‘If not me, who?’: Mikhail Gorbachev ended Cold War and saved the world, but failed to save Soviet Union FEATURE

30 Aug, 2022

It is hard to imagine that anyone could have dismantled the Soviet Union from the inside faster or more comprehensively than Mikhail Gorbachev, a man who had no such intention. Its crumbling is both Gorbachev’s singular achievement and his personal tragedy.

It is also the most important moment in history since 1945.

Popular perceptions have transformed the former Soviet leader into a kitschy icon, remembered as much for starring in an advert for no-crust pizza, as for picking up a Nobel Peace Prize.

But in the demise of ‘The Evil Empire’ he was no naïf, nor a catalyst for generic historic inevitabilities. Almost every single event in the countdown to the fall of communism in Russia and beyond is a direct reflection of the ideals, actions and foibles of Mikhail Gorbachev and those he confronted or endorsed.

This is the story of a farm mechanic who managed to penetrate the inner sanctum of the world’s biggest country, an explanation of what drove him once he reached the top, and an attempt to understand whether he deserves opprobrium or sympathy, ridicule or appreciation.

First president of the Soviet Union Mikhail Gorbachev before a parade marking the 69th anniversary of the victory in the Great Patriotic War.
RIA Novosti.
The first president of the USSR Mikhail Gorbachev signs autographs during the presentation of his new book “Alone with Myself” in the Moskva store.
RIA Novosti.

If not me, who? And if not now, when?
— Mikhail Gorbachev

CHILDHOOD

Growing up a firebrand Communist among Stalin’s purges

Born in 1931 in a Ukrainian-Russian family in the village of Privolnoye in the fertile Russian south, Mikhail Gorbachev’s childhood was punctuated by a series of almost Biblical ordeals, albeit those shared by millions of his contemporaries.

His years as a toddler coincided with Stalin’s policy of collectivization – the confiscation of private lands from peasants to form new state-run farms – and Stavropol, Russia’s Breadbasket, was one of the worst-afflicted. Among the forcible reorganization and resistance, harvests plummeted and government officials requisitioned scarce grain under threat of death.

Gorbachev later said that his first memory is seeing his grandfather boiling frogs he caught in the river during the Great Famine.

Yet another grandfather, Panteley – a former landless peasant — rose from poverty to become the head of the local collective farm. Later Gorbachev attributed his ideological make-up largely to his grandfather’s staunch belief in Communism “which gave him the opportunity to earn everything he had.”

Panteley’s convictions were unshaken even when he was arrested as part of Stalin’s Great Purge. He was accused of joining a “counter-revolutionary Trotskyite movement” (which presumably operated a cell in their distant village) but returned to his family after 14 months behind bars just in time for the Second World War to break out.

Just in time for the Second World War to break out. For much of the conflict, the battle lines between the advancing Germans and the counter-attacking Red Army stretched across Gorbachev’s homeland; Mikhail’s father was drafted, and even reported dead, but returned with only shrapnel lodged in his leg at the end of the war.

Although Sergey was a distant presence in his son’s life up to then and never lived with him, he passed on to Mikhail a skill that played a momentous role in his life — that of a farm machinery mechanic and harvester driver. Bright by all accounts, Mikhail quickly picked up the knack — later boasting that he could pick out any malfunction just by the sound of the harvester or the tractor alone.

But this ability was unlikely to earn him renown beyond his village. Real acclaim came when the father and son read a new decree that would bestow a national honor on anyone who threshed more than 8000 quintals (800 tons or more than 20 big truckloads) of grain during the upcoming harvest. In the summer of 1948 Gorbachev senior and junior ground an impressively neat 8888 quintals. As with many of the agricultural and industrial achievements that made Soviet heroes out of ordinary workers, the exact details of the feat – and what auxiliary efforts may have made it possible – are unclear, but 17-year-old Gorbachev became one of the youngest recipients of the prestigious Order of the Red Banner of Labor in its history.

Having already been admitted to the Communist Party in his teen years (a rare reward given to the most zealous and politically reliable) Mikhail used the medal as an immediate springboard to Moscow. The accolade for the young wheat-grinder meant that he did not have to pass any entrance exams or even sit for an interview at Russia’s most prestigious Moscow State University.

With his village school education, Gorbachev admitted that he initially found the demands of a law degree, in a city he’d never even visited before, grueling. But soon he met another ambitious student from the countryside, and another decisive influence on his life. The self-assured, voluble Raisa, who barely spent a night apart from her husband until her death, helped to bring out the natural ambition in the determined, but occasionally studious and earnest Gorbachev. Predictably, Gorbachev rose to become one of the senior figures at the university’s Komsomol, the Communist youth league — which with its solemn group meetings and policy initiatives served both as a prototype and the pipeline for grown-up party activities.

STAVROPOL

Party reformist flourishes in Khruschev’s Thaw

Upon graduation in 1955, Gorbachev lasted only ten days back in Stavropol’s prosecutor’s office (showing a squeamishness dealing with the less idealistic side of the Soviet apparatus) before running across a local Komsomol official. For the next 15 years his biography reads like a blur of promotions – rising to become Stavropol region’s top Komsomol bureaucrats, overseeing agriculture for a population of nearly 2.5 million people before his 40th birthday.

All the trademarks of Gorbachev’s leadership style, which later became famous around the world, were already in evidence here. Eschewing Soviet officials’ habit of barricading themselves inside the wood-paneled cabinets behind multiple receptions, Gorbachev spent vast swathes of his time ‘in the field’, often literally in a field. With his distinctive southern accent, and his genuine curiosity about the experiences of ordinary people, the young official a struck chord as he toured small villages and discussed broken projectors at local film clubs and shortages of certain foodstuffs.

His other enthusiasm was for public discussion, particularly about specific, local problems – once again in contrast with the majority of officials, who liked to keep negative issues behind closed doors. Gorbachev set up endless discussion clubs and committees, almost quixotically optimistic about creating a better kind of life among the post-war austerity.

POLITBURO

Cutting the line to the throne

By the 1970s any sign of modernization in Soviet society or leadership was a distant memory, as the country settled into supposed “advanced socialism”, with the upheavals and promises of years past replaced by what was widely described as ‘An Era of Stagnation’ (the term gained official currency after being uttered by Gorbachev himself in one of his early public speeches after ascending to the summit of the Soviet system).

Without Stalin’s regular purges, and any democratic replacement mechanisms, between the mid-1960s and 1980s, almost the entire apparatus of Soviet leadership remained unchanged, down from the increasingly senile Leonid Brezhnev, who by the end of his life in 1982 became a figure of nationwide mockery and pity, as he slurred through speeches and barely managed to stand during endless protocol events, wearing gaudy carpets of military honors for battles he never participated in. Predictably, power devolved to the various factions below, as similarly aged heavyweights pushed their protégés into key positions.

The Kremlin Palace of Congresses (now the State Kremlin Palace). The XXV Congress of the Communist Party of the Soviet Union (Feb. 24-March 5, 1976). CPSU Central Committee General Secretary Leonid Brezhnev delivering speech.
RIA Novosti.

Mikhail Andreyevich Suslov, CPSU CC Politbureau member, CPSU CC secretary, twice Hero of Socialist Labor.
RIA Novosti.Leonid Brezhnev, left, chairman of the USSR Supreme Soviet Presidium and general secretary of the CPSU Central Committee, with Alexei Kosygin, chairman of the USSR Council of Ministers, on Lenin’s Mausoleum on May 1, 1980.
RIA Novosti.The Soviet Communist Party’s politburo member Konstantin Chernenko and central committee member Yury Andropov attend the Kremlin Palace of Congresses’ government session dedicated to the 60th anniversary of the USSR.
RIA Novosti.Yuri Andropov (1914-1984), General Secretary of the CPSU Central Committee (since November 1982).
RIA Novosti.

With a giant country as the playground, the system rewarded those who came up with catchy programs and slogans, took credit for successes and steered away from failures, and networked tirelessly to build up support above and below. Gorbachev thrived here. His chief patrons were Brezhnev himself, purist party ideologue Mikhail Suslov, who considered Stavropol his powerbase, and most crucially the hardline head of the KGB, Yuri Andropov. The security chief referred to the aspiring politician as ‘My Stavropol Rough Diamond’ — another rejoinder to those seeking to paint Gorbachev as a naïve blessed outsider, a Joan of Arc of the Soviet establishment.

After being called to Moscow in 1978 to oversee Soviet agriculture — an apocryphal story suggests that he nearly missed out on the appointment when senior officials couldn’t find him after he got drunk celebrating a Komsomol anniversary, only to be rescued by a driver at the last moment — Mikhail Gorbachev was appointed to the Politburo in 1980.

The Politburo, which included some but not all of the ministers and regional chiefs of the USSR, was an inner council that took all the key decisions in the country, with the Soviet leader sitting at the top of the table, holding the final word (though Brezhnev sometimes missed meetings or fell asleep during them). When Gorbachev became a fully-fledged member he was short of his 50th birthday. All but one of the dozen other members were over sixty, and most were in their seventies. To call them geriatric was not an insult, but a literal description of a group of elderly men – many beset by chronic conditions far beyond the reach of Soviet doctors – that were more reminiscent of decrepit land barons at the table of a feudal king than effective bureaucrats. Even he was surprised by how quickly it came.

Brezhnev, who suffered from a panoply of circulation illnesses, died of a heart attack in 1982. Andropov, who was about to set out on an energetic screw-tightening campaign, died of renal failure in 1984. Konstantin Chernenko was already ill when he came to leadership, and died early in 1985 of cirrhosis. The tumbling of aged sovereigns, both predictable and tragicomic in how they reflected on the leadership of a country of more than 250 million people, not only cleared the path for Gorbachev, but strengthened the credentials of the young, energetic pretender.

Leonid Brezhnev’s funeral procession at Vladimir Lenin’s mausoleum.
RIA Novosti.

The decorations of General Secretary of the CPSU Leonid Brezhnev seen during his lying-in-state ceremony at the House of Unions.
RIA Novosti.Mikhail Gorbachev, the first and the last Soviet president (second left in the foreground) attending the funeral of General Secretary of the CPSU Central Committee Konstantin Chernenko (1911-1985) in Moscow’s Red Square.
RIA Novosti.The funeral procession during the burial of Leonid Brezhnev, general secretary of the CPSU central committee, chairman of the Presidium of the USSR Supreme Soviet.
RIA Novosti.The funeral of Yuri Andropov, General Secretary of the Central Committee of the Communist Party of the Soviet Union, Chairman of the Presidium of the Supreme Soviet of the USSR. The coffin is placed on pedestal near the Mausoleum on Red Square.
RIA Novosti.The funeral procession for General Secretary of the CPSU Konstantin Chernenko moving towards Red Square.
RIA Novosti.General Secretary of the Central Comittee of CPSU Mikhail Gorbachev at the tribune of Lenin mausoleum during May Day demonstration, Red square.
RIA Novosti.

On 11 March 1985, Gorbachev was named the General Secretary of the Central Committee of the Communist Party of the USSR.

REFORMS NEEDED

Overcoming economic inefficiency with temperance campaigns

As often in history, the reformer came in at a difficult time. Numbers showed that economic growth, which was rampant as Russia industrialized through the previous four decades, slowed down in Brezhnev’s era, with outside sources suggesting that the economy grew by an average of no more than 2 percent for the decade.

The scarcity of the few desirable goods produced and their inefficient distribution meant that many Soviet citizens spent a substantial chunk of their time either standing in queues or trading and obtaining things as ordinary as sugar, toilet paper or household nails through their connections, either “under the counter” or as Party and workplace perks, making a mockery of Communist egalitarianism. The corruption and lack of accountability in an economy where full employment was a given, together with relentless trumpeting of achievement through monolithic newspapers and television programs infected private lives with doublethink and cynicism.

A line of shoppers outside the Lenvest footwear shop.
Ria Novosti.

But this still does not describe the drab and constraining feel of the socialist command economy lifestyle, not accidentally eschewed by all societies outside of North Korea and Cuba in the modern world. As an example, but one central to the Soviet experience: while no one starved, there was a choice of a handful of standardized tins — labeled simply salmon, or corned beef — identical in every shop across the country, and those who were born in 1945 could expect to select from the same few goods until the day they died, day-in, day-out. Soviets dressed in the same clothes, lived in identical tower block housing, and hoped to be issued a scarce Lada a decade away as a reward for their loyalty or service. Combined with the lack of personal freedoms, it created an environment that many found reassuring, but others suffocating, so much so that a trivial relic of a different world, stereotypically a pair of American jeans, or a Japanese TV, acquired a cultural cachet far disproportionate to its function. Soviets could not know the mechanisms of actually living within a capitalist society — with its mortgages, job markets, and bills — but many felt that there were gaudier, freer lives being led all around the world.

And though it brought tens of millions of people out of absolute poverty, there was no longer an expectation that the lifestyles of ordinary Soviets would significantly improve whether a year or a decade into the future, and promise of a better future was always a key tenet of communism.

Several wide-ranging changes were attempted, in 1965 and 1979, but each time the initial charge was wound down into ineffectual tinkering as soon as the proposed changed encroached on the fundamentals of the Soviet regime — in which private commercial activity was forbidden and state control over the economy was total and centralized.

Moscow, Russia. Customers at the Okean [Ocean] seafood store. 1988.
Ria Novosti.

Gorbachev deeply felt the malaise, and displayed immediate courage to do what is necessary — sensing that his reforms would not only receive support from below, but no insurmountable resistance from above. The policy of Uskorenie, or Acceleration, which became one of the pillars of his term, was announced just weeks after his appointment — it was billed as an overhaul of the economy.

But it did not address the fundamental structural inefficiencies of the Soviet regime. Instead it offered more of the same top-down administrative solutions — more investment, tighter supervision of staff, less waste. Any boost achieved through rhetoric and managerial dress-downs sent down the pyramid of power was likely to be inconsequential and peter out within months.

His second initiative, just two months after assuming control, betrayed these very same well-meaning but misguided traits. With widespread alcohol consumption a symptom of late-Soviet decline, Gorbachev devised a straightforward solution — lowering alcohol production and eventually eradicating drinking altogether.

Doctor Lev Kravchenko conducting reflexotherapy session with a patient at the Moscow Narcological Clinical Hospital #17.
RIA Novosti
Stolichnaya vodka from the Moscow Liqueur and Vodka Distillery.
RIA Novosti.

“Women write to me saying that children see their fathers again, and they can see their husbands,” said Gorbachev when asked about whether the reform was working.

Opponents of the illiberal measure forced Russian citizens into yet more queues, while alcoholics resorted to drinking industrial fluids and aftershave. Economists said that the budget, which derived a quarter of its total retail sales income from alcohol, was severely undermined. Instead a shadow economy sprung up — in 1987, 500 thousand people were arrested for engaging in it, five times more than just two years earlier.

More was needed, and Gorbachev knew it.

PERE­STROIKA

“We must rebuild ourselves. All of us!”

Gorbachev at his zenith

Gorbachev first uttered the word perestroika — reform, or rebuilding — in May 1986, or rather he told journalists, using the characteristic and endearing first-person plural, “We must rebuild ourselves. All of us!” Picked up by reporters, within months the phrase became a mainstay of Gorbachev’s speeches, and finally the symbol of the entire era.

Before his reforms had been chiefly economic and within the existing frameworks; now they struck at the political heart of the Soviet Union.

The revolution came from above, during a long-prepared central party conference blandly titled “On Reorganization and the Party’s Personnel Policy” on January 27, 1987.

In lieu of congratulatory platitudes that marked such occasions in past times, Gorbachev cheerfully delivered the suspended death sentence for Communist rule in the Soviet Union (much as he didn’t suspect it at the time).

“The Communist Party of the Soviet Union and its leaders, for reasons that were within their own control, did not realize the need for change, understand the growing critical tension in the society, or develop any means to overcome it. The Communist Party has not been able to take full advantage of socialist society,”
said the leader to an audience that hid its apprehension.

“The only way that a man can order his house, is if he feels he is its owner. Well, a country is just the same,” came Gorbachev’s trademark mix of homely similes and grand pronouncements.” Only with the extension of democracy, of expanding self-government can our society advance in industry, science, culture and all aspects of public life.”

“For those of you who seem to struggle to understand, I am telling you: democracy is not the slogan, it is the very essence of Perestroika.”

Gorbachev used the word ‘revolution’ eleven times in his address, anointing himself an heir to Vladimir Lenin. But what he was proposing had no precedent in Russian or Soviet history.

The word democracy was used over 70 times in that speech alone.
The Soviet Union was a one-party totalitarian state, which produced 99.9 percent election results with people picking from a single candidate. Attempts to gather in groups of more than three, not even to protest, were liable to lead to arrest, as was any printed or public political criticism, though some dissidents were merely subjected to compulsory psychiatric care or forced to renounce their citizenship. Millions were employed either as official KGB agents, or informants, eavesdropping on potentially disloyal citizens. Soviet people were forbidden from leaving the country, without approval from the security services and the Party. This was a society operated entirely by those in power, relying on compliance and active cooperation in oppression from a large proportion of the population. So, the proposed changes were a fundamental reversal of the flows of power in society.

General Secretary of the CPSU Central Committee Mikhail Gorbachyov making his report “October and perestroika: the revolution continues” in the Kremlin Palace of Congresses at a joint session of the CPSU Central Committee and the USSR Supreme Soviet, devoted to the 70th anniversary of the Great October Socialist Revolution.
RIA Novosti.

Between Gorbachev’s ascent and by the end of that year, two thirds of the Politburo, more than half of the regional chiefs and forty percent of the membership of the Central Committee of Communist Party, were replaced.

Gorbachev knew that democracy was impossible without what came to be known as glasnost, an openness of public discussion.

“We are all coming to the same conclusion — we need glasnost, we need criticism and self-criticism. In our country everything concerns the people, because it is their country,”
said Gorbachev, cunningly echoing Lenin, at that January forum, though the shoots of glasnost first emerged the year before.

From the middle of 1986 until 1987 censored Soviet films that lay on the shelves for years were released, the KGB stopped jamming the BBC World Service and Voice of America, Nobel Peace Prize winner nuclear physicist Andrei Sakharov and hundreds of other dissidents were set free, and archives documenting Stalin-era repressions were opened.

A social revolution was afoot. Implausibly, within two years, television went from having no programs that were unscripted, to Vzglyad, a talk show anchored by 20 and 30-somethings (at a time when most Soviet television presented were fossilized mannequins) that discussed the war in Afghanistan, corruption or drugs with previously banned videos by the Pet Shop Boys or Guns N’ Roses as musical interludes. For millions watching Axl Rose, cavorting with a microphone between documentaries about steel-making and puppet shows, created cognitive dissonance that verged on the absurd. As well as its increasing fascination with the West, a torrent of domestic creativity was unleashed. While much of what was produced in the burgeoning rock scene and the liberated film making industry was derivative, culturally naïve and is now badly dated, even artifacts from the era still emanate an unmistakable vitality and sincerity.

Rock for Peace concert in Moscow, 1988.
RIA Novosti.

“Bravo!” Poster by Svetlana and Alexander Faldin. Allegorically portraying USSR President Mikhail Gorbachev, it appeared at the poster exposition, Perestroika and Us.
RIA Novosti.Mikhail Gorbachev, General Secretary of the CPSU Central Committee and Chairman of the Presidium of the Supreme Soviet of the USSR, talking to reporters during a break between sessions. The First Congress of People’s Deputies of the USSR (May 25 — June 9, 1989). The Kremlin Palace of Congresses.
RIA Novosti.

Many welcomed the unprecedented level of personal freedom and the chance to play an active part in their own country’s history, others were alarmed, while others still rode the crest of the wave when swept everything before it, only to renounce it once it receded. But it is notable that even the supposed staunchest defenders of the ancien régime — the KGB officers, the senior party members — who later spent decades criticizing Perestroika, didn’t step in to defend Brezhnev-era Communism as they saw it being demolished.

What everyone might have expected from the changes is a different question — some wanted the ability to travel abroad without an exit visa, others the opportunity to earn money, others still to climb the political career ladder without waiting for your predecessor die in office. But unlike later accounts, which often presented Gorbachev as a stealthy saboteur who got to execute an eccentric program, at the time, his support base was broad, and his decisions seemed encouraging and logical.

As a popular politician Gorbachev was reaching a crescendo. His trademark town hall and factory visits were as effective as any staged stunts, and much more unselfconscious. The contrast with the near-mummified bodies of the previous General Secretaries — who, in the mind of ordinary Soviet citizens, could only be pictured on top of Lenin’s Mausoleum during a military parade, or staring from a roadside placard, and forever urging greater productivity or more intense socialist values — was overwhelming.
Gorbachev was on top — but the tight structure of the Soviet state was about to loosen uncontrollably.

USSR President Mikhail Gorbachev in Sverdlovsk Region (25-28 April, 1990). Mikhail Gorbachev with the people of Sverdlovsk at the Lenin Square.
RIA Novosti.

USSR president Mikhail Gorbachev visits Sverdlovsk region. Mikhail Gorbachev visiting Nizhnij Tagil integrated iron-and-steel works named after V.I. Lenin.
RIA Novosti.CPSU Central Committee General Secretary, USSR Supreme Soviet Presidium Chairman Mikhail Gorbachev in the Ukrainian SSR. Mikhail Gorbachev, second right, meeting with Kiev residents.
RIA Novosti.

COLD WAR ENDS

Concessions from a genuine pacifist

In the late 1980s the world appeared so deeply divided into two camps that it seemed like two competing species were sharing the same planet. Conflicts arose constantly, as the US and the USSR fought proxy wars on every continent — in Nicaragua, Angola and Afghanistan, with Europe divided by a literal battle line, both sides constantly updated battle plans and moved tank divisions through allied states, where scores of bases housed soldier thousands of miles away from home. Since the Cold War did not end in nuclear holocaust, it has become conventional to describe the two superpowers as rivals, but there was little doubt at the time that they were straightforward enemies.

“The core of New Thinking is the admission of the primacy of universal human values and the priority of ensuring the survival of the human race,” Gorbachev wrote in his Perestroika manifesto in 1988.

At the legendary Reykjavik summit in 1986, which formally ended in failure but in fact set in motion the events that would end the Cold War, both sides were astonished at just how much they could agree on, suddenly flying through agendas, instead of fighting pitched battles over every point of the protocol.

“Humanity is in the same boat, and we can all either sink or swim.”

General Secretary of the CPSU Central Committee Mikhail Gorbachev (left) and U.S. President Ronald Reagan (right) during their summit meeting in Reykjavik.
RIA Novosti.

Landmark treaties followed: the INF agreement in 1987, banning intermediate ballistic missiles, the CFE treaty that reduced the military build-up in Europe in 1990, and the following year, the START treaty, reducing the overall nuclear stockpile of those countries. The impact was as much symbolic as it was practical — the two could still annihilate each other within minutes — but the geopolitical tendency was clear.

President Reagan: Signing of the INF Treaty with Premier Gorbachev, December 8, 1987

Mikhail Gorbachev, General Secretary of the Communist Party of the Soviet Union and the US president Ronald Reagan.
RIA Novosti.
Mikhail Gorbachev (left) and the US president Ronald Reagan signing an agreement in the White House. Mikhail Gorbachev, General Secretary of the Communist Party of the Soviet Union on the official visit to the USA.
RIA Novosti.

Military analysts said that each time the USSR gave up more than it received from the Americans. The personal dynamic between Reagan — always lecturing “the Russians” from a position of purported moral superiority, and Gorbachev — the pacifist scrambling for a reasonable solution, was also skewed in favor of the US leader. But Gorbachev wasn’t playing by those rules.

“Any disarmament talks are not about beating the other side. Everyone has to win, or everyone will lose,” he wrote.

The Soviet Union began to withdraw its troops and military experts from conflicts around the world. For ten years a self-evidently unwinnable war waged in Afghanistan ingrained itself as an oppressive part of the national consciousness. Fifteen thousand Soviet soldiers died, hundreds of thousands more were wounded or psychologically traumatized (the stereotypical perception of the ‘Afghan vet’ in Russia is almost identical to that of the ‘Vietnam vet’ in the US.) When the war was officially declared a “mistake” and Soviet tanks finally rolled back across the mountainous border in 1989, very few lamented the scaling back of the USSR’s international ambitions.

Last Soviet troop column crosses Soviet border after leaving Afghanistan.
RIA Novosti.

Driver T. Eshkvatov during the final phase of the Soviet troop pullout from Afghanistan.
RIA Novosti.Soviet soldiers back on native soil. The USSR conducted a full pullout of its limited troop contingent from Afghanistan in compliance with the Geneva accords.
RIA Novosti.The convoy of Soviet armored personnel vehicles leaving Afghanistan.
RIA Novosti.

In July 1989 Gorbachev made a speech to the European Council, declaring that it is “the sovereign right of each people to choose their own social system.” When Romanian dictator Nicolae Ceausescu, soon to be executed by his own people, demanded — during the 40th anniversary of the Communist German Democratic Republic in October 1989 — that Gorbachev suppress the wave of uprisings, the Soviet leader replied with a curt “Never again!”

“Life punishes those who fall behind the times,” he warned the obdurate East German leader Erich Honecker. Honecker died in exile in Chile five years later, having spent his dying years fending off criminal charges backed by millions of angry Germans.

Russian tanks did pass through Eastern Europe that year — but in the other direction, as the Soviet Union abandoned its expensive bases that were primed for a war that neither side now wanted.

Graffitti at the Berlin Wall.
RIA Novosti.
East German citizens climb the Berlin Wall at the Brandenburg Gate after the opening of the border was announced early November 9, 1989. REUTERS/Herbert Knosowski BEST QUALITY AVAILABLE.
Reuters.
A big section of the Berlin Wall is lifted by a crane as East Germany has started to dismantle the wall near the Brandenburg Gate in East Berlin, February 20, 1990.
Reuters.

By the time the Berlin Wall was torn down in November, Gorbachev was reportedly not even woken up by his advisors, and no emergency meetings took place. There was no moral argument for why the German people should not be allowed to live as one nation, ending what Gorbachev himself called the “unnatural division of Europe”. The quote came from his 1990 Nobel Peace Prize acceptance speech.

ETHNIC TENSIONS

Smoldering ethnic conflicts on USSR’s outskirts flare up

Ethnic tensions on the outskirts of the empire lead to full-scale wars after USSR’s collapse. Towards the end of his rather brief period as a Soviet leader, Mikhail Gorbachev had to face a problem many thought of as done and dusted; namely, ethnic strife, leading to conflict and death.

By the mid-1980s, the Soviet Union was officially considered by party ideologists to be one multi-ethnic nation, despite it being comprised of 15 national republics and even more internal republics and regions, with dozens of ethnic groups living there in a motley mixture. The claim was not completely unfounded as the new generation all across the country spoke Russian and had basic knowledge of Russian culture along with Marxist philosophy. In fact, the outside world confirmed this unity by calling all Soviet citizens “Russians” — from Finno-Ugric Estonians in the West to the Turkic and Iranian peoples of Central Asia and natives of the Far East, closely related to the American Indians of Alaska.

Demonstration on Red Square. The International Labor Day. “Long live the brotherly friendship of the peoples of the USSR!” reads the slogan under the USSR national emblem surrounded by flags of 15 of the Union republics carried at a May Day demonstration in 1986.
RIA Novosti.

At the same time, the concept of the single people was enforced by purely Soviet methods — from silencing any existing problems in the party-controlled mass media, to ruthless suppression of any attempt of nationalist movements, and summary forced resettlement of whole peoples for “siding with the enemy” during WWII.

After Gorbachev announced the policies of Glasnost and democratization, many ethnic groups started to express nationalist sentiments. This was followed by the formation or legalization of nationalist movements, both in national republics and in Russia itself, where blackshirts from the “Memory” organization blamed Communists and Jews for oppressing ethnic Russians and promoted “liberation.”

Neither society nor law enforcers were prepared for such developments. The Soviet political system remained totalitarian and lacked any liberal argument against nationalism. Besides, the concept of “proletarian internationalism” was so heavily promoted that many people started to see nationalism as part of a struggle for political freedoms and market-driven economic prosperity. At the same time, the security services persisted in using the crude Soviet methods that had already been denounced by party leaders; police had neither the tools nor the experience for proper crowd control.

As a result, potential conflicts were brewing all across the country and the authorities did almost nothing to prevent them. In fact, many among the regional elites chose to ride the wave of nationalism to obtain more power and settle old accounts. At the same time, the level of nationalism was highly uneven and its manifestations differed both in frequency and intensity across the USSR.

In February 1988, Gorbachev announced at the Communist Party’s plenum that every socialist land was free to choose its own societal systems. Both Nationalists and the authorities considered this a go-ahead signal. Just days after the announcement, the conflict in the small mountain region of Nagorno-Karabakh entered an open phase.

Nagorno-Karabakh was an enclave populated mostly, but not exclusively, by Armenians in the Transcaucasia republic of Azerbaijan. Relations between Armenians and Azerbaijanis had always been strained, with mutual claims dating back to the Ottoman Empire; Soviet administrative policy based purely on geography and economy only made things worse.

In spring 1989, nationalists took to the streets in another Transcaucasian republic — Georgia. The country was (and still is) comprised of many ethnic groups, each claiming a separate territory, sometimes as small as just one hill and a couple of villages, and the rise of nationalism there was even more dangerous. Georgians marched under slogans “Down with Communism!” and “Down with Soviet Imperialism.” The rallies were guarded and directed by the “Georgian Falcons” — a special team of strong men, many of them veterans of the Afghan war, armed with truncheons and steel bars.

“Down with Communism!”

“Down with Soviet Imperialism.”

This time Gorbachev chose not to wait for clashes and a Spetsnaz regiment was deployed to Tbilisi to tackle the nationalist rallies. Again, old Soviet methods mixed poorly with the realities of democratization. When the demonstrators saw the soldiers, they became more agitated, and the streets around the main flashpoints were blocked by transport and barricades. The soldiers were ordered to use only rubber truncheons and tear gas, and were not issued firearms, but facing the Georgian Falcons they pulled out the Spetsnaz weapon of choice — sharp shovels just as deadly as bayonets.

At least 19 people were killed in the clashes or trampled by the crowd that was forced from the central square but had nowhere to go. Hundreds were wounded.

Soviet tanks are positioned on April 9, 1989 in front of the Georgian government building where pro-independence Georgians were killed as paratroopers moved in to break up a mass demonstration. An anti-Soviet demonstration was dispersed on April 9th by the Soviet army, resulting in 20 deaths and hundreds of injuries. In independent Georgia “April 9” is an annual public holiday remembered as the Day of National Unity.
AFP PHOTO.

Moscow ordered an investigation into the tragedy and a special commission uncovered many serious mistakes made both by the regional and central authorities and party leaders. However, at the May Congress of People’s Deputies, Gorbachev categorically refused to accept any responsibility for the outcome of the events in Tbilisi and blamed the casualties on the military.

Further on, the last Soviet leader persisted in the kind of stubbornness that inevitably must have played a part in his fall. In February 1990, the Communist Party’s Central Committee voted to adopt the presidential system of power and General Secretary Gorbachev became the first and last president of the USSR. The same plenum dismantled the Communist Party’s monopoly of power, even though the country had no grassroots political organizations or any political organizations not dependent on the communists save for the nationalists. As a result, the urge for succession increased rapidly, both in the regional republics and even in the Soviet heartland — the Russian Soviet Federative Socialist Republic.

In 1990, the Republic of Lithuania was the first to declare independence from the Soviet Union. Despite his earlier promises, Gorbachev refused to recognize this decision officially. The region found itself in legal and administrative limbo and the Lithuanian parliament addressed foreign nations with a request to hold protests against “Soviet Occupation.”

In January 1991, the Lithuanian government announced the start of economic reforms with liberalization of prices, and immediately after that the Supreme Soviet of the USSR sent troops to the republic, citing “numerous requests from the working class.” Gorbachev also demanded Lithuania annul all new regulations and bring back the Soviet Constitution. On January 11, Soviet troops captured many administrative buildings in Vilnius and other Lithuanian cities, but the parliament and television center were surrounded by a thousand-strong rally of protesters and remained in the hands of the nationalist government. In the evening of January 12, Soviet troops, together with the KGB special purpose unit, Alpha, stormed the Vilnius television center, killing 12 defenders and wounding about 140 more. The troops were then called back to Russia and the Lithuanian struggle for independence continued as before.

A Lithuanian demonstrator stands in front of a Soviet Army tank during the assault on the Lithuanian Radio and Television station on January 13, 1991 in Vilnius.
AFP PHOTO.

Vilnius residents gather in front of the Lithuanian parliament following the takeover of the Radio and Television installations by Soviet troops.
AFP PHOTO.An armed unidentified man guards the Lithuanian parliament on January 19, 1991 in Vilnius.
AFP PHOTO.Vilnius residents holding a Lithuanian flag guard a barricade in front of the Lithuanian parliament on January 20, 1991.
AFP PHOTO.Soviet paratroopers charge Lithuanian demonstrators at the entrance of the Lithuanian press printing house in Vilnius. January, 1991.
AFP PHOTO.

Gorbachev again denied any responsibility, saying that he had received reports about the operation only after it ended. However, almost all members of the contemporary Soviet cabinet recalled that the idea of Gorbachev not being aware of such a major operation was laughable. Trying to shift the blame put the president’s image into a lose-lose situation — knowing about the Vilnius fighting made him a callous liar, and if he really knew nothing about it, then he was an ineffective leader, losing control both of distant territories and his own special forces.

The swiftly aborted intervention — troops were called back on the same day — was a disappointment both to the hardliners, who would have wanted Gorbachev to see it through, and to the democratic reformers, horrified by the scenes emerging from Vilnius.

This dissatisfaction also must be one of the main factors that provoked the so-called Putch in August 1991 — an attempt by die-hard Politburo members to displace Gorbachev and restore the old Soviet order. They failed in the latter, but succeeded in the former as Gorbachev, isolated at his government Dacha in Crimea, returned to Moscow only because of the struggles of the new Russian leader Boris Yeltsin. When Gorbachev returned, his power was so diminished that he could do nothing to prevent the Belovezha agreement — the pact between Russia, Belarus and Ukraine that ended the history of the Soviet Union and introduced the Commonwealth of Independent States. All republics became independent whether they were ready to or not.

This move, while granting people freedom from Soviet rule, also triggered a sharp rise in extreme nationalist activities — the stakes were high enough and whole nations were up for grabs. Also, in the three years between Gorbachev’s offering of freedom and the collapse of the USSR, nothing was done to calm simmering ethnic hatred, and with no directions from Moscow or control on the part of the Soviet police and army, many regions became engulfed in full-scale civil wars, based on ethnic grounds.

Things turned especially nasty in Tajikistan, where fighting between Iranian-speaking Tajiks and Turkic-speaking Uzbeks very soon led to ethnic cleansing. Refugees had to flee for their lives to Afghanistan, which itself witnessed a war between the Taliban and the Northern Alliance.

Government soldiers aim at positions of armed opposition groups in the border area of Afghanistan 08 June 1993. The civil war between pro-communist forces and the opposition has left thousands dead and turned hundreds of thousands of people into refugees in the last year.
AFP PHOTO.

Two fighters of the Tajik pro-Communist forces engage in a battle with pro-Islamic fighters 22 December 1992 in a village some 31 miles from the Tajik capital of Dushanbe.
AFP PHOTO.Tajik women cry over the dead body of a soldier 29 January 1993. The soldier was killed during fighting between Tajikistan government troops and opposition forces in Parkhar.
AFP PHOTO.

The long and bloody war in Georgia also had a significant ethnic component. After it ended three regions that were part of the republic during Soviet times — Abkhazia, Adzharia and South Ossetia – declared independence, which was enforced by a CIS peacekeeping force. At some point, Georgia managed to return Adzharia but when Georgian President Mikhail Saakashvili, backed and armed by Western nations, attempted to capture South Ossetia in 2008, Russia had to intervene and repel the aggression. Subsequently, Russia recognized South Ossetia and Abkhazia as independent nations.

YELTSIN’S CHALLENGE

New star steals limelight

As Stalin and Trotsky, or Tony Blair and Gordon Brown could attest, your own archrival in politics is often on your team, pursuing broadly similar — but not identical aims — and hankering for the top seat.

But unlike those rivalries, the scenes in the fallout between Mikhail Gorbachev, and his successor, Boris Yeltsin played out not through backroom deals and media leaks, but in the form of an epic drama in front of a live audience of thousands, and millions sat in front of their televisions.

The two leaders were born a month apart in 1931, and followed broadly similar paths of reformist regional commissars – while Gorbachev controlled the agricultural Stavropol, Yeltsin attempted to revitalize the industrial region of Sverdlovsk, present-day Yekaterinburg.

Yet, Yeltsin was a definitely two steps behind Gorbachev on the Soviet career ladder, and without his leg-up might have never made it to Moscow at all. A beneficiary of the new leader’s clear out, though not his personal protégé, Yeltsin was called up to Moscow in 1985, and the following year, was assigned the post of First Secretary of the Moscow Communist Party, effectively becoming the mayor of the capital.

Yeltsin’s style dovetailed perfectly with the new agenda, and his superior’s personal style, though his personal relationship with Gorbachev was strained almost from the start. Breaking off from official tours of factories, the city administrator would pay surprise visits to queue-plagued and under-stocked stores (and the warehouses where the consumables were put aside for the elites); occasionally abandoning his bulletproof ZIL limo, Yeltsin would ride on public transport. This might appear like glib populism now, but at the time was uncynically welcomed. In the first few months in the job, the provincial leader endeared himself to Muscovites — his single most important power base in the struggles that came, and a guarantee that he would not be forgotten whatever ritual punishments were cast down by the apex of the Communist Party.

Boris Yeltsin, First Secretary of the Soviet Communist Party’s Moscow City Committee, at the official meeting celebrating the 70th anniversary of the October revolution.
RIA Novosti.

Boris Yeltsin, left, candidate member of the Politburo of the CPSU Central Committee, at lunch.
RIA Novosti.Voters’ meeting with candidate for deputy of the Moscow Soviet in the 161st constituency, First Secretary of the CPSU Moscow Town Committee, Chairman of the USSR Supreme Soviet, Boris Yeltsin, centre.
RIA Novosti.People’s deputy Boris Yeltsin. Algirdas Brazauskas (right) and chairman of the Presidium of the USSR Supreme Council Mikhail Gorbachev on the presidium.
RIA Novosti.

But Yeltsin was not just a demagogue content with cosmetic changes and easy popularity, and after months of increasing criticism of the higher-ups, he struck.

During a public session of the Central Committee of the Communist Party in October 1987, the newcomer delivered a landmark speech.

In front of a transfixed hall, he told the country’s leaders that they were putting road blocks on the road to Perestroika, he accused senior ministers of becoming “sycophantic” towards Gorbachev. As his final flourish, Yeltsin withdrew himself from his post as a candidate to the Politburo — an unprecedented move that amounted to contempt towards the most senior Soviet institution.

The speech, which he later said he wrote “on his lap” while sitting in the audience just a few hours earlier, was Yeltsin in a nutshell. Unafraid to challenge authority and to risk everything, with a flair for the dramatic, impulsive and unexpected decision (his resignation as Russian president in his New Year’s speech being the most famous).

Footage shows Gorbachev looking on bemused from above. He did not publicly criticize Yeltsin there and then, and spoke empathetically about Yeltsin’s concerns, but later that day (with his backing) the Central Committee declared Yeltsin’s address “politically misguided”, a slippery Soviet euphemism that cast Yeltsin out into the political wilderness.

Gorbachev thought he had won the round — “I won’t allow Yeltsin anywhere near politics again” he vowed, his pique shining through — but from then on, their historical roles and images were cast.

Gorbachev, for all of his reforms, now became the tame, prissy socialist. Yeltsin, the careerist who nearly had it all, and renounced everything he had achieved at the age of 54 and re-evaluated all he believed in. Gorbachev, the Politburo chief who hid behind the silent majority, Yeltsin the rebel who stood up to it. Gorbachev, the politician who spoke a lot and often said nothing, Yeltsin, the man of action.

Historically, the contrast may seem unfair, as both were equally important historical figures, who had a revolutionary impact for their time. But stood side-by-side, Yeltsin — with his regal bearing and forceful charisma — not only took the baton of Perestroika’s promises, but stole the man-of-the-future aura that had hitherto belonged to Gorbachev, who now seemed fidgety and weaselly by comparison.

While he was stripped of his Moscow role, Yeltsin’s party status was preserved. This had a perverse effect. No one stopped Yeltsin from attending high-profile congresses. No one prevented him from speaking at them. It was the perfect situation — he had the platform of an insider, and the kudos of an outsider. Tens of deputies would come and criticize the upstart, and then he’d take the stage, Boris Yeltsin vs. The Machine.

On June 12, 1990 Russia declared sovereignty from the USSR. A month later, Yeltsin staged another one of his dramatic masterclasses, when he quit the Communist Party on-stage during its last ever national congress, and walked out of the cavernous hall with his head held high, as loyal deputies jeered him.

In June 1991, after calling a snap election, Yeltsin became the first President of Russia, winning 57 percent — or more than 45 million votes. The Party’s candidate garnered less than a third of Yeltsin’s tally.

By this time Gorbachev’s position had become desperate. The Soviet Union was being hollowed out, and Yeltsin and the other regional leaders were now actively colluding with each other, signing agreements that bypassed the Kremlin.

The Communists and nationalists — often one and the same — had once been ambivalent about Gorbachev’s reforms, and anyway had been loath to criticize their leader. But inspired by Gorbachev’s glasnost, and with the USSR’s long term prospects becoming very clear, they now wanted their say as well. A reactionary media backlash started against him, generals pronounced warnings of “social unrest” that sounded more like threats, and some had begun to go as far as to earnestly speculate that Gorbachev was working for the Cold War “enemy.”

USSR IMPLODES

Failed coup brings down faded leader of fractured country

The junta that tried to take power in the Soviet Union on the night of August 18th is one of the most inept in the history of palace coups.

On August 18, all phones at Gorbachev’s residence, including the one used to control the USSR’s nuclear arsenal, were suddenly cut off, while unbeknownst to him, a KGB regiment was surrounding the house. Half an hour later a delegation of top officials arrived at the residence in Foros, Crimea, walked past his family to his office, in their briefcases a selection of documents for Gorbachev to sign. In one scenario, he would simply declare a state of emergency, and proclaim control over all the rebel republics, in another he would hand over power to his deputy Gennady Yanaev, due to worsening health.

Genuinely angry at their disloyalty, the Soviet leader called them “chancers”, and refused to sign anything, saying he would not have blood on his hands. He then showed them out of the house with a lengthy tirade — clearly recollected by all present in their memoirs — in which he crowned the plotters a “bunch of cocks.”

The plotters were not prepared for this turn of events. Gathering once again back in Moscow, they sat around looking at their unsigned emergency decree, arguing and not daring to put their names on the typewritten document. As midnight passed, and more and more bottles of whisky, imported from the decadent West they were saving the USSR from, was brought in, the patriots found their courage, or at least persuaded Yanaev to place himself at the top of the list of signatories. The Gang of Eight would be known as the State Committee on the State of Emergency. Accounts say that by the time they were driven to their dachas — hours before the most important day of their lives — the plotters could barely stand. Valentin Pavlov, he of the unpopular monetary reform, and the prime minister, drank so much he had to be treated for acute alcohol intoxication, and was hospitalized with cardiac problems as the events of the next three days unfolded.

But orders were issued, and on the morning of the 19th tanks rolled into Moscow. While news suggested that nothing had gone wrong — and at this point it hadn’t — the junta made it seem as if everything had. Not only were there soldiers on street, but all TV channels were switched off, with Tchaikovsky’s Swan Lake iconically played on repeat. By four o’clock in the afternoon, most of the relatively independent media was outlawed by a decree.

But for all their heavy-handed touch the putsch leaders did nothing to stop their real nemesis. Unlike most coups, which are a two-way affair, this was a triangular power struggle – between Gorbachev, the reactionaries, and Yeltsin. Perhaps, like Gorbachev, stuck in their mindset of backroom intrigue the plotters seemed to underrate Yeltsin, and the resources at his disposal.

Russia’s next leader had arrived in Moscow from talks with his Kazakhstan counterpart, allegedly in the same merry state as the self-appointed plotters. But when his daughter woke him up with news of the unusual cross-channel broadcasting schedule, he acted fast, and took his car straight to the center of Moscow. The special forces soldiers placed around his dacha by the conspirators were not ordered to shoot or detain him.

Yeltsin’s supporters first gathered just a few hundred yards from the Kremlin walls, and then on instruction marched through the empty city to the White House building, the home of the rebellious Russian parliament. There, in his defining moment and as the crowd (although at this early hour it was actually thinner than the mythology suggests) chanted his name, Yeltsin climbed onto the tank, reclaimed from the government forces, and loudly, without the help of a microphone, denounced the events of the past hours as a “reactionary coup.” In the next few hours, people from across Moscow arrived, as the crowd swelled to 70,000. A human chain formed around the building, and volunteers began to build barricades from trolleybuses and benches from nearby parks.

Military hardware in Kalininsky prospect after imposition of a state of emergency in August 1991.
RIA Novosti.
Muscovites block the way for military weaponry during the GKChP coup.
RIA Novosti.

Moscow residents building barricades next to the Supreme Soviet during the coup by the State EmergencyCommittee.
RIA Novosti.Thousands of people rallying before the Supreme Soviet of Russia on August 20, 1991.
RIA Novosti.

Though this seemed as much symbolic, as anything, as the elite units sent in by the junta had no intention of shooting, and demonstrated their neutrality, freely mingling with the protesters. Their commander, Pavel Grachev, defected to Yeltsin the following day, and was later rewarded with the defense minister’s seat. The Moscow mayor Yuri Luzhkov also supported Yeltsin.

Russian President Boris Yeltsin waves from the balcony of the Russian Parliament to a crowd of demonstrators protesting against the overthrow of Soviet President Gorbachev during the brief coup in August 1991, in Moscow August 20, 1991. The result, ironically, was the dissolution of the Soviet Union. REUTERS/Michael Samojeden IMAGE TAKEN AUGUST 20, 1991.
Reuters.

Realizing that their media blackout was not working, and that they were quickly losing initiative, the plotters went to the other extreme, and staged an unmoderated televised press conference.

Sat in a row, the anonymous, ashen-faced men looked every bit the junta. While Yanaev was the nominal leader, he was never the true engine of the coup, which was largely orchestrated by Vladimir Kryuchkov, the KGB chief, who, with the natural caution of a security agent, did not want to take center stage. The acting president, meanwhile, did not look the part. His voice was tired and unsure, his hands shaking — another essential memory of August 1991.

From left: the USSR Interior Minister Boris Pugo and the USSR Vice-President Gennady Yanayev during the press conference of the members of the State Committee for the State of Emergency (GKCP).
RIA Novosti.
From left: Alexander Tizyakov, Vasily Starodubtsev, Boris Pugo, Gennady Yanayev, and Oleg Baklanov during the press conference of the State of Emergency State Committee (GKCP) members at the USSR Foreign Ministry.
RIA Novosti.

In another spectacularly poor piece of communications management, after the new leaders made their speeches, they opened the floor to an immediately hostile press pack, which openly quoted Yeltsin’s words accusing them of overthrowing a legitimate government on live television.

Referring to Gorbachev as “my friend Mikhail Sergeevich,” Yanaev monotoned that the president was “resting and taking a holiday in Crimea. He has grown very weary over these last few years and needs some time to get his health back.” With tanks standing outside proceedings were quickly declining into a lethargic farce in front of the whole country.

Over the next two days there was international condemnation (though Muammar Gaddafi, Saddam Hussein and Yasser Arafat supported the coup) the deaths of three pro-Yeltsin activists, and an order by the junta to re-take the White House at all costs, canceled at the last minute. But by then the fate of the putsch had already been set in motion.

Meanwhile, as the most dramatic events in Russia since 1917 were unfolding in Moscow, Gorbachev carried on going for dips in the Black Sea, and watching TV with his family. On the first night of the coup, wearing a cardigan not fit for an nationwide audience, he recorded an uncharacteristically meek address to the nation on a household camera, saying that he had been deposed. He did not appear to make any attempt to get the video out of Foros, and when it was broadcast the following week, it incited reactions from ridicule, to suspicions that he was acting in cahoots with the plotters, or at least waiting out the power struggle in Moscow. Gorbachev likely was not, but neither did he appear to exhibit the personal courage of Yeltsin, who came out and addressed crowds repeatedly when a shot from just one government sniper would have been enough to end his life.

On the evening of August 21, with the coup having evidently failed, two planes set out for Crimea almost simultaneously from Moscow. In the first were the members of the junta, all rehearsing their penances, in the other, members of Yeltsin’s team, with an armed unit to rescue Gorbachev, who, for all they knew, may have been in personal danger. When the putschists reached Foros, Gorbachev refused to receive them, and demanded that they restore communications. He then phoned Moscow, Washington and Paris, voiding the junta’s decrees, and repeating the simple message: “I have the situation under control.”

But he did not. Gorbachev’s irrelevance over the three days of the putsch was a metaphor for his superfluousness in Russia’s political life in the previous months, and from that moment onward. Although the putschists did not succeed, a power transfer did happen, and Gorbachev still lost. For three days, deference to his formal institutions of power was abandoned, and yet the world did not collapse, so there was no longer need for his dithering mediation.

Gingerly walking down the steps of the airstair upon landing in Moscow, blinking in front of the cameras, Mikhail Gorbachev was the lamest of lame duck leaders. He gave a press conference discussing the future direction of the Communist Party, and inner reshuffles that were to come, sounding not just out-of-touch, but borderline delusional.

Soviet President Mikhail Gorbachev addresses the Extraordinary meeting of the Supreme Soviet of Russian Federation in Moscow in this August 23, 1991 file photo.
Reuters.
Russian President Boris Yeltsin and Soviet President Mikhail Gorbachev touch hands during Gorbachev’s address to the Extraordinary meeting of the Supreme Soviet of Russian Federation in Moscow, August 23, 1991. REUTERS/Gennady Galperin (RUSSIA).
Reuters.

Gorbachev resigned as the President of the Soviet Union on December 25, 1991.

“The policy prevailed of dismembering this country and disuniting the state, which is something I cannot subscribe to,” he lamented, before launching into an examination of his six years in charge.

“Even now, I am convinced that the democratic reform that we launched in the spring of 1985 was historically correct. The process of renovating this country and bringing about drastic change in the international community has proven to be much more complicated than anyone could imagine.”

“However, let us give its due to what has been done so far. This society has acquired freedom. It has been freed politically and spiritually, and this is the most important achievement that we have yet fully come to grips with.”

AFTERMATH

Praised in West, scorned at home

“Because of him, we have economic confusion!”

“Because of him, we have opportunity!”

“Because of him, we have political instability!”

“Because of him, we have freedom!”

“Complete chaos!”

“Hope!”

“Political instability!”

“Because of him, we have many things like Pizza Hut!”

Thus ran the script to the 1997 advert that saw a tableful of men argue loudly over the outcome of Perestroika in a newly-opened Moscow restaurant, a few meters from an awkward Gorbachev, staring into space as he munches his food alongside his 10 year-old granddaughter. The TV spot ends with the entire clientele of the restaurant getting up to their feet, and chanting “Hail to Gorbachev!” while toasting the former leader with pizza slices heaving with radiant, viscous cheese.

The whole scene is a travesty of the momentous transformations played out less than a decade earlier, made crueler by contemporary surveys among Russians that rated Gorbachev as the least popular leader in the country’s history, below Stalin and Ivan the Terrible.

The moment remains the perfect encapsulation of Gorbachev’s post-resignation career.

To his critics, many Russians among them, he was one of the most powerful men in the world reduced to exploiting his family in order to hawk crust-free pizzas for a chain restaurant — an American one at that — a personal and national humiliation, and a reminder of his treason. For the former Communist leader himself it was nothing of the sort. A good-humored Gorbachev said the half-afternoon shoot was simply a treat for his family, and the self-described “eye-watering” financial reward — donated entirely to his foundation — money that would be used to go to charity.

As for the impact of Gorbachev’s career in advertising on Russia’s reputation… In a country where a decade before the very existence of a Pizza Hut near Red Square seemed unimaginable, so much had changed, it seemed a perversely logical, if not dignified, way to complete the circle. In the years after Gorbachev’s forced retirement there had been an attempted government overthrow that ended with the bombardment of parliament, privatization, the first Chechen War, a drunk Yeltsin conducting a German orchestra and snatching an improbable victory from revanchist Communists two years later, and an impending default.

Although he did get 0.5 percent of the popular vote during an aborted political comeback that climaxed in the 1996 presidential election, Gorbachev had nothing at all to do with these life-changing events. And unlike Nikita Khrushchev, who suffered greater disgrace, only to have his torch picked up, Gorbachev’s circumstances were too specific to breed a political legacy. More than that, his reputation as a bucolic bumbler and flibbertigibbet, which began to take seed during his final years in power, now almost entirely overshadowed his proven skill as a political operator, other than for those who bitterly resented the events he helped set in motion.

Other than in his visceral dislike of Boris Yeltsin — the two men never spoke after December 1991 — if Gorbachev was bitter about the lack of respect afforded to him at home, he wore it lightly. Abroad, he reveled in his statesmanlike aura, receiving numerous awards, and being the centerpiece at star-studded galas. Yet, for a man of his ambition, being pushed into retirement must have gnawed at him repeatedly.

After eventually finding a degree of financial and personal stability on the lecture circuit in the late 1990s, Gorbachev was struck with another blow — the rapid death of Raisa from cancer.

A diabetic, Gorbachev became immobile and heavy-set, a pallor fading even his famous birthmark. But his voice retained its vigor (and accent) and the former leader continued to proffer freely his loquacious opinions on politics, to widespread indifference.

Gorbachev’s legacy is at the same time unambiguous, and deeply mixed — more so than the vast majority of political figures. His decisions and private conversations were meticulously recorded and verified. His motivations always appeared transparent. His mistakes and achievements formed patterns that repeated themselves through decades.

Yet for all that clarity, the impact of his decisions, the weight given to his feats and failures can be debated endlessly, and has become a fundamental question for Russians.

Less than three decades after his limo left the Kremlin, his history has been rewritten several times, and his role bent to the needs of politicians and prevailing social mores. This will likely continue. Those who believe in the power of the state, both nationalists and Communists, will continue to view his time as egregious at best, seditious at worst. For them, Gorbachev is inextricably linked with loss — the forfeiture of Moscow’s international standing, territory and influence. The destruction of the fearsome and unique Soviet machine that set Russia on a halting course as a middle-income country with a residual seat in the UN Security Council trying to gain acceptance in a US-molded world.

Others, who appreciate a commitment to pacifism and democracy, idealism and equality, will also find much to admire in Gorbachev, even though he could not always be his best self. Those who place greater value on the individual than the state, on freedom than on military might, those who believe that the collapse of the Iron Curtain and the totalitarian Soviet Union was a landmark achievement not a failure will be grateful, and if not sympathetic. For one man’s failure can produce a better outcome than another’s success.

RAISA

Passion and power

The history of rulers is littered with tales of devoted wives and ambitious women pulling strings from behind the throne, and Raisa was often painted as both. But unlike many storybook partnerships, where the narrative covers up the nuances, the partnership between Mikhail and Raisa was absolutely authentic, and genuinely formidable. Perhaps the key to Mikhail’s lifelong commitment, and even open deference to his wife, atypical for a man of his generation, lay in their courtship.

Raisa Gorbacheva, wife of the General Secretary of the CPSU Central Committee and Chairman of the USSR Supreme Soviet Mikhail Gorbachev, in Paris during their official visit to France. Ria Novosti.

In his autobiography, Gorbachev recollects with painful clarity, how his first meeting with Raisa, on the dance floor of a university club, “aroused no emotion in her whatsoever.” Yet Gorbachev was smitten with the high cheek-boned fellow over-achiever immediately, calling her for awkward dorm-room group chats that went nowhere, and seeking out attempts.

— Raisa Gorbacheva
“We were happy then. We were happy because of our young age, because of the hopes for the future and just because of the fact that we lived and studied at the university. We appreciated that.”

It was several months before she agreed to even go for a walk through Moscow with the future Soviet leader, and then months of fruitless promenades, discussing exams at their parallel faculties. With candor, Gorbachev admits that she only agreed to date him after “having her heart broken by the man she had pledged it to.” But once their relationship overcame its shaky beginnings, the two became the very definition of a Soviet power couple, in love and ready to do anything for each other. In the summer vacation after the two began to go steady, Gorbachev did not think it below him to return to his homeland, and resume work as a simple mechanic, to top up the meager university stipend.

The two were not embarrassed having to celebrate their wedding in a university canteen, symbolically, on the anniversary of the Bolshevik Revolution on November 7, 1953. Or put off when the watchful guardians of morality at Moscow State University forbid the newlyweds from visiting each other’s halls without a specially signed pass. More substantial obstacles followed, when Mikhail’s mother also did not take to her daughter-in-law, while Raisa agreed to a medically-advised abortion after becoming pregnant following a heavy bout of rheumatism. But the two persevered. Raisa gave birth to their only child in 1955, and as Gorbachev’s star rose, so did his wife’s academic career as a sociologist. But Raisa’s true stardom came when Gorbachev occupied the Soviet leader’s post.

Soviet President and General Secretary of the Soviet Communist Party’s Central Committee, Mikhail Gorbachev, 2nd right, and Soviet First Lady Raisa Gorbacheva, right, at the meeting with British Prime Minister Margaret Thatcher, left, at the Soviet Embassy in London.
RIA Novosti.

Raisa Gorbacheva, the wife of the Soviet leader (left), showing Nancy Reagan, first lady of the U.S., around the Kremlin during U.S. President Ronald Reagan’s official visit to the U.S.S.R.
RIA Novosti.General Secretary of the CPSU Central Committee Mikhail Gorbachev (center left) and his spouse Raisa Gorbacheva (second from left) seeing off US President Ronald Reagan after his visit to the USSR. Right: The spouse of US president Nancy Reagan. The Hall of St. George in the Grand Kremlin Palace.
RIA Novosti.Raisa Gorbacheva (left), wife of the general secretary of the Soviet Communist Party, and Barbara Bush (right), wife of the U.S. president, attending the inauguration of the sculptured composition Make Way for Ducklings near the Novodevichy Convent during U.S. President George Bush’s official visit to the U.S.S.R.
RIA Novosti.Soviet first lady Raisa Gorbacheva meets with Tokyo residents during Soviet President Mikhail Gorbachyov’s official visit to Japan.
RIA Novosti.The meeting between Mikhail Sergeyevich Gorbachev, President of the USSR and the heads of state and government of the seven leading industrial nations. From left to right: Mikhail Sergeyevich Gorbachev, Norma Major, Raisa Maksimovna Gorbacheva and John Major.
RIA Novosti.Soviet president’s wife Raisa Gorbacheva at the 112th commencement at a female college. The State of Massachusetts. Soviet president Mikhail Gorbachev’s state visit to the United States.
RIA Novosti.

In a symbol as powerful as his calls for international peace and reform at home, the Communist leader was not married to a matron hidden at home, but to an urbane, elegantly-dressed woman, regarded by many as an intellectual equal, if not superior to Mikhail himself. Gorbachev consulted his wife in every decision, as he famously told American TV viewers during a Tom Brokaw interview. This generated much ill-natured mockery throughout Gorbachev’s reign, but he never once tried to push his wife out of the limelight, where she forged friendships with such prominent figures as Margaret Thatcher, Nancy Reagan and Barbara Bush.

Raisa was there in the Crimean villa at Foros, during the attempted putsch of August 1991, confronting the men who betrayed her husband personally, and suffering a stroke as a result. It was also Raisa by Gorbachev’s side when they were left alone, after the whirlwind settled in 1991. Despite nearly losing her eyesight due to her stroke, Raisa largely took the lead in organizing Mikhail’s foundation, and in structuring his life. In 1999, with his own affairs in order, not least because of the controversial Pizza Hut commercial, and Russians anger much more focused on his ailing successor, Gorbachev thought he could enjoy a more contented retirement, traveling the world with his beloved.

CPSU Central Committee General Secretary Mikhail Gorbachev and his wife Raisa at Orly Airport, France.
RIA Novosti.

Soviet President Mikhail Gorbachev (center), Soviet first lady Raisa Gorbacheva (right), Kazakh President Nursultan Nazarbayev and Kazakh first lady Sara Nazarbayeva during Gorbachev’s working visit to Kazakhstan.
RIA Novosti.General Secretary of the CPSU Central Committee Mikhail Gorbachev (left) and his spouse Raisa Gorbachev (center) at a friendship meeting in the Wawel Castle during a visit to Poland.
RIA Novosti.Soviet leader Mikhail Gorbachev and his wife Raisa during his official visit to China.
RIA Novosti.An official visit to Japan by USSR President Mikhail Gorbachev. He with wife, Raisa Gorbachev, and Japanese Prime Minister Toshiki Kaifu near a tree planted in the garden of Akasaka Palace.
RIA Novosti.Mikhail Gorbachev (center), daughter Irina (right) and his wife’s sister Lyudmila (left) at the funeral of Raisa Gorbachev.
RIA Novosti.Last respects for Raisa Gorbacheva, spouse of the former the USSR president in the Russian Fond of Culture. Mikhail Gorbachev, family and close people of Raisa Gorbacheva at her coffin.
RIA Novosti.Mikhail Gorbachev at the opening of the Raisa exhibition in memory of Raisa Gorbacheva.
RIA Novosti.

— Raisa Gorbacheva
“It is possible that I had to get such a serious illness and die for the people to understand me.”

Then came the leukemia diagnosis, in June of that year. Before the couple’s close family had the chance to adjust to the painful rhythm of hope and fear that accompanies the treatment of cancer, Raisa was dead. Her burial unleashed an outpouring of emotion, with thousands, including many of her husband’s numerous adversaries, gathering to pay their sincere respects. No longer the designer-dressed careerist ice queen to be envied, resented and ridiculed, now people saw Raisa for the charismatic and shrewd idealist she always was. For Gorbachev it made little difference, and all those around him said that however much activity he tried to engage in following his wife’s death, none of it ever had quite the same purpose.

“People say time heals. But it never stops hurting – we were to be joined until death,” Gorbachev always said in interviews

For the tenth anniversary of Raisa’s death, in 2009, Mikhail Gorbachev teamed up with famous Russian musician Andrey Makerevich to record a charity album of Russian standards, dedicated to his beloved wife. The standout track was Old Letters, a 1940s melancholy ballad. Gorbachev said that it came to him in 1991 when he discovered Raisa burning their student correspondence and crying, after she found out that their love letters had been rifled through by secret service agents during the failed coup.

The limited edition LP sold at a charity auction in London, and fetched £100,000.

Afterwards, Gorbachev got up on the stage to sing Old Letters, but half way through he choked up, and had to leave the stage to thunderous applause.

A Strange Thing Happened … with the development of a New Order

August 15, 2022

Source

By Francis Lee

‘’The best-known definition of financialization is that it involves the increasing role of financial motives, financial markets, financial actors, and financial institutions in the operation of domestic and international economies.’’ (1)

A picture containing indoor, floor, ceiling, metal Description automatically generated

In this dungeon – All that glitters is gold. Bank of England Gold Vault

The massive shift in the global system of industry and finance which had been based upon the Bretton Woods institutions – viz., the IMF (International Monetary Fund) the World Bank (previously known as the International Bank for Reconstruction and Development and the International Development Agency) which carried on regardless at the ending of the gold standard in 1971. Both the World Bank and IMF were based in Washington. Additionally, another Bretton Woods Institution – The General Agreement on Tariffs and Trade, was to become the World Trade Organization (WTO) in January 1995.

It was generally understood by all the actors that the objective was for firms to engage in the economy in order to produce goods and services with a view to further investment, growth, and profitability. This was the consensus of the time and raison d’etre of capitalism. However, this political unanimity began to change, quite fundamentally.

The massive shift as mentioned above was a step toward delinking the US$ with gold, when the US government guaranteed to exchange US$ for gold at the fixed rate of $35 per ounce. This effectively placed all the world’s currencies onto a gold standard backed by the US gold at Fort Knox. Many governments came to accept US$ as gold deposit certificates and chose to hold their international foreign exchange reserves in dollars rather than in gold.

The system worked reasonably well for more than 20 years until it became widely evident that the United States was creating far more dollars to finance its heavy military operations, firstly in Korea and then Indochina, and this combined with the domestic social spending which were part of Johnson’s Democratic party enmeshed in the ‘Great Society’ monetary splurge. What happened next was entirely predictable. Overseas holders of US$ began to take their dollars to the Fed’s bank window, but the Fed could not give them anything in return other than US Treasuries which are just a form of paper money! It was a French politician, Valery Giscard D’Estaing, who drew attention to this American ‘exorbitant privilege’. Pretty soon all the gold was beginning to fly out of Fort Knox to Europe and the Far East. The US government had to do something in order to stem the outward flow. On August 15, 1971, President Richard Nixon declared that the US would no longer redeem dollars on demand for gold. The dollar was ultimately nothing other than a piece of high-grade paper with a number and some intricate artwork issued by the US government. The world’s currencies were no longer linked to anything of real value and shared expectations that others would accept them in exchange for real goods and services.

It was a fantastic (and lucky) stroke for the Americans to pull this off. But this financial coup seemed like the opening shot in a long goodbye to the existing economic and political order. A strange thing was happening indeed. In the words of the Irish poet, W.B.Yeats, ‘All changed, changed utterly. A terrible beauty is born.’ From the poem, ‘Easter 1916.’

A Terrible Beauty

Capitalism was clearly morphing into a different animal with a new financial-economic structure which emerged from the old-style capitalist mode; the old order of production and consumption in a traditional capitalist economy which was occasioned by the production of tangible wealth, as opposed extractive or more tangibly extracted ‘wealth’. Businesses once focused almost exclusively on producing the goods and services for which they had a competitive advantage, but in the economic conditions of the present time they became likely as much if not focused more on their share price, their dividends regime, and in addition, to their interest rates.

A new class and a new system were clearly emerging, if not actually fully emerged. At the present time a tiny minority of people and corporate interests across the world are accumulating vast wealth and power from rental income not only from housing and land but from a range of other assets natural and created. Rentiers of all kinds are an unparalleled ascendancy, and the neo-liberal state is only too keen to oblige their greed.

The rentier class derive their income from ownership or control of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, mineral exploitation, or financial investments, but other sources have grown, pari passu. These include the income lenders again from debt interest; income from ownership of ‘intellectual property’ (patents, copyrights, brands, and trademarks); capital gains from investments, ‘above normal’ company profits (when a firm has a dominant market position that allows it to charge higher prices or dictate terms); income from government subsidies; and income from financial and other intermediaries derived from third party transactions. A political and economic structure began to emerge in the 1980’s. Once more quoting Yeats, ‘All has changed, changed utterly. A Terrible beauty is born.’ That terrible beauty is Neoliberalism. (2)

‘’Today’s corporations have become thoroughly financialized, with some looking more like banks than productive enterprises. This financialization of non-financial corporations has involved the transfer of societies resources from the employees to the share/stock’s shareholders. This transfer of wealth has resulted both from changes in the political and economic foundations of the global economy from the rise of a new ideology, which holds that corporations sole aim should be to maximize profitability via increasing returns to shareholders. Both ideas and power relations have to change to create any lasting economic change – and the 1980s was a period of transition of both.’’ (3)

Yes, those old enough of us who can remember the 1980s, a strange period of counter-revolution and – die Zeitgeist – yuppies, private equity, Thatcher and Reagan, The Big Bang, The Eurodollar market, Milton Friedman, and the Chicago School of Economics, ‘Greed is Good.’ Privatisation was all the rage. Heady stuff, but like all similar periods of ersatz golden ages the recent versions have crashed into the truths of economic realities. Like, you don’t get something for nothing, or booms lead to busts, or asset price inflation is not the same as growth. In order however … ‘’to maintain the semblance of vitality, western capitalism has become increasingly dependent on expanding levels of debt and of the expansion of the level of fictitious capital. This latter category is made up of financial assets which are only symbols of value, not real values.’’ (4)

Yes, indeed, company shares-stocks that are traded like goods and services do not in the same way embody value. They are tokens which represent part ownership of a company and the potential distribution of future profits in the form of dividends. The paper or electronic certificate itself is not a genuine value that can create more value. Rising share/stock prices are often presented as evidence of a healthy economy, but the amount money a share/stock charges hands says nothing definitive about the value of the company’s assets or about its productive capacity. On the contrary, it is when real capital stagnates that the amount of fictitious capital tends to expand.

The years roughly between the late 1970s to the present economic impasse have been unprecedented since the emerging and increasing instability of the present debacle of the 2020s. Prior to this each successive wave of crises followed a wave of credit bubbles, when the indebtedness of similarly placed group and groups of borrowers increased at a two of three times higher than the interest rate for three, four or more years which produced a series of credit bubbles in addition. These historical blow-outs have in fact become even more intractable and destructive with the passing of time. Something seems seriously amiss with the system’s dysfunctionalities which have become quite visibly failing. The economic situation in a country after several years of bubble-like behaviour resembles that of a young person on a bicycle – the rider needs to maintain the forward momentum of the bicycle, or it will become unstable. During the initial mania, asset prices will decline immediately after they stop increasing – there is no plateau or middle ground. The decline in the prices of some assets leads to a concern that asset prices will decline further and that the financial system will experience distress. The rush to sell these assets becomes self-fulfilling and so precipitous that it resembles a panic. The prices of commodities – houses, buildings, land, shares/stocks bonds – crash to levels that are just 30 or 40 percent of their prices at the peak. Bankruptcies surge, economic activity slows, and unemployment increases.

The features of these manias are never identical and yet there is a similar pattern. The increase in the prices of real estate and commodities or stocks is associated with euphoria; household wealth increases as does spending. There is a sense of ‘we have never had it so good.’ Then the asset prices peak and then begin to decline. The following implosion of the bubble leads to a decline in the prices of commodities, stocks, and real estate. Some financial crises were preceded by a rapid increase in the indebtedness of one or several groups of borrowers rather than by a rapid increase in the price of an asset or security. These deep-going changes in the world’s global economy were accompanied by political ramifications of a very significant order.

The economic shocks of the post-war period gave rise to the political shocks which if anything were more visible than what was apparent in the economies of the advanced world. Since 1945 everything had after the post-war reconstruction been regarded as L’Age Dor, (Golden Age) as the French had called it. This was a period from the early 1950s characterized by high levels of growth, low and falling unemployment, rising level wages and investment, where in the UK we were informed that ‘we had never had it so good’’ as the Conservative government proudly boasted. The Labour party had held the reins of government from 1945-1951. But things began to change during the 1970s, namely that the political/economic pivot changed definitively in the late 70s and early 80s. The Thatcher/Reagan duo grabbed the bull by the horns and established the new order.

This political/economic dispensation was to last from the early 1980s and through to what was to be the supposed blossoming of the Clinton years of growth and enrichment, the apex of the Anglo-American moment. To be sure: “Pippa’s Song.’’ See Below.

The year’s at the spring,
And day’s at the morn;
Morning’s at seven;
The hill-side’s dew-pearl’d;
The lark’s on the wing;
The snail’s on the thorn;
God’s in His heaven –
All’s right with the world!

Robert Browning (1812-1889)

Yes, if only it could always be like this. But of course, it seldom or never is, as was to be witnessed in due course.

Consolidation of the New Order

Margaret Thatcher and Ronald Reagan. Dynamic Duo!

The intellectual theorists of the new order – the Mount Perelin Society – an emergent think-tank and intellectual movement behind the Thatcher-Reagan populism. In a both internally coherent framework and an ideology used to promote the power of the owners of capital in general and finance capital in particular. The work of Hayek, Von Mises, and others constituted a serious intellectual exercise grounded in a particular set of values (including Milton Friedman albeit a junior member) namely, a commitment to human freedom, defined by control over one’s property. The fact that this justified for shrinking the size of the state, removing capital controls, and reducing taxes is what led several prominent international financiers (George Soros comes to mind for some reason) to cover a large portion of the costs for the first meeting. So, the party (in terms of both political activity and organization) was calling nearly all the shots.

Another significant event has been the intellectual collapse of Labour and Social-Democratic parties in Europe and possibly even included the left-wing of the US Democratic Party and Bernie Sanders. These were clearly the most significant political events in both Europe and North America during the 1980s. We can list them – all late converts to the neo-liberal paradigm – in France (PS Party Socialist France) (Germany SPD) (Greece PASOK) (Spain PODEMOS) (UK Labour Party) the list goes on. Moreover, having given up on any notion of socialism and equality, these ex-parties metamorphosed into centre-right outfits indistinguishable from the militant conservatives. The leaders of these counterrevolutions were the ineffable bought duo – Bill Clinton and Tony Blair.

The privatization programme was to sweep all before it including on a massive scale the expropriation of public land with little analysis or oversight. The programme of what was once the public sector and which had included, the National Health Service, Education, Transport, Road and Rail, Electricity, Water … was a policy based upon ideological rather than practical considerations; moreover, the list was extensive. Perhaps an example of this policy was education, particularly higher education which was provided and subsidized by educational opportunities in the elite universities. As a British national I was subsidized by generous government grant in 1979/82. I then finished my higher education as a post-graduate in 1986 – again free of charge. It is of course inconceivable that I would have been able to do this today.

The economic system – that is to say the present financialized system prevalent in the Western world – seems to be reaching its crisis point. Quack remedies for the ailing western economic structures, include Central Bank Digital Currencies, CBDCs, and/or the black hole of ever-increasing debt, which apparently will be overcome by issuing more debt (sic) and which are touted as a ‘solution’ to an intensifying structural problem, but which merely intensify the crisis.

According to Marx: ‘’In France and England, the bourgeoisie had conquered political power. Thenceforth, the class-struggle, practically as well as theoretically, took on more and more outspoken and threatening forms. It sounded the death-knell of scientific bourgeois economy. It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient, or inexpedient, politically dangerous, or not. In place of disinterested inquirers, there were prize fighters; in place of genuine scientific research, the bad conscience and evil intent of the apologetic.’’ (Capital, Volume 1, Afterword to the Second German Edition – London 1873).

The present deep economic crisis is, at bottom, a class issue. The residual elements of the old aristocracy survived the initial assault of the political economists of the 17/18/19th centuries who included Adam Smith (1723-1790), David Ricardo (1772-1823), John Stuart Mill (1806-1873), Karl Marx (1818-1883)/(Friedrich Engels (1820-1895). The ruling class saw the above group as being an assemblage of dangerous radicals who posed an alarming threat to the social and political order. Thus, from their perspective the powers-that-be saw fit to enlist a group of academics called the ‘marginalists’ in 1870. These were the counter-revolutionary mathematicians and included Leon Walras (Frenchman) William Stanley Jevons (Englishman) and Carl Menger (German). Whether or not the repudiation of classical political economy achieved by this counter-group was sustainable is a moot point (see above). But suffice it to say these gentlemen were the ideological foot-soldiers, or, in Marx’s words ‘hired Prize Fighters’ for the rentier classes. Unfortunately, their frozen economic theories survived to the present day and continue to dominate school and university curricula and represent the timeless (and tedious) axioms of micro-economics.

I’ll leave the last word to Michael Hudson.

‘’Real estate, stocks and bonds constitute the bulk of wealth in today’s economies, because most wealth is obtained by rent-seeking – land rent, monopoly rent, and financial charges for special privileges – and even more by capitalizing rentier revenues into financialized assets, all supported by tax favoritism. In contrast to industrial capitalism’s drive to minimize rentier charges to create a lower cost economy with less overhead costs, finance capitalism increases this burden. Regardless of how financiers and billionaire rentier make their fortunes, this rise in rentier wealth is counted as an addition to GDP, subtracted as an exploitive transfer payment …Much as the land and England’s Commons were privatized in the Enclosure movements from 15th to 19th centuries by a combination of force, legal stealth and corruption, today’s post-1980 privatization wave aims at appropriating basic public infrastructure to create opportunities for charging monopoly rent, along with bank lending to privatizers. Privatization and financialization tend to go together – at the economies expense.’’ (5)

Italy: La Lotta Continua! (Ongoing Struggle)

NOTES:

(1) Stolen: How to save the world from financialization by Grace Blakeley. (2) The Corruption of Capitalism – Guy Standing – (Ibid. p. 3)

(3) Grace Blakeley – (Ibid. p.62)

(4) Creative Destruction – Phillip Mullan – (p.22)

(5) The Destiny of Civilization – Michael Hudson – (p.25)

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The West, Eurasia, and the Global South: The Development of Underdevelopment

The West, Eurasia, and the Global South: The Development of Underdevelopment

August 01, 2021

By Francis Lee for the Saker Blog

‘The dependency thesis, like all good (and great) theories can be summed up in a single phrase: Modern ‘’underdevelopment’’ is not ‘’historical backwardness’’ the result of late and insufficient development; it is the product of capitalist development, which is polarizing by nature’. (Andre Gunder Frank -1996.)

The leader of the UK Conservative Party, Mrs Thatcher, first came to power in the UK in 1979 with a brief to end the post-war consensus which had prevailed from the Labour party victory in 1945. Although Labour lost the ensuing elections from 1951-1963, the Conservative Party nonetheless adopted many of Labour’s social-democratic policies, particularly the economic policies, which characterised the post-war years. The same process was to take place when Ronald Reagan established a similar ascendency in the United States. The Thatcher-Reagan duo was born and was to terminate the post-war settlement in both the UK and the US.

Theories were put forward by economic luminaries on both sides of the Atlantic, but particularly by Milton Friedman at the University of Chicago. The notion that there existed a magic panacea that would banish all the problems associated with the failing British and American economic policies of 1945-1979, formed the basis of the Thatcher-Reagan economic radicalism, which was to be followed by the Blair-Clinton consolidation of the 1990s. The so-called ‘supply-side’ revolution consisted of removing all the controls which undergirded capitalism, and which had been painstakingly put in place during the course of the 20th century, and simply letting the system find its own level. Privatisation, deregulation, and liberalisation were the components in this policy paradigm.

Of course none of this is news; it had been the staple of the West’s chattering classes in the late 20th century. But its effects were more than restricted to the North Atlantic bloc and was to have a global impact changing the political and economic policies and structures of the whole world.

NEO-LIBERALISM & GLOBALIZATION

­In international terms ‘free’-trade as it was known was at the heart of the system – a system, which was later to become known as globalization, packaged and sold as an irresistible force of nature. Globalization was considered to be neo-liberalism writ large. But on the contrary, a more nuanced interpretation was to be put forward by one of the more astute commentators on the issue.

‘’The standard and most popular narrative is of globalization as the twin of neo-liberalism, expressing the market-fundamentalist view that state-intervention is bad for the economy. It is argued that the state interferes too much with the self-regulating power of the markets, thereby undermining prosperity. This perspective would explain why Alan Greenspan regarded it as fortunate that globalization was rendering the government as being redundant. We call this the anti-state narrative. An alternative narrative is actually considerably more germane: an anti-politics, specifically an anti-mass politics narrative. Greenspan’s statement incorporated the conventional presumption that the West has reached the frontiers of traditional politics: politics has lost its efficacy in the face of global forces. As a result, especially economic policy, is now pretty irrelevant if not actually detrimental, because everything is driven by – determined by – the impersonal force of globalisation. (1) So it is argued.

It was of course taken as axiomatic that free-trade – a vital component in the new economic paradigm – was always and everywhere the best policy. This conventional wisdom was to become known as the ‘Washington Consensus’ and was given a legitimating cachet by political, business, and academic elites around the world. However many of the elements – if not all – of the Washington Consensus where hardly new, many date back to the 18th and 19th centuries and perhaps beyond. It could be said that the newly emergent mainstream orthodoxy represented a caricature of an outdated and somewhat dubious political economy.

The free-trade canon is, of course, spoken of in almost reverential terms. It is as jealously guarded by the economics priesthood in Wall Street and the City of London and of course academia. In short, the theory is based upon a type of formal logic expounded by the early pioneers of political economy, viz., Adam Smith and David Ricardo; and in particular in Ricardo’s magnum opus, The Principles of Political Economy and Taxation first published in 1817. Briefly he argued that nations should specialise in what they do best and in that way world output would be maximised. The hypothetical example he used was England and Portugal and the production of wine and cloth, where he calculated that England should produce cloth and Portugal should produce wine. It was asserted, although no evidence was ever presented, that all would gain from this international division of labour.

However, even a cursory glance at economic history, and particularly the transition from agrarian to industrial societies, demonstrates the weaknesses, and indeed serves to falsify the whole Ricardian model – taken as a model of development. The brute historical fact is that every nation which has successfully embarked upon this transition, including most importantly the US and Germany, has done so adopting catch-up policies which were the exact opposite of those advocated by the free-trade school. (2)

In the world of actually existing capitalism free-trade is the exception rather than the rule. Contemporary free-trade is mainly a matter of intra-firm trading, that is to say, global companies trading with their own subsidiaries and affiliates mainly for tax avoidance purposes, transfer pricing for example. Next come the regional trading blocs – the EU, NAFTA, (which was superseded by the United States–Mexico–Canada Agreement USMCA) and Mercosur (in Latin America). With regard to Mercosur there is no common currency as is the case in most of the EU. Thirdly there is barter trade where goods and services are exchanged for other goods and services rather than money. Finally only about 20% of world trade can at most be considered free trade, and even here there are exceptions involving bilateral specifications and agreements.

INTERVENTIONISM

Modernisation and industrialisation, wherever it took place, involved tariffs, non-tariff barriers (3) infant industry protection, export subsidies, import quotas, grants for Research and Development (R&D), patents, currency manipulation, mass education and so forth – a smorgasboard of interventionist policies whereby the economy was directed from above by the state. For example, during its period of industrialisation, the United States erected tariff walls to keep out foreign (mainly British) goods with the intention of nurturing nascent US industries. US tariffs (in percentages of value) ranged from 35% to almost 50% during the period 1820-1931, and the US itself only became in any sense a free trading nation after WW2, that is once its financial and industrial hegemony had been established.

In Europe laissez-faire policies were also eschewed. In Germany in particular tariffs were lower than those in the US, but the involvement of the German state in the development of the economy was decidedly hands on. Again there was the by now standard policy of infant industry protection, and this was supplemented by an array of grants from the central government including scholarships to promising innovators, subsidies to competent entrepreneurs, and the organisation of exhibitions of new machinery and industrial processes. In addition ‘’during this period Germany pioneered modern policy, which was important in maintaining social peace – and thus promoting and encouraging social investment – in a newly unified country.’’ (4)

This path from under-development to modern industrial development, a feature of historical and dynamic economic growth and expansion which has taken place in the US, Europe, and East Asia is not a ‘natural’ progression, it was a matter of state policy. It has been the same everywhere that it has been applied. That being said the Ricardian legacy still prevails. But this legacy takes on the form of a free-floating ideology with little connexion to either practical policy prescriptions or the real world.

Turning to the real world it can be seen, by all of those who have eyes to see, that, ‘’ … history shows that symmetric free-trade between nations of approximately the same level of development, benefits both parties.’’ However, ‘’ … asymmetric trade will lead to the poor nation specialising in being poor, whilst the rich nation will specialise in being rich. To benefit from free-trade, the poor nation must rid itself of its international specialisation of being poor. For 500 years this has not happened anywhere without any market intervention.’’ (5)

GLOBAL ECONOMIC ASYMMETRY

This asymmetry in the global system is both cause and consequence of globalization. It should be borne in mind that the Least Developed Countries (LDCs) are the providers of cheap raw material inputs to the industrial countries of North America, Western Europe and East Asia. In technological terms the LDC’s find themselves locked into low value-added, dead-end production where no discernible technology transfer takes place. Thus under-development is a structural characteristic of globalization, not some unfortunate accident. Put another way,

‘’ … If rich nations (the North) as the result of historical tendencies (i.e., colonialism – FL) are relatively well-endowed with vital resources of capital, entrepreneurial ability, and skilled labour, their continued specialisation in products and processes that use these resources intensively can create the necessary conditions for their further growth. By contrast LDCs (the global South) endowed with abundant supplies of cheap unskilled labour, by intentionally specialising in products which use cheap, unskilled labour … often find themselves locked into a stagnant situation which perpetuates their comparative advantage in unskilled unproductive activities. This in turn inhibits the domestic growth of needed capital, and technical skills. Static efficiency becomes dynamic inefficiency, and a cumulative process is set in motion in which trade exacerbates already unequal trading relationships, distributes benefits largely to the people who are already well off, and perpetuates the physical and human resource under-development that characterises most poor nations. (6)

Examples of these unequal economic relationships are not difficult to find. US global trade policy was openly based upon a ‘Me Tarzan, you Jane’ set up. America’s trade ‘partners’ were somewhat less endowed with both political and economic capital compared with their senior trading associate – this fact provides a number of typical case studies in this connexion.

Agriculture was always a particular example of the double standard inherent in the trade liberalization agenda. The United States always insisted that other countries reduce their barriers to American products and eliminate subsidies for those products which competed against theirs. However, the US kept up barriers for the goods produced by the developing countries whilst it continued to underwrite massive subsidies for their own producers.

Agricultural subsidies encouraged American farmers to produce more output, forcing down global prices for the crops that poor developing countries produce and depend upon. For example, subsidies for one crop alone, cotton, went to 25,000 mostly very well-off US farmers, exceeded in value the cotton that was produced, lowering the global price of cotton enormously. American farmers, who account for a third of global output, despite the fact that US production costs twice the international price of 42 cents per pound, gained at the expense of the 10 million African farmers in Mali, West Africa, who depended on cotton for their meagre living. Several African countries lost between 1 and 2 percent of their entire income, an amount greater than what these particular countries received in foreign aid from the US. The state of Mali received US$37 million in aid but lost US$43 million from depressed cotton prices.

In other grubby little deals the US tried to keep out Mexican tomatoes, and Mexican trucks, Chinese honey, and Ukrainian women’s coats. Whenever an American industry is threatened, the US authorities swing into action, using so-called fair-trade laws, which had been largely blessed by the Uruguay Round.

Such Treaties were little more than a con game between two grossly unequal partners where one of the partners holds all the cards. Nor does it end there. Transnational Companies can and do avoid much local taxation by shifting profits to subsidiaries in low-tax venues by artificially inflating the price which they pay for their intermediate products purchased from these same subsidiaries so as to lower their stated profits. This phenomenon is usually called ‘transfer pricing’ and is a common practice of Transnational Companies (TNCs), one over which host governments can exert little control as long as corporate tax rates differ from one country to the next.

It should also be borne in mind that although the IMF and World Bank enjoin LDCs to adopt market liberalisation policies they apparently see – or conveniently ignore – the past and current mercantilist practices of developed nations. Agriculture, as has been noted, is massively subsidised in both NAFTA and the EU. But it really is a question of don’t do what I do – do as I say.

The hypocrisy at the heart of the problem represents the elephant in the room. We know that countries which attempt to open their markets when they are not ready to do so usually pay a heavy price (Russia during the Yeltsin period and the shock therapy for example). The countries which protect their growing industries until they are ready to trade on world markets – e.g. South Korea –have been the successes, even in capitalist terms. The wave of development during the 19th century and the development of East Asia in the 20th bears witness to this.

NOT IN THE DEVELOPMENT BUSINESS

But the object of the free-trade rhetoric and finger-wagging posture of the developed world is precisely to maintain the status quo. We should be aware that … ‘’Transnational Corporations are not in the development business; their objective is to maximise their return on capital. TNCs seek out the best profit opportunities and are largely unconcerned with issues such as poverty, inequality, employment conditions, and environmental problems.’’ (7)

Given the regulatory capture of the political structures in the developed world by powerful business interests, it seems that this situation is likely to endure for the foreseeable future. Development will only come about when the LDCs take their fate into their own hands and emulate the national building strategies of East Asia.

‘’…markets have a strong tendency to reinforce the status quo. The free market dictates that countries should stick to what they are good at. Stated bluntly, this means that poor countries are supposed to continue with the current practices in low-productivity, low-value added, and low research-intensive activities. But engagement in these activities is exactly what makes them poor in the first place. If they want to leave poverty behind, they have to defy the market and do the more difficult things that bring them higher income and development – there are no two ways about it.’’ (8)

APPENDIX

THE RUSSIAN ROAD.

The legacy of the Yeltsin years had left Russia badly exposed to a triumphalist Western US/EU/NATO bloc. The NATO expansion up to Russia’s western frontiers posed a serious threat to Russia’s security. Internationally Russia was relatively isolated. The socialist political and economic alliances (Warsaw Pact and Comecon) were disbanded, and their previous commercial and economic networks were dismantled. The Russian Federation was excluded from membership of the European Union and was not (yet) a member of the World Trade Organization (WTO). This was the background for the widespread popular support for the assertive policy of President Putin.

But the geopolitical situation was to say the least – challenging. For his part Putin objected to NATO’s deployment of missiles in Poland and Romania pointed directly at Russia. In 1999 the Visegrad countries, Czech Republic, Poland and Hungary, joined NATO and in 2004 they were joined by Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia. All these states joined in 2009. Albania and Croatia joined in the same year. Economically, politically and militarily, the ‘’West’’ had arrived at Russia’s borders.

In addition to its external enemies Russia had an abundance of internal foes. This latter group was a product of the Yeltsin model and prior to this a tottering bureaucratic system which barely worked and ultimately collapsed. It was possible to distinguish two main groups which, for better or worse, undermined the Soviet system, which were identified as 1. The Administrative Class, and 2. The Acquiring Class, to which should be added the black-market entrepreneurs who were keen to emulate their western business icons in addition to the American mafia. Powerful reactionary and criminal elements in Russia were keen to bring about deep-rooted changes at the expense of the Russian people.

‘’Ostensibly the reforms in Russia were overseen by a group of senior state officials headed by one Yegor Gaidar and advised, supported and encouraged by senior figures from the US administration, as well as by various American ‘experts.’ But according to an American scholar, Janine Wedel, the Russian reforms were worked out in painstaking detail by a handful of specialists from Harvard University, with close ties to the American government, and were implemented in Russia through the politically dominant ‘Chubais Clan’. (Wedel – 2001). Chubais was officially reported as having engaged foreign consultants including officers of the CIA, to fill leading roles in the State Property Committee. Jonathan Hay, citizen of the USA and Officer in the CIA, was appointed director of the Foreign Technical Aid and Expertise Section and Deputy to the chairperson of the committee (Anatoliy Chubais) within the Expert Commission. The Expert Commission was empowered to review draft decrees of the president of Russia to review for the decisions by the government and instructions by the Chairman and Deputy Chairman of the State Property Committee of the Russian Federation of the details of privatisation in various sectors of the economy … The memoirs of Strove Talbott, Assistant to the US President William Jefferson Clinton on Russian affairs, left no doubt that the US administration viewed (the then) Russian President, Boris Yeltsin, as a reliable conduit for its interests in Russia.

The US neo-liberal economists Jeffrey Sachs and Andrei Shleifer, and Jonathan Hay, had an unprecedented degree of influence over Russia’s economic policy which was unparalleled for a sovereign state. Together with Gaidar and Chabais they formulated decisions that were inserted directly into Presidential decrees … Analysis shows that the implementation of Russian reforms organically combined an aspiration by Soviet bureaucrats to transform themselves from State functionaries into private property owners, and a desire on the part of the ruling elites in the West to impose their own system of values on their historical rival. It was thus inappropriate to speak of Russia and its neighbours in the CIS as having been independent in their conduct of radical economic reforms, and this very lack of independence was crucial for determining the strategy applied in these transformations.’’ (9)

Be that as it may, the damage to Russia carried out and orchestrated by both internal and external enemies was to push back Russian development at least two decades, if not more. Russia has been described by various informed opinion as being a ‘semi-peripheral economy’ and there is some truth in this, its main exports being raw materials and military and defence hardware. But this was a choice forced upon Russia by the US-western alliance. At the turn of the 19/20 century Russia needed to defend itself from western aggression. There were two absolute priorities. Agricultural security and military security. This was the sine qua non for Russia’s continued survival and development. The mixed economy – a characteristic of the western economic models, was for the moment, out of reach. But then the west started to run into its own problems, so things began to balance, particularly with the emergence of the Russian-Chinese alliance. However, the Yeltsin period which had produced a crop of cronies, co-conspirators, criminal and mafia elements, are still hidden in the shadows, often in very high places. The struggle goes on. La Lotta Continua.

NOTES

(1) Phillip Mullan – Beyond Confrontation – p.36

(2) These economic policies as advocated by Alexander Hamilton in the US. In the month of January of 1791, the Secretary of Treasury to the then President George Washington’s administration, Mr. Alexander Hamilton, proposed a seemingly innocuous excise tax on spirits distilled within the United States of America. The move was part of Hamilton’s initiative to encourage industrialization and higher degree of national sufficiency. In his December 1791 report to manufacturers, Hamilton called for protective tariffs to spur domestic production. Also, Hamilton called for the reduction of duties on goods that were carried by American ships.

This was also the case of Freidrich List in Germany in his short work – The National System of Political Economy.

(3) A non-tariff barrier (NTB) is a policy implemented by a government that acts as a cost or impediment to trade. It is not tariffs on products but rather different rules and regulations that are often the biggest practical barrier to trade between countries. Examples of non-tariff barriers include rules on labelling and safety standards on products. Other types of non-tariff barriers to trade can also be the result of policies that differentiate between national and international companies and firms. For example, domestic subsidies by governments to a carmaker may help keep that manufacturer in their country. However, that acts as essentially an indirect non-tariff barrier to other car companies looking to compete. Governments are also often likely to give preferential treatment to companies in their own country when it comes to government procurement contracts. Governments also buy products from their own industries in preference to foreign companies, these are called procurement policies another NTB. This can be seen as an impediment to free and fair international trade.

(4) Ha-Joon Chang – Kicking Away the Ladder – p.32/33.

(5) How Rich Countries Got Rich and Why Poor Countries Stay Poor. – Erik Reinert. It could be argued that political intervention would be the prerequisite for an industrial policy.

(6) Development Economics – Todaro and Smith – 2009

(7) Todaro and Smith – Development Economics – Ibid.

(8) Ha-Joon Chang – Bad Samaritans – p.210

(9) Ruslan Dzarasov – Russia, Ukraine and Contemporary Imperialism – Semi-Peripheral Russia and the Ukraine Crisis – pp.82-97

Do as I say … not as I do

Do as I say … not as I do

April 19, 2021

By Francis Lee who looks at the politics of development and under-development for the Saker Blog.

I think it was Sir Ian Gilmour (now deceased) who, as one time member of Mrs Thatcher’s first Cabinet in 1979, referred to her economic policy as ‘Clause 4 dogmatism in reverse.’ (1) This was an apt description from a thinking Tory. The notion that there existed a magic panacea which would banish all the problems associated with Britain’s (and the world’s) economic ills, formed the basis of Thatcherism, Reaganism, and the Third-wayism of Clinton and Blair. The so-called ‘supply-side’ revolution consisted of removing all the controls from capitalism which had been painstakingly put in place over the centuries, and simply letting the system rip – and rip it did. The 1970s was the beginning of the interregnum to the new order of the 1980s and beyond, which had ushered in policies of privatisation, deregulation, liberalisation which were the key components of this policy paradigm.

In international terms free-trade and free-markets were of course at the heart of the system – a system which was to become known as ‘globalization’ and/or neoliberalism packaged and sold as an irresistible force of nature. It was considered, by all the people that mattered, that free-trade was always and everywhere the best policy. This view was codified in what was to become known as the ‘Washington Consensus.’ The new conventional wisdom was conceived of and given a legitimating cachet by political, business, MSM and academic elites around the world.

However, many of the elements – if not all – of the Washington Consensus were hardly new, and indeed many date back to the 18th and 19th centuries and perhaps beyond. It could be said that the newly emergent mainstream orthodoxy represented a caricature of an outdated and somewhat dubious political economy.

The theory that free trade between nations would maximise output and welfare was first mooted by Adam Smith, but its final elaboration was conducted by David Ricardo in his famous work The Principles of Political Economy and Taxation first published in 1817. Briefly, he argued that nations should specialise in what they do best and in that way world output would be maximised. This policy was called ‘comparative advantage’. The hypothetical example he used was England and Portugal and the production of wine and cloth, where he calculated that England should produce cloth and Portugal should produce wine. It was asserted, though no evidence was ever presented, that all would gain from this international division of labour. The theory is in fact full of unsubstantiated and seductive notions, but its practical application is limited. Because it is based upon so many rigid and static assumptions, it is especially appealing to those of a status quo disposition, including most present- day globalist thinkers.

However, even a cursory glance at economic history, and particularly the transition from agrarian to industrial societies, demonstrates the weaknesses, and indeed, serves to falsify the whole Ricardian trade paradigm. The brute historical fact is that every nation which has successfully embarked on this transition – including the UK – has done so adopting policies which were the exact opposite of those advocated by the free-trade school. In the world of actually existing capitalism, free-trade is the exception rather than the rule. Contemporary world trade is mainly a matter of intra-firm trading, that is, global companies trading with their own affiliates and subsidiaries in different countries, mainly for tax avoidance purposes (see below). Next there are regional trading blocs like the EU or US which erect tariff barriers to non-members. Thirdly there is barter trade where goods and services are exchanged for other goods and services rather than money. Finally, only about 20% at most, can be considered to be free trade, and even here there are exceptions involving bilateral specifications and agreements.

Modernisation and industrialisation, wherever it took place, involved tariffs, infant industry protection, export subsidies, import quotas, grants for R&D, patents, currency manipulation, mass education and so forth … a smorgasboard of interventionist policies whereby the economy was directed from above by the state. For example during its period of industrialisation the United States erected tariff walls to keep out foreign (mainly British) goods with the intention of nurturing nascent US industries. US tariffs (in percentages of value) ranged from 35 to almost 50% during the period 1820-1931, and the US itself only became in any sense a free-trading nation after World War II, that is once its financial and industrial hegemony had been established. In Europe laissez-faire was also eschewed. In Germany in particular tariffs were lower in the US, but the involvement of the German state in the development of the economy was decidedly hands-on. Again there was the by now standard policy of infant industry protection, and this was supplemented by an array of grants from the central government including scholarships to promising innovators, subsidies to competent entrepreneurs, and the organisation of exhibitions of new machinery and industrial processes. In addition, ‘’during this period Germany pioneered modern social policy, which was important in maintaining social peace – and thus promoting investment – in a newly unified country … ‘’(2)

It has been the same everywhere, yet the Ricardian legacy still prevails. But this legacy takes on the form of a free-floating ideology with little connexion to either practical policy prescriptions or the real world. It has been said in this respect that ‘’ … practical results have little to do with the persuasiveness of ideology.’’(3) This much is true, but it rather misses the point: the function of ideology is not to supply answers to problems in the real world, but simply to give a Panglossian justification to the prevalent order of things.

Turning to the real world it will be seen that ‘’ … history shows that symmetric free-trade, between nations of approximately the same level of development, benefits both parties.’’ However, ‘’asymmetric trade will lead to the poor nation specialising in being poor, while the rich nation will specialise in being rich. To benefit from free trade, the poor nation must rid itself of its international specialisation of being poor. For 500 years this has not happened anywhere without any market intervention.’’ (4)

This asymmetry in the global system is both cause and consequence of globalization. It should be borne in mind that the Least Developed Countries (LDCs) are suppliers of cheap raw material inputs to the industrialised countries of North America, Western Europe, and East Asia. In technological terms the LDCs find themselves locked into low value-added, low-productivity, low-research intensive dead-end production, where no discernible development or technology transfer takes place. Thus under-development is a structural characteristic of globalization, not some unfortunate accident. Put another way:

‘’ … if rich nations (the North) as the result of historical forces, are relatively well endowed with the vital resources of capital, entrepreneurial ability, and skilled labour, their continued specialisation in products and processes that use the resources intensively can create the necessary conditions for their further growth. By contrast LDCs (the global-South) endowed with abundant supplies of cheap, unskilled labour, by intentionally specialising in products that use cheap, unskilled labour … will often find themselves locked into a stagnant situation that perpetuates their comparative advantage in unskilled, unproductive activities. This in turn inhibits the domestic growth of needed capital, entrepreneurship, and technical skills. Static efficiency becomes dynamic inefficiency, and a cumulative process is set in motion in which trade exacerbates already unequal trading relationships, distributes benefits largely to the people who are already well-off, and perpetuates the physical and human resource under-development that characterises most poor nations.’’ (5)

The cocoa-chocolate industry (hereafter CCI) of the West African nations, Cameroon, Ghana, Ivory Coast and Nigeria are a case in point. These countries produce the majority of the world’s raw cocoa beans. But of course the industry as a whole is controlled by western multinationals such as Hershey, Nestlé and Cadbury-Schweppes (now Kraft). The structure of this industry – vertically integrated – is very typical of the relationship between the LDCs and the developed world. The low value-added part of the industry – growing and harvesting the beans – is left to individual farmers in West Africa. Buying agencies, either very close to, or in fact subsidiaries of multinational companies (MNCs), then buy the raw material at prices usually dictated by the MNCs. This asymmetrical relationship between supplier and sole buyers (the African farmers) is termed ‘monopsony’ in the economics jargon. It should be understood that large companies not only over-price their products to the final consumer, but also under-price their purchases from their captive suppliers. From then on, the various stages of the processing supply chain are in the hands of the parent company. From raw beans, to roasting, milling, refining, manufacturing of chocolate or cocoa, shipping, and packaging, branding and advertising – all of these stages add value to the product, value which is garnered by the MNC. The exporting African nations are left with the low or no value-added end of the operation, a technological cul-de-sac.

Nor does it end there. MNCs can avoid much local taxation by shifting profits to subsidiaries in low-tax venues by artificially inflating the price which it pays for intermediate products purchased from these same subsidiaries so as to lower its stated profits. This phenomenon is known as transfer pricing and is a common practice of MNCs – one over which host governments can exert little control as long as corporate tax rates differ from one country to the next. Hypothetically it works as follows:

Take a company called World Inc. which produces a type of food in Africa; it then processes it and sells the finished product in the United States. World Inc. does this via three subsidiaries: Africa Inc. (in Africa Malawi ), Haven Inc. (in a tax haven, British Virgin Islands with zero taxes) and America Inc. (in the United States).

1. Now Africa Inc. sells the produce to Haven Inc. at an artificially low price, resulting in Africa Inc. having artificially low profits – and consequently an artificially low tax bill in Africa. 2. Then Haven Inc. sells the product to America Inc. at a very high price – almost as high as the final retail price at which 3. America Inc. sells the processed product. As a result, America Inc. also has artificially low profitability, and an artificially low tax bill in America. By contrast, however, Haven Inc. has bought at a very low price, and sold at a very high price, artificially creating very high profits. However, Haven Inc is located in a tax haven – so it pays no taxes on those profits. Easy Peasy, no?

Bear in mind also that although the IMF and World Bank enjoin LDCs to adopt market liberalisation policies, they apparently see – or conveniently ignore – the past and current mercantilist practices of developed nations. Agriculture for example is massively subsidised in both the US and the EU. But it really is a question of don’t do what I do – do as I say. This hypocrisy at the heart of the problem represents the elephant in the room. We know that countries which attempt to open their markets when they are not ready to do so usually pay a heavy price (in the 1990s with Russia and the free-market shock-therapy for example). The countries which protect their growing industries until they are ready to trade on world markets have been the successes – even in capitalist terms. The wave of development in the 19th century and the development of East Asian economies during the 20th century bears witness to this.

But the object of the free-trade rhetoric and finger wagging posture of the developed world is precisely to maintain the status quo. We should be aware that: ‘’… multinational corporations are not in the development business; their objective is to maximise their return on capital. MNCs seek out the best profit opportunities and are largely unconcerned with issues such as poverty, inequality, employment conditions, and environmental problems.’’ (6)

Given the regulatory capture of the political structures in the developed world by powerful business interests, it seems that this situation is likely to endure for the foreseeable future. Development will only come about when the LDCs take their fate into their own hands and emulate the nation-building strategies of East Asia and in the 19th century by Germany and the United States. These leaders and leading nations were not to sit back and let the British rule the roost. They acted and they overcame.

Germany: Georg Friedrich List (1789-1846).  He was a forefather of the German historical school of economics and ‘National System of Political Economy’. He argued for the German Customs Union from a Nationalist standpoint. He advocated imposing tariffs on imported goods while supporting free trade of domestic goods and stated the cost of a tariff should be seen as an investment in a nation’s future productivity.

The USA – Alexander Hamilton In the aftermath of ratification, Hamilton continued to expand on his interpretations of the Constitution to defend his proposed economic policies as Secretary of the Treasury. Credited today with creating the foundation for the U.S. financial system, Hamilton wrote three reports addressing public credit, banking, and raising revenue. In addition to the National Bank, Alexander Hamilton founded the U.S. Mint, created a system to levy taxes on luxury products (such as whiskey), and outlined an aggressive plan for the development of internal manufacturing.

The USA – President – Ulysses S Grant

“For centuries England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. After two centuries, England has found it convenient to adopt free trade because it thinks that protection can no longer offer it anything. Very well then, gentlemen, my knowledge of our country leads me to believe that within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.” (7)

Markets have a strong tendency to reinforce the status quo. The free market dictates that countries stick to what they are good at. Stated bluntly, this means that poor countries are supposed to continue with their current engagement in low productivity activities. But engagement in those activities is exactly what makes them poor. If they want to leave poverty behind, they have to defy the market and do the more difficult things that bring them higher incomes – it is as simple as that, and there are no two ways about it.


NOTES

(1Clause 4 was part of the British Labour Party’s early Constitution. But is no longer in any real sense part of the constitution of the contemporary UK Labour Party, setting out the aims and values of the party (New Labour) as it is now called. The original clause, adopted in 1918, called for common ownership of heavy industry, and proved controversial in later years; the then leader, Hugh Gaitskell, attempted to remove the clause after Labour’s loss in the 1959 general election.

In 1995, under the leadership of Tony Blair, a new (revisionist) Clause IV was adopted. This was seen as a significant moment in Blair’s redefinition of the party as New Labour, but has survived and become a centrist party along with sister parties in Europe and the Democratic party in the US beyond the New Labour branding.

(2) Kicking Away the Ladder – Ha-Joon Chang

(3) The Trillion Dollar Meltdown – Charles Morris

(4) How Rich Countries Got Rich and Why Poor Countries Stay Poor – Erik Reinert.

(5) Development Economics – Todaro and Smith

(6) Ibid – Todaro and Smith

(7) Collected Works

The Great Interregnum

The Great Interregnum

February 01, 2021

by Francis Lee for The Saker Blog

The road to the future, to a new expansion as is always close to the heart of capital, led outwards, to the still pleasantly unregulated world of a borderless global economy in which markets would no longer be locked into nation-states, but nation-states locked into markets. (1)

The golden age of post-war capitalism which lasted from the Bretton Woods arrangements of 1944 ended definitively with the great 1971 counter-revolution; a process which began with the removal of the US$ from the gold standard. Since the rest of the world’s currencies were fixed to the dollar these currencies were automatically detached from gold. What emerged, whether by accident or, more likely by design, has defined the contours of the 21st century and this has borne witness to the emergence of a New World Order (NWO) of a neo-liberal, globalization settlement and conjointly the collapse of actually existing socialism. This realignment was by no means accidental and represented fundamental policy changes rather than unconnected random events.

THE RISE OF NEOLIBERALISM AND THE NWO

This NWO has been established on the basis of deep structural changes in the nature of actually existing capitalism and qualitatively different to the welfare, inclusive capitalism of the immediate post-war period. However the counter-revolution caught the left unprepared and who have seemingly been unable to grasp this fact. Moreover the collapse of actually existing socialism ended the historical period of political ascendency of the left – a process which dated back to the Russian revolution of 1917 – and transmuted into the great neo-liberal counter-revolution which began in 1971.

This eclipse of socialism – or anything resembling socialism – has been the feature of the late 20th and early 21st centuries. Both social-democratic and even communist parties have been politically marginalised by their theoretical inability to discern the deficiencies in their political agendas. The counter-revolutionary wave of the late 20th century began in stages to sweep all before it. The decline of a moribund social-democracy and even eurocommunism with their entrenched and seemingly immovable policies of an earlier period – Progress through Parliamentary Reform – were found to be wanting, out of date and out of time, running out of steam with their economies plagued by stagflation and declining growth. By the late 60s early 70s Le Trente Glorieuses were no more and this gave rise to the surge of counter-revolution initially led by the Reagan-Thatcher axis. This move into the future was – if anybody noticed – a backward movement. Winners included the then Head of Siemens, Heinrich Von Pierer, to triumphantly proclaim: ‘’The wind of competition has become a storm, and the real hurricanes still lies ahead of us.’’(2)

THE EFFECTIVE DEMISE OF THE LEFT

To think that the Left which had once occupied and dominated Western Europe and consisted of mass parties of social-democrats and communists, and moreover, even in 1945 there were armed communist partisans operating in Albania, Greece, Yugoslavia, Italy, and France, including a large Parliamentary representation.

But the Left capitulated and adapted to the new order and for better or worse – actually worse – and was to imbibe the fashionable doctrines of neo-liberalism.

I vividly remember being a student delegate at Labour Party Annual Conference in the seaside town of Blackpool in 1976. Conference was always a rather tedious and dispiriting affair but this time it was historic. James Callaghan the then Prime Minister gave the following address. The key passage was as follows:

‘’We used to think that you could spend your way out of a recession and increase employ­ment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of infla­tion into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment.’’ Apparently, Keynes was now passe and Von Hayek was flavour of the month.

What Callaghan was in fact articulating was the demise of social-democracy in the UK, and for that matter everywhere else; it was over, finished, and now a complete political racket infested with careerists and parvenus on the make. So Orwell was right even before then to describe the Labour Party as being ‘pale pink humbug’(The Road to Wigan Pier 1937). The neo-liberals had won, and it was an Atlantic-wide victory. Be advised that a party which calls itself a party of the Left, but which adheres to the neo-liberal orthodoxy is simply a fraud. Ex-centre-left parties have simply moved over to the centre-right en bloc. This project was definitively operationalised with considerable success by Blair (New Labour) and Clinton (political centrism) in the 90s.

TAKE A KNEE TO THEM NOW

This political about-face where the ashes of the left and the emergence of the neoliberal right was presided over by a new goddess known as TINA—There Is No Alternative. The long list of her high priests and priestesses extends from Margaret Thatcher via Tony Blair down to Angela Merkel and Bill Clinton. Anyone who wished to serve TINA, to the accompaniment of the solemn chorus of the united economists of the world, had to recognize the escape of capital from its national cages as both inevitable and beneficial, and would have to commit themselves to help clear all obstacles from its path. Heathen practices such as controls on the movement of capital, state aid and others were to be tracked down and eradicated; no one must be allowed to escape from ‘global competition’ and sink back into the cushioned comfort of national protections of whatever kind. Free-trade agreements were to open up markets and protect them from state interference, global governance was to replace national governments, protection from commodification was to be replaced by enabling commodification, and the welfare state was to give way to the competition state of a new era of capitalist rationalization. By the end of the 1980s at the latest, neoliberalism had become the de rigeuer for both the centre left and the centre right—with haemorrhaging membership and a declining electoral participation, disproportionately so at the lower end of the social scale. Additionally, a beginning in the 1980s this was accompanied by a meltdown of trade-union organization, together with a dramatic decline in strike activity worldwide—altogether, in other words, a demobilization along the broadest possible front of the entire post-war machinery of democratic participation and redistribution The old political controversies were now regarded as being obsolete by the PTB.(3)

THE ROAD TO NEMESIS

But history is full of surprises. In their hubris the new ruling elites were to become victims of their own propaganda, a customary and predictable human failing. Cracks were beginning to show in the neo-liberal paradigm during the holding period of 2008-2020 and the model was, whether they liked it or not, beginning to show deep structural fault-lines. The new economic system was becoming increasingly obsolete and unstable, the elephant in the room is now beginning to make its presence felt. This has been the result in the build-up of problems which were occasioned by the 2008 blow-out.

At the present time, however, the cracks which had papered over the post 2008 bodge and the distribution of national income was increasingly tilted away from the 99% to the 1%. Such a polarization of wealth and income cannot possibly endure without economic and political chaos. The process is in its early stages and represents the most severe trial of the new order since the 1971 establishment. In effect democracy is being sacrificed by the requirements of capitalism. This Great Reset is the Hayekian wonderland of a 21st century slave state.

‘’If capitalism of the consolidation state can no longer produce even the illusion of equitable growth, the time will come when the paths of capitalism and democracy must part. The likeliest outcome would be the completion of a Hayekian social dictatorship in which the capitalist market economy was protected from democratic correction. Its legitimacy would depend upon whether those who once were its citizens would have learned to equate market justice with social justice and to think of themselves as members of a unified marktvolk. Its stability would further require instruments for the ideological marginalization, political disorganization, and physical restraint of anyone unwilling to accept this lesson. Those who refused to bow to market justice, in a situation where political institutions economically, would then be left with what used to be described in the 1970s as extra-parliamentary protest: emotional, irrational, fragmented, and irresponsible. And this is what we would precisely expect if the democratic channels for the articulation of interests and the formation of preferences are blocked, only because the same outcomes can never emerge or because what emerges no longer makes any difference to the markets … The alternative to capitalism without democracy is democracy without capitalism. (4)

So now we are living in a period of what Antonio Gramsci described as the interregnum. “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.”(5) Its outcome can only be guessed at.

La Lotte Continua.

NOTES

(1) Wolfgang Streeck – New Left Review – 104

(2) Der Spiegel 1996

(3)Wolfgang Streeck – New Left Review 104

(4) Grace Blakeley – Stolen: How to Save the World from Financialization -pp.172/73.

(5) Prison Notebooks – Antonio Gramsci.

Covid Madness

by Lawrence Davidson 

Author - American Herald Tribune

Lawrence Davidson is professor of history emeritus at West Chester University in Pennsylvania.

He has been publishing his analyses of topics in U.S. domestic and foreign policy, international and humanitarian law and Israel/Zionist practices and policies since 2010.

1 July 2020

Part I—Episodes of Madness

If I told you that Covid-19 was sparking recently reported episodes of madness here in the U.S., what do you imagine would be the reason? Maybe it would be the consequences of isolation. If you are alone and have few resources, lockdown might send you over the edge. Maybe it would be the pandemic’s impact on those with chronic hypochondria. This is obviously not an easy time to be stuck with an irrational fear of disease. Or maybe it is coming from the fundamentalist crowd (both Christian and Jewish) who believe that Covid-19 is the wrath of God yet can’t figure out why it is being visited upon their congregations. If you guessed any of these possible etiologies, you would missing the main cause.

So what is mainly causing the present outbursts of madness? It turns out to be a perverted concept of freedom. It is an insistence that, in the midst of a pandemic, temporarily closing down businesses, mandating the wearing of masks, and maintaining social distancing is an intolerable infringement on individual rights. If you would like a visual snapshot of the emotion behind this belief, just take a look at the gun-toting, maskless protesters at the Michigan state legislative building in early May. They are shouting irately about state tyranny, into the faces of masked guards. Other anti-mask protesters around the country revealed a similar off-the-wall attitude, with signs and banners ranging from the nonsensical to the scary: “Give me Liberty or Give me Covid-19,” and in contradiction, “Covid-19 is a Lie,” “Sacrifice the Weak—Reopen,” and “Jesus is My Vaccine.” There is one other rightwing anti-Covid protest sign that must be noted. This one showed up both at the Michigan rally and one in Chicago: ‘Arbeit Macht Frei,” or “Work will make you free.” It is the slogan that stood at the entrance to the Nazi concentration camp at Auschwitz. 

Part II—A Perverse Notion of Freedom

This perverse notion of freedom is wholly individualistic. That is, it makes no reference to community rights or needs. This point of view is not restricted to armed anarchists or disgruntled religious fundamentalists. Some quite prominent and successful proponents of this view go so far as to deny the reality of society, per se. Such a denial makes government, particularly in the form of the welfare state, a freedom-denying effort at social control. Also, if society is an illusion, then an institution that taxes the individual for its upkeep is little more than a con artist. 

The British Prime Minister Margaret Thatcher was an advocate of this outlook. Here is how she put it: “I think we have gone through a period when too many people … understand that if they have a problem, it is the government’s job to cope with it!… ‘If I am homeless, the government must house me!’ and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first. …There is no such thing as society.” This is faulty logic. Some problems, like poverty and homelessness, can only be understood and dealt with within a societal context. Thatcher would have none of that. Since society does not really exist, problems with societal roots can’t be real either. If Thatcher were alive today, she would probably admit that the Covid-19 pandemic was very real, but otherwise would be reluctant to deal with it in any collective manner—just as are our perverse defenders of “freedom.” 

Part III—Beyond Sloganeering

The madness of these rightwing provocateurs is largely ideological in the Thatcher sense. It is also underlaid with a strong selfishness that really has nothing to do with economic hardships of lockdown. What they are saying is that “I don’t care about other people. I don’t want to wear a mask and social distance, and you can’t make me.” It is the ideology of selfish children and this attitude can drive people to act out in the same way it drives five-year-olds to have temper tantrums. Unfortunately, these protesters are not just children and their acting out goes beyond sloganeering. 

Since April 2020, numerous public health workers, particularly those with policy-making input, have faced threats and intimidation. Sometimes this is through e-mail or Facebook or over the phone. Sometimes it is having to face an armed mob at your front door. Here are a few recent examples:

—Lauri Jones, director of public health in a county in western Washington state, followed up on someone breaking a Covid-19 quarantine. Immediately she faced a barrage of threatening calls and e-mails from not just her home area but from around the country. Her address was posted on Facebook. She called the police and had to set up surveillance cameras at her home. 

—Amy Acton, Ohio’s public health director “endured months of anger against the state’s preventive measures, including armed protests at her home.” One Republican legislator called her a Nazi (Acton is Jewish) and another labeled her a dictator. She has since quit her job and now consults for the state’s health department. 

—Georgia’s public health director has been assigned an armed guard.

—Pennsylvania’s secretary of health, who is transgender, has been publicly harassed for her role in fighting the pandemic. One Republican county official said that he was “tired of listening to a guy dressed up as a woman.”

—Then there is the emotion expressed following a recent Palm Beach county commissioners meeting. The commissioners had voted unanimously to make masks mandatory in the county. Those in the audience denounced the commissioners and threatened them with “citizen’s arrest.” They made the following accusations: “masks are killing people,” masks “toss God’s wonderful breathing system out the window,” and to mandate masks is to follow the “devil’s laws.”

Perhaps the best summing up of this “demoralizing” nationwide situation comes from Theresa Anselmo, executive director of the Colorado Association of Local Public Health Officials—eighty percent of whose members have been threatened with dismissal or were outright fired from their jobs. “We’ve seen from the top down that the federal government is pitting public health against freedom, and to set up that false dichotomy is really a disservice to the men and women who have dedicated their lives . . . to helping people.” 

Part IV—Lethal Consequences

Ideally, we are supposed to teach our kids that freedom comes with responsibility. Take away a sense of responsibility to others and what you are left with the perverted freedom to be selfish. And, often that selfishness is blind to its own lethal consequences. 

There is a precedent for this sort of selfishness tied to a perverse claim of freedom—it is the American insistence that gun ownership is a right and a primary symbol of freedom. Here in the U.S., an average of 109 people a day are killed with guns, sometimes in quite spectacular fashion, as in the case of mass shootings. We endure it, or perhaps more accurately we choose to ignore it, because an influential, militant and bullying minority has stymied the political will to reign it in. This is a situation that is suggestive of willful madness. The same appears to be happening in the case of Covid-19.

In the last six months over 2 million Americans have fallen ill with Covid-19 and the death toll stands at around 130,000. The present infection and fatality rates are climbing. It seems that after several months of lockdown, which had hurt the economy and increased unemployment while simultaneously bringing the pandemic under control, the will to continue restrictions has largely broken down. Both politicians and the populace appeared to have given up and, as one of those sloganeering signs put it, silently agreed to “sacrifice the weak and reopen.” And almost everywhere they did reopen, the Covid-19 virus returned with a vengeance. It was when a moderate state counter-response, mandating masks and social distancing in public and business environments, was attempted that the militant bullying by Republican politicians, armed “patriots,” and disgruntled religious fundamentalists picked up steam. What now is likely to follow?

Future prospects are described by Dr. Megan Ranney, an emergency physician and Brown University professor who promotes gun violence prevention. She explains that the  “dynamics of the lockdown protesters” are similar to those of the gun rights advocates. Both groups of militants “moved the … debate” from a conversation about, first an epidemic of gun injuries, and now the wisdom of health and science in the face of a pandemic, to “a conversation about liberty.” Thus we are no longer talking about “weighing risks and benefits” and are instead involved in “a politicized narrative” about alleged individual rights. This is also a zero-sum narrative because this claim of prioritized rights is, for its advocates, not negotiable.

So there we have it. It is a fight between a perverse notion of freedom and a collective sense of social responsibility. The interests of society—which are real despite the rhetoric of the late Margret Thatcher—already lost out once in the struggle with “gun rights” advocates. Will it lose out again to mad opponents of masking and social distancing? The chances are good that it will. Sickness and death may well be our fate until science, in the form of an adequate vaccine, saves us from ourselves.