How the West Facilitated the New Autocratic Kleptocracy in Russia

In January 2009, the Central Intelligence Agency released a report that declared that in the year 2025, there would be a mafia-controlled state in Europe. While at the time of the report Il Principe thought the report was a subtle reference to the country of Italy under the leadership of Silvio Berlusconi, new documents by the U.S. government released by Wikileaks, reveals that the CIA may have been actually referring to the current Russian government.

According to The Guardian and the cables released by Wikileaks,

Russia is a corrupt, autocratic kleptocracy centered on the leadership of Vladimir Putin, in which officials, oligarchs and organized crime are bound together to create a "virtual mafia state", according to leaked secret diplomatic cables that provide a damning American assessment of its erstwhile rival superpower.

Arms trafficking, money laundering, personal enrichment, protection for gangsters, extortion and kickbacks, suitcases full of money and secret offshore bank accounts in Cyprus: the cables paint a bleak picture of a political system in which bribery alone totals an estimated $300bn a year, and in which it is often hard to distinguish between the activities of the government and organized crime.

Among the most striking allegations contained in the cables, which were leaked to the whistleblowers' website WikiLeaks, are:

• Russian spies use senior mafia bosses to carry out criminal operations such as arms trafficking.

• Law enforcement agencies such as the police, spy agencies and the prosecutor's office operate a de facto protection racket for criminal networks.

• Rampant bribery acts like a parallel tax system for the personal enrichment of police, officials and the KGB's successor, the federal security service (FSB).

• Investigators looking into Russian mafia links to Spain have compiled a list of Russian prosecutors, military officers and politicians who have dealings with organized crime networks.

• Putin is accused of amassing "illicit proceeds" from his time in office, which various sources allege are hidden overseas.

The cable release by the US government reveals why Russia is considered the 154th least corrupt country in the world and is major contributing factor why Russia is ranked as being the 109th democratic country in the world.

However, the cable release by the US State Department does not acknowledge how the previous actions of the United States, the European Union, and the western led international financial institutions like the IMF and the World Bank in the 1990s helped facilitate the creation of the current autocratic kleptocracy in Russia. To help understand how the former Soviet Union went from authoritarian communist rule, through a tough economic transition to market capitalism and finally to a corrupt autocratic kleptocracy, the 2007 book by Naomi Klein, The Shock Doctrine, is an excellent starting point.

In the chapter, Bonfire of a Young Democracy: Russia Chooses “The Pinochet Option”, Naomi Klein explains that the glasnost (openness) and perestroika (restructuring) policies that Mikhail Gorbachev started in the 1980s, were intended to be followed up by Gorbachev in the 1990s with an economy based on a mixture of a free market and a strong social safety net. This macroeconomic model was based on the Scandinavian model, a model also followed by Japan, South Korea, and France.

However, during the 1991 G7 Summit, Gorbachev was told that the IMF and western financial institutions would only support Gorbachev if he embraced swift economic reforms based on deregulated capitalism advocated by Milton Friedman and other University of Chicago School of Economics alumni.

According to Klein:

Gorbachev knew that the only way to impose the kind of shock therapy being advocated by the G7 and the IMF was with force-as did many in the west pushing for these policies. The Economist Magazine, in an influential 1990 piece, urged Gorbachev to adopt “strong man rule…to smash the resistance that has blocked serious economic reform”. Only two weeks after the Nobel Committee had declared an end to the Cold War, The Economist was urging Gorbachev to model himself after one of the Cold War’s most notorious killers. Under the heading, “Mikhail Sergeevich Pinochet?” the article concluded that even though following its advice could cause “possible blood-letting” it might, just be the Soviet Union’s turn for what be called the Pinochet approach to liberal economics”. The Washington Post was willing to go further. In August 1991, the paper ran a commentary under the headline “Pinochet’s Chile a Pragmatic Model for Soviet Economy.” The article supported the idea of a coup for getting rid of slow-going Gorbachev, but the author, Michael Schrage, worried that the Soviet president’s opponents “had neither the savvy nor the support to seize the Pinochet option”. They should model themselves, Schrage wrote, after “a despot who really knew how to run a coup: retired Chilean general Augusto Pinochet.”

Emboldened by the external political support offered by western media outlets sympathetic to American and British capital interests, in combination with internal political unrest of the Soviet Union republics, Boris Yeltsin was able to challenge and eventually depose Mikhail Gorbachev. Although Gorbachev was reluctant to impose the economic shock therapy the west was looking for, Yeltsin quickly implemented the radical and draconian economic measures in hope of securing large sums of western financial aid.

In order to institute many of the financial stabilization policies the west was advocating for, the Moscow newspaper, Nezavisimaya, noted that Yeltsin appointed the notorious strongman Yury Skokov “in charge of the defense and repressive departments; the Army, the Ministry of Internal Affairs and the State Security Committee.” The decisions were clearly connected; “Probably the strong Skokov can ‘ensure’ strict stabilization in politics while the ‘strong’ economists guarantee it in the economy.”

Eager to satisfy the west, in October 1991 Yeltsin announced the lifting of price controls and the first phase of the privatization of 225,000 state-owned companies. Many western economists including Joseph Stiglitz supported the actions of Mr. Yeltsin.

In a paper written by Stiglitz when he was serving as chief economist at the World Bank, Stiglitz wrote, “Only a blitzkrieg approach during the ‘window of opportunity’ provided by the ‘fog of transition’ would get the changes made before the population had a chance to organize to protect its previous vested interests.”

According to Klein in the Shock Doctrine;

The average Russian consumed 40 percent less in 1992 than in 1991, and a third of the population fell below the poverty line.

The ‘window of opportunity’ for the economic reform advocated for by the west would come to an abrupt end in 1993 when the Russian Parliament endorsed a budget bill that did not follow IMF demands for strict austerity. The budget bill passed by the Parliament was seen by Yeltsin as a challenge to his power, who was desperate to maintain IMF funding, which was propping up the ailing Russian economy.

Although the Russian Parliament had Constitutional authority to do what it was doing with the budget bill, Yeltsin and the west were not happy with the situation. In 1993 before testimony given to the U.S. Senate Committee on Foreign Relations, Clinton appointee Lawrence Summers, testified that the Russian government must do more to ensure continued IMF multilateral support. In other words, the IMF was not happy with the backtracking on reforms by the Russian Parliament.

The statement by the IMF was interpreted by Yeltsin that he had western support and a few days after the statement by the IMF Yeltsin issued decree 1400, announcing that the constitution had been abolished and the Russian Parliament was to be dissolved. Two days later however, a special session of Parliament voted 636-2 to impeach Yeltsin for this outrageous act (the equivalent of the U.S. president unilaterally dissolving Congress). This set the stage for a prolonged confrontation between Yeltsin and supporters of democracy.

Although the initial confrontation between Russian President Yeltsin and the Russian Parliament was peaceful and the two sides were moving towards early elections to settle the dispute, news from a recent Polish election and the loss of power by the Solidarity party which also implemented the same kind of economic shock therapy on its citizens, caused Yeltsin to abandon any support he might have had for early elections to end the standoff. This set the stage for a confrontation between the heavily armed Yeltsin groups of the military and secret police, and an unarmed civilian resistance. While a clear sign from the United States or the EU could have forced Yeltsin to enter negotiations, he only received encouragement from Western leaders.

On October 4, 1993, Yeltsin ordered a reluctant Army to attack the Russian Parliament building and arrest the members of Parliament. Using attack helicopters, tanks, armored personnel carriers and elite troops, the Army operation killed over five hundred people and arrested over 300 congressional deputies and staff workers. As Naomi Klein writes in The Shock Doctrine,

all to defend Russia’s new capitalist economy from the grave threat of democracy.

The members of the Russian Parliament, who wanted to uphold the new freedom and democracy bestowed upon them by the end of the Soviet Union, were instead portrayed by the western media as old hardliners trying to retake control of the country. Even some of the most liberal American newspapers like the Washington Post which declared, "Victory Seen for Democracy” and the Boston Globe, which declared "Russia Escapes a Return to the Dungeon of Its Past", perpetuated the fallacy.

While it is easy for political pundits to advocate for a military coup in a foreign country to enable western capitalists to take advantage of the newly opened up markets, these chicken hawk neo-liberal economic pundits have never suffered the economic upheaval and other social injustices associated with the policies they promote.

Similar to the ‘blowback’ of the September 11 terrorist attacks and the inability of the American public to put previous actions of the United States into context, the support of Mr. Yeltsin by the U.S. and IMF in the 1990s and the ensuing subversion of Russia’s burgeoning democracy ,is a geo-economic example of blowback.