Russian Crises: World Depression on the Horizon?

by Anna Manzo

This cycle seems to have repeated itself many times in the American Century: Third World economies buckling under the market forces of "global competition" succumb to military dictatorship as last resort. With so many regions in the world experiencing declining commodity prices, collapsing currency values, and imploding economies, has America's model of "democracy as free-market economy" lost its credibility? Is a world depression about to set in? And what will happen to the latest -- and former world superpower -- Russia, as it crumbles under the same market forces Africa, Latin America, and Asia have already experienced? Will it resort to a dictatorship that will fuel anti-Americanism around the world?

History has been known to repeat itself. History buffs will recall that the U.S. stock market crash of Oct. 13, 1929 marked the onset of the worldwide Great Depression. In that wake, Germany, which had experienced humiliating economic sanctions after World War I -- with nearly one-third of its labor force unemployed -- allied with Japan and Italy's fascist government. For decades, Japan had been preparing for a militaristic showdown with Western expansionism since the U.S. forced its ports open to foreign trade in the 1850s.

The current economic crises almost seem like deja vu. The U.S. stock market, already reeling from the ongoing economic crisis in Asia, fell more than 500 points on the last day of August, as Wall Street reacted to news of further economic and political collapse in Russia. On that day, the Dow Jones Industrial average suffered its second largest point loss ever, momentarily wiping out all gains made in 1998. The reaction spread to stock markets around the world as investors grew frightened of growing instability. Although many financial analysts were not yet predicting the end of the U.S. bull market, others fear a major worldwide economic crisis is gathering on the not too distant horizon. Other analysts warned about the possibility of a Russian nationalist dictatorship taking over. Doug Henwood, editor and publisher of the Left Business Observer, notes that the last time a serious social collapse of this magnitude occurred in history was the collapse of Germany, after World War I. "The Russian collapse is about the most serious social collapse of history -- not just social, political, economic, but everything," he says. "This is truly dramatic stuff. It's been brewing since Gorbachev and it's odd to read in the paper now about the final meltdown of the Russian economy as if it hasn't been happening for years and years."

Life expectancy is back to the late 19th century levels, which is especially disastrous for a country that's not at war, according to Henwood. The decline in birth rate and shrinking population that Russia has seen over the last several years is unprecedented. Millions of government workers have not received paychecks for nearly a year, according to In These Times correspondent Fred Weir. The only reason mass starvation has been averted is the reliance on private family gardens that provide nearly 40% of their food supply, sharing within extended families and nonpayment of taxes. For years, slow payment and lost jobs have been a problem, but this year, workers were becoming more radicalized with mass strikes, blockaded highways and railways, occupied government buildings and hunger strikes, foreshadowing impending mass revolt.

Weir says that the backbone of political stability is the middle-class. But the new middle-class of young professionals and skilled laborers have been disappearing over the past two years as their living standards began to deteriorate. The devaluation of the ruble and the sudden costs of imports has particularly hurt the middle-class.

"Standard IMF austerity measures and rapid privatization without any of the infrastructure of a market economy in place was not a very good idea," Weir says. "Middle-class Russian families are losing their businesses and their jobs, and are equating the last few years in Russia with capitalism."

While Russia is not all that important in economic terms, it's important in political and psychological terms -- particularly because the bull market has given the perception over the last 15-16 years as the triumph of capitalism, according to Henwood. "We've let Russia collapse in the broader economic context of what looks a global deflation. Africa has been in that condition for the better part of 20 years now. After the Mexican collapse of the peso in 1994-95, and then the Asian crises last year, this latest economic crises in Russia has brought about a worldwide discrediting of American-style capitalism -- the very loosely regulated, freewheeling, polarized kind of model."

Even First World economies are taking hits, he says. Japan, Canada, and the Australian and New Zealand economies, which are very commodity dependent, have been suffering severe blows to their financial markets. It may not be long before the U.S. feels the pinch. "We've been treating this country as a model of how to do things, and some of the more sophisticated ones in Wall Street realize that this model has very few friends left in in the world," Henwood says. "The political euphoria that helped to power the bull market higher now has been severely undermined."

Who will control the Russian government next? The Communist party is not the danger, says Weir, but rather, the possibility of a dictatorship emerging within a couple of months or a couple of years. "It could be [Chile's] Pinochet-style dictatorship, which would try to merge Russia with world markets as quickly as possible, and use force to suppress social unrest. But more likely it will be a quasi-Communist, quasi-nationalist government that will try and close off Russia from the world, probably a protectionist, more authoritarian regime."

The Russian Parliament's two-time rejection of Boris Yeltsin's choice for prime minister Viktor Chernomyrdin, signals a rejection of the free-market system. Chernomyrdin had served as prime minister for five years and the public widely associates him with the economic collapse and with capitalism, according to Weir.

Yeltsin's third choice, nationalist Yevgeny Primakov, is a strategic compromise, according to a Pacifica news report. Though not an economist, Primakov wields much international clout, having worked on NATO treaties with Secretary of State Madeline Albright, and is was affirmed by the majority Communist Party. ABC News reported that Primakov was promoted to former first deputy director of the KGB, after posing as a Pravda correspondent to develop a close working relationships with Moammar Gadhafi and Saddam Hussein. As foreign minister, his negotiations with Saddam Hussein to avert the Persian Gulf War were cut short by President Bush's deadline for the onset of U.S. action in Kuwait.

Material for this column was provided by Scott Harris, public affairs director of WPKN. For in-depth interviews with individuals and organizations not ordinarily given access in mainstream media, listen to WPKN 89.5 FM Radio's "Counterpoint" from 8-10 p.m. on Mondays and "Between the Lines" Wednesdays at 8 a.m. To get a weekly taped subscription to either show, call 203-331-9756.

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