By Boris Kagarlitsky MOSCOW — During the campaign for the elections of December 1993 Russian business leaders vied with one another to sponsor "Russia's Choice" and other "Westernising" political groups. The entrepreneurs believed in an open economy and free competition. Now, two years later, the Russian ideologues of Western-style liberalism are going about with hands outstretched, while the business people avert their gaze. The wealthy "new Russians" are no longer giving money to support liberal values. It is not that our entrepreneurs have grown dramatically poorer over these two years — quite the reverse. The point is that they are now giving their backing to other forces. A rain of gold has been pouring down on patriotic organisations, especially the less extreme ones. The Congress of Russian Communities has become an election favourite. The Communist Party of the Russian Federation has had to pass up many enticing offers, since unschooled worker-Communists who are presented with a mountain of free cheese immediately start looking for the mouse trap. This unexpected change is not the result of a victory by the mythical "national bourgeoisie" over the no less mythical comprador capital. Today's patriotism is a logical continuation of yesterday's "Westernising". The new Russians have become too rich to permit themselves economic and political liberalism. They never loved the West; what they loved was having accounts in Western banks. Now they display a touching love for Russian real estate. Even the best Swiss banks pay no more than 7% interest, while in Russia, despite laments that "the times aren't what they were", there are still ways of pulling in 50 or even 100%. Meanwhile, Russian entrepreneurs find it extraordinarily hard to do business in the West. Foreign journalists spin tales about how hard it is to operate in Russia because of flawed legislation, corruption and inefficient bureaucracy. But in practice, it is far harder to do business in a country where officials do not take bribes, where concealing income from the tax authorities is not tolerated, and where everyone is subject to clearly formulated laws. In private conversations, Western business people will admit as much, even though they will declare the exact opposite if placed in front of a microphone.
Real estate
The new Russians are not only putting their capital into real estate, they also buy shares in industrial enterprises. Before long they discover that, thanks to government policy, it is even more advantageous for them to buy up enterprises entirely. Prices for Russian real estate are now often higher than in the West, but industrial installations can be had for a song. The new property-owners have begun showing an unexpected love for the homeland where they have offices, factories and country estates. But this is a curious kind of love. The newly converted patriots announce proudly that they have started investing money in industry. However, talk of "accumulating capital" means little when the economy as a whole remains in decline. The process of capital accumulation in Russia has not really begun; all that is happening is that capital is being redistributed from state corporate structures to private corporate ones. Meanwhile, funds are being dissipated and efficiency is declining on the scale of the country as a whole. Our entrepreneurs cannot invest capital in reconstructing old factories and building new ones; they simply do not have the money. You can buy a factory for a quarter of its real value, but you cannot build a new workshop and purchase imported equipment for it on the same terms. A serious investment program needs tens of millions of dollars. The new Russians have more cash than they can easily drink their way through, but they do not have enough for effective investment. The first to encounter such problems were the bankers. In 1994, when serious prospects arose of Western banks penetrating the Russian financial market, Russia's banking empires unexpectedly felt like helpless dwarfs beside their Western competitors. As private capital has penetrated industry, a similar situation has arisen there. The new owners of Russian industrial plants discovered that their markets have already been seized by Western firms. The products of these firms are superior, their advertisements are on prominent display and, most importantly, they have real money for developing their productive facilities. It is possible, of course, to imagine new Russians taking these lessons to heart, becoming suffused with the protestant ethic, and sitting for 10 years on a diet of bread and water while investing all their profits in equipping some production line or other that will be paid off in the lifetimes of their grandchildren. But most of the new Russians are finding a much simpler solution — they are becoming patriots.
Protectionism
The same people who yesterday were calling for maximum openness of the economy, extolling liberal values and praying with their faces toward the West, are now screaming about domination by foreigners and demanding that the state provide them with protection. They hold out the hope that the state will support them while they exploit obsolete equipment and try to sell uncompetitive products. Without sufficient funds of their own, they are calling on the state to supply them with credits, investment programs, regulation and support. Meanwhile, they are not about to hand over power and property. Yesterday they made use of the state in order to seize property — today, in order to defend what they have seized. With private capital weak, a strengthening of the role of the state is natural and inevitable. But the "statisation" of the economy can assume diverse forms. Theoreticians of "market socialism" have proposed that the state should solve the strategic tasks, leaving numerous small matters and tactical questions to private business. By contrast, the new Russians are certain that the state should burden itself with a multitude of petty concerns — that is, with the problems which they themselves are unable to solve. Meanwhile, strategic decision-making should remain the monopoly of the new Russians. Since the elite is heterogeneous, every interest group tries to seize its own piece of the state. Defending domestic producers does not necessarily encourage economic mismanagement; it is far from true that protectionism must always lead to inefficiency. But anyone who is familiar with Russian business and with the present-day state apparatus can guess what will happen in practice. The successful use of state protectionism has been possible only where the state has been responsible to society, not just to a few lobby-groups. Unless the private and state sectors are strictly delineated, state intervention in the economy will always be limited to bailing out favourites. Knowing the nature of the state and conscious of their own limitations, the new patriots do their utmost to strengthen their influence in the structures of power, and to turn the helm of the ship of state in the desired direction. Social inequality also creates problems. The new Russians are not complete villains, intent on ruining and humiliating their compatriots. But if they were to start spending money on trying to solve other people's problems, they would soon have nothing left. If there are no resources for serious social programs, all that can be done is to strengthen the police force. While the new Russians were compradors, they could afford to be indifferent to the question of maintaining order in the state. Democracy was even to be preferred, since it was easier to slip abroad from a free country. Now, however, the entrepreneurs need a strong authoritarian regime, capable of defending their interests. Western liberal values are something they would prefer to savour during their holidays abroad. They are now starting to pour resources into supporting nationalist politicians who tell horrifying tales of the corrupting influence of foreigners, and of the dangers from international Jewish capital. Little by little, the sponsors become imbued with the ideas of those they are sponsoring. Whoever pays the piper sooner or later starts dancing to the tune. A year of such evolution may be quite enough to turn a liberal comprador into a Russian fascist. Moreover, this is a perfectly natural progression.