Russia - The bureaucracy "privatises" its own state

Mar/Apr 1998

The Russian economy is in a bad way. Even Yeltsin repeated this in his last radio address of 1997, at the same time as he condemned "privatisation at any cost". This was the least he could have done. In Russia, according to the figures supplied by the authorities, approximately 80% of companies have, in the space of five or six years, been taken out of the public sector in two waves of privatisation: the so-called "privatisation for coupons" of June 1992, and then, in July 1994, the so-called "privatisation for cash". This, in contrast to the previous operation, was supposed to make everyone a shareholder, all Russian citizens having received a "coupon", i.e. a personal privatisation voucher.

The "40 million shareholders" boasted of by the privatisation minister Chubais, after the first wave, failed to materialise: the bureaucracy did not intend to share the spoils with anyone.

At local level, company directors kept a firm grip on shares. Although they were shareholders on paper, employees did not carry much weight against the combined forces of the local bureaucracy and those in charge of the productive machinery. The alliance of these two forces, which had been a traditional feature of the former Soviet Union, was thus revived and consolidated by law. On the one hand managers were legally entitled to shares in their companies. On the other hand municipal authorities took shares in the companies which happened to fall within their jurisdiction, by simply declaring that such and such a factory or collective farm was no longer under the authority of the central state but under their own authority.

At a higher level, that of the industrial corporations and groupings (in which companies with more or less interrelated activities were placed at the end of the Soviet era), the same process was implemented, this time by branch directors and their governing authorities (such as ministries or the bodies replacing the former departments of the Communist Party Central Committee).

At the same time, since the last years of Gorbachev's perestroika, the main bodies of the Soviet bureaucracy (the official youth organisation - Komsomol - the super-ministries, the industrial giants, the local councils of major cities, etc.) had gradually developed financial structures of their own, which were legally private. These structures used the cash-flow of these bureaucratic bodies (that is mostly the funding they got from the central state), which they topped up with the proceeds of trafficking which was becoming legal (such as currency dealings), and lent this money back to the central state (at a price of course!) to help it balance an ailing budget. In the process, these financial structures accumulated considerable cash reserves.

The government was unable to keep hold of the funds which the main bodies and clans of the bureaucracy had misappropriated and were seeking to invest abroad. So, in order to obtain fresh money, it continually offered higher and higher interest rates, issuing more and more state bonds. In 1996, for example, when inflation was only 25%, the state paid average interest of 100% to holders of treasury bonds. The more the Russian state's own bureaucracy was suffocating its budget and economy, the more generous it was in its hand-outs, to the point of enhancing certain bond issues with a convertibility clause which gave the buyers the option of being refunded with public sector shares.

The government did not dare to go this far openly, when the sell-off of the heavyweights of the Soviet economy began, but the operations were nevertheless carried out in a scandalous way. The law had provided for the organising of auctions, but in practice the awards were decided by decree. The allocation of shares in the big privatised companies looked like a hand-out of gifts, in which the closer people were to the government, the better they were served.

The "proxies" of the bureaucracy

Those who had believed, or pretended to believe, that things could be different, squawked in protest in the Duma and in the press. They accused the top nomenklatura of confiscating the privatisations and the government of having favoured its own members.

Launching the privatisation of three of the last big state-owned corporations (Norilsk, Sviazinvest and Rosneft) in the spring of 1997, Chubais, by then deputy Prime Minister, declared that this time everything would be above-board. The clans close to the government - those of the Prime Minister, Chernomyrdin, Chubais, Berezovski, the former number two of the Security Council, Potanin, a deputy Prime Minister, and some others of their ilk - broke the flimsy truce they had agreed while they got Yeltsin re-elected, accusing each other in advance of breaking the rules (accusations they were well-placed to make). In the end it was Potanin, an ally of Chubais, who was himself the organiser of the sale, who got the lion's share. The Financial Times, despite having seen already just about every dirty trick in the book played out in the West, wrote that "in any other country (this sale) would have been considered as a disgrace". Yeltsin, who could not have been unaware of the scheme his close associates had concocted, gave them a lecture, insisting that "such scandals will not be repeated". As there are hardly any big companies left to privatise, he may be able to boast that he has been obeyed, for once...

Thus 38% of shares in Norilsk, the world's leading producer of aluminium, were sold into private hands, along with 25% of Sviazinvest (telecommunications), while Rosneft (Russia's biggest oil exporter) should soon be privatised in the same proportion. The state, therefore, retains the majority of shares in these three groups. This is not specific to them: the Russian state, in privatising the giants of the economy, and big companies in general, kept a controlling stake in their capital. In November, referring to the lucky beneficiary of last summer's privatisations, the French daily Le Monde spoke of "Onexim, the biggest "private" group in the country". Why put the word "private" in inverted commas? Because Onexim's assets comprises stakes in a host of public or administrative structures (central, regional or local) and companies controlled by the state, such as the Norilsk group which, even before its privatisation, could be seen in the organisation chart of Onexim's private holding company.

Could Onexim be an exception? On the contrary, observers note the same situation in many other cases. An article entitled "the richest shareholder in Russia", published in February 1997 by the Russian daily Sevodnya, began as follows: "Menatep, Imperial, Alphabank, Sberbank, Natsionalni Kredit, Natsionalni Bank, Stolichni, Moskovski Natsionalni Bank, Vnechekonombank, Strategia... All these banks have one thing in common, they are all linked in one way or another to the First Deputy Minister of Finance, Andrei Vavilov". One might debate who is the "richest" bureaucrat (there is no shortage of contenders for the title), but Vavilov himself neither questioned nor denied these facts.

In industry, banking, etc.., it looks as if, by privatising the companies which had been so far within their jusrisdiction in one way or another, the various branches of the state machinery and the top civil service bureaucracy have placed their own mark on these companies. They seem to have done this to strengthen their grip on their own private patch, marking it out with respect to the central government and other clans, who are always tempted to encroach on their rivals' territory. Even though, since or during this process, other privately owned financial groups have appeared, they reproduce, in the final analysis, this schema of dependence on a sector of the state apparatus and its bureaucracy.

In an article which appeared two years ago, "The financial oligarchy in Russia", Izvestia recalled that these "commercial banks were sometimes created from the head office of a ministry which the director (or his deputy) had taken over", and that, at the head of the main areas of the economy, the nomenklatura left or appointed people who "were its proxies and trusted representatives". And the author of the article specified that: "whereas the advantages accorded by the Soviet regime (to members of the bureaucracy) were mostly in kind (dachas, cars, consumer goods and access to certain services), they now consist of permission to exercise a commercial activity allowing people to make a quick fortune which is the biggest privilege which can be accorded today".

The form - previously mainly material, and now financial - of the privileges accorded has changed, and their scale has visibly changed even more. But they are still by nature concessions and not rights. These privileges still depend on a higher administrative level and, in the last instance, on the state power which grants them, and not on the legal status attached to being a shareholder.

Given this, it is therefore understandable that the bureaucracy should have only cautiously authorised others to take majority shareholdings, and even then not in decisive sectors. Against the protests of the representatives of international capital, who see this as a hindrance to the "free market", the bureaucrats invoke their concern to protect the Russian economy in a period of transformation. But it is their own interests they are defending because, at least for the top bureaucrats, the percentages of shares held by the state in privatised companies is all-important. Indeed, it is vital for the bureaucracy that the state, which it dominates and which is the source of its power, should retain a controlling stake in industrial and financial groups: it thus protects its dominant social position and its income.

The break-up of the state and the bureaucracy

In the days of the dictatorship, the economy was controlled by the state but the state belonged to the bureaucracy. But now the competition between bureaucratic clans, which had formed and were competing against each other before Gorbachev and even before Brezhnev, and who are eager to snatch the best shares of collective privileges away from each other, has finally broken up the state. The splintering process of the state machinery was originally a consequence of the fighting between bureaucratic clans. But for several years now, this process has become the main stake in their on-going fights.

In the days of Stalin and his immediate successors, reaching the highest position in the centralised state apparatus was the "royal road" to getting as close as possible to those who decided on the distribution of privileges. But this royal road had its limitations: apart from the supreme head, every head had someone above him. Individual privileges therefore depended on the goodwill of the person above, as many bureaucrats learnt the bitter way. And of course, not only might a bureaucrat who fell, even from the highest summits, find himself in Siberia or with a bullet in the back of the neck, he also took all his privileges with him to the bureaucrats' hell without leaving the slightest share to his descendants. On the other hand, even climbing up to the highest rung offered no protection, as Khrushschev (not to mention Gorbachev) found out.

But the break-up of the state opened up other perspectives. With each separate sphere having its own, relatively independent head, it became possible to take over such positions and enjoy safely the guaranteed material benefits which went with them. Power, which had previously seemed to proceed from a single supreme leader, disintegrated to give rise to a maze of hierarchical authorities. This break-up is reflected in the very diversity of what has been referred to since 1992 as the "state share" in the capital of privatised companies.

Indeed, this term is used to refer both to stakes owned by the central state (the Russian state), the regional "states", the municipal "states", large state-controlled structures and particular sections of the state machinery; in the latter case, this always means a section of the bureaucracy controlling a piece of "its" state which it seeks to protect against its rivals as well as against the central state.

The end of the single party regime and the abolition of planning are consequences of the weakening and then the break-up of the central state. At the same time, however, the bureaucracy has seen the disappearance of some of its instruments for controlling society and living parasitically off the economy, instruments which could only exist within the framework of a centralised state.

A few examples give an idea of the way in which the bureaucracy and its clans have adapted to this new framework as much as they have shaped it.

Luzhkov's Moscow mafias

The Mayor of Moscow, Luzhkov, is among the dozen most important leaders of the Russian bureaucracy. Unknown to the Russian public only six years ago, his ascension dates back to the mid-eighties when he tied his fate to that of the Yeltsin clan. Yeltsin, a member of Gorbachev's politburo, had just been appointed as head of the Communist Party machinery in the capital, a city with a population of ten million for which Luzhkov was in charge of organising supplies. In the atmosphere of open struggle between the Kremlin and the people in charge of the regions and republics, the resulting economic disorganisation was likely to increase shortages in the capital. And by causing discontent in the Moscow population, this was likely to tarnish the image of Yeltsin, whose rivalry with Gorbachev was beginning to emerge. Luzhkov successfully performed his task, helping to make Moscow Yeltsin's stronghold against Gorbachev. In the attempted coup of August 1991, he stood by Yeltsin. With Gorbachev ousted, Yeltsin rewarded Luzhkov for this by making him Mayor of Moscow in 1992. One year later, in the political/military confrontation with the Supreme Soviet, Luzhkov renewed his support for Yeltsin.

"He was rewarded, obtaining the right to privatise Moscow as he saw fit", wrote the French paper Le Monde recently, adding that "the inheritance of state property, privatisations and joint ventures controlled by the town council" enabled Luzhkov to expand his own clan, or his "mafia" as the Russians say. Indeed, behind Luzhkov there is the enormous municipal administration and a host of clients, protégés and people indebted to him - including those to whom he sells off, at knock-down prices, the former state-owned buildings that the town council has privatised. This clan depends on him and gives him his power - which is not limited to Moscow.

Behind Luzhkov, there is not just a political clan. His "mafia" is not dissimilar to that of the Sicilian American "godfathers". There is nothing unusual about this, and it is not confined to Moscow and Luzhkov either.

Unlike the capitalist countries where wealth and power derive from private property, until recently, the bureaucracy was not even able to use private ownership to consolidate its control over the means of production. Having developed as a parasitic outgrowth of the state apparatus at a time when, thanks to the revolution of 1917, it was the state which controlled the economy, the bureaucracy in a sense imposed its levy collectively on social production, the wealth being distributed hierarchically. In theory bureaucrats could not personally possess this wealth, their privileges and income depending on the state, in other words on what the state misappropriated from the state-owned economy. Bureaucrats had no right over state property, but the embezzlement, plundering and theft of collective property by individual bureaucrats emerged at the same time as the bureaucracy itself.

Throughout the period in which dictatorship was necessary for the consolidation of the bureaucracy's social power, it contained individual greed to a certain extent. But the closer one came to the spheres of power, the stronger the association between bureaucrats and gangsters was, becoming almost open in the last years under Brezhnev.

The continuing weakening of central government from Gorbachev's days onwards was the signal for a scramble for state property among the bureaucracy and the mafia with whom they had business relations. Each clan and sub-clan of the bureaucracy had "its" own gang. It had to protect what it had stolen from the state, the places where it off-loaded the product of its trafficking, and later the companies which it had "privatised ", from other clans.

Nowadays there is a whole host of "specialists" available to do this: demobbed officers, members of the KGB who want a new line of work, soldiers and mercenaries from the wars in Afghanistan, the Caucasus and Tadzhikistan who make a living from their "skills" in gangs or private security companies. These security companies alone (although they are actually difficult to distinguish from the gangs) are estimated by the Russian Ministry of the Interior to comprise up to half a million men!

Corruption, meanwhile, is hitting an all-time high. Many members of the administration did not have any direct relations with the companies to be privatised, so they "privatised" the issuing of official documents, facilitating the dealings of the bureaucrat-businessmen in exchange for an income. In February 1996, Russia's state prosecutor was imprisoned for illegally transferring tens of millions of dollars abroad on behalf of Russian companies.

The gangsterisation of Russian public life is patent and massive. In 1994, the Russian Ministry of the Interior estimated that half of registered companies, i.e. 35,000 companies including 400 banks and 1,500 state companies, were under mafia control. And this is despite the fact that it is difficult to draw a clear line between the legal and criminal economic world at a time when the parasitic layers of Russian society are merging more and more.

In Moscow, murders linked to politics and business continue unchecked: the car of the "richest" minister cited previously has been blown up, and dozens of bankers, businessmen and tax inspectors are killed every year. Several times the Moscow town council has been linked to these killings. Moscow concentrates 80% of the country's financial resources and 50% of foreign investment. It is therefore predictable that an all-powerful municipal authority should "help" itself and that all this wealth should attract envious eyes. Not only is the municipality a 51% shareholder in Pizza Hut, McDonald's and other foreign companies which have had to go through this channel to gain a foothold in the capital, it also owns hotels and companies and plays a part in many commercial transactions.

The Moscow and national media, even when they are under the control of bureaucratic leaders who are rivals of Luzhkov, are still accountable to Luzhkov. In this town where property is more expensive than anywhere in the world, newspapers and television channels rent their premises from the town council at low prices. This guarantees to Luzhkov's clan the media's benevolence and an entitlement to the massive sums of money they acquire from publicity.

In 1995, a star television presenter was murdered. The culprit was not found, but Yeltsin fired two of the mayor's right-hand men, the police chief and the Moscow prosecutor. He accused them of covering up a "merger between the mafia organisations and administrative bodies" in the "capital of crime". Yet, at the same time, as head of one of the most powerful bureaucratic clans in the country, Luzhkov deals with the presidency as an equal. He has the means to do this and is keen to let this be known. Armed with his title of head of the government of Moscow, he marks himself off from the other government (of Russia) which has its seat in Moscow, and therefore in his stronghold. This is partly a matter of political vanity, of course, but mainly one of a balance of power between groups of people within the state machinery who defend very concrete rival interests.

A state within the state

Another example of the way the bureaucratic clans operate is provided by Gazprom.

In the days of the Soviet Union, the gas industry occupied a special place, on the one hand because of the flow of hard currency it brought in by supplying almost all of Europe, and, on the other hand, because of its links with the various regions (and the people in charge of them) which were dependent on Gazprom for equipping the extraction sites, transporting the gas and distributing it throughout the country. Gazprom, the world's biggest producer and exporter of gas, is the biggest "heavyweight" of the Russian economy.

Naturally, when Gazprom was partially privatised, its management was handed over to a group of people who, in the days of the Soviet Union, whether in the government, in the energy department of the Central Committee or in the regions, had had links with this sector or formed part of what was called the "gas clan". A former Soviet gas minister, Chernomyrdin, was catapulted to its head. In addition to Gazprom's employees, the shareholders were the state as such, public or semi-public institutions controlled by this clan, and a maze of supplying companies (manufacturers of pipelines, giant compressors, etc..) and banks linked to the gas industry.

In January 1993, Chernomyrdin replaced Gorbachev as prime minister. This was not only a victory for the clan of a giant of the economy, but also for its networks of influence in the regions, at a time when Yeltsin, who had been supported by the leaders of the regions against Gorbachev, was now opposed by them. Represented at the top level of the state by Chernomyrdin, Gazprom obtained new benefits: tax-free export licences, official tax exemptions and de facto permission not to pay tax on profits.

In 1997, when Yeltsin appointed Chubais and Nemtsov as deputy Prime Ministers to counterbalance the influence of Chernomyrdin, they announced that Gazprom was going to be obliged to pay years of tax arrears. Gazprom then offered the regional authorities the chance to acquire a large share of the company's capital. This was all it took to stop Nemtsov and Chubais going any further. And although they boast that they have finally freed a third of the capital owned by the state in Gazprom from the discretionary control of its president, they are careful not to explain how a man like Chernomyrdin had been able to lay his hands on such a large chunk of shares.

Of course, the way in which privatisation is implemented is supposed to give the state new weapons to gain the compliance of such companies: is not the state the main shareholder of Gazprom and other companies? But this state-owned capital is in the hands of representatives of sections of the state machinery which defend their own interests and not those of the central state.

The fact that the state, the leading shareholder of Gazprom, has renounced intervention in the dealings of what remains, in law, its company, is a matter of balance of power within the bureaucracy itself. Between the demands of a budget which has been in chronic deficit for years and those of the vested interest that a host of bureaucrats have in Gazprom (which allow them to prosper at the expense of the central state) the bureaucratic state does not hesitate. And it hesitates all the less because, at the highest level of the central state, each clan leader owes his prosperity to being precisely the head of a clan controlling companies which are in the same situation as Gazprom. Besides, hasn't the bureaucracy found a way to make up for its plundering of the state coffers - by not paying public sector workers' wages or retired people's pensions!

In a sense, it is as if it was not the state which privatised Gazprom but its directors, who felt sufficiently strong to be unaccountable to anyone. The International Monetary Fund may well, in a letter to the Prime Minister (published by the Russian press), "explain" to him that Russia has the means to pay its wage or pension arrears if it forces Gazprom and the oil companies to pay their taxes and if it clamps down on its corrupt civil servants. But there is little chance that the IMF's "recommendation" will have any more effect than the previous ones on these "civil servants", that is, these bureaucrats who are apparently expected to put a rope around their own necks. Thus, for instance, when Yeltsin claimed he was going to seize two refineries belonging to oil companies indebted to the tax office, the decree was never applied: these companies were linked to the bureaucratic clan leaders Chubais and Berezovski

Aeroflot's very private flight

Another company called into question by the IMF is Aeroflot. Formerly the biggest airline company in the world, it was carved up into nearly 400 privatised companies by the regions, republics and industrial and financial groups.

Among these companies is Transaero, with Berezovski as its head. The leader of an economic maze of interlinked companies, involving the press, the car industry, the oil industry, air transport and close relations with the Yeltsin family, Berezovski has just lost his job as number two of the Security Council after a heavily publicised scandal. Unearthed by a newspaper owned by his rival Chubais, the scandal goes as follows: Berezovski, as director of Transaero and managing director of Aeroflot, created a company in Switzerland which they use to embezzle the share of Aeroflot's hard currency revenue which should normally go to the Russian state, on the basis of its stake in the company. The investigation was closed as soon it was opened: it led to the "godfather" of this trafficking, the deputy managing director of Aeroflot, who is Yeltsin's own son-in-law.

At the beginning of the eighties, another famous son-in-law (Brezhnev's) acquired a certain notoriety. He (Churnabov) must now be reflecting on the injustices of that era. Then Soviet Deputy Minister of the Interior, he was accused shortly after Brezhnev's death of organising trafficking of hard currency and diamonds and illegal exporting of Uzbek cotton. Churbanov paid for the arrival of a rival clan in power, that of political police chief Andropov, by spending years in jail. The Berezovski scandal basically involves the same mechanisms of power and enrichment. But he did not end up in prison: such trafficking is common practice these days, covered with the veil of what is permitted by privatisations backed up by state power. For Berezovski is one of the "three strong men of the moment", according to Le Monde last December. Berezovski owes this power to his immediate proximity with the Kremlin. That is what has enabled him to build an empire in the business world which feeds his clan, made up of bureaucrats and traffickers who have a vested interest in supporting their man in the race for supreme power.

The same is true of the other "strong men" of the bureaucracy: Chernomyrdin, Prime Minister and protector of Gazprom; Chubais, the "father of privatisation", linked to the country's leading financial group, whose rivalry with Berezovski involves constant battles for control of companies which will increase the extent of the winning clan's influence and therefore its chances for the post-Yeltsin period; Luzhkov, who is counting on the support of a capital that the town council has "privatised". Another supposed rising star, the other deputy Prime Minister, Nemtsov, is said to owe his increasing influence to the same clientele mechanisms. The same goes for waning stars like Korzhakov, the former number two in the Kremlin and "godfather" of the customs administration, with all that this entails in terms of control of revenue generated by the legal and illegal import-export business, or Pavel Grachev, for years Yeltsin's defence minister, who oversaw countless forms of trafficking in the army.

The criminal nature of the bureaucracy

Someone like Berezovski has no reason to be worried when he sees his sordid deeds openly publicised, or the American business magazine Forbes naming him as one of the godfathers of the Russian mafia. He is in good company because these accusations apply to nearly all the leaders of the bureaucracy. The mafias, in the strict sense of the term, are just one (visible and bloody) aspect of the clan-like nature of the struggle for power within the bureaucracy.

Speaking of the political-mafia scandals which surround the most prominent leaders of the bureaucracy, the November 22 issue of The Economist spoke of "crony capitalism", specifying that it was using this term "to be polite".

A shark of the financial world, the American "raider" George Soros, showing no such scruples (he has none in any case), said not long ago that he refused to risk a single dollar in the former Soviet Union where "gangster capitalism" prevails. This is a view shared by many others, such as the director of the US Chamber of Commerce in Russia, who recently declared that "it is clear that organised crime controls a large part of the Russian economy".

When Paul Tatum, an American businessman whose interests conflicted with those of Luzhkov's town council, was killed in Moscow, the international press "discovered" the criminal nature of the Russian regime. And it undoubtedly is criminal today, in the ordinary sense of the term.

For revolutionaries like ourselves, however, the criminal nature of the bureaucracy lies at an entirely different level. Historically, with regard to the interests of the working class, the activity and very existence of the bureaucracy are criminal. The bureaucracy was criminal when, in its early days, it ousted the working class from the leadership of the country and, in order to guarantee its position, it massacred under Stalinist terror the vast majority of the Bolsheviks who had enabled the Russian revolution to triumph and establish the first workers' state in the world. The bureaucracy's policy was also criminal in that it gave the Soviet Union the image of a horrendous dictatorship, discrediting, in the eyes of the world, the communist ideals which it claimed to stand for, demoralising the most advanced elements of the world working class with its about-turns, its alliances with the most reactionary regimes and its betrayals of revolutionary workers, giving a free hand to those who massacred them or carrying out the massacres itself.

The bureaucracy perpetrated these countless political crimes to mask the source of its privileges, while it was ruthlessly plundering the wealth produced by the Soviet working class and peasantry. Nowadays, it no longer does this; it no longer needs to disguise its misappropriation of the social surplus product, but openly steals everything it can.

A quick portrait of Russia

An adviser to Gorbachev during perestroika, Andrei Grachev published a book at the end of 1997 entitled "The Russian exception - is Stalin dead?", in which the author, who has become very critical of the previous regime, proves to be fairly lucid about the current one. Seven years after the end of the Soviet Union, he writes, "the economy is still in free-fall. Production has collapsed by 40 to 50%, exceeding even the figures for the Great Depression in the United States after 1929. The standard of living of four-fifths of the population - nearly 120 million people - has fallen by 60 to 80% (...). The volume of investment, meanwhile, has dropped by 70%. Agricultural production has decreased by a third. In sliding onto the slope of de-industrialisation and falling further and further behind the advanced countries, (Russia) is drifting towards the status of a Third World country (...). The fall in production and the destruction of whole branches of production have been accompanied by a sudden flight of the capital which is obtained from the "sale of the century"" (i.e. the intensive exporting, often semi-illegally, of the country's wealth). The fruits of this plundering "are placed by the state bureaucracy and the wheeler-dealers of the shadow economy on numbered accounts in tax havens, and invested in real estate in western countries. This is also where the "laundered" capital of the mafia gangs and the billions of the IMF loan state credits end up (...). And in the meantime, the Russian economy is going through a catastrophic crisis of investment, turning into an economy which one might call "military" capitalism"."

The Russian daily Izvestia, meanwhile, spoke of "state capitalism" in describing the system of "proxies" of the bureaucracy. "Crony capitalism" for The Economist, which is too polite to say "gangsters" like others do. Some, stressing the generalised chaos, the collapse of the state and the absence of stable and recognised legislation with regard to property - and the tendency of the bureaucrats to appropriate by any means everything they can lay their hands on - refrain from using adjectives and nouns to characterise what is at work in Russia: they simply describe it. There are also those who, considering the contradictory aspects of the social, economic and political situation of the former Soviet Union, do not hesitate to characterise it as a system which is half-way between the administered economy and the market economy. None of this is false, but it is a long way short of fully exploring the question. For it is necessary not only to apply a label to what is happening but to try to assess the dynamics of events, the class nature of these dynamics, the forces at play and the limits of the changes which have occurred.

For the majority of commentators, it was easier, in the late eighties and early nineties, to speak in unison every time a Russian leader announced the next "introduction of the market". Many applauded because this was in line with what they wanted to hear. But reality is more stubborn than class prejudices.

In 1990, during one of his tours of the West, Gorbachev estimated that the West would have to invest 400 billion dollars in the Soviet Union for it to "make a new start". This was the period when the capitalist world was becoming infatuated with the "500-day plans" said to be being drafted by the cream of Soviet economists, which were supposed to ensure the transition from a Soviet economy which was state-run and planned (at least still in the legal sense) to an economy operating on a capitalist basis.

Eight years later, planning has disappeared, the economy is in ruins and 80% of companies are supposed to be privatised. The result is what we have just described. Instead of a "new start", we have seen a generalised social regression which, for the population, is taking a tragic form. And while a flow of capital has been established between the West and the former Soviet Union, it is flowing in the opposition direction to that envisaged by Gorbachev, from East to West. And above all, it is bleeding the country dry.

At the same time, however, the western tutors of the capitalist development of Russia are the first to observe that the rate of this development has not come up to their expectations, and that the former Soviet Union is far from stabilising on the basis of capitalism.

And there is no sign of the emergence of a social layer of owners of the means of production detaching themselves, with increasing self-confidence, from the bureaucracy. On the contrary, we see the "shareholders" looking for protectors within the bureaucratic layer dominating the state machinery and society. The privatising bureaucrats have all the more need of the protection of their state because they do not even enjoy the social legitimacy provided by private property in an established capitalist society.

Meanwhile, most of the working classes of the former Soviet Union continue to consider the wealth of the "nouveaux riches" and the property deeds they wave as the fruits of a despoilment.

The bureaucrats have privatised, to their own benefit, most of the former Soviet economy. They seem to have satisfied their long-standing aspiration - to paraphrase Trotsky's expression - to consolidate their hold over the economy by private property. But it is easier to change the legal forms of property than to overturn the social relations of which they are supposed to be the reflection. And despite the counter-revolution which has been going on for several years, the bureaucrats have great difficulty, even today, in completely freeing themselves from the social relations resulting from the proletarian revolution of October 1917.

The disintegrating bureaucracy has destroyed the planning of the economy. But it is a long way from having succeeded in replacing it with the market economy. In the field of relations between companies in particular, what is still functioning in the economy - for although production has fallen by half, there is still the other half left - functions by using the links established under planning (which were already, even in the Soviet period, largely "corrected" by scheming, corruption and hidden relations). Barter between companies - both open barter and barter disguised as "inter-company credit", for which both debtors and creditors know there will never be any repayment - often replaces monetary relations. Payment in kind or in services replaces to a certain extent the wages which are not paid. These are, at the same time, merely palliatives to overcome the failure of the monetary system to achieve any form of stability.

And the directors of former Soviet companies, who are now the "owners" or "main shareholders" of their companies, display an economic behaviour which is more like that of bureaucrats than that of capitalist entrepreneurs, to the great annoyance of the International Monetary Fund.

This is clearly a situation of transition between the economy taken over by the state after the great upheaval of 1917 and capitalism. One might wonder how this state of transition can persist for so long, but it is nonetheless persisting.

In any event, the bureaucrats themselves have so little faith in their own privatisations that the only property they consider as really private is the capital they have transferred to Switzerland or elsewhere. They have so little faith in the consolidation of the capitalist "reforms" that they are continuing to plunder the economy, and above all to destroy it, rather than run it on a capitalist basis.

And their judgement - not the judgement that their political leaders develop in their speeches, but the judgement revealed by their real behaviour - is obviously shared by the capitalist world itself.

Since 1990, 150 to 300 billion dollars have apparently been taken out of Russia not only by wealthy Russians but also by the western companies established in the country. What is more, these companies are operating only very cautiously in Russia, especially in the commercial and financial field. In August 1997, Le Monde estimated western investment in Russia at 7 to 8 billion dollars, "as much as in little Hungary", it added. It only took a sudden storm on the Far East stock markets to scare off five billion of this amount, according to the Russian government.

This reality illustrates not only the greed of a plundering bureaucracy but also the difficulties experienced by the capitalist world, which is itself going through a lasting crisis, in attempting to transform, from the outside and to its own benefit, the economic system which the bureaucracy inherited from a workers' revolution before tearing it to pieces through its plundering.

Although the "market reforms" have produced components of a bourgeois class and reinforced those which already existed in the days of the Soviet Union, these are still marginal in relation to the economy as a whole dominated by the bureaucracy. The bureaucracy, because it controls the state - or, more precisely, the pieces of the state of the disintegrated former Soviet Union - has organised the privatisations to its own benefit and has, at the same time, used these privatisations to strengthen its hold over this state, which remains the leading dispenser of privileges and sources of enrichment. In this sense, Izvestia could with some reason, in an article already quoted, speak of "privatisation of the state by the state". Or, to give a concrete social content to this expression, one ought to speak of privatisation of the state-run economy by the state bureaucracy.

Even now that they have, at least formally, legalised their social and economic banditry through privatisation, the leading clans of the bureaucracy are engaged in bitter fighting amongst themselves to remain as close as possible to state power.

What is happening before our eyes is indeed a new stage on the already long road of a counter-revolution which the bureaucracy began in the mid-twenties. But it is not the end of this road. And to understand the regression of the whole of society to which this road leads, and to arm those in the former Soviet Union who wish to oppose this in the name of the working class, its interests and its class organisation, Trotsky's analysis of the bureaucratic degeneration of the first workers' state, his approach, his reasoning and his conclusions, still remain the best tools at our disposal.