The US and UK made Russia’s invasion of Ukraine possible. I saw it happen | Guy Standing

Guy Standing | Open Democracy

Joe Biden wants ‘regime change’ in Russia. Last time the US did this, the result was kleptocratic capitalism and soaring unemployment

Guy Standing

US president Joe Biden has called for ‘regime change’ in Russia, a statement that should recall previous US-led regime change crusades – in Chile, Iraq and Afghanistan, among many.

To put it mildly, these episodes have not been unmitigated successes. But the regime change initiative that deserves our scrutiny today was the United States’ most ambitious, and is the most relevant to Biden’s latest demand. This is because it concerned Russia and Ukraine themselves 30 years ago.

I witnessed what the USA, the UK and others did on the ground after the Cold War. In 1990, on behalf of the International Labour Organisation (ILO), I organised an international conference on labour policy in Moscow, which emerged as a report just as the Soviet Union was dissolving. I was then appointed director of a programme set up by the ILO to advise governments in the region on social and labour policies in what was euphemistically called the ‘transition’ from ‘communist’ to a ‘market’ economy.

Based in Budapest, for about four years I interacted with senior government ministers and officials from Russia, Ukraine and neighbouring countries. I also had numerous meetings with international economists, officials and bodies such as the World Bank, all of which were committed to their version of regime change. It was a bizarre experience. I even met the Queen, the Duke of Edinburgh and the Queen of the Netherlands, who played walk-on parts in giving a ‘respectable’ face to the expensive plans.

From the outset, I strongly opposed what was happening. I gave numerous speeches and published articles and several books to that effect. Today, I believe that the Russian invasion of Ukraine in 2022 is partly attributable to the neoliberal strategy led by the USA in that period. One way of putting it is that the US strategy failed to lay the ghost of Stalinism, and created fertile ground for its resurgence.

So what was the foreign-directed strategy? Although different proponents had variants, it enshrined a doctrine – known as ‘shock therapy’ – fostered by economists at Harvard, the London School of Economics and elsewhere.

The plan to turn Russia and Ukraine into capitalist economies was based on three premises, whose combination would turn out to be quite literally fatal.

First, it was reasoned that pro-market reforms had to be introduced very quickly, so that there would be no time for ‘socialist’ forces to regroup and block reform.

Second, a more technical premise was that priority had to be given to macro-economic policy, backed by aid conditionality to force the Russian (and Ukrainian) government to adhere to it, over and before micro-economic, or structural reform. The latter might, for instance, have involved restructuring state-owned enterprises, the establishment of market regulations, and institutions for holding people to ethical standards. But the orthodox economic view was that macro-stabilisation was a necessary prior for structural reform. This was the dominant reasoning of the International Monetary Fund.

The third premise was that the macro-economic reforms had to be introduced in a particular order: first came a removal of state price controls, then cuts to public spending, and finally privatisation of state property.

Price liberalisation came with the removal of price subsidies (except on energy). Bear in mind that production had collapsed, that strict price controls had existed for generations and that the production structure consisted of huge industrial enterprises with monopolistic characteristics, dominating whole sectors and regions.

The effect of price liberalisation was thus an extraordinary burst of hyper-inflation. While we were working in Ukraine, in one year inflation was estimated at over 10,000%, and in Russia it was estimated at over 2,300%. The impoverishment was lethal. Millions died prematurely; male life expectancy in Russia fell from 65 to 58 years, female from 74 to 68; the suicide rate jumped to over three times the high level of the USA.

In a collective state of denial, the western economic “advisers” were almost Stalinist in their zeal. Their second policy was to slash public spending, with the double objective of squeezing inflationary pressure by curbing monetary demand and weakening the state. This had the immediate consequence of intensifying the rising mortality and morbidity.

But it did something else that is still affecting the whole world today. Wages and salaries in the public sector fell so low that the state ceased to function. This created a vacuum in which the kleptocrats thrived. I recall government ministers asking for $50 bribes just so they could feed their family. They were easy prey to ruthless gangsters, who in turn were bedfellows with ex-KGB officers, such as a certain first deputy of the St Petersburg city administration, Vladimir Putin.

One cannot overemphasise the folly of the anti-state ideology at a time when what was desperately needed was the nucleus of a professional civil service, backed by a proper legal system. But all the western financial advisers wanted was full-blown capitalism, which they saw as leading to a ‘Russian Boom’, in which ‘democracy and free markets have taken root for good’.

The third plank of the shock therapy sequencing was mass privatisation. It began as a bit of a joke, with privatisation ‘shares’ being handed out like confetti. I still have a voucher somewhere, given to me by the mayor of St Petersburg. But privatisation soon became a wild-west plunder. The World Bank, USAID, the new European Bank for Reconstruction and Development (EBRD) in London and other foreign bodies allocated vast amounts to assist in speeding up the transfer to the new ‘entrepreneurs’. Over 15,000 state firms were sold off; kleptocrats became oligarchs overnight; their American and other foreign ‘advisers’ became multi-millionaires. This is when the criminality stretched across the Atlantic.

One still has to be circumspect in how one puts this. However, it was widely known that prominent economists among the western financial advisers were linked to the rising oligarchy and making millions of dollars from privatisation. Eventually, one case was brought to the Massachusetts High Court. Those involved paid hefty settlements, but were allowed to continue with their careers. Rest assured, they and others did very well.

Meanwhile, there was the awkward onset of the fourth phase of the sequencing, characterised as the ‘therapy’ after the ‘shock’.

This was touted as building a new social policy system, based on standard neoliberal lines – that is, a residual welfare state with as much privatisation as possible, beginning with pension systems and education. As some of us had argued from the outset, a universalistic social protection system should have been built before any ‘shock’ policies. Callously, implementing social policies was left to afterwards, and then only done patchily, with interminable delays.

In this period, two personal events occurred that epitomised the madness of what was happening. In 1992, I recall being invited as a ‘labour market expert’ to give a lecture to ministers of finance and ministers of education from Eastern European states, organised by the World Bank in a Dutch castle, symbolically with its own moat. There I listened while the ministers were told what policies they should be introducing if they wanted foreign loans or grants.

The other event was even more bizarre. In 1993, I was chairing a small conference in France on minimum wages and basic income policies for Eastern Europe when I received a phone call from a US ambassador inviting me to Washington to give a briefing in the State Department. After doing background checks, I accepted and found myself taken to the basement of the State Department. Sitting at a long table with a ‘minder’, I was surprised to find 12 men come in to sit on the other side. They identified themselves individually, and most said CIA. The chair of the briefing was an under-secretary of state.

I and my colleagues at the ILO were by this point conducting detailed surveys of hundreds of industrial enterprises in both Russia and Ukraine, as well as extensive household surveys covering many thousands of households in both countries. As a result, I had access to data that mapped the context and outcomes of the shock therapy doctrine.

I told the men that their policies were disastrous, that huge numbers of Russians and Ukrainians were dying as a result of ‘shock therapy’ and that, contrary to what they were reporting, real unemployment was about 25% – concealed by the fact that businesses were continuing to claim subsidies for workers who were no longer actually employed. I argued that the people with whom they were working at the political level were doomed and corrupted, and that they should focus on providing direct aid to ordinary people if a lurch to neo-fascism was to be avoided.

I argued that restructuring of enterprises and the substitution of rules of regulation and law should take precedence over macro-economic reforms and privatisation. I poured as much scorn as I could on claims being made by the World Bank and prominent economists that there was no unemployment. And I argued that it was crazy for the bank to withhold a large loan to aid the unemployed on the presumption that, as one bank report claimed, the unemployment rate was only 1%.

This was ridiculous. It was clear that the neoliberal strategy was simply creating a kleptocratic capitalism, a virulent form of rentier capitalism, whereby institutions and economic policies enable the owners of physical, financial and intellectual property to obtain more and more of the income and wealth. A new class structure emerged, with a plutocracy of oligarchs, a tiny salariat (including educated people trying to build a decent society), a lumpenised proletariat (ageing, atavistic) and a rapidly growing precariat. While the oligarchs in Ukraine were split, there were also a few Bulgarians, Romanians and others in their orbit. They all soon found they could mingle comfortably with the financial and other plutocrats in London, Wall Street and elsewhere.

Several months after the State Department meeting, I was invited back to Washington to brief the US Department of Labor. Afterwards, they gave a cocktail party, and at the back I saw two of the CIA officers who had been in the State Department briefing. I asked them what had happened after the first briefing. One said to me, conspiratorially: “Quite frankly, it went right to the top… and he doesn’t believe you.” ‘He’ referred to President Clinton.

When the 1993 Russian elections took place a few months later, the neo-Stalinist ultra-nationalist Vladimir Zhirinovsky, who advocated invasion of Ukraine, gained 23% of the vote, and the US-backed neoliberal party was reduced to a rump. I sent a one-line telegram to one of the CIA officers: “Does the State Department believe me now?” I was told later that this caused some wry amusement.

In sum, the US’s regime change strategy had generated a venal kleptocracy, and in line with that today we have globally a morally indefensible form of rentier capitalism where plutocrats are funding major political parties and politicians in their interest. It is the most unfree market economy ever conceived and it is not sufficient to see the UK as “Butler to the World”. The state is deeply corrupted, and we will not escape the quagmire until a new progressive, transformative politics emerges, one that could mobilise the precariat in all parts of the world.

The evil being perpetrated by Russia will not be defeated by military means alone. Of course, we should all admire and support the incredibly courageous Ukrainians. But it is a transformation of our own societies that must be achieved. In response to the rush towards an ecological dystopia and a grotesquely unequal and insecure existence for so many, progressives in politics must have a coherent, well-articulated strategy for dismantling rentier capitalism.

Today, neoliberalism is not the primary enemy. Today is the time for a new radicalism based on principled opposition to the global plutocracy and to the system of rentier capitalism that is based on rapacious plunder. We need a new Renaissance, to revive conviviality, commoning, republican freedom and equality. So far, in Britain and elsewhere, old-left parties are holding back that transformative vision by excessive pragmatism. However, just as nature abhors a vacuum, so does the human condition. We need a progressive revolt, one that crosses national boundaries and that is ecologically redistributive. One can see the green shoots, but must just hope there is time for them to grow.