Soviet Union Destruction: Global and local perspectives

SOVIET UNION DESTRUCTION: GLOBAL AND LOCAL PERSPECTIVES

OBSERVATIONAL REPORT



Table of Contents.

  • Table of contents 
  • Introduction 
  • Soviet Union Economic Developments 
  • Soviet Union Destruction: Background and Hidden Reasons 
  • USSR Destruction: Global Perspective 
  • Privatization Period 
  • Russian and Ukrainian credit policies 
  • Monetary and Fiscal Policy 
  • Impacts of Free Trade 
  • Dollar as a Good 
  • August 1998 crisis 
  • Summary 
  • Conclusion 
  • Post-Scriptum 
  • Bibliography

Introduction

In the following project I would like to show you how to destroy an existing economy, which has been considered as powerful and strong enough not only to serve its own needs, but to maintain a lot of communist, rebel and guerillas forces through all the world.

I guess now you realize that discussion will be about USSR or “Empire of Evil” as it was called on the West, and countries established on the ruins of it, especially Ukraine and Russia. My report is going to be more observational because of lack of the statistical information. However, presented data is correct and accurate, so I can base my theories on the good platform.

I will use some materials and articles in my project, but only for collecting data and thought review. I am not going to paste here the pieces of text, the thing I really want is to introduce my own analysis and opinions based on it and life experience as Ukrainian.

Soviet Union Economic Developments

The most people in the world and even in former USSR countries are blinded by the mass-media propaganda that convince them that things in Russia are going perfectly, that difficulties will be defeated and a new, rich life is straight on the road, just after next hill. By the way, communists promised the same during 70 years, but as it was told in one joke they has not promised to feed population during this journey.

Despite of this joke, the real social defense in the Soviet Union was one of the highest in the world. Your whole life was pre-planned, pre-defined and safe. You could be sure how you start your life, receive your degree and get your job. Soon you were going to have a good flat with a car, and your retirement will be honest reward for the previous years. We had right for the job, right for the rest, free medicine and education. Nowadays, we have nothing of it.

Educational and literacy rates were higher than in the most of Western countries as well. Fundamental sciences were somewhere worth, somewhere better than on the West, however our scientists are still very popular there.

Soviet Army dealt usually more successful than its opponents. USA in Vietnam lost over 70 000 of soldiers, SU for ten years in Afghanistan has lost less than 13 000 in exchange of one million of Afghani.

Russian fighters still are better than USA equivalents and SU did better in the Space Flight industry.

Of course, communist economy has not reached its optimum level; in other words it was not economies of scale. Economy developed extensively (opposite of intensively), which means growing by using additional labor force, instead of using more capital. In the plant it might be used 20 workers instead of good machinery served by 8 engineers. In the field it may be used pupil at summer instead of agricultural vehicle.

However, I underline it, even if the Soviet Economy was not the best of possible, it was good and strong enough in comparison with West ones which are not the best models as well.

Soviet Union Destruction: Background and Hidden Reasons

At the end of XX century I can make some conclusions concerning Russian and Ukrainian nations and particularly their economical results. They are really sad. The destruction of Warszawa's Military Agreement, SEV (a kind of free trade area between socialist countries) and USSR itself decreased areas controlled by Slavic civilization and put all countries into long-lasting economical crisis. The crime level peaked, while economy results are very similar as if country is suffered by the war.

The most wondering thing is a speed of destruction. In the middle eighties Soviet Union and USA divided the whole world for the spheres of influence. There was two-pole world. In the present Russia and Ukraine lost the most of their economical partners, it is very difficult to establish new links even between themselves, and they cannot prevent USA forces from bombing innocent Serb or Iraqis citizens.

From the other hand both countries, especially Russian Federation ran into very dangerous dependence from the foreign sources of food and it was clearly seen during the August crisis when trade almost ceased.

As it was difficult to tell truth during the communist government it is difficult to tell the truth nowadays. It is fashionable to be Politically Correct. So, Politically Correct historians and economists analyzing the reasons of Soviet Empire destruction call among them “social-economical consequences of communist regime and finished resource of ideology”. More clever and “brave” of them add mistakes in national policy and economical problems because of SU donations to the socialists countries (these donations really reached huge amount of tens of billions USD).

Above mentioned reasons were approved on many conferences, they were told thousands of times by “free” mass-media and eventually authorities put them into Politically Correct textbooks for the students. Some smart students who won George Soros grants for education in the USA are told the same and soon they will use these theories while ruling Ukrainian or Russian economies.

However, the truth of a history is covered with a shame by the democrat politicians (all of them are former communists) and economists (who ten years ago developed a theories of communism). The truth is that destruction of Soviet Union was resulted by the Cold War of the West with USA as a leader against its global strategic competitor – Slavic Civilization. I may even suggest that this war was not imposed by Americans themselves, but it was imposed by a small minority, small nation that rules USA, that rules Russia, that rules Ukraine as well. However, it is too political subject for this survey and I will return back to economical reasons of Soviet Union falling.

I do not afraid these words even if no one in the class will share my view. For the fifty years in Europe, Asia, Africa and America in the ground and water and even in the space it was going on a cruel and dramatic fight that greatly exceed by tension and using of resources all World Wars of the first half of XX century. This War called Cold War was in fact WWIII.

According to West analysts, as I understand, the cost of hidden war, using spies, corrupted politicians, and propaganda costs much less than direct-armed conflict. Furthermore, it is impossible to win in a nuclear war, so they have chosen the best and the least expensive way to win. And unfortunately for the USSR they have won.

Defeat in a Cold War results rapid destruction of the USSR and its tragic consequences such as destruction of economical links and economy itself. Furthermore, financial policy based on the incredible tax rate and huge external borrowing, kills any kind of financial initiative and brings a country to the colony state.

The real reason of the Cold War is not political as it was told by propaganda. It was not fighting of “free world” against “socialist camp”. I guess that it must have economical reasons! It was and it is fight for the space where to live. I mean under it not only obsolete definition of living space as a land. I mean everything that modern high tech civilization need for growth and developing, including energy resources, industrial and agricultural potency, mineral resources and territories with suitable climate.

USSR Destruction: Global Perspective

It is a grim reality of XX century that living space constantly decreases. And fight for owning of living space is the background of policies through the whole globe. And this is not only local and global wars. This is also organization of military blocks and informational and economical expansion as well. It is a war for the future, the war with economical background regardless how it is portrayed in media.

There are different suggestions about the time that is left until we ran out of resources. Mostly it is defined between 20-30 years. Then for maintenance of existing level of life we have to decrease population. It is now very fashionable to talk about “golden billion” that Earth will be in a position to support. However, the reality is much crueler. Nature will be far away of the point that supports one billion of human beings (at the existing level of consumption). Because scarce resources will be completely finished we have to use renewable ones, such as people for instance. It means twenty-thirty millions of elite and 300-500 millions of slaves serving the needs of the first.

Therefore even civilized European or USA population will be mostly suffered by the New World Order which is going to affect all areas of our lives, all processes, from the personal, to macroeconomic. The troubles that Ukrainian and Russian population have now may be defined as a part of a global process and nobody will be safe soon.

Next level of this plan may be establishing a total control on the planetary energy system and scarce resources and it will be very useful for that reason to have weak, preferably detached Russia that is still rich by oil and minerals (that is 60% of world’s stock). These trends are clearly seen now by the growing of local conflicts in it.

This futuristic scenario looks like description of a Hollywood movie but things unfortunately shows that it may happen unless we find another sources of energy and minerals in the Space, or completely change our technology.

Let me introduce here several true facts from the history. According “Act of Berlin’s Conference”, in the year of 1884 (more than 100 years ago!) Russian Empire was forced to let using its mineral and oil resources by foreign countries. Emperor Nikolai II limited export of it by foreigners by 12.8% that leads to returning of industry to Russian businessmen. Several years later it became one of the real reasons of starting World War I in 1914. Nowadays this problem is decided not by war but by “the economy’s reforms”.

Practically, this reforms, invites foreign companies and investors mostly in oil or mineral industries and makes domestic manufacturing unprofitable. In the present, the richest companies are trading ones and, of course, oil syndicates. The most of plants, factories and small enterprises are suffered by losses or show very low income.

The conclusion is obvious. Strong industry prevents colonization of the country and capture of its resources. Therefore there are not so much investments in manufacturing. Robbing tax system and unrealistic government budgets kill heavy industry. As a result up to 80% of Russian factories more or less depend on the foreigner suppliers.

In addition I can say that approximate value only of known Russian resources equal one trillion USD (that is 1.5 of USA budget). No country has sufficient funds in order to buy it. So, through the corrupted politicians, they lobby in Russian parliament the laws that allow them to invest (read buy) to resources industry on a bargain price.

Parliament deputy Uri Boldyrev says that “privatization of resources industry proceeded with brutal violation of the law”. However, in the total Russian disorder it became a tradition that nobody was punished. From the other hand non-corrupted government could break the most of unfair contracts, but the problem is that Russian, Ukrainian and most of other governments in the former Soviet Union deal in a way that is beneficial for foreign corporations and their leaders.

Now let me start with the real steps performed in order to ruin economy.

Privatization period

During the time of privatization, it was created a situation when no single man could make a profit from his privatization certificate.

The first and most interested thing that I will show on Russian example was as follows. The defined price of personal share in Russian property equaled to 10 000 Soviet Rubles or approximately 16-18 000 USD according fixed Soviet rate or, if you want, it was more than cost of LADA car. When these certificates were printed, the government said that because of inflation the nominal value remains the same. At these times 10 000 RUR was near the price of 20 bottles of Russian Vodka. Then the following trick was made. Agencies bought vouchers at 10 000 RUR, and invest them into industry according to old prices. It was a lot of limitations for the individuals who tried to do the same. For them who managed to do it the least valuable shares of unprofitable plants were given.

Then these investment companies, who collected vouchers, disappeared or claimed themselves unprofitable. Nobody knows how the capital disappeared, furthermore, authorities did not punish anybody. Than all capital appeared as an asset of 1-2% of population called “New Russians” that are rich and powerful nowadays.

American Dissident Voices opinion:

A few days ago MSNBC posted on the Internet a list of what it called "Russia's Robber Barons: the Twelve Men Who Own Russia's Economy," along with brief biographical sketches of each of these newly made billionaires. It is interesting to note that none of these billionaires had as much as $10,000 to his name ten years ago. They all became enormously wealthy during the so-called "privatization" of the Russian economy after the collapse of communism at the beginning of this decade.

Of these 12 robber barons listed by MSNBC eight are Jews. Eight out of twelve. That is indeed remarkable in a country with only about one-half of one per cent Jews in its population. They own the country, and they whine to us about Russian "anti-Semitism."

All of these new billionaires backed Boris Yeltsin with money and media support.

There are no doubts that situation above was not a fair result of “free market” and “liberal economy”.

Russian and Ukrainian credit policies

From the time of Soviet Union destruction at December 1991 leaders invented different explanations of "current economy problems". They tried to explain them: in the beginning by consequences of Soviet economy, then by "temporary difficulties of reform period", nowadays by world financial crisis or intrigues of financial destroyer George Soros.

So, these explanations are quite satisfactory for the crowd that collect information through government mass media only and do not seek any attention to the inner processes. I am one hundred percent convinced that present situation was provoked by consciously executed policy of economy destruction during the last decade.

Let me introduce first example concerning external borrowings. According to the economy surveys the dead line of external borrowings for the USSR (population 280 mil people) was around 70 billion USD. Above these limit economy would be suffered heavily by interest and impossibility of repayment. Latin American countries came in the same situation decade or two ago. Anyway, Soviet Union was far along of this point and debt/credit ratio was positive i.e. SU had more debtors than creditors.

However, Russia with population less than 150 mil now owes approximately 141 billion of USD. Around 1000 dollars for every man, including retired and children! Ukraine with 52 millions of population owes 14 billions USD.

I am talking now only about external borrowings. Both countries owe a lot for the domestic financial institutions as well. Using this money it would be possible to do a lot of effective and useful economy improvements, but this money was given not for development of the economy or social sphere. They were given from the Gorbachev's times (Perestroika, if you remember) for executing defined politic course and huge interest payments were not forgotten.

Interest payments to external borrowers have the priority against others budget expenses. They have not stopped even in the most difficult times. These are the money that hungry Russian and Ukrainian teachers, engineers, scientists and military officers begging for. This money is the money that are taken from the half-dead plants and given as a present to the London and Paris Club. Nowadays the interest payments reached 20-25% of Russian budget!

I consider this interest payment as a present because our countries after signing agreement on Soviet Union destruction still had strong economies and it was impossible to destroy them so fast. They did not need that funds that government started to borrow. However, internal resources were spent to the unnecessary projects and huge amount of funds evaporated nowhere at the time of so-called "privatization". I will return to this point later now I would like to introduce you one of the principles that was written in "Protocols of Zion elders" (1896).

We should give money to governments for unnecessary projects. They will return them to us with interest. They will not get the benefits from using them but we will. Period.

And this idea is the basis of present World Bank or International Currency Fund policy, because the followers of them who wrote above-mentioned statement may be ruling them. The money are given but spent not for creation of new workplaces or improving existing ones. They are spent for the salaries that government may not pay for the many months, they are spent for the new equipment for the authorities, they are spent for supporting unprofitable factories or they simply disappeared.

I have described you an external borrowing policy. Now I want to share with you an internal one. At first I can say that government do not fulfill its obligations against internal lenders as for foreigners. The rules of the game change every year. From the other side Government short-term bonds were the last Russian invention that supported an economy up to August 1998. In Ukraine such bonds still are in use, but soon the situation will repeat the Russian one because of similarity of the processes.

Russian short-term bonds were created in a similar way as American Treasury bills were. But how the country with very problematic economy can pay 70% annual interest in USD? I remember that when United States got into the same situation at the times of Great Depression, President Roosevelt pressed the banks to lend for the cheaper rate and closed them who disagreed.

Russian Government paid 70% in USD, 80-90% in RUR and this kind of game was very beneficial for financial institutes. No doubt they prefer to invest money in the fund market instead of investing in the industry or agriculture. It was useful and profitable for them but not for the economy. At the spring of 1998 I read that pyramid of Government Short-term Bonds finished its growth. It means that you cannot cover the interest payments by involving new players any more. But the size of this pyramid was quite big and budget lost a serious part of its earnings. I consider the end of GSTB speculations as one of the important reasons of August 17th crisis.

Fortunately for Russia, its own crisis more or less creates a menace for the international economy system as well because there are too many existing links between them. News coming from Russia changes prices in the international fund and currency markets and vice versa. Therefore Europe and America now are interested in preventing Russia from going into chaos and they try to save Russia from total economy destruction. Because of this it was allowed (first time!) for Russia to delay interest payments for three months.

However, 1998 was the end of five-year easy credit policy for Russia. As this period is over the percent rate and payment terms became tighter. Primakov's government says that the 1999 budget will be the most unpopular and heavy budget for the whole modern Russian history. How could it be in other way if they have no longer where to borrow? Now authorities can neither borrow inside nor outside because all external credits will be given back as an interest only. Russia is completely imprisoned by this 141 billion USD credit.

Monetary and Fiscal Policy

It is well known that high inflation is a terrible thing for the economy, however not all steps against high inflation are good. According to the comparative advantage theory it is sometimes beneficial to have high inflation instead of something that is more dangerous. However, our corrupted governments have chosen the worth between two evils.

1991-1996 years in Ukraine was spent under President Leonid Kravchuk rule. Yes, he printed a lot of money. Yes, banks issued a lot of unsupported credits and created credit emission. There were many bad things, there were several good ones, but new president – Leonid Kuchma consider one of his greatest wins that he defeated inflation. Really, at the Kravchuk’s times inflation was hundreds percents per year, it was very difficult to invest and there were many other things that economist can associate with high inflation. However, what happened next, was that new currency, Ukrainian Gryvna has been established. Inflation decreased and at the summer of 1998 the 0.9% of deflation was noticed.

Newspapers were so happy with this fact, but according to economic theories, deflation is a sign of economy stagnation. Really what happened during the last three years? The salaries and pensions started to be paid later and later, students’ scholarships sometimes became “forgiven” i.e. forgotten and so on. The rain of investments did not come to Ukraine. The plants, which got used to surviving under condition of inflation became unprofitable. The economy was suffered by the lack of working funds or working capital.

It was created an image of changes to good but how? By borrowing. Governments (changed every year in the Ukraine) paid 80-90% to internal lenders. And external credit that used to be $ 500 millions in 1996 became $14 billions in 1998! For 52 millions of population it is a limit and it is extremely dangerous to borrow any more.

So the worst way to defeat inflation was chosen. Kuchma did not increased manufacturing (in fact he decreased it). He established an impossible tax rate that kills all business effort. He did not improve an economy. The only thing he managed to do was to borrow and support direction of “economic reforms” i.e. direction of economy killing.

Impacts of Free Trade

My report will be incomplete unless I mention impacts of free trade on Russian and Ukrainian Economies. Soviet Union was almost self-supporting system that was in a position to satisfy most of its needs. However, elimination of Soviet Union caused elimination of economic links as well. The prices became close to the world standards and this was additional reason that broke economical balance. Our countries started to orient on the new markets in the Europe or America. Baltic countries succeed in doing it but the rest failed.

Why? At-first the qualities of the most of consumer goods were less than West analogs. At-second the most governments try to make retail trade balance as much positive as they can. In case of Russia it means that they will sell a lot of consumer goods in Russian market, create additional work places for them and accumulated funds they will spend on cheap Siberian mineral resources. It is obvious that domestic Russian companies are greatly suffered by foreign products. Furthermore, I cannot define it even as an honest competition. In many case it is more profitable to buy outside Russia than produce inside because of huge taxes. In addition many of USA credits must be spent on buying of American products such as chicken legs. What are the consequences? At-first USA invests in its own agriculture and receives interest not on account of domestic companies. At-second Russian farmers lose because of foreign goods. Finally, the same farmers and other Russian taxpayers support USA ones by paying interest.

The most terrible thing is that now Russia dangerously depends on external sources of food and August crisis showed it. Some regions had a big shortage of food when foreign companies ceased their trade operations. Theoretically in case of war Ukraine or Russia will be defeated very easily by pure economical steps; tanks, fighters or rockets will not feed hungry population.

Of course Russia is not the only country suffered by such problems. American Dissident Voices says:

A far more ominous consequence of the transfer of industry out of the United States is the loss of national self-sufficiency.

I agree with them because I noticed the fact that that the well-paid American workers who formerly made several consumption goods in USA factories are scrambling now to find service-industry employment at substantially lower wages. But Russia and Ukraine are suffered much more.

Yes, on my opinion globalization is not as good as it is defined nowadays, and I hope the next decade people will understand it. Japan will be a good example as well. Actually, for several years now the Japanese content of Japanese cars has been declining. Japan's enormous success in competing with American industry was accompanied by rising wages in Japan. Eventually Japanese manufacturers, despite much stronger nationalist sentiments than are found in any of their American competitors, were obliged to begin subcontracting substantial portions of their own cars and other products out to other Asian countries with much lower labor costs. Japan is just beginning now to succumb to the virus of globalization, which once helped it to rise.

Free trade based on comparative advantage is more or less theoretical thing. In practice even in Western World with its developed economic links trade often is based not only advantage but also on consumer preferences or even direct lobbing. Examples? Germany doing well in producing beer. It has comparative advantage in this particular industry and you can see German beer worldwide. From the other hand you can see Mexican and USA beer in Germany too. Why do consumers buy it even on higher prices? The answer is because it is unique for Germany. As an example of lobbying I can show the case when Ukraine wanted to sell powerful steam turbines to Pakistan. American Defense Advisor Madeline Albright immediately came to Ukraine, said that Pakistani are bad guys and we will not give you any more credits if you exercise this contract. The contract was cancelled; our plant paid millions of fines and several months later one American company signs the similar contract with Pakistan.

The only situation in which any sort of close economic linkage with another country -- such as "free trade" on any significant scale -- makes sense is when there is a real community of interests.

Free trade failed in the Russia and Ukraine. The first and most important reason is that in practice free trade became really unfair game. Additional reason is that it is very difficult to compete if you dealt under completely different conditions during three generations of Soviet period.

Regardless all modern economic theories many governments, especially USA’s one develop their export aggressively. If you still do not persuaded just remember Bush’s trip to Japan or China-USA arguing.

Dollar as a good

Now let me explain one interesting phenomenon. Russia and Ukraine with negative trade balance feel bad and USA who has negative trade balance as well feels very good. Of course strong economy could be a good explanation. From the other hand you should not forget that in the second half of XX century USA use its currency as the most precious good. Billions and billions of USD are outside the country of origin. USA paid relatively small amount for printing green pieces of paper and received a number of different goods instead. I am not going to explain the reasons of this situation here. But I want you to note one important point. Every dollar outside USA that we have is like a loan to this country, and, of course, USA pays no interest, it even earns because on account of the inflation. I guess if all these bucks immediately will be returned to the country of production, the USA economy would be crashed or, at least, seriously damaged.

Until we trust in dollars, USA will gain the benefits.

August 1998 crisis

I remember that Russian government supervised by Mr. Chernomyrdin claimed in the summer of 1997 that economy’s curve reached its lowest position, and very slow but strong trend of growth is noticed. Actually it was some sense in this claims. Really for the next year the economy was doing rather good and people brain-washed by the TV and media (ruled by non-Russians) trusted it.

Than came 17th of August 1998 when the economy crashed. And it was the worst downfall of Russian Ruble and Ukrainian Gryvna for the whole history of these currencies. Ruble felt tree times from 6.2 for USD to 20 for USD. Gryvna felt approximately twice from 2.1 to 4.2 for one USD one month later.

These things happened not because of former Santa Claus George Soros or any other evil personage plans. The man with a little remainder of intelligence in his brain could see this trends a lot of time before.

Summary

The above shoved policy brought countries into stagflation situation, high unemployment and hundreds percents of inflation are no longer a wonder in former Soviet Union countries, but a grim reality. In order to pay salaries government prints more money, prices goes up, deficit of working capital is created and this cycle repeats. Sometimes period of inflation are changed by economy stagnation but the life level decreases constantly.

Free market failed in the post-Soviet countries and destroyed economies with millions of lives as well.

Why does it happen if free market is considered as good for USA, for UK or any other developed capitalistic country? There are several reasons. It is impossible to build similar economies and develop similar programs worldwide, regardless of national environment, mentality and preferences. In former Soviet Union it were build “No Trust” economies, when people mistrust their authorities, when they send abroad every dollar they earn. Really, offshore areas such as Cyprus or Luxembourg do not serve for economy improvements, as they should. They became real “offshore holes” where the funds are missed and saved from taxes.

Governments perform one step after another and every one next changes situation to worth. There are a lot of chats but no realistic economical platform that can bring countries out of crisis.

Democrats continue with their strategy that showed its inefficiency during the last decade. Communists do not go beyond old tricks such as common owning of land, resources and heavy industry.

Neither communists nor democrats can save Russia and Ukraine.

Conclusion

On my opinion the economy will be in a such terrible conditions until it would be created high and middle class owners of real Russian and Ukrainian origin, who will really care about their own countries. It should be prevented the situation when plants of strategic importance are bought by foreign competitors. Country must own its key resources and most important industries and sometimes regulate economic trends, but do not so much in order not to kill business initiative.

The economic policy should be moderate and neither total control as before nor total chaos as now should be implemented.

From shown point of view I am going to do my future business, to create my recommendations and avoid “underwater stones”.

Post-Scriptum

My assumptions may be quite different from these ones in the textbooks. I am not a policy maker, I am an MBA student; however, on this level I should not blindly follow only one source of information such a textbook is, but I must evaluate different point of views and construct my opinion based on complicate and wide background.

Anyway my mind remains free and open to any criticism and contra-arguments that may appear.

Bibliography

  • M.P.Burlakov. “Legends and realities of XX century”, “Russian Order”, vol.7-9, 1996. 
  • Alexander Tscherbakov. “In order to cut Russia to the size of source colony, you need to stop industry…,”, “Primorskie Novosti”, vol. 39, 1997. 
  • Konstantin Yablokov. “Hit one who is falling”, “I am Russian”, vol.14, Aug.1998. 
  • Uri Boldyrev. Interview, “Pravda”, vol. 17, 6th Feb 1997.
  • "Protocols of Zion Elders", Kyiv, Ukraijna, 1998.
  • American Dissident Voices. http://www.natvan.com, http://www.natall.com

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