transformation 202, 204; effects of transformation on public welfare in 268, 270, 274, 276–7, 279–81, 284; European integration of 183, 185–7; fall of communism in 108, 152–3, 177; industrialization and urbanization in 76; lack of economic crisis in 242; levels of education in 76; public support for democracy and capitalism in 18, 261–2, 266; reform movement in 108, 114, 123, 134; rise of Western mass communications in 145; role of Catholic Church in 152; Solidarity movement in 106, 146, 152

policy of transition 175 political capacity 229 political class 14, 132, 156, 171, 340;

alienation from 135; in China 70, 76, 121; in USSR 122, 132, 171; ruling 340

political elite 14, 46, 54, 103, 105, 108, 112, 115, 120, 139, 141, 150, 152–4, 157, 159, 171, 254, 300, 307–9, 314, 331

political elites 15, 17, 41, 46, 54, 60, 76, 103–4, 111, 120, 131, 136, 139, 145, 148, 150–1, 153, 167, 171, 188, 191, 221, 239, 255, 257, 302, 307, 309–10, 339, 354, 361

political liberals 307 political networks 64, 177

political opposition 121, 219, 229, 337, 343 political party membership 222 political reform 75–6, 81, 97, 106, 153,

157, 163, 167–8, 171, 200, 214, 254; lack of 75

political support 13, 118, 134–5, 170, 254, 314; system of 13, 118, 135, 254

Pollis, A 216, 230 polyarchy 180, 251, 254, 257, 342–3,

357, 362 Popov, G 103 populist 283, 314 Pora 329, 339, 345 post-communism 175, 213, 324 Potanin, V 293 poverty 18, 33, 70, 80, 96, 190–2, 250,

271–3, 275, 280, 283, 285, 288, 295, 298–9, 324, 332, 348, 357

Prague Spring 63 predisposition for change 339–40 primary exporting sector 241 primary exports and inequality 274 private health service delivery 281 private property 313, 322, 340, 355–6, 361;

as characteristic of capitalism 48, 55, 168, 283; as inimical to state socialism 49, 55, 57, 127; introduction of 102–3, 109, 111, 143, 150, 162, 170–1, 186, 219, 252–3, 255, 286, 291; loss of 149

private sector 77, 81, 118, 186, 213, 274–5, 311–14, 355

privatization 14–15, 47, 73, 75–6, 79, 89–90, 92, 94, 103, 106, 108–9, 121, 124, 131, 133, 136–9, 144, 152–4, 167–9, 179–80, 182, 186, 190–2, 194, 197–8, 201, 209, 220, 228, 234, 252, 254, 257, 265, 274–5, 279, 283–4, 286, 288, 302, 305, 309–12, 314, 316–17, 324, 330, 339, 353, 357, 360

professional elites 78 professional workers 33 Prokhorov, M 296 protest 65, 79, 96, 123, 322, 325–8, 331–4,

337, 341, 343–4 proto-parties 99 public disenchantment 283, 347 public dissatisfaction 120, 265 public mobilization 324, 340 public opinion polls 18, 295–7, 325, 341 public scepticism 18, 283 ‘Pussy Riot’ 301 Putin, V: consolidation of new political elites

by 17, 307–9, 339; control of Russia’s material assets by 239, 250, 305–6, 360;


Index 375

early policies of 292–4; energy policy of 302–4; political opposition to 306, 313–15; rise of 291–2; Russia’s economy under 16, 245, 250, 297–8, 304, 309–13, 316, 351, 354, 355; support of 263, 279, 296, 338; in Western media 299–302 see also under authoritarianism

Puttnam, L 318

radical reform 18, 86–8, 100, 102, 104, 110, 122–3, 135, 139–40, 153, 175–6, 221

Radnitz, S 331, 344 Rakhmanova, T 344–5 Rakusanova, P 230 Ranasinghe, R 284, 289 ranking of world universities 246 rationality 27, 165, 259 Reagan, R 39, 145–7, 158–60, 285, 300, 303 Red Guards 69, 71 reform leadership 14–15, 88, 91, 98,

134–6, 143, 151, 157, 162, 164, 166, 170–1, 176; and the price system 166, 170; Czechoslovak movement 54, 152; programme 64, 89, 92, 166, 192; in Eastern Europe 136; of Gorbachev 14–15, 88, 91, 98, 134–6, 143; of state socialism 102, 163, 169

regime change 151, 219, 227, 322–3, 331–2, 335, 340

regional associations 234, 352 regional bloc(s) 17, 350, 352, 353, 360 regional powers 101, 354 relative deprivation 32, 333–4 religion: fall of state socialism and rise of

123, 156, 284–5; in Tsarist Russia 24; in early stages of USSR 24, 30; opposition to communism by Church in Poland 152

renationalization 293, 310, 358 rentier class 302 research and development 240–1 resource management 13, 108 reverse transformation 357 reversion to capitalism 68 revisionists 55, 76, 169 Rivkin-Fish, M 288 Robinson, W 322, 342–3, 362 Roemer, J 65, 127, 132, 140 Romania 108, 113–14, 146, 152, 186–7,

200, 222–3, 225, 269–70, 275, 344; fall of communism in 155–6

Rosneft Oil 207, 249, 303, 305, 307 Rousseau, J 125 Rozman, G 65, 80 rule of law 78, 97, 162, 186–8, 308, 315, 342

ruling elite 104, 151, 305, 339, 360 Russian Federation: absence of coloured

revolution 336–8; civil society in 216, 222, 225, 227; economic outcomes of transformation in, 202, 204–7, 209–13, 233–9; effects of transformation on public welfare in 260–4, 266, 268–70, 272–80; effects of world economic crisis on 242; internal con� icts in 182; partial transition to capitalism of 199, 201, 241; participation in CIS 107, 181–2; reforms in 189–93; reconstruction of, under Putin 291–300 302–7, 310–13, 315–16; role in dissolving USSR 102, 107, 162; as a new world power 297

Russian companies 207, 293, 304–5, 311, 363

Russian corporate capitalism 310 Russian National Security Concept 298, 318 Ryzhkov, V 91, 301, 315

Saakashvili, M 330, 332 Sakwa, R 95, 110, 124, 172, 193, 195,

316–17, 319–20 Saudi Arabia 146, 193, 297, 306, 316 Saunders, F 146, 158 Saville, J 110, 286 Sberbank 207, 249 Schmitter, P 143, 158, 193, 342, 356, 362 Schumpeter, J 13, 161, 362 Schwab, P 216, 230 secession movements 104 Sechen, I 307 self-destruction 36, 46, 94 self-management 58–60, 91 semi-core 244, 350–4, 360–1 semi-periphery 114, 350 Serbia 58, 156–7, 227, 292, 321, 325,

330–2, 335, 338–41 Serdyukov, A 307 Shabrov, O 308, 320 Shakhnazarov, G 87 Shambaugh, D 51, 81 Sharp, G 101, 183, 270, 322 Shchekino experiment 84 Shevardnadze, E 159, 330 Shushkevich, S 162 Shuvalov, I 314 Sik, O 61 Sklair, L 158, 246, 354, 362 Skocpol, T 5, 19–20 Slovenia 58; independence of 156, 186–7,

200, 224–5, 248, 272, 280, 344 smart power 357


376 Index

Smith, A 90, 95, 100, 110, 194 Smolensky, A 293 social base of political reform 76 social class 13, 49, 127, 131, 254–6, 285;

antagonistic 56, 63,127; analysis 57, 127, 170; divisions 108, 136; of interest 6, 108, 123, 137; and rights 122, 129, 133, 139, 159, 282 see also political class

social cohesion 251 social conditions 104, 248, 253, 333 social costs 63, 85, 276, 278 social division 254 social identity 8, 13, 124 social movements 104, 322, 342 social responsibility of industry 294 social structure 121, 123, 125, 161; impact

of changing 13, 47, 112, 116–19; in Tsarist Russia 24

social well-being 27, 260, 267, 347 social-democratic model 103, 257 social-democratic policies 349 socialist project 3–4, 19 societal systems 162 sociological imagination 162 soft power 144–5, 168, 292, 294, 301,

322–4, 339, 341, 343, 356–7, 362 ‘solidarity’ movement 109, 146, 152 South Korea 115 Sovereign democracy 294–5, 307 sovereignty 17, 19, 27, 35, 60, 85, 90, 104,

106, 109, 122, 133, 148, 156, 184, 192, 256, 294, 297–8, 308, 316, 341, 345, 348–9, 360

Soviet identity 49 Soviet Marxism 25 Soviets 10, 50, 89, 91, 98–102, 358 Sparks, C 158 special economic zones 72–3 speculation 190, 208, 302 Spiro, H 45, 51 Srholec, M 251–2, 257 stakeholders 358 Stalin, J 11, 20, 28, 34–7, 39, 41–3, 45,

49–50, 52, 54, 59, 67–8, 70–1, 86, 98, 101, 122, 129, 134, 159, 166

Stalinism 27, 35–6; criticisms of 89, 100, 128; link to fascism 46, 101

Stalingrad 35 Stalinism 20–1, 27, 35–7, 46, 89, 100–1,

128–9, 220 Star Wars 168 Stark, D 65, 177, 193 state capitalism 34, 68, 79, 127–30, 167–8,

176, 257, 353 see also bureaucratic state capitalism

State Committee for the State of Emergency (SKChP) 105

state control 27, 34, 44, 75, 85, 249, 305, 312, 349–50, 354, 360–1

state coordination 31, 219, 249, 315, 347 state identity 19, 124, 256 state managed economy 199 state ownership 11, 43, 53, 58–9, 61, 73,

76, 79, 83, 100, 133, 137, 177, 182, 210, 213, 220, 234, 249, 254–6, 291, 303, 305–6, 310–11, 313, 347, 351, 354, 357, 359–60; of Russian companies 311

state socialism 252–4, 257–60, 267–8, 271–2, 276, 279, 283–6, 288–9, 332, 348–50, 358, 360, 362; as alternative to capitalism 3, 4, 50; with capitalist characteristics, in China 77–9; collapse in USSR of 12–13, 86, 91, 97–8, 102–7; compared with capitalism 25–8, 47–8, 98; concept of 6–7, 34; contradictions within 53, 163; criticisms of 12, 67, 84–5; development in USSR of 5, 11, 23–9, 34, 49; economic performance compared with capitalism 28–9; factors in fall of 107–9: changing political support structure 14, 111, 134–5; economic decline 112–13, 116, 120; external environment 117, 143–52; legitimacy crisis 107, 120; loyalty-solidarity crisis 13, 121, 134; incompatibility of market with 55; loss of public con� dence in 6, 53–4, 87, 148; market socialism as alternative 12, 55–64; theories of 34, 127–31; Western in� uence on disintegration of 6, 14, 85, 105, 143, 157

state-building 248 state-guided investment 234 state-led capitalism 355 state-owned banks 210–11 state-owned transnational corporations 304 Statist Societies 200 Steinbeck, J 29 Stiglitz, J 305, 319 stoppage of gas 303 strategic companies 234 Strategy 2020 311, 313 strikes 12, 60, 94, 99, 152, 154, 292,

338, 349 subsidies 33, 59, 64, 93, 186, 213, 313 Summers, L 176 Supreme Soviet of the USSR 135 Surkov, V 21, 258, 294–5, 307, 317 Surplus 7–8, 28–9, 34, 55, 68, 79, 109,

127–9, 133, 137–8, 250, 313, 357 symbols of the Revolution 107


Index 377

system transfer 15, 257 systemic imbalances 112 Szelenyi, I 124, 138, 141

Taiwan 72, 74, 115 Tajikistan 119, 181, 199–200, 202, 275,

287, 352, 361 Tandem (Putin Medvedev) 144, 309, 314 tax policy 312 Taylorism 28, 37 technology gap 114 Thatcher, M 89, 145, 147, 149, 151–2,

159, 296, 341 third wave of democratization 323 Third Way 12, 79, 160 Thompson, G 193, 244, 246 Tiananmen Square 75, 253 Time magazine 75 Tito, J 54, 58–60 Titoism 156 TNC see transnational corporation TNK-BP 207, 304–5 Top 500 global companies 207 Totalitarianism 7, 27, 35, 44–7, 51 trade unions 43, 104, 176; in

Czechoslovakia 62; lack of, in Tsarist Russia 24; as part of civil society 215, 218, 220–2; in USSR 43, 50, 132; in Western countries 9, 101, 176

traditional values 284, 341, 376 transaction costs 26 transition from autocracy 144 Transition Index 198 transitional society 124, 130–1 Transitologists 15, 18, 143, 176, 179–80,

197, 199, 216–17, 229, 286 transnational actors 143 transnational corporation (TNC) 16, 205,

208, 214, 241, 249, 306, 316, 353 transnationality index 238, 242, 354 Transneft 249 Trappmann, V 288 Trotsky, L 20, 130–1, 140 Tsar 98 Tulip Revolution 331 Turkmenistan 177, 181–2, 194, 199–200,

203–5, 209–10, 249, 270, 272, 274–5, 277, 279, 287, 352, 361

Tymoshenko, Y 209, 330

Udaltsov, S 301 Ukraine: appeal of socialism in 139, 252,

254; aspirations to EU membership of 16, 339; civil society in 216, 222, 225, 227;

coloured revolution in 18, 321, 323–32, 334, 336, 338–42; economic outcomes of transformation in 202, 205, 209–11, 252; effects of transformation on public welfare in 268–70, 272–6, 279–80; effects of world economic crisis on 242, 256; famine in 29; gas dispute between Russia and 303–4; partial transition to capitalism of 16, 199, 249, 254, 350; participation in CIS 107, 181, 352; political transformations in 200, 249; public support of reforms in 255, 260–6; role in dissolving USSR 102, 107, 162; Western � nancial assistance to 146, 188

UNCTAD 206, 214, 239, 241, 245–6, 319 unemployment: in China 79; and

coloured revolutions 329, 332; effects of transformation in post-socialist countries 18, 94, 250, 271–2, 275–9, 283; and EU membership 188, 247; and global economic recession 184, 242, 245; lack of, in USSR 33; in post-Soviet Russia 190–2, 274, 298–9; in Western economies 34, 59, 112; level of registered 276–7

union-republican ministries 91, 96 United Russia 296, 301, 313, 319, 336 urban population 77, 117, 123, 134 US Agency for International Development

(USAID) 221 US National Endowment for

Democracy 146 United States (USA): China’s relationship

with 74–5; democracy promotion policy of 322–3, 329–30, 335–6; Embassy in Moscow 105; in� uence on post-socialist countries 157, 179, 186, 189, 215, 224–6; in� uence on USSR 90, 155, 165; pro-democratic and anti-communist policy of 144–6; ‘soft power’ of 144–5, 322–4, 339, 356–7

use value 26, 358 USSR (Union of Soviet Socialist

Republics):1991 coup 105–6; alternative routes to reform in 163–72; collapse of state socialism in 12–3, 86, 91, 97–8, 102–7; economic policy in early stages of 25, 28–30; economic reform of perestroika in 83–95; education in 26, 30, 33, 43, 118–19; in� uence and links with state socialist countries 147; move to capitalism in 102–3; nationalism and independence of republics 49, 104, 107, 122–4, 146; political reform of perestroika in 97–101;


378 Index

social class and political support for transformation in 131–9; Soviet model of socialism 23–36; Tsarist heritage of 24–5, 31, 35; urbanization in 13, 117, 119; Western in� uence and policy toward 44–5, 85, 90, 92, 140, 143–52, 162, 165

Uzbekistan 119–20, 177, 181, 199–200, 204, 206, 209–11, 249, 268–70, 272, 275, 277, 279, 287, 311, 321, 331, 333, 341, 352, 361

Venezuela 19, 308, 351, 361 Verba, S 24 Verdery, K 284, 289 vernacular languages 119 Vidal, G 164 Vinogradova, E 288 Volgograd 35

wage differentials 31–2, 62 Wallerstein, I 6, 20, 114, 205, 361 Wang, H 51, 80–1, 158 Warsaw Pact 64, 148, 153, 168, 170, 183–4 Washington Consensus 168, 267, 304,

314, 357 Watson, P 51, 281, 284, 288–9, 362 Webb, S and B 36–7, 259 well-being, levels of 213, 267–8 Wesolowski, W 32, 37 Western capitalism 15, 28, 144, 302 Western democracy 170, 341, 356 Western economists 15, 85, 178 Western media’s agenda 302 Western policy 90, 147, 149, 167, 225,

309, 329, 336, 357 Western Ukrainians 339 Westoby, A 45, 51–2 White, S 50–1, 65, 73, 79–80, 95, 110,

141, 160, 262–3, 286–7, 301, 307, 317, 319, 343, 345

Wilber, CI 30, 36–7 Wilson, A 253, 325, 327–8, 345 Wilson, J 79, 257, 334, 343, 345 within systems’ change 361 Wolchik, S 335, 342, 344 women’s life expectancy 282 workers’ control 26, 65, 92 World Bank 51, 65, 73, 143, 151, 176, 186,

193–4, 210, 214, 237, 241, 243–4, 251, 273, 288, 302, 305, 354

world capitalist class 249 world economic crisis 233, 241, 348 world economy: China’s participation in

181, 207, 234, 253, 351; entry of post-socialist countries into 175, 180, 201, 213, 233, 239; post socialist countries as players in 207, 208, 212, 233, 235, 238, 242, 245, 249, 340, 347; Russian energy sector in 241, 249; world economic crisis 19, 356; see also global economy

world energy resources 305 world order 168, 193, 269, 347 world system 6–7, 16–17, 114, 164, 188,

205, 238, 241, 350–5, 359–61 world values survey 221 WTO 74, 151, 244–5, 304, 309, 350, 353

Xiaoping, D 71, 75 Xilai, B 79

Yakovlev, A 93, 103, 110 Yanaev, G 105–6 Yanukovich, V 303, 324–7, 343 Yaobang, H 75, 80 Yavlinsky, G 93 Yazov, D 105, 158 Yeltsin, B: foreign policy under 189, 239,

308; internal opposition to 190; neo-liberal market policy under 190, 251, 256, 302; role of, in fall of communism 102–8; Russia’s chaotic capitalism under 191–2; support to rise of Putin 291–2

Yeltsin elite 159 youth unemployment 277 Yugoslavia: character of communism in 54,

58; fall of communism in 156; internal wars in 254; market socialism in 59, 60; national composition 58; participation in world economy 59; political reform in 59–60

Yukos 192, 195, 293, 305, 311, 317 Yushchenko, V 209, 324–5, 327, 330–1,

334, 338, 343

Zaslavskaya, T 87, 95, 124 Zhan, M 282, 289 Zhao, S 81 Zhirinovski, G 296, 336, 338


The Capitalist Transformation of State Socialism: The Making and Breaking of State Socialist...

Documents

Transcript of The Capitalist Transformation of State Socialism: The Making and Breaking of State Socialist...