Vol. 9 No. 16

Russia’s 1990s criminalisation was ‘Made in ’

By Rachel Douglas This article was originally published under the title “Lon- don’s ‘Our Men’ in Keep Poisoning Russian Pol- icy” (EIR magazine, 26 March 2010). It has been short- ened and slightly updated. Anatoli Chubais, CEO of ’s state-owned corpora- tion Rosnano, spelled out the essence of the events of 1991 when the was breaking up, in an interview pub- lished 3 March 2010 in the Russian edition of Forbes maga- zine. He was asked about the urgent consultations that took Lord Harris of High Cross (l.), a leader of the Thatcherite deregulation/ place in a Moscow suburb in late September 1991, to which privatisation revolution from his post as head of the Institute of Economic Chubais was summoned by the late . It quickly Affairs (est. 1955 with backing from Harley Drayton, personal financier for the British Crown), groomed Yegor Gaidar (c.), the first PM of post-Soviet became clear that Gaidar was to be the prime minister of the Russia. The Russian institute of Gaidar and his protégé Vladimir Mau (r.) new government of independent Russia—the Soviet Union nearly folded in November 1991, because so many of its staff entered being in the process of disintegration, after an abortive coup the government. Harris called them “our men”, and they treated Russia attempt the previous month—and the discussion was about as “a perfect new laboratory” for testing their Thatcherite doctrines. Mau the economic policy to be implemented. still heads the Russian government’s Academy of the National Economy. “Was an evaluation made”, Forbes asked Chubais, “of [of 21-22 August] has rendered the empire ripe for a dose of what the impact of the reforms would be? I mean, forecasts Thatcherism…. The Thatcherites believe that the events of of the extent to which production and real incomes would the last few days have created the perfect new laboratory to collapse, and how high prices would rise.” test their ideas.” Interviewed about the monthly luncheons Chubais replied: “We didn’t have to make any special es- he would be hosting for “free-marketeers and Soviet econo- timates, because this was one of the fundamental scientific mists”, Lord Harris told the Times, “We criticised [then Sovi- topics we had been working on for the previous ten years. So, et President Mikhail] Gorbachov in the past for not reform- we knew very well what the impact was going to be: the real ing fast enough. Now the pace will be accelerated and our cost of the reforms. We had even written about it, including in think-tanks can play a key role.” a famous article co-authored by myself and [Sergei] Vasilyev. Harris’s project, and the parallel patronage of megaspec- ... It provided a sober and tough description of the inevitable ulator George Soros, shaped the group of “young reformers” adverse effects of the transformations that had to be made.” who ran economic policy under Russian President Boris Yelt- Setting aside Chubais’s sophistry regarding the inevitability sin in 1991-98. Harris called them “our men”. As the Soviet of the “shock therapy” deregulation and privatisation policy, bloc splintered, the Mont Pelerin Society-groomed economists and its hideous consequences, what’s true in that statement seized the opening. Their first policy submission was the no- is that the Gaidar government had its plans set in advance, torious 500 Days Plan for a leap to the “free market”, drafted thanks to a nearly ten-year process of preparation. Foremost in 1990 by young economists, including Boris Fyodorov and among the foreign sponsors of that process was the late Lord Leonid Grigoryev from the Gaidar-Chubais group. A year later, Harris of High Cross, head of the Institute of Economic Af- in September-November 1991, the Russian institute of Gaid- fairs (IEA) in London. The IEA is an arm of the infamous Mont ar and his protégé Vladimir Mau nearly folded, because most Pelerin Society, the British economic warfare unit founded of its staff entered the government. As acting prime minister in 1947 by London School of Economics Prof. Friedrich von in the first Yeltsin cabinet, Gaidar promptly implemented the Hayek. Mont Pelerin’s mission: to use the free-trade “liberal- “shock” decontrol of prices, beginning the catastrophic loot- ism” of 18th- and 19th-century Britain as a bludgeon against ing of Russian industry and living standards. nation-states, which had been strengthened during the mo- The horror story of 1990s Russia has been told many times, bilisation for World War II. Three decades after Mont Peler- including in Sergei Glazyev’s Genocide: Russia and the New in’s launch, the IEA became the think-tank that cranked out World Order (English edition, 1999) and The Anatomy of Rus- the core policies of “Thatcherism”, named for British Prime sian Capitalism, by Prof. Stanislav Menshikov (2007). The loot- Minister Margaret Thatcher. That radical privatisation/dereg- ing of the country reached a high point in 1996-98, when a ulation/free-trade agenda savaged the UK itself, and much of Ponzi scheme of Russian short-term government bonds, called the rest of the world, beginning at the end of the 1970s. GKOs, became a magnet for hot-money flows from all over In 1983-91, the IEA and its Centre for Research into Com- the world, in the wake of the savaging of Asian currencies by munist Economies (CRCE) conducted a series of seminars, at Soros’s and other hedge funds. During frenzied mid-1998 at- various venues around the world, for young economists from tempts to keep the GKO bubble from blowing out, Chubais Eastern Europe and Russia. On 23 August 1991 the “Diary” handled the Russian government’s dealings with the Interna- column in the London Times showcased their special relation- tional Monetary Fund and World Bank, securing pledges of ship with these Russians: “The free market gurus and think- US$22 billion in help. From the outside, then-US Assistant tanks that helped redraw the economic map of Britain during Secretary of the Treasury Larry Summers was a key player. the 1980s”, wrote the Times, “are planning an ideological in- They failed, Russia defaulted, the stock market crashed by vasion of the Soviet Union, in the belief that the failed coup 75 per cent on the year and the ruble by two-thirds, and some

Australian Alert Service ALMANAC Vol. 9 No. 16 PAGE I Russia’s 1990s criminalisation was ‘Made in London’

When London’s ‘Our Men’ took over The late Ralph Harris (Lord Harris of High Cross, 1924-2006), director of the Institute of Economic Af- fairs (IEA) in London, made these comments in a 1996 interview with an American journalist. Q: You had some input into the reforms in Russia. Harris: We got to know [Yegor] Gaidar and some of his friends. We’ve had them over here, we introduced them to [Prime Minister Margaret] Thatcher, and this kind of thing. Anatoli Chubais (r.) briefs (or pretends to brief) President Vladimir Putin on [In early 1996] it is a mixed situation. There are some a hydropower plant, July 2003. Does Chubais know anything about power very, very good bits, but it is all in the balance, with the plants? His expertise is in destroying economies on orders from London. [1996 Presidential] election coming along, and wheth- Photo: Russian Presidential Press and Information Office er Yeltsin will stay; and some of our men, like Gaidar, of the Russian nouveaux riches lost their fortunes. Bad deriv- have been sacked. The chaps that we really wanted in atives bets related to the Russian bonds brought down the charge, in the early days, have had to be dropped be- Connecticut-based Long-Term Capital Management (LTCM) cause of sort of communist-leftist pressure. hedge fund, nearly leading to a worldwide meltdown right Q: You did have Gaidar over to London to talk? then. One would suppose that Chubais’s services were no Harris: Yes…. longer required, as veteran intelligence figure and econo- I have met chaps who are as lively-minded, and mist Yevgeni Primakov took Russia’s reins of government in open-minded and as liberal-minded, as the people who September 1998. make up the IEA in London and elsewhere. I have met But, Chubais managed to hang on to another job he had chaps there who know about [Friedrich von] Hayek. acquired in April 1998, as the GKO crisis ripened. Fired in I didn’t have to tell them. They have read Hayek and March 1998 as first deputy prime minister, he became CEO [Milton] Friedman and others, and are very, very bright. of the national electric power utility, United Energy Systems. During the next decade, while arranging the break-up of UES At the time of this interview in 1996, Vladimir Mau and privatisation of its components, Chubais re-styled himself was deputy director of Yegor Gaidar’s Institute for the as a “liberal imperialist”, borrowing that catch-phrase from Economy in Transition. Britain’s Tony Blair. Q: Who were the economic thinkers you looked to? And the legacy of the London-steered experiment in Rus- Mau: For Gaidar the most important things were sia runs deeper than its visible extravagance of the 1990s. In Adam Smith and [John Maynard] Keynes. … In terms of a 2001 interview, published for the first time by journalist Al- the philosophy of economy, it is, of course, Adam Smith. exander Gentelev only in January of this year [2010], Chubais … There are those who believe that if something hap- explained: Until the 1996 re-election of Yeltsin, “privatisation pens, it happens not because of, but in spite of attempts in Russia was really not an economic process. It was address- to regulate something. I call it the Smithian philosoph- ing objectives of a completely different scope. Few people un- ical tradition. It is very important. derstood that at the time, especially in the West.” The goal, Q: Did the Centre for Research into Communist Chubais elaborated, was political. He presented that goal as Economies [CRCE, founded by the IEA in 1983] have “destroying communism” through creating an irreversible at- input into the Russian reformers like yourself? tachment to private property ownership in Russia: “We knew Mau: Definitely. And they formed a very good or- that every factory sold, was a nail in the coffin of a commu- ganisational structure. Frankly, [Lord Harris’s associate, nist. Whether it was expensive, or cheap, or free, or with a CRCE head] Ljubo Sirc was among the first persons from surcharge—that was question number 20. Number 20! While the West who met with Gaidar, Chubais, etc. In 1986. question number 1 was just this: each private property owner They were among the first who started to work with who appeared in Russia meant irreversibility. Irreversibility!” younger people, people who were at that time in their While the majority of the workers and scientists by whose late twenties, early thirties. And they launched this col- labour and innovation Soviet assets had been created sank laboration. In 1986, Gaidar was 30.... into poverty, Russia’s newly minted “private property owners” They met in Budapest, and in Western Europe, most- quickly melded their enormous holdings into existing, world- ly in Britain, and in advanced Eastern and Central Eu- wide, London- and offshore-based finance. ropean countries, and in St. Petersburg. There were Some of the members of the Gaidar-Chubais team had ear- seminars with an exchange of ideas. The greater part lier departed to the private sector, joining the ranks of would- of our government of 1992, met at these seminars. … be “irreversible” private-property owners, some of them on And since our institute contributed the most to the gov- an obscenely huge scale. Others, however, filtered into the ernment, when it was formed in November 1991—a institutions of Russian policy-making and continued to hold good part of the government was from the institute— key positions throughout the first decade of the new century, the institute was almost exhausted when the govern- even as President Vladimir Putin sought to regroup the Rus- ment was formed. sian economy and shift it away from its addiction to raw ma- terials exports. Not only did key personnel remain on the PAGE II Australian Alert Service ALMANAC Vol. 9 No. 16 Russia’s 1990s criminalisation was ‘Made in London’

Sergei Glazyev on 1990s ‘Genocide’ Academician Sergei Glazyev, minister of foreign economic re- lations in the first post-Soviet Russian government, became its only member to resign in protest of the abolition of the Parliament and the Constitution in 1993. In his 1998 book Genocide: Russia and the New World Order, Glazyev documented the destruction of Rus- sia’s economy under the deregulation/privatisation policies of that decade, and especially their devastating impact on the well-educat- ed and skilled Russian population. “The rate of annual population loss has been more than double the rate of loss during the period of Stalinist repression and mass fam- ine in the first half of the 1930s”, wrote Glazyev. “The policy of the ruling oligarchy’s appropriation of the national wealth, carried out in the guise of progressive reforms, has brought about the degradation of a large part of the country’s human potential, devaluing the educa- tion and training of millions of professionals and workers, as well as personal catastrophe for millions of people, who have been placed in intolerable conditions of life. The number of social outcasts, peo- ple effectively deprived of any social guarantees whatsoever and of their civil rights, is estimated by experts at no less than 10 per cent of the country’s urban population, or 14 million persons. Symptoms of a society in decay are the sharp increase in suicides by people in While the Russian population sank deep into poverty after the collapse of the Soviet Union, Russia’s newly minted despair, as well as mortality from accidents, poisonings, and trauma. “private property owners” quickly melded their enormous “The rapid degradation of the population, especially youth, ob- holdings into worldwide, London- and offshore-based fi- served here cannot be attributed to some inherent flaws. There has nance. Shown are Moscow street vendors in the mid-1990s. been nothing like this in the thousand-year history of Russia.” scene, along with a new generation of people who rose un- Bundy (a senior figure of the Anglophile US financial estab- der their tutelage, but it is also evident that the axioms, insti- lishment) reached an understanding with KGB figure Dzher- tutions, and modes of operation, established for the Russian men Gvishiani in 1967. economy by the London-trained “young reformers”, did not “Vyacheslav K.” described Andropov’s strategy, amid eco- loosen their grip. For that reason, Russia urgently requires, as nomic hardship and food rationing in the Soviet Union after much as any nation does, bankruptcy reorganisation, under the late-1970s plunge of oil prices, as a plan for the Soviet Glass-Steagall principles, of the entire London-centred inter- Union “as a huge corporation, financially independent, eco- national system of speculative monetary flows, on whose be- nomically sustainable, and possessing a huge technological half Russia has been looted. potential, concentrated in the military industry. … Androp- ov’s idea was to convey modern technologies to Russia’s in- Andropov’s Kindergarten dustrial corporations, which would be allowed to attract for- Economist Abel Aganbegyan, mentioned by Vladimir Mau eign investments.” in a 1996 interview as one of the first sponsors of the Gaidar The Stringer article characterised the recruitment of the group, is otherwise famous as the architect of the perestroi- Kindergarten: “Andropov made a decision to develop econ- ka (“restructuring”) and uskoreniye (“acceleration”) policies, omists for ‘Corporation USSR’ from scratch, and outside the started by Mikhail Gorbachov when he became General Sec- country. ... As a base for the foreign training of economists, retary of the Communist Party of the Soviet Union in 1985. Andropov selected IIASA [in Vienna]. No wonder the young Behind the rise of Gorbachov was his predecessor, Yuri An- cadres, deployed to Vienna, immediately came under in- dropov, who initiated Soviet experimentation with free-trade fluence from well-trained foreign intelligence ‘specialists in economics. In 2002, for the first time in the Russian press, a management’. … As a result of strict selection, during which veteran of Soviet intelligence identified in print the grouping some of the students left the experiment on ethical grounds, and relationships behind the liberal economic reforms that getting bored with constant manipulation, the team of those wrecked Russia during the 1990s, who may be called “An- who completed their education on the base of IIASA [and its dropov’s Kindergarten”. Moscow branch], included persons such as Pyotr Aven, Ana- That exposé, written by an author identified as “Vyacheslav toli Chubais, and Yegor Gaidar…. The resulting team ruined K.”, appeared in the February 2002 issue of Stringer maga- the Russian economy…. That was a direct result of Androp- zine. It zeroed in on the nexus of Andropov’s grouping in the ov’s personal influence: Andropov was a pupil of Kuusinen.” KGB (the State Security Committee, which Andropov head- Both of the highlighted aspects of Andropov’s orienta- ed in 1967-82), rooted in the patronage of Andropov’s Com- tion—his political descent from the so-called “right-wing” So- munist Party career by Finnish Communist International lead- viet and Comintern circles of Nikolai Bukharin, Eugen Varga, er Otto Kuusinen, and the International Institute for Applied Otto Kuusinen, and others, and his interest in systems analy- Systems Analysis (IIASA) in Laxenburg, Austria. IIASA was an sis—point to one of the great secrets of the 20th century his- arrangement, deadly to Russian economic planning, which tory: the special relationship between the upper echelons of was built up after US National Security Adviser McGeorge British Intelligence and a layer within the Soviet leadership. Australian Alert Service ALMANAC Vol. 9 No. 16 PAGE III Russia’s 1990s criminalisation was ‘Made in London’

Kim Philby, the famous British Intelligence “defector” to Moscow in 1963, was a part of that configuration. In 1988, just weeks before his death, KGB General Philby gave a se- ries of interviews to Philip Knightley for the London Sunday Times. “Andropov was a fine man and a fine leader—a trag- edy he died so soon”, Philby opined, “and in Gorbachov, I have a leader who has justified my years of faith.” Russia and the ‘offshores’ The allegiances developed in the Gaidar-Chubais 1990s continue to poison Russia’s strategic economic policies. The deep institutional entanglement of Russian companies with London-centred speculative money-flows has not only served as a mechanism for continued looting of Russia, but also has created a powerful lobby within the country in favour of one Then-Finance Minister (left), with Britain’s European Union global financial sucker scheme after another. Trade Commissioner Lord Peter Mandelson in Brussels, March 2008. On 27 February 2010, Russia’s Deputy Prosecutor General Kudrin, an enthusiast of British economics, built a reputation for getting along with Western financiers. In May 2018 he was named head of Russia’s Alexander Zvyagintsev blasted the role of Britain in harbour- budget-watchdog agency, the Accounting Chamber. ing Russian fugitives from justice, especially those wanted for financial crimes. “No wonder so many of them call the Brit- fortunes of the 1980s Gorbachov perestroika era passing over ish capital ‘Londongrad’”, Zvyagintsev told the government into still more ill-gotten fortunes of the 1990s Gaidar-Chubais daily Rossiyskaya Gazeta, “These are not just small pickpock- privatisation. It was profitable for the new “oligarchs” to keep ets, but figures with substantial funds.” Zvyagintsev cited the their money offshore, avoiding various Russian taxes. UK’s loose asylum laws (which have also been a factor in an- Nevskoye Vremya quoted Alexei Kudrin, one of the key other of London’s nicknames: “Londonistan”, haven for ter- members of the Gaidar-Chubais clique still in a position of rorists) and the City of London’s status as the premier world influence today,1 covering for these practices: “Our [federal financial centre, which provides ways for criminals to con- state] budget loses from optimisation [tax evasion—NV edi- ceal their ill-gotten profits. tors] through offshores, but it’s not illegal.” At the same time, If shadow-economy profits were the only issue, a straight- Kudrin had cut funding to Russian Railways and other nation- forward law enforcement approach could make headway. al infrastructure projects, in pursuit of his avowed goal of out- What Zvyagintsev didn’t go into, however, is a much bigger doing the European Union’s Maastricht conditionalities by a elephant in the room: the huge portion of the Russian econ- factor of three: Kudrin wants Russia’s budget deficit to be no omy which has been integrated into the global hot- and fake- greater than 1 per cent of GDP.2 money flows of City of London-related financier interests. This, A majority of Russian companies that have staged IPOs, too, is part of the legacy of the 1990s that Chubais would like have done them on the London market. Meanwhile Lord Pe- to be “irreversible”. ter Mandelson, business secretary (2008-10) in the UK Labour At an early-2010 meeting on attracting foreign investment Government of Gordon Brown, boasted that a thousand Brit- to Russia, President Dmitri Medvedev lamented that as much ish companies were doing business in Russia. Major banks as half of “foreign” investment in the country actually comes like Barclays and Big Four accounting firms including Ernst & from Russian companies that have their legal registration off- Young and PriceWaterhouseCoopers, not to mention the in- shore. This is one of the reasons why the top four foreign in- vestment bank N.M. Rothschild (which was involved in the vestor-countries for Russia in 2009 were Cyprus, the Nether- Soviet Union during the last century), have hefty operations lands, Luxembourg, and the UK, in that order. in Moscow. So do leading European banks, especially ones The St. Petersburg newspaper Nevskoye Vremya report- with large London offices, like Spain’s Banco Santander: Its ed 3 March 2010 that, “by conservative estimates, 90 per Santander Consumer Bank makes loans in the Russian used- cent of Russia’s major [privatised] companies belong entire- car market, while Santander’s head office has cooperation ly or partially to offshores.” The article cited examples: the agreements with institutions ranging from the Foreign Min- Alfa Group of Mikhail Fridman and Pyotr Aven is registered istry university MGIMO to the entire Siberia Federal District. through companies in Gibraltar, Luxembourg, the British Vir- Accepting the ways and practices of the degenerate and gin Islands (BVI), and the Netherlands; Oleg Deripaska’s Ba- bankrupt Transatlantic financial institutions as normal, Russia sic Element, the holding company for Rusal (aluminium), the is set up to treat self-damaging policies as “competitive ad- GAZ auto complex, and a major insurance company, is reg- vantages” for attracting foreign investment. istered through a holding company in the British Crown de- pendency called the Bailiwick of Jersey, which holding com- 1. Kudrin was Russia’s finance minister from May 2000 until September pany, in turn, belongs to a firm registered in the BVI; Roman 2011. He has returned to government in 2018, appointed by Prime Abramovich’s Yevraz steel empire is registered as a Cyprus Minister Dmitri Medvedev to head the Accounting Chamber. Kudrin’s company; the NLMK steel complex, property of Russia’s rich- protégé and successor as finance minister, , was named est man, Vladimir Lisin, is run through the offshore Fletcher first deputy prime minister for the economy in May 2018. Holding Ltd.; and Victor Vekselberg’s Renova is registered in 2. Even after Kudrin’s dismissal as finance minister in 2011 (after his political clash with then-President Medvedev, and Kudrin’s vocal the Bahamas. advocacy of defence budget cuts), the Russian government in 2012 In The Anatomy of Russian Capitalism, Professor Menshi- adopted strict fiscal rules limiting government spending and the budget kov detailed how this pattern developed, with the ill-gotten deficit. For 2018 its target deficit is 1.3 per cent of GDP. PAGE IV Australian Alert Service ALMANAC Vol. 9 No. 16