Russia - The world crisis and the permanent crisis in post-Soviet society

Jan/Mar 2010

Long before the present world crisis - in fact, even before the collapse of the USSR - the Russian economy had been in a state of permanent crisis due to the parasitism of the bureaucracy on Soviet society. This crisis became even deeper after the collapse of the USSR as the plunder of the economy by former bureaucrats-turned-champions-of-capitalism, if not actual capitalists, increased. The advent of the world crisis has shed an even cruder light on this internal crisis, while aggravating it.

The article we publish below on this subject was translated from the November 2009 issue of the journal "Lutte de Classe" (#123), published by our French comrades of Lutte Ouvrière.

The consequences of the international financial crisis have not spared Russia, though it was hit somewhat later than other industrialised countries, partly because of its weaker integration in the global market.

In the past 12 months, industrial output dropped 10%; private consumption fell by a similar amount; the exchange value of the rouble was cut by 30% in a matter of only a few months; factories closed down while others operated only on a part-time basis; temporary lay-offs lasting several months hit hundreds of thousands of workers in the car industry and engineering; a wave of redundancies has been announced before the end of this year in the country's most important companies; the issue of unpaid wages has reappeared and so has barter in the relationships between cash-starved companies.

By subjecting the Russian economy to additional pressures, the world crisis has shed a cruder light on the flaws of the Russian economy - its ever greater dependance on exporting its natural resources; its subjection, over the past two decades, to wholesale plunder by the ruling bureaucracy and a fledging bourgeoisie which, although weak, is particularly voracious; its derelict state due to having been deprived of investment over the same period, resulting in the wearing out of the country's infrastructure.

The fact is that Russia was swept by a deep and enduring, economic, social and political depression when the USSR collapsed in 1991. Over the years which preceded the breakout of the present crisis, those who wanted to ignore the harsh reality in Russia, tried to talk it out of existence by referring to its allegedly wonderful growth rates.

True, over the last five or six years before the crisis, there had been a slight upturn in wages and a small reduction in unemployment. But then, this was not much of an achievement, given the catastrophic collapse of the working class' standard of living during the 1990s. During this period, a section of the urban petty-bourgeois, previously ruined by the 1998 Russian crash, had recovered its past affluence and indulged in a spending binge. Above all, the privileged layers of the system, had increased their wealth even more massively and rapidly than during the Yeltsin years. Indeed the only real beneficiaries of this temporary prosperity, had been the top bureaucrats, the "nouveaux riches" and other members of the new bourgeoisie - the very people among whom could be found the country's 3,000 billionaires in roubles (in 2007, one billion rouble was worth over £25m) and its 100 billionaires in dollars. According to the Russian economic journal Finance the 500 richest saw their wealth increase by 40% in 2007 alone, in a year when the production of manufacturing goods increased by only 3%.

The real balance-sheet of what was then presented as an economic resurgence, could be summarised as follows: the greater role played in society by a minority benefiting from an increasing concentration of wealth; the parasitic nature of this wealth concentration process, given the virtual absence of any new material investment; the on-going looting of the country by the "nouveaux riches".

From one crisis to the next

Russia's present prime minister, Vladimir Putin, who was Russia's president during that whole period, prides himself in having been the artist of this period's economic achievements, which are also hailed by official propaganda as being the result of Putin's policy, aimed at restoring some order in the state machinery after the chaos of Yeltsin's decade.

When in early 2000, Putin replaced Yeltsin, state power was going down the drain. Putin immediately started restoring what he called the "vertical of power". He cut down to size the local barons of the bureaucracy and got rid of the most disruptive among the mega-wealthy of the previous period. He interrupted the process of disintegration, whereby the country was being carved up by the local ruling cliques into so many virtually independent fiefdoms, by launching a new war in Chechnya and restoring his authority over the regional governors.

Restoring the authority of the state was, in and of itself, a decisive factor in improving the state of the economy. The state's economic measures had at least a chance of having some effect. As for those who were in a position to plunder the economy, the regime made it clear to them that they could no longer do so without abiding by rules and limitations dictated from above.

It is only by comparison with the previous decade, under Yeltsin's presidency, that Russia experienced an economic improvement after Putin came into office. These Yeltsin years were marked by the collapse of the economy and of the population's standard of living. Meanwhile, they saw the scramble for the riches of the state by the ruling bureaucrats - the "nouveaux riches" who had already got into business during the Soviet era, through their involvement in the "grey economy" and the extended trafficking of the underworld. These wheeler-dealer bureaucrats and other "oligarchs" thrived in the shadow of the regime. These predators, who could no longer use the banner of a ruling, so-called "communist", party to cover up their activities, as most of them had done in the past, were now using the banner of the "market". Their looting of the economy was responsible for reducing national production to half its previous level in just under a decade, while driving the vast majority of the population into poverty. The initial result of this dramatic collapse was that, by August 1998, the state was left with empty coffers, after having organised - and been the victim of - the dismantling of almost all public companies and, more generally, the privatisation of everything that could generate quick and large profits.

The state had no choice but to declare bankruptcy. The main imperialist powers and their international financial institutions then stepped in to prevent the world's largest country from falling into total chaos and granted Russia the emergency aid it needed to make ends meet.

Having hit the bottom, the Russian economy went up again. But it was a slow process and production indices only reached their pre-crash level in 2002. What really changed the situation was that the post-crash period coincided with a large increase in oil and gas prices, of which Russia was one of the world's largest exporters. This resulted in a big flow of foreign currencies into the state's coffers.

At the same time, the new ruling clique around Putin embarked on a drive to contain the looting of the state by a few magnates, who had accumulated colossal fortunes under the previous ruling clique. Gusinsky, Berezovky and Khodorkovsky were among the better-known of these "oligarchs" - the name these mega-rich close to corridors of power were given. Some fled abroad to avoid imprisonment, others spent some time in jail and were able to leave the country for a golden exile, others remained in jail. As for the companies which these oligarchs had taken over, they were either returned to direct state ownership or turned into companies in which the state held a majority of the shares, under the control of ministers and other members of the presidential administration.

The most famous example was that of AvtoVaz, the Russian giant car company that makes Lada cars (and recently announced tens of thousands of redundancies). At the time of the collapse of the USSR, Berezovsky had taken over control of this company, with the self-interested help of management and of the regional and local authorities of Togliatti - the town where the plant is located - and with the endorsement of Yeltsin and his clique. In fact, he had not actually taken over the factory itself, but the Lada distribution network, which had then allowed him to literally swallow the rest of the company's assets. After falling out of grace, Berezovsky was promptly dispossessed of his small car manufacturing empire - among other things.

As for the other magnates of the Yeltsin era, they quickly drew the lessons of these misfortunes and declared allegiance to the new regime. They stopped contesting its authority and agreed, with extreme reluctance, to pay their taxes - a new experience for them! Some were also asked to surrender to the state part of the companies they controlled, which were considered of strategic importance by the regime.

In return, Putin allowed the "oligarchs" to carry on enriching themselves. From time to time, he lectured them in front of the TV cameras, asking them to invest some of the money stashed away in their offshore bank accounts into the companies in Russia - without much success. With the present crisis, the flight of capital out of Russia has accelerated. It had, in fact, never stopped, even during the period of alleged economic improvement, so that Russia was permanently starved of investment capital, while the profits made in Russia only benefited the financial centres of the imperialist world. Funds held in tax havens join the international flows of speculative capital and pay for the extravagant life style of the so-called "new Russians".

Although, it should be said that due to the present crisis, many of these "New Russians" have lost some of their extravagance, as was shown by the 2009 edition of Moscow's famous Billionaire Fair, which was held in October: it was held in a much smaller venue than usual and there was a rather gloomy atmosphere, according to the papers. Owners of Russian shares are said to have lost a thousand billion dollars between May and December 2008. As a result, the US Forbes Magazine warned that half of the Russian names in its annual world rich list would disappear in the next edition.

Despite the money they have lost, Russian tycoons still have enough to invest in famous football clubs listed on the stock market. But they find it more difficult to acquire controlling interests in big American or European companies because of the distrust of the western capitalist classes for these nouveaux riches. Evidence of this is provided by cases such as the French steel company, Arcelor, which was sold to India's Mittal Steel, rather than a would-be Russian buyer, or Opel, which General Motors finally refused to sell to Magna, a Canadian spare parts company that was backed by Sberbank, a privately-owned but state-controlled Russian bank.

The off-shore funds owned by the Russian newly rich have been, and continue to be used to make very profitable operations in Russia itself, but not in the productive sector - with the exception of natural resources industries. These operations concern sectors like big retail chains, luxury shops, real estate (especially commercial real estate), financial activities, etc. According to official statistics, the average return on investment was still recently 15% to 20%, with peaks as high as 40%. This is why, for years, Russia's biggest foreign investor has been Cyprus, one of the smallest EU member states and a long-standing international hub for opaque financial operations linked to the ex-USSR.

As for Western companies, they only make limited investments in Russia, especially in the productive sector. The most striking example of this is given by the western car giants. Ford, Renault, Fiat, Skoda (aka Volkswagen), Opel (aka General Motors) all decided to move into Russia over the past years and have their own plants. But in most cases, they only rented the pre-existing plants of local car manufacturers, together with their equipment, low paid workforce and, sometimes, their commercial network. This is why Renault stated it was "strategically" vital to take a share in the capital of AvtoVaz, Russia's biggest car manufacturer, even though it was in bad shape. Besides, in general, instead of manufacturing their cars in Russia, the western giants only do the final assembly there. This way, they avoid having to make big productive investments, while, at the same time, the do not have to pay the 30% import duties on foreign assembled cars.

In fact, most foreign investments, including in the productive sphere, are in the form of loans. These loans are not financed by Western bankers, who do not trust Russia's economy and political system any more than the Russian bankers and businessmen and Western companies do. These loans are granted and guaranteed by international financial institutions like the EBRD (European Bank for the Reconstruction and Development, whose function is to provide funds for East European countries and the ex-USSR). So, for instance, the winning bid for the planned toll highway between Saint-Petersburg and Moscow came from a consortium formed by the French company Vinci and a Russian partner, backed up by funding provided by international financial institutions.

In this context, it is not surprising to see that, even when oil prices were soaring, only 5.7 % of the wealth produced in Russia went into buying machinery, equipment or transport infrastructure - according to official figures published by Ros-stat (Russia's equivalent of the ONS). The same statistical institute indicated that during the last twenty years, the share of Russia's national revenue devoted to the renewal of productive capital never exceeded 3% or 4%. If one takes into account all sectors of the economy, this means that the average wear and tear of the country's equipment and machinery is above the 50% line.

Oil and finance not used for industry

The economy may be running out of steam, but the incomes of the parasitic "nouveaux riches" reach new heights. In mid-2008, an official publication (National Accounts 2000-2007) noted that under Putin's two terms in the presidential office, total profits had gone up from 28.5 to 31.3 % of domestic output and reached over 55% of the total added value.

The bureaucrats and wheeler-dealers want to have their cake and eat it. The fact that they may destroy the source of their bounty in the process does not stop them! This is exactly what the president of the Russian Bankers' Association meant when, in 2002, after Putin had once again begged the banks to invest in production, he declared: "The state must create the right conditions for the banks to have an interest in increasing their profits by boosting industrial production. If, on the contrary, the banks believe that it is more profitable for them to destroy production capacities in order to make profits, this is what they will do.

In fact Putin had so little trust in Russian industrial and financial magnates that, as soon as the oil and gas royalties started coming in again, he put that money aside, in a special "stabilisation" fund, which was originally meant to fund state investment in infrastructure and production. However, having a war chest does not mean that you have won the war, especially if the last thing you want to do is to fight! The fact is that the personnel who run the state machinery are not interested in channelling public funds towards the development of the productive economy and even less willing to do it, since they consider that the main purpose of the state and its financial resources is to serve their own interests.

Thanks to the oil bonanza, Russia was able to build up the world's third largest currency and gold reserves in a matter of a few years. But the hundreds of billions of dollars of this treasure trove were to remain largely unused. In any case, they were not used to really kick-start economic growth. And, in just a few months, in late 2008 and early 2009, almost half of this gigantic pile of cash disappeared into the vaults of the Russian banks - which were the first beneficiaries of the Putin-Medvedev plan against the crisis.

At first, these banks posed as victims, claiming they had been forced to borrow heavily on the international market, since Putin had failed to give them access to this pile of cash. Of course, the banks did not dwell on the fact that they made enormous profits out of borrowing money abroad and lending it inside Russia at high interest rates, which borrowers, whether individuals or companies, were willing to pay, since the economic growth gave them confidence in their ability to repay their debt. But today, these exorbitant interest rates are strangling borrowers and overloading the banks with a growing amount of bad debt.

Last Spring, the Russian state awarded the banks at least a hundred billion dollars, under the pretext of helping them to reduce their foreign indebtedness. This hand-out was made on condition that the banks would help out companies which were short of cash - but they did not. The banks had no interest in toeing the line, except by lending at rates comparable to what they could earn through speculation. As a result, interest rates are hovering around 18 to 23%, and even then only for short-term loans - due to the banks' reluctance to freeze their money for a longer period over which they might earn bigger profits by other means. It should be mentioned as well that the banks used the foreign currency handed out to them by the state to force a sharp fall in the rouble's exchange rate - a fall that all the country's wealthy were more or less counting on, since a large part of their assets were in foreign currencies.

In passing, it should be recalled that Russian banks were not created to finance the country's industrial development, not even in the way that their Western counterparts once did, albeit a long time ago. Today's Russian banks were set up at a time when the USSR was in its death throes and its bureaucratic cliques were at each other's throats, trying to grab anything that could become profitable, one way or another. The function of these banks was quite simply to facilitate this plundering and the transfer of the loot to various tax havens.

For all these reasons, it is ironical that international credit-rating agencies such as Standard & Poor's should "discover" that the Russian banks could be wiped out in one fell swoop, because 20 to 40% of their assets are bad debt (a total of $100 billion, almost equivalent to what they received from Putin), while their core capital is very small (due to their origin, they never needed much). Any increase in the proportion of their short-term borrowers (i.e. Russian companies) unable to meet their repayments - and it was already between 12 and 15% by the end of October 2009 - would spell disaster for these banks.

So far, the Russian state has managed to bail out the banks which were at risk, by paying back loans made by them to some big companies or taking over part of the banks' debt portfolio. In return, the state took a stake in the capital of some banks or a majority stake in the capital of some of the most indebted groups, which were seen as strategically important by the Kremlin.

This process, which may appear as a de facto restoration of state control, is now presented by some commentators - like the oligarch Aven - as a "reversal of the 'loan-for-share' process, whereby, in the middle of the 1990s, the future oligarchs took over many public companies in return for lending to the then weak and corrupted state, cash that they had stolen from its own coffers. Today, the state, now in a rather better shape, is carrying out a de facto "nationalisation" of the debt of the "nouveaux riches" and of their companies - although the real scale of these operations remains unknown and how long this state control will last, remains to be seen.

The state's scanty investment

Today, like during the economic resurgence that took place under Putin, neither the banks nor the private companies have the will, nor the means to invest in production or in the infrastructure that is vital to production. But, of course, this does not mean that there was no investment at all in 2000-2007.

The state had to substitute itself for the Russian "entrepreneurs" in order to make up for their failure. Part of the country's oil revenues was spent on roads and other public infrastructure works - and, to a lesser extent, on public transport and the railways. The bulk of state investment, however, was devoted to sustaining productivity in foreign-currency-earning export industries (armaments, mining, oil and nuclear industries) - but it also went into prestige projects, such as the site for the 2014 Olympic Winter Games, which was built virtually from scratch in the mountainous area surrounding the Black Sea resort town of Sochi.

However, state investment has been generally so inadequate that equipment was allowed to wear out completely, without being replaced, resulting in regular catastrophes. It is the case even in industries which are vital for the state and its parasites, as is shown by the frequent oil pipeline breakdowns. But it is still worse elsewhere. For instance, in August 2009, a Siberian hydroelectric power plant exploded, killing 75 workers. The plant's main turbine had been pushed beyond its limits in order to make up for the stoppage of a nearby power plant, following a fire. But this turbine was 30 years old, it had been known to have cracks for two decades and the official enquiry report found that it showed "a 98% metal wear. One can easily imagine the conditions prevailing in the country's 440 power plants, which the state is trying to offload through privatisation!

The truth is that virtually all the country's infrastructure is derelict for lack of investment. This is obvious even in the case of government prestige programmes. For instance, the manufacturer of the high-speed trains used on the new railway line between Moscow and Saint-Petersburg (inaugurated in late 2009), the German group Siemens, complained that the country's most important railway line was in such a bad condition that its trains could not travel safely at full speed.

The State Committee for Statistics and the Central Bank cannot be suspected of exaggerating the situation, yet their data is unequivocal. It showed that, by 2007, Russia's Gross Domestic Product (a more than doubtful measure since it includes some speculative activities) had just caught up with its 1990 level! However, industrial production and investment were only 85% and less than 60%, respectively, of their 1990 levels!

This shows that, almost two decades after the collapse of the USSR, the market - far from ensuring the economic development of the former Soviet Union, as it was claimed - has failed to even maintain the economy of its most industrialised region, Russia, at the level it had reached in 1990. And this is without taking into account the sharp economic slump which took place in 2008-2009.

"Plankton" and caviar

As for the working population, the economic resurgence of 2000-2007 - in so far as it brought about any improvement - is a thing of the past. The two large urban conurbations of Moscow and St Petersburg, with a combined population of 16 million, were hit first. From the end of 2008, the banking industry and, more generally, the service industries, which have a large presence in the two cities, started to respond to the financial panic coming from the US, by cutting jobs and wages.

As oil prices increased, whole sectors of activity had developed or emerged, in order to take advantage of the rising standard of living of the petty-bourgeoisie. As a result, many new jobs had been created in industries such as banking, insurance, travel, up-market retail, real estate, catering, bars, car showrooms, etc.., all the more readily as there seemed to be no reason for this affluence to end.

Of course the new jobs in these sectors were very low-waged - equivalent, at best, to £63/month, as opposed to price levels which were comparable to those of other major cities in the world. The Russian papers used to claim that the number of workers (mostly women and youth) was far too large and to dub them contemptuously as "office plankton" - meaning that, sooner or later, these workers would be swallowed alive by the business sharks.

By late 2008, early 2009, hundreds of thousands of these employees had to choose between taking a 50 % wage cut or leaving their jobs. Among those who were finally laid off, only a small proportion registered with the dole office.

In every country, official unemployment figures lie, but Russia's statistics are even worse. Officially, there are 7 million jobless. But, beyond the authorities' determination to play down the issue, this ridiculously low figure is also due to the fact that the jobless census is carried out by a network of job centres, which do everything they can to discourage the jobless from registering. Indeed, unemployment benefit only lasts for six months at best, at a rate of about 60% of the last wage. However, the basis used for this calculation is not the real wage, but what is declared by the employer, who, in most cases, only declares a very small wage for tax reasons (the real wage being made up with bonuses and hand-to-hand payments, which can represent up to half of the total). In order to register with the dole office, the unemployed have to waste an inordinate amount of time in queues and take the first job offering the same level of declared earnings as their previous employment. So, it is hardly surprising that, according to a recent survey, a mere 20% of all redundant workers actually register. The same survey shows that this proportion increases to around 50% among the lowest paid - although this does not take into account those who do not have a declared wage, because they have neither employment contract nor wage slips.

The massive job and wage cuts suffered by financial services employees triggered more job cuts, especially in the retail industry where these employees used to do their shopping, together with a section of the petty-bourgeoisie whose income was shrinking.

An idea of the extent of this phenomenon may be provided by the car industry where, in 2009, all western manufacturers operating in Russia stopped production for several months, interspersed with periods of short-time working, claiming that their cars were no longer selling. Yet, only 2 or 3 years ago, every economic publication used to described Russia as a new "El dorado" for car manufacturers and the largest car market in Europe, since more new foreign cars were sold there, including among the most expensive models, than in Germany. But this was before the crisis. Travel agencies provide another example: there were 9,000 of them in Moscow in 2008 and within less than a year, there were 6,000 - 30% had shut. This may give a somewhat better idea of how much the purchasing power of many employees and the urban petty-bourgeoisie has shrunk, than announcement by the authorities of a reduction in consumption of 5 to 6.8% over the past months.

However, the situation is probably even worse in provincial medium-sized towns, where companies started claiming that they could no longer pay the wages. In these towns, economic activity has slowed down, even in export industries (engineering, steel, fertilizers, etc.) and state-owned industries.

Months before, the central government, fearing outbursts of anger, had organised a so-called anti-crisis programme. This involved a centralised system designed to provide the authorities at the highest level with an advance warning of any potentially explosive situation. As a preventive measure, provincial governors had been instructed by the Kremlin to put pressure on companies to resort to temporary shut-downs and short-time working (with workers getting part of their wages), rather than redundancies. For months, hundreds of thousands, if not millions of industrial workers were out of work or working part-time, but still kept part of their income - usually around 2/3 of their normal wages. But, despite the Kremlin's instructions, in many places, both public and private employers stopped paying wages altogether, including in industries which were considered vital to Moscow's recovery plan - such as, for instance, military shipyards, machine-tool production, paper pulp production for export, etc..

In the summer of 2009, there was a wave of mobilisation in Pikalevo, near St Petersburg. Three of the town's factories, which were threatening to close - including one owned by Russia's richest man, thanks to his close ties with Putin, the aluminium magnate Deripaska - had stopped paying wages for months.

Putin had felt obliged to go to Pikalevo and threaten the factories' owners with nationalisation. Of course, this was mostly a show put on by Putin, in an attempt to appear as the champion of the "little man" against the rich. But, at the same time, Putin preferred to pre-empt a possible explosion of anger, rather than wait and see whether the population's discontent would go further than blocking a motorway - which is what they had done! In any case, this is what can be inferred from the following statement made by the head of the local administration to the business paper Viedomosti "Our town is among the 17 single-industry based towns which are facing the worst difficulties. This paper added that the example set by Pikalevo could be followed by other people: "In August, because they had not been paid in due time, the workers of Baikal TsBK(a Siberian plant producing cellulose and paper pulp), threatened to block the Trans-Siberian railway line(the only one connecting Russia's Far East to the rest of the country). In this case too, the government had to tread carefully in order to solve the problem.

A heritage of the Soviet era: the "mono-towns"

In the two cases mentioned above, the problem arose in what Russians call "mono-towns" - i.e. urban centres of varying sizes, which were built during the Soviet era, either around one giant factory or around a number of different factories co-operating in the same production.

These single-industry towns recently made the headlines in Russia, due to workers' reactions similar to those already mentioned, but above all due to the announcement of 36,000 job cuts - out of 105,000 workers - at the AvtoVaz, in the town of Togliatti, on the river Volga. Leaving aside a tiny Danone factory, this town of 700,000 inhabitants is entirely dependent on AvtoVaz and its jobs - which is why it is also known as "Avtogorod" (meaning "car town" in Russian) - and the same applies to the Samara oblast (the region around Togliatti), where a total 500,000 jobs depend on AvtoVaz.

Of course, Togliatti may appear as a special case, due to AvtoVaz's very prominent industrial position and to this town's huge concentration of workers sharing the same employer, the same problems and the same life. But it is not an exception in Russia's urban an industrial landscape. There are over 400 such "mono-towns", scattered over most of the country, from the far north which they helped to colonise (there are 28 of them in the Mourmansk region alone, nearby the Polar circle) to the Central Asian steppes, and from western Russia to the distant confines of Siberia (38 in the region of Irkoutsk).

Taken together, these "mono-towns" account for more than 50% of Russia's industrial output, thereby constituting, even today, the backbone of the economy. But they are more than that, being, at the same time, vital cogs in the economy. Indeed, the activity of 18 of these "mono-towns" is almost entirely devoted to production of machinery, 9 are devoted to engineering, 11 to energy production, 21 to the timber industry, 14 to the food industry, 21 to the chemical industry among others.

This distribution and concentration of the productive forces is not by accident, but by design. Indeed, in most cases these "mono-towns" and their giant industrial facilities, were originally conceived in the Soviet Union of the late 1920s, as part of a general plan aimed at developing the country's industrialisation. Each one of these towns may have its own specific features, but these only make sense when taking into account the fact that these towns were intended to be the components of a coherent whole, developed on the scale of the entire Soviet Union, as part of a country-wide economic plan. This plan was aimed at focusing resources and investment where they were needed. It required, as a prerequisite, the abolition of the private ownership of the means of production and their transfer into the hands of the state, as well as the end of the profit motive as the driving force shaping the organisation of production.

Such economic planning had been made possible by the victory of the October 1917 revolution and the setting up of a workers' state. Indeed, these were the conditions which enabled the Soviet Union to pull the country out of its economic backwardness inherited from Czarist Russia. Over time, they allowed the development of an industrial infrastructure proportionate to the needs of this enormous country, according to a pattern that is still reflected today by the "mono-towns" - and this, despite the dictatorship of the bureaucracy, which deprived economic planning of one of its most vital instruments, namely, the population's democratic involvement and control over this process.

The collapse of the USSR brought about the end of the collective ownership of the means of production and the demise of economic planning, whose aim had been, in theory at least, to cater for the collective needs of the population. By the same token, the tight network of "mono-towns" lost its cohesiveness and functional role. A large number of industries around which these towns operated were privatised - although, some were subsequently renationalised, like AvtoVaz, which had been taken over by Berezovski, the swindler, just after the end of the USSR. Some have lost part of their importance. Others are no longer operating to full capacity, if only for lack of the necessary investment to renew their machinery, but above all, because their productive capacity could only be used within the framework of the planned economy.

The bureaucracy may have destroyed the Soviet Union, together with its state property and planning, in order to facilitate their plundering of the country; they may have changed the legal form of property and restored the private property of the means of production, in order to legalise their looting. But they cannot change history. The members of today's bureaucracy can celebrate the wonders of the market all they please, but, whether they like it or not, they remain stuck with an economic infrastructure and framework which was built up by others on a very different basis, for a different purpose.

Ironically, the Russian champions of the market, who keep repeating that the Soviet era is over and gone, are rediscovering the fact that the Soviet economic heritage is still with them, albeit in bad shape, and that they cannot afford to ignore this heritage, at a time when the capitalist system is engulfing the world - and Russia - in another economic crisis.

It is no coincidence that the government recently commissioned a report on the "mono-towns", their present situation and their future. According to the press, the government's plan could be to shut down some of the 400 "mono-towns" - those that are most distant from the big cities and those that are in the worst shape due to the fact that the economic activity for which they were built has lost its relevance. Their populations would be repatriated to the big urban centres.

In other "mono-towns", production could be diversified or reorganised. How, using what means and with what perspective? These are relevant questions since, surely, such measures would require, if not an actual economic plan, at least the political will to tackle the issue of the Russian economy as a whole. However, there is no hint about this in the press. In the case of the AvtoVaz-Togliatti plant, which presents the authorities with an emergency due to the massive redundancy programme planned, the help announced by the government for the redundant workers - the building of a toy factory - is just a nasty joke! The same is true of the TsBK plant in Bratsk, where the Trade ministry plans to build a preserve factory, a water bottling plant, together with a ski resort and an "underwater diving spot" - all this thousands of miles from the country's main cities!

What is clear, is that when the authorities talk about "getting rid" of a good number of the "mono-towns", they are in fact talking about getting rid of the social and political problem posed by their 25 million inhabitants! And the sooner the better, given today's crisis and the resulting possibility of a backlash from the working class! In the report on the "mono-towns" mentioned above, the Russian ministry of Regional Affairs explains that in 17 of these towns the "there can be an explosion at any time, while in 60 others, the "situation could rapidly become very serious and 200 are facing "great difficulties.

The Russian government keeps its fingers crossed, in the hope that it will not find itself in "great difficulties", by being confronted with the anger of the hundreds of thousands of inhabitants in one of the "mono-towns". Because the odds are that the entire population will be solidly behind the workers of their town's main factory, given that all the other jobs in the town depend, one way or another, on the economic health of this main factory.

As one can never be too cautious, the government issues warning after warning against "extremists" - meaning anyone who questions one aspect or another of the existing order - who "might want to take advantage of the crisis". The state TV channels show live reports of the OMON, the Russian riot police, practising their crowd dispersal techniques, with new weapons, not to mention footage of demonstrators, who turn out to be pensioners, being attacked with clubs and water cannon. Despite the embarrassed denials of the authorities and the media, everyone in Russia knows that not so long ago pensioners from all over the country took spontaneously to the streets in the main towns, to defend some of their meagre benefits that Putin wanted to cut.

At a time when Russia is pouring hundreds of billions of dollars into the coffers of the "nouveaux riches", as part of the world's biggest anti-crisis plans relative to the country's resources, while workers earn on average around £270/month, pensioners half as much and the jobless even less, there are plenty of reasons to turn "extremist" overnight and at any age. Hence the worries of the Kremlin.

The crisis, politicking and "modernisation"

This also explains why the discreet rivalry between today's president Dmitri Medvedev and former president Putin - who chose Medvedev as his successor in 2008 and became his prime minister - has become more open recently.

This strange dual power at the top level of the state was unstable right from the outset. The co-existence of what amounts to two apparatuses could only lead to the emergence of rivalry between them, even though these two headmen were originally in the same clique. By upsetting the overall situation of the Russian economy, the crisis has also altered this fragile balance of political power at the top. Not a week goes by these days, without president Medvedev - who does not have all the powers associated with this title - trying to distance himself from his former mentor.

In September 2009, for instance, in an article published by an online liberal paper, Medvedev made an unflattering description of the state of Russia at the end of Putin's presidency. Under the title "Forward Russia!", his article described Russia as a "backward country, with a "weak democracy and a "primitive economy, adding that "the world economic crisis has shown that things are really not going well in a country that was kept in a state of "humiliating dependence on natural resources. Medvedev also noted that for two decades, Russia has experienced a demographic free-fall and a sharp increase in mortality rate, while alcoholism was on the rise and corruption reached new heights. Whereas Putin, drawing the balance sheet of his second presidential term, had asked people to remember him as the man who had led "the ship of the state out of the dire straits it was in, Medvedev's article makes a malicious point of sending Putin's ship back into the dire straits - and he does this whenever he gets a chance.

Whereas Putin had once said that the collapse of the USSR had been the "worse geopolitical catastrophe of the 20th century, Medvedev took almost the exact opposite position during a celebration of the October revolution. Whereas Putin portrayed Stalin as a "wise leader and efficient manager whose strong grip was justified and indeed required by the circumstances, Medvedev recently accused the Soviet government under Stalin of "having committed unforgivable crimes against the population. Commenting on the present crisis in front of an assembly of public and private sector "entrepreneurial" bigwigs, in October 2009, Medvedev attacked the "state-controlled corporations and the way they are structured - half way between a ministry and a giant industrial conglomerate, which just happens to be how they where shaped by Putin since 2006, in an attempt to give the state the means to control certain key industries. Medvedev also took his distance from Putin in terms of party politics. In October, after Putin's party, "United Russia", won regional and local elections thanks to electoral fraud on a scale larger than ever, some so-called opposition parties, like Zhirinovsky's Liberal Democratic Party or Zuganov's Russian Communist Party, decided that, for once, they would demonstrate their disapproval. Up until then, the deputies of the opposition had always swallowed the government's bait, hook, line and sinker. For the first time ever, they boycotted the Duma (parliament) for 3 days. Party leaders attacked the Putin system throughout the media... upon which Medvedev invited them to the Kremlin. Afterwards, the Communist Party leader came out of the meeting to declare that given the crisis and the "risk of social explosions, he was ready to offer Medvedev his party's support, provided Medvedev's opposition to Putin proved more than rhetorical.

The present crisis, said Medvedev, is an "opportunity for modernising the country. And, pointing a finger in the direction of Putin, he added: "Over the past years, we either failed to do what had to be done, or else, there were many things that weren't done properly." After all, Medvedev should know, since he spent his whole career working side by side with Putin! Now, behind the political ambition and expectations that Medvedev and his supporters no longer care to hide, lies a problem which has been on-going for the bureaucracy since Stalin's days: the problem of who will hold supreme power and, therefore, who will be in a position to hand out perks and positions in the high spheres of the state and companies.

But the economic crisis is confronting the bureaucracy with another problem. For the time being, Putin apparently enjoys a certain popularity, which he owes to the 5-6 years of economic resurgence under his watch, marked by relative wage increases and a higher level of employment. However, for the first time, this year, Putin was castigated by demonstrators in several towns and on more than one occasion. From the point of view of the top bureaucrats and their clans, it could come in handy to have someone to blame for the consequences of the crisis, should the situation get worse. Putin could become such a scapegoat, if working-class and popular discontent increased and was expressed more vocally. And in that case, Medvedev could be used as his replacement. This is the calculation that a section of the bureaucracy appears to be making.

11 November 2009