The problem with neo-liberalism is that its ultimate form is fascism. We are seeing this not only in Russia, but in many nations, not to mention the Trump government.
Guy Standing is Professorial Research Associate, SOAS University of London, a Fellow of the Royal Society of the Arts, and a councillor of the Progressive Economy Forum. His new book is entitled The Blue Commons: Rescuing the Economy of the Sea.
Cross-posted from the Progressive Economy Forum website
US President Biden has called for ‘regime change’ in Russia, a statement that should recall previous US-led regime change crusades – in Chile (1973), Iraq and Afghanistan, among many. To put it mildly, they have not been unmitigated successes. But the regime change initiative that deserves our scrutiny today was the United States’ most ambitious and most relevant to the latest demand for change, which one would dearly like to see. This is because it embraced Russia and Ukraine thirty years ago.
Let me preface this article by saying that, fortuitously, I witnessed what the USA, the UK and others did on the ground. In 1990, on behalf of the International Labour Organisation (ILO), I organised an international conference on labour policy in Moscow, which emerged as a report just as the Soviet Union was dissolving. I was then appointed director of a programme set up by the ILO to advise governments in the region on social and labour policies in what was euphemistically called the ‘transition’ from ‘communist’ to a ‘market’ economy.
Based in Budapest, for about four years I interacted with senior government ministers and officials of Russia, Ukraine and neighbouring countries while also having numerous meetings with economists and officials from the USA, other countries and international bodies such as the World Bank, the latter all committed to their version of regime change. It was a bizarre experience. I even met the Queen, the Duke of Edinburgh and the Queen of The Netherlands as they played walk-on parts in helping to legitimise the expensive regime change plans.
From the outset, I strongly opposed what was happening, and gave numerous speeches and published articles and several books to that effect. Today, I believe that the Russian invasion of Ukraine in 2022 is partly attributable to the neo-liberal strategy led by the USA in that period. The precise details of what has been happening were not predicted or predictable, but it was clear at the time that the fault lines leading to today’s quagmire lay in that strategy. One way of putting it is that it failed to lay the ghost of Stalinism, and created fertile ground for its resurgence.
So, what was the foreign-directed strategy? Although different proponents had variants, it enshrined a doctrine fostered by economists at Harvard, LSE and elsewhere known as ‘shock therapy’, designed with one objective, turning Russia and Ukraine into capitalist economies. This was based on three premises. First, it was reasoned that pro-market reforms had to be introduced quickly, so that there was no time for ‘socialist’ forces to regroup and block reform.
Second, a more technical premise was that priority had to be given to macro-economic policy, backed by aid conditionality to force the Russian (and Ukrainian) government to adhere to it, over and before micro-economic (structural) policy. This was based on the orthodox economic view that macro-stabilisation was a necessary prior for structural reform. This was the dominant reasoning of the International Monetary Fund. The third premise was that there had to be a particular sequencing of the macro-economic reforms. The combination of these three premises was literally the fatal, hubristic mistake.
Before describing what the shock therapy advisers prescribed in their frenzy of activities in Moscow, Kiev, St.Petersburg and elsewhere, I should mention that as soon as I was appointed to my ILO post we mobilised funds to conduct a series of detailed surveys of hundreds of industrial enterprises in Russia (1991-94) and in Ukraine (1992-96), and extensive household surveys covering many thousands of households in both countries. In effect, the data mapped the context and outcomes of the shock therapy doctrine. This seemed an essential task, but the shock therapy advisers charged ahead without worrying about evidence.
Folly and hubris
It was an exercise of hubristic folly. The first set of reforms in the sequencing were price liberalisation, coupled with removal of price subsidies (except on energy). Bear in mind that production had collapsed, that strict price controls had existed for generations and that the production structure consisted of huge industrial enterprises with monopolistic characteristics, dominating whole sectors and regions.
The effect of price liberalisation was thus an extraordinary burst of hyper-inflation. While we were working in Ukraine, in one year inflation was estimated at over 10,000%, and in Russia it was estimated at over 2,300%. The impoverishment was lethal. Millions died prematurely; male life expectancy in Russia fell from 65 to 58 years, female from 74 to 68; the national suicide rate jumped to over three times the high level of the USA.
In a collective state of denial, the western economic ‘advisers’ were almost Stalinist in their zeal. Their second policy was to slash public spending, with the double objective of squeezing inflationary pressure by curbing monetary demand and weakening the state. This had the immediate consequence of intensifying the rising mortality and morbidity. But it did something else that is affecting the whole world today. Wages and salaries in the public sector fell so low that the state ceased to function. This created a vacuum in which the kleptocrats thrived. I recall government ministers asking for $50 bribes just so they could feed their family. They were easy prey to ruthless gangsters, who in turn were bedfellows with ex-KGB officers, led by the new First Deputy Mayor of St.Petersburg, a certain Vladimir Putin.
One cannot overemphasise the folly of the anti-state ideology, when what was needed desperately was the nucleus of a professional civil service, backed by a proper legal system. But all the RCAs wanted was full-blown capitalism, which they saw as leading to a ‘Russian Boom’, in which ‘democracy and free markets have taken root for good’.
The third plank of the shock therapy sequencing was mass privatisation. It began as a bit of a joke, with privatisation ‘shares’ being handed out like confetti. I still have one somewhere, given to me by the Mayor of St.Petersburg. But it soon became a wild-west plunder. The World Bank, USAID, the new European Bank for Reconstruction and Development (EBRD) in London and other foreign bodies allocated vast amounts to assist in speeding up the transfer to the new ‘entrepreneurs’. Over 15,000 state firms were sold off; kleptocrats became oligarchs overnight; their American and other foreign ‘advisers’ became multi-millionaires. This is when the criminality stretched across the Atlantic.
One still has to be circumspect in how one puts this. However, it was widely known that prominent economists in the ‘regime change’ community were linked to the rising oligarchy and making millions of dollars. Eventually, one case was brought to the Massachusetts High Court, where several professors pleaded guilty to insider trading. They paid modest fines, with Harvard paying much more, but the main one was allowed to continue his stellar career. Rest assured, he and others did very well.
Meanwhile, there was the awkward onset of the fourth phase of the sequencing, characterised as the ‘therapy’ after the ‘shock’. This was touted as building a new social policy system, based on standard neo-liberal lines, that is, a residual welfare state with as much privatisation as possible, beginning with pension systems and education. As some of us had argued from the outset, the erection of a universalistic social protection system should have been done before any ‘shock’ policies. Callously, implementing social policies was left to afterwards, and then only done patchily, with interminable delays.
The carnage was palpable. In this period, two personal events occurred that epitomised the madness of what was happening. In 1992, I was invited as a ‘labour market expert’ to give a lecture to Ministers of Finance and Ministers of Education from eastern European countries, organised by the World Bank in a Dutch castle, symbolically with its own moat. There I listened while the Ministers were told what policies they should be introducing if they wanted foreign loans or grants.
The other event was even more bizarre. In 1993, I was chairing a small conference in France on minimum wages and basic income policies for eastern Europe when I received a phone call from a US Ambassador inviting me to Washington to give a briefing in the State Department. After doing background checks, I accepted and so found myself taken to the basement of the State Department. Sitting at a long table with a ‘minder’, I was surprised to find 12 men come in to sit on the other side. Chaired by an Under-Secretary of State, they identified themselves individually, and most said CIA.
I told them that their policies were disastrous, that huge numbers of Russians and Ukrainians were dying as a result of shock therapy and that contrary to what they were reporting, real unemployment was about 25%, concealed by the fact that enterprises were retaining the work history books of workers to claim subsidies. I argued that the people with whom they were working at the political level were deeply corrupted, and that they should focus on providing direct aid to ordinary people if a lurch to neo-fascism was to be avoided.
I argued that restructuring of enterprises and the substitution of rules of regulation and law should take precedence over macro-economic reforms and privatisation. I poured as much scorn as I could on claims being made by the World Bank and prominent RCA economists that there was no unemployment, and argued that it was crazy for the Bank to withhold a large loan to aid the unemployed on the presumption that as one Bank report claimed, the unemployment rate was only 1%, backed by the statement, ‘Contrary to initial expectations, unemployment remains not only low but declining.’
This was ridiculous. It was clear that the neo-liberal strategy was simply creating a kleptocratic capitalism, a virulent form of rentier capitalism that was taking shape globally. A new class structure emerged, with a plutocracy of oligarchs, a tiny salariat (including educated people trying to build a decent society), a lumpenised proletariat (ageing, atavistic) and a rapidly growing precariat. The oligarchs in Ukraine were split, with Russian-speaking heavies allied to their Russian counterparts in mafia-style conflict with Ukrainian-speaking oligarchs. There were also a few Bulgarians, Romanians and others in their orbit, and they all soon found they could mingle comfortably with the financial and other plutocrats in London, Wall Street and elsewhere.
After the State Department meeting, I returned to Hungary. Several months later, I was invited back to Washington to brief the Department of Labor. Afterwards, they gave me a cocktail, and at the back I saw two of the CIA officers who had been in the State Department briefing. I asked them what had happened after the first briefing. One said to me, conspiratorially, ‘Quite frankly, it went right to the top….and he doesn’t believe you.’ He meant President Clinton.
Several months after that, the Russian elections took place, and the new party of the neo-Stalinist ultra-nationalist Vladimir Zhirinovsky, who advocated invasion of Ukraine, gained 23% of the vote, with the US-backed neo-liberal party reduced to a rump. I sent a one-liner telegram to one of the CIA officers, ‘Does the State Department believe me now?’ I was told later that this caused some wry amusement.
In sum, the regime change strategy had generated a venal kleptocracy, and in line with that today we have globally a morally indefensible form of rentier capitalism where plutocrats are funding major political parties and politicians in their interest. It is the most unfree market economy ever conceived and it is not sufficient to see the UK as Butler to the World, however apt that description might be. The state is deeply corrupted, and we will not escape the quagmire until a new progressive, transformative politics emerges, one that could mobilise the precariat in all parts of the world.
The evil being perpetrated by Russia will not be defeated by military means alone. Of course, we should all admire and support the incredibly courageous Ukrainians. But it is a transformation of our own societies that must be achieved. In response to the rush towards an ecological dystopia and a grotesquely unequal and insecure existence for so many, progressives in politics must have a coherent, well-articulated strategy for dismantling rentier capitalism.
Today, neo-liberalism is not the primary enemy. Today is the time for a new radicalism based on principled opposition to the global plutocracy and to the system of rentier capitalism that is based on rapacious plunder. We need a new Renaissance, to revive conviviality, commoning, republican freedom and equality. So far, in Britain and elsewhere, that transformative vision is being held back by excessive pragmatism by old-left parties. However, just as Nature abhors a vacuum, so does the human condition. We need a progressive revolt, one that crosses national boundaries and that is ecologically redistributive. One can see the green shoots, but must just hope there is time for them to grow.
 These and following statistics were collated for two books at the time. See G.Standing (ed.), The Ukrainian Challenge: Reforming Labour Market and Social Policy (Budapest, ILO-UNDP, 1994); G.Standing, Russian Unemployment and Enterprise Restructuring: Reviving Dead Souls (London, Macmillan, 1996).
 [Zhirinovsky remained in the Duma until his death from Covid, ironically on April 6, 2022, with his dream of invasion of Ukraine realised. His original party had been funded by the right-wing French politician, Jean-Marie Le Pen, with whom he remained close.]
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