To think about the future, after Mr. Guedes and his captain


By José Luís Fiori*

In the early 1990s, on the eve of its dissolution, the Soviet Union had 293 million inhabitants, and had a territory of 22.400.000 km, about one sixth of the surface land of the entire planet. Its GDP had already exceeded two trillion dollars, and the USSR was the second richest country in the world, in nominal purchasing power. In addition, it was the second largest military power in the international system, and an energy power, the largest producer of crude oil in the world. It had state-of-the-art military and space technology and industry, and had some of the best trained scientists in diverse fields, such as high-energy physics, medicine, mathematics, chemistry, and astronomy. And finally, the USSR was the power that shared global atomic power with the United States. Even so, it was defeated in the Cold War, being dissolved on December 26, 1991, and after that, for a decade, it was literally destroyed.

However, even before the dissolution of the Soviet Union, Boris Yeltsin – who would become the first president of the new Russian Federation – had already convened a group of national and international economists and financiers, led by the young ex-communist Yegor Gaidar, to formulate a program of radical reforms and policies, with the aim of installing a liberal market economy in Russia.

After that, the dissolution of the USSR can already be considered the first step in the great ultraliberal program of destruction of the Soviet state and its planned economy. In 1993, Boris Yeltsin ordered the invasion and explosion of the White House of the Russian parliament, which was still opposed to ultraliberal reforms, leading to the death of 187 people, the arrest of opposition leaders and the imposition of a new constitution that would facilitate the approval of the policies proposed by superminister Yegor Gaidar.

Even so, and despite resistance, as early as 1992, Yeltsin ordered the liberalization of foreign trade, prices and currency. At the same time, he initiated a policy of “macroeconomic stabilization” characterized by rigid fiscal austerity. On the other hand, superminister Gaidar – who was considered a “star” by his peers in the world of finance – raised interest rates, tightened credit, raised taxes and canceled all kinds of government subsidies to industry and construction; he also made very hard cuts in the country's social security and health system.

It is essential to highlight that, as a precondition, the new Russian government submitted to the determinations of the United States and the G7, abandoned any pretense to “great power” and allowed the dismantling and disorganization of its Armed Forces, together with the scrapping of its arsenal atomic.

And that's how the “ultraliberal shock” of Yeltsin's economic team managed to advance quickly and violently: suffice it to say that in just three years, Gaidar sold almost 70% of all Russian state companies, hitting the oil sector that hit hard. it had been a centerpiece of the Russian socialist economy, and it was dismembered, privatized and denationalized.

The consequences of the “shock” were faster and more violent than the shock itself, and ended up taking Yegor Gaidar by storm, as early as 1994. Inflation soared and bankruptcies multiplied across Russia, pushing its economy into a deep depression. In just eight years, total investment in the Russian economy has dropped by 81%, agricultural production has plummeted by 45%, and Russian GDP has dropped by more than 50% from its 1990 level, and various sectors of the Russian economy have been wiped off the map.

In turn, the general downturn in industry caused a large increase in unemployment and a 58% drop, on average, in wages. Reforms and cuts in “social spending” devastated the standard of living of most of the population; the country's poor population grew from 2% to 39%, and the Gini coefficient jumped from 0,2333 in 1990 to 0,401 in 1999. A destruction and continued fall in GDP that did not, however, prevent high profit rates and the enrichment of some private groups, formed by former Soviet bureaucrats, who allied themselves with large international banks and participated in the big business privatizations – in particular, of the oil and gas industry. They are the so-called “Russian oligarchs”, multimillionaires who dominated the Yeltsin government and created together with him and his ultraliberal economists a true “kleptocracy”, which grew and became rich despite the destruction of the rest of the Russian economy and society.

In fact, in 1991, the Soviet Union was defeated, but its army was not destroyed in a conventional battle. Likewise, throughout the 1990s, the USA, the European Union and NATO actively promoted the dismemberment of the territory of the former Soviet State, which lost five million square kilometers and around 140 million inhabitants. All done with the subaltern acquiescence of Boris Yeltsin's government and its ultra-liberal economists, in the name of a future renaissance for Russia, which should be delivered by the invisible hand of the markets.

But, as we have seen, this economic dream ended up being a huge failure, with an immense social and economic cost for the Russian population. Prime Minister Ygor Gaidar was dismissed from the government in 1994, still in Yeltsin's first term, and Boris Yeltsin himself had a melancholy end, humiliated internationally in the Chechen and Yugoslav wars, resigning from the presidency of Russia on December 31 from 1999.

The later history of Russia is better known and reaches our days, but perhaps it should be remembered, especially for those who bet, in Brazil, on the radicalization of privatizations and on the dismantling of the Brazilian State and its commitments to national sovereignty and to the social protection of the population. Because it was the failure of the Russian “liberal shock” that contributed decisively to the electoral victory of Vladimir Putin, in 2000, and to the decision of his first government, between 2000 and 2004, to rescue the old nationalism and resume the State as leader Russia's economic reconstruction in the XNUMXst century.

Both Putin and his successor, Dmitri Medvedev, and Putin again, maintained the capitalist option of the 90s, but recentralized state power and reorganized its economy, starting from its large companies in the oil and gas industry. But this was only possible because, at the same time, they resumed the power project that had been abandoned in the 90s, with the reorganization of their military-industrial complex and the updating of their atomic arsenal.

After that, in 2008, in the Georgian War, Russia gave a first demonstration that it would no longer accept the indiscriminate expansion of NATO. Further ahead, the Russian government incorporated the territory of Crimea, in response to the Euro-American intervention in Ukraine in 2014, to finally, in 2015, make its first victorious military intervention outside its borders, in the Syrian war. In other words, after its economic and international collapse in the 90s, Russia managed to regain its place among the great world powers in just 15 years, making a real technological leap in the military and electronic-informational fields.

Currently, the economic sanctions imposed on Russia since 2014 have been producing harmful effects and generating great difficulties for the Russian economy. But everything indicates that they will no longer be able to change the strategic course that that country charted for itself, aimed at regaining its economic and military sovereignty destroyed in the 1990s.

Brazil, after the 2015/16 coup d'état, and after three years in a row of the same neoliberal and orthodox economic policy, is becoming more and more like Russia in the 1990s. catastrophic, in particular with regard to the drop in consumption and investment, and even more so in the case of rising unemployment, extreme poverty and social inequality.

Most serious predictions about future prospects are disheartening, despite the conservative press that seeks to turn any egg filigree it finds in front of it into eggnog, trying to convey false optimism. Faced with this, Mr. Guedes's economic team decided to transform the Social Security Reform into the lifeline of the Brazilian economy, to soon after invent a new Holy Grail. He is now announcing, on any occasion, a radical privatization of the entire Brazilian State, including the entire petroleum industrial park and Petrobras itself.

He behaves like a clown in a shabby country circus, trying to keep the attention of the bored audience with the announcement of the lion's arrival on the scene. But everything points to no success, when we consider that in these last two months, in August and September, we witnessed the biggest flight of capital from the Stock Exchange in 23 years. It is precisely here that the history of Russia can help us understand what is going on and predict what could happen, given the many similarities that exist between Brazil and Russia.

Well then, what does the Russian experience of the 1990s teach us, and after?

First, and very important: that the destruction of the Russian economy, state and society, in the 1990s, was not incompatible with private enrichment, especially of groups of financiers and former Soviet bureaucrats who obtained extraordinary profits from the business of privatizations – and which later assumed monopoly control of the former state industries, particularly in the field of oil and gas. In other words, it is perfectly possible to reconcile high profit rates with economic stagnation or recession, and even with a fall in the national product.

Second: that the large private profits and state gains from privatizations do not necessarily lead to increased investments in a macroeconomic environment characterized by fiscal austerity, credit restrictions and the simultaneous fall in consumption. On the contrary: what was seen in Russia was a huge drop in investments and Russian GDP, on the order of almost 50%.

Third, and most important: that after ten years of liberal destruction, the Russian experience teaches us that, in large countries, with large populations and complex economies, “ultraliberal shocks” have a much more violent and disastrous effect than in small countries with exporting economies. This is an unsustainable political situation in the medium term, even with very violent dictatorships, as happened with the economic failure of the Chilean dictatorship of General Augusto Pinochet.

The later reversal of the Russian situation also teaches us that (1) the longer and more radical the “utraliberal shock”, the more violent and statist its later reversal tends to be; and (i) in countries with large energy reserves, it is possible and necessary to restart the reconstruction of the economy and the country, after the passage of the typhoon, starting from the energy sector.

History does not repeat itself, nor can the history of other countries be turned into a universal recipe, but at least the Russian experience teaches that there is “life” after the ultraliberal destruction, and that it will be possible to remake Brazil, after Mr. their captain have already passed together to the gallery of the great errors or tragedies of Brazilian History.

*Jose Luis Fiori Professor of International Political Economy at the Institute of Economics at UFRJ

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