In May 1989 Viktor Chernomyrdin, a fifty-one-year-old archetypal corpulent minister for the Soviet gas industry, with bushy eyebrows, an instinctive sense of humour and a mastery of unprintable Russian expressions, came to Ryzhkov with a proposal to transform his ministry of gas into a state corporation called Gazprom, swapping his ministerial position for the job of the company’s chairman. Ryzhkov struggled to grasp the logic. After one long conversation he asked Chernomyrdin:
‘So, as I understand it, you don’t want to be a minister any more?’
‘No, I don’t,’ Chernomyrdin replied.
‘And so you won’t be a member of the government? And you understand that you will lose everything – the dacha and the privileges?’ Ryzhkov quizzed him.
‘I do understand,’ Chernomyrdin said.
‘And you are doing this yourself?’ Ryzhkov asked in disbelief.
‘Myself. You see, Nikolai Ivanovich, it is not the time to be a minister. We will create a firm.’26
Ryzhkov assumed that Chernomyrdin had gone mad. No Soviet minister had ever voluntarily given up his perks, which included a chauffeur-driven car, a large apartment in Moscow and a dacha in the country, free holidays in a Crimean sanatorium and jars of black caviar from a special shop. A smart Soviet industry boss, Chernomyrdin had sensed that the centrally planned command economy administered through ministries like his own was crumbling. No longer backed by the threat of coercion or economic benefit, ministerial orders had no power and were getting ignored.
A few months later, Ryzhkov was gone, the Soviet Union had collapsed and within another two years, Chernomyrdin became prime minister in capitalist Russia, reaping the benefits of his creation. Gazprom became the largest and most powerful firm, worth billions of dollars, offering privileges no Communist Party could match. This story of Gazprom’s creation goes a long way to explain why the disintegration of the Soviet regime was relatively peaceful, but also why its transformation was so incomplete. The economic foundation of the Soviet system was destroyed not by an external enemy or the dissidents, but by the proprietor’s instinct of the Soviet red directors who gladly exchanged their petty privileges for something far bigger – a piece of socialist property. It was this nomenclatura that undermined the core principle of socialism.
The elimination of private property and of individual thinking was the Bolsheviks’ idée fixe. The artists of the 1920s dreamt up a utopia of collective living devoid of any individualistic habits. Stalin got rid of Lenin’s New Economic Policy that allowed small-time private enterprise, not because he doubted its economic results, but because he had correctly judged that any such enterprise was a threat to the totalitarian regime. Stalin bestowed upon his courtiers royal privileges, grand state apartments, cars and dachas, but the ownership of all these assets stayed with the Kremlin. The fact that nothing could be sold or bequeathed bred a sense of dependency and impermanence.
The ideologists of the regime watched vigilantly for any expression of the proprietor’s instinct. After Stalin’s death the threat of execution was lifted but the taboo on ownership remained. But by the late 1980s the deal by which the nomenclatura had to satisfy itself with perks and delicacies doled out from special shops had started to break down. Worse still, the food packages themselves started to shrink thanks to the worsening of the economic situation. A populist campaign against privileges, led by Yeltsin, added to the discomfort.
For years their proprietorial instinct had been constrained by the ideology of state ownership and the threat of violence on the part of the state. However, when ideological constraints were loosened and private enterprises legalized those who were charged with managing state assets gave in to their ownership instinct. They realized that instead of being rewarded for looking after the assets, they could actually own the assets.
The Soviet Party elite and the ‘red directors’ embraced and handsomely benefited from Perestroika. As Yegor Gaidar, who would come to reform the Russian economy a few years later, wrote: ‘The nomenclatura moved forward, testing its way through, step by step – not according to some thought-through plan, but by submitting to its deep instinct. It followed the scent of property, like a predator follows its prey.’27 Everything was done by trial and error and the benefits of the trials went into the pockets of the bureaucracy. The costs of the errors stayed with the state.
In the late 1980s, Gaidar, a bright young economist, was working for the Kommunist journal that was supposed to set the ideological tenets of the party, but instead worked to destroy them. Gaidar was brought to Kommunist by Latsis, its deputy editor and a close friend of his father Timur. Yegor Gaidar was the grandson of two writers, Arkady Gaidar, the universally famous author of children’s stories who had fought on the Bolshevik side in the civil war of 1918–22, and Pavel Bazhov, an author and collector of folk tales. Born in March 1956, during the 20th Congress of the party, Gaidar was barely thirty-three years old in 1989 and belonged to a generation that harboured no illusions about a socialist utopia. As a student at the Moscow State University, Gaidar read his way through the works of the Western economists, including J. M. Keynes and Milton Friedman. One book that perhaps influenced him more than any other was the Economics of Shortage by the Hungarian economist János Kornai.
Kornai’s book was published in 1980 when the oil price was still high, but shortages were widespread throughout the Soviet bloc. Unlike the communist reformers, Kornai argued that those shortages were the consequences not of planners’ errors or of the wrong prices, but of a systemic flaw in socialism, its integral part. Gaidar met Kornai in 1981 at a conference in Moscow. They strolled along grey Moscow streets arguing about whether the system could be reformed. In August 1986 Gaidar and a group of bright young economists gathered in Zmeinaya Gorka, a sanatorium outside Leningrad, to discuss their countries’ economic prospects – much as Timur Gaidar and Otto Latsis had done in August 1968. But, unlike their fathers, the young economists did not look for fifty-year-old historic models but examined the subject that was before them.
By night, they made bonfires, grilled shashlyk and sang songs from their fathers’ repertoire. By day, they spoke a different language – one free of euphemisms and nostalgia for the revolutionary ideals. Their diagnosis was clear: socialism cannot and will not work. The only way forward was to move the Soviet economy towards the market and private property. At the concluding seminar, Gaidar offered two possible scenarios: in the optimistic one, this club of economic boffins would soon run the country, steering it towards capitalism; in the pessimistic one, they would all be sent to the Gulag.
Yet, the biggest difference between 1968 and 1986 was in the balance of probabilities. In 1986, the prospect of repression already seemed increasingly outlandish. The general atmosphere was one of excitement and hope spiced up with disbelief and apprehension. It was this feeling and these ideas that Gaidar brought to Kommunist when he joined the journal in 1987. The taboos were falling too fast for any official to follow the line. Occasionally Gaidar would receive a telephone call from the Central Committee. ‘Are you sure this problem can be discussed in the open?’ a caller would ask. ‘Have you not heard?’ Gaidar would reply, implying he knew something that the caller did not.
With figures at hand, he showed that the Soviet economy was heading towards an abyss. In 1988 he wrote an article which he headed ‘The Foundation Pit’,28 borrowing the title from the novel by Andrei Platonov in which socialist workers dig out a giant foundation pit for building a house for the entire proletariat: the deeper they dig, the more futile their work becomes, sucking out their energy and their lives. The novel had been written in 1930 but was not published until 1987.