In this course, Peter Kenez, Professor Emeritus at UC Santa Cruz, explains the events of modern Russian history and introduces its most significant actors—from Vladimir Lenin to Vladimir Putin.
Shock Therapy
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From the course by University of California, Santa Cruz
Russian History: from Lenin to Putin
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From the lesson
Reform, Stagnation, Collapse, Rebirth?
Meet the Instructors
Peter KenezProfessor Emeritus
History
[MUSIC]
Yeltsin, unlike Gorbachev, was willing to listen
to the most radical of the economic reformers,
and was willing to accept the recommendation of
putting the Russian economy on a market basis.
What this meant, in concrete terms, was something extraordinary.
How do you privatize an economy of the size of the Soviet economy?
It's never been tried.
Well, not quite, the Russian reformers,
Yegor Gaidar was the most significant and
most intelligent and attractive of these reformers.
Had very much in mind the Polish example, where the privatization,
so-called shock therapy, was carried out successfully.
However, the situation of the Soviet Union was very different.
Poland, after all, still had the memory of a free enterprise market economy.
And more significantly, Polish,
Eastern European people approved of the market economy,
approved of the idea of private property.
This was not the case of among the Russians.
Surveys time and again through our days show a great
skepticism on the part of the Russian people,
of ideas on which capitalism is based.
Well, nonetheless, in order to have a hope for
improving the Soviet economy,
indeed privatization had to be carried out.
What did it mean in concrete terms?
Obviously there are no wealthy investors who would buy factories and
make factories work better.
The factories were outdated, unable to compete under international market.
And what was their value?
Nobody has carried out a privatization,
even on a much smaller scale,
without injustice, without corruption.
Because some people could benefit, and most people would be,
at least in the short run, greatly harmed.
What did it mean in concrete terms?
Factories, which existed
on government support,
had to be withdrawn.
Well, that meant large scale unemployment,
which have concrete political consequences.
So the reformers came up with the idea that
the people of the Soviet Union would all be given shares.
And a share of worth of 100,000 rubles, I believe,
which would be the equivalent of something like $20.
And the hope was that they would invest in the factories where they're working.
And consequently, as shareholders, everybody in the world would
have an interest in the performance of the factories in which they work.
In reality, not surprisingly, it didn't work out this way.
Ponzi schemes came into existence.
Some people bought up the shares.
The shares became,
in some instances, worthless.
And Soviet people did not benefit from,
Russian people did not benefit from having shares in
factories which were not producing for profit in any case.
Well, privatization market economy meant freeing of prices.
The prices in the Soviet economy were
irrational in the sense that they had very little to do with the cost of production.
Cost of bread was subsidized.
Indeed, it was very difficult to know what the values,
which produced in a state organized economy,
what those values in fact really were.
So, what was happening was enormous drop in production,
enormous drop in standard of living.
The per capita income in the course of the 1990s dropped to one-half.
Which, in the Russian case, of course,
starting out with a very low base, meant genuine economic misery.
Economic misery in every sense of the word.
Apartments were privatized,
which meant that bans, criminal bans,
forced people to sell their apartments for nothing.
And then people found themselves in the street.
The food supply diminished.
The factories could not produce in an open market.
And foreign goods inundated the country
because of the freedom of commerce,
which resulted the factories could not produce.
Which resulted in closing down factories and unemployment.
But to return to the organization of the economy,
what was happening was that for political reasons,
not all goods could be evaluated on the free market,
such as bread continued to be supported.
And most significantly oil, energy,
came to be supported, in as much as the cost of Russian oil.
Russia being the largest oil producer in the world.
The cost of Russian oil for domestic consumption
was 1% of that of world market prices.
So some clever people could buy it up in the Russian market and
sell it in the foreign market and making great fortune.
Another way people could make money is that the government
were afraid, of course, of closing down all factories and
gave support, financial support
to factory managers in order to make the factories run.
Now, some clever factory managers took the money,
immediately converted it to dollars.
And then in a month time, when they were to pay
their workers, reconverted into ruble.
And since the average monthly inflation was astronomical,
they made a lot of money.
The point is that this transformation
enabled some people to come away very rich.
Now, the Russian people, with very little respect for
market economy, private property, capitalism,
what they saw seemingly justified their worst fears
of what capitalism was and what free market meant.
Unfettered competition was not something which they would want to take part of.
What is significant for us, that the 1990s for the people of Russia,
Soviet Union, it varied from republic to republic.
Though, the Ukraine and Belarus did know better than Russia itself.
The Baltic states now regained their sovereignty and,
indeed, they received support and they did much better.
Central Asia did even worse than Russia itself.
And Russia was really indescribable misery.
And also, this created something of a social revolution.
That is,
different segments of the population were harmed to a different extent.
Ironically, during intelligentsia, which had been
the most vocal critics of the whole Soviet system were particularly hard hit.
Universities were not supported.
And of course, they lived, like in the past, on support from the state.
And the state was not able to do that.
The consequence was that a large number of Russian scientists,
now the borders were free, could go, and did go.
And that caused long-term damage for
Soviet intellectual and
economic life in the fairly short-term.
It should be pointed out, on the positive side, that for
the first time, genuine intellectual freedom did exist.
Varieties of newspapers were published, expressing different points of view.
The Russian people now could travel abroad.
And indeed, many of them escaped.
If you were a violin player and now you played in the Barshai Orchestra,
but the orchestra could not pay you as well, so
you may not be able to make it somewhere in New York or London.
But a Greek orchestra could pay you better.
And what you were left with is that talented,
ambitious people were left behind, or left.
And what was left behind, was, well,
it would be too strong to say was there residue.
But the loss for Russian intellectual culture
life was something very significant and lasting.
Criminality flourished.
Flourished in the sense that the guards,
the police, never very reliable and
successful in Soviet circumstances.
The laws which were there were not
capable of dealing with contracts for
which there had been no need for the past.
And consequently, what we're left with is a degree of
lawlessness which had not existed even in the Soviet regime.
The consequence of that was that criminal bands took on themselves protection, for
which they were paid.
And if you did open a little kiosk somewhere in the streets of the capitol,
and you were afraid that criminal bands will come and take your possessions away,
you hired some other criminals and pay them protection.
This is a well known phenomenon.
It existed not only in Russia but before and after, in other places.
But what you were left with is economic misery.
And the social transformation in the sense that some people did very well.
And who would do well had very little to do with previous social standing.
That is, you were a university professor.
Now, your salary became practically worthless, at this time of inflation.
Your daughter on the other hand, could get a job, because she knew English.
Get a job in a multi-national office, which opened in Moscow to sell,
let us say, Mercedez-Benzs's, which Moscow came to have the largest number anywhere.
She made a very good salary.
She was paid in dollars, was not concerned about the inflation.
And so her father who had been a famous man,
a famous intellectual,
came to live on what his daughter could provide.
And the social consequences of this social revolution were really far-reaching and
very difficult for outsiders to comprehend.
And of course, I shouldn't say of course,
it is really the pensionnaires who were hurt the most.
In as much as pensions in the time of great inflation came to be useless.
So, you saw people in the streets of Moscow,
old people who came to the streets to sell their possessions,
or whatever they could sell in order to make a living.
The consequence of that was, the decline of the standard of living was measurable.
Most significant, most striking is the incredible drop in life expectancy.
Life expectancy for Russian males declined from 63,
which was in international standards a rather low
life expectancy, declined to 58 by the end of the decade.
Now female life expectancy also declined but not as drastically.
And their explanation for that is that the man drank.
The man did not have the resources for the enormously changed social circumstances.
But as far as I know, in no society was such
a decline of life expectancy at peacetime.
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