What I Misunderstood About “Shock Therapy”

Boris Yeltsin in Arctic Vorkuta, 1990. Striking miners helped him bring down the Soviet Union. Eight years later I saw them strike against his government

In Moscow on the morning of July 24, 1993, I made a cup of tea, combed the hair I still had, and went outside to look for breakfast. I lived above the metro station of VDNKhthe ex-Soviet equivalent perhaps of New York’s World’s Fair grounds, and immediately saw that something was wrong. Old women in the street were screaming, a group of men were shouting at a local cop, and the sidewalks were filled with people walking in a blur, as if a neutron bomb had gone off.

Boris Yeltsin’s government had decided that all old rubles would be withdrawn out of circulation. Russians who had been stuffing rubles into mattresses for decades would be wiped out unless they could fight through huge bank lines to exchange notes. Worse, the maximum amount was 35,000 rubles, or about $30-$35, about 60 percent of the average Russian monthly salary from 58,700 rubles. Those who exchanged the full 35,000 had a stamp in their passport, preventing them from making future exchanges. I will never forget seeing a muscular woman shouting, to no one in particular: ““Go ahead, be happy!” (“Damn thieves!”).

“Black Saturday” is remembered as a turning point in the arc of post-Soviet history, the moment when many Russians stopped believing that a glorious new democratic future was just around the corner, if it ever came. About a week after the event, on August 6, 1993, then-Prime Minister Viktor Chernomyrdin burned his name into the country’s history books by saying one of the most quintessentially Russian things of all time, commenting, “Hoping for better, as always.”

With inflation above 2,500 percent of the previous year, 1992, Russia began a long period of economic suffering that would not peak until 1998, when the country in default and plunged into a crisis that presaged the rise of Vladimir Putin. It’s hard to describe the catastrophe of the 1990s in terms Americans can understand. Male life expectancy dropped seven years almost overnight, from 64 in 1990 to 57 in 1994. Deaths from disease doubled. A country already heavy on alcohol saw alcoholism rise 60 percent. The Lancet estimated that Russia saw that decade seven million ‘excess deaths’,” whatever that means. I know what it looked like: mass poverty, rising crime, and soaring anger at the West, which was largely seen as a primary culprit in engineering Russia’s crony capitalist hell.

Harvard economist Jeffery Sachs, whose ideas for rapidly transforming communist economies into market-based systems were called “shock therapy,” saw his name become synonymous with pain. Though he had led successful reforms in a similar situation in Poland, fellow Harvard alums Yegor Gaidar and Anatoly Chubais were far less fortunate when they were appointed economic czars in Boris Yeltsin’s Russia. Russians early on associated “shock therapy” with inflation and the removal of the public safety nets they had grown accustomed to under Soviet rule (though residents did get to own their apartments and keep a few other key subsidies, such as cheap home energy). I wish I’d taken a photo, but I remember seeing graffiti on an apartment building when I visited the Arctic mining town of Vorkuta during the 1998 crisis. It read: ФОК ТЕРАПИЯ: “Fuck Therapy.”

As a journalist I have worked for the Moscow Times from the early nineties until about 1996 and then my own newspaper, the banished, until the end of the decade. Although I have never written about Sachs, I have covered Gaidar and Chubais (members of a group of Western-educated neoliberal politicians who were derisively called the “energetic young reformers”) extensively. I have also written exposés about a couple of Harvard economists who technically served under Sachs and helped design Russia’s infamous privatization plans. These policies gave vast industrial properties to a handful of Yeltsin’s new oligarch friends for pennies and were so horrifically theft-prone that the Russians changed the word itself, privatization. They called it poisoningor “gravitation.”

At the banishI have been traveling around Russia for years and have had various jobs, trying to capture what the New York Times called Russia’s “costly and painful, if good, progressive and necessary” transition to capitalism. I saw nothing resembling capitalism during my travels. Competition was managed by politicians who handed out commercial exploitation zones like extortionists, there was no worker presence (anyone who tried to organize in an oligarchy-owned company got a bullet in the ear), workers were often paid in products or receipts for company-owned commissariats, and murder was the only functioning regulatory mechanism in the country. This was a mafia state, with the president as the Don, not a capitalist “democracy.”

Even farms, such as the Siberian ranch where I stayed for one night with an elderly guard waiting for trucks full of city horse thieves, had become gangster territory. From oil to liquor to watermelons, every industry was in the hands of gangsters.

I thought it was intentional: Harvard economists designed massive privatizations that created oligarchs overnight, oligarchs funded Boris Yeltsin’s election campaigns, and Yeltsin brought in American-trained politicians to run his government. We were essentially helping Yeltsin rob his people so we could have a co-pilot’s seat in a conquered puppet state. I was criticized at the time for writing it that way, but it eventually became common wisdom. Naomi Klein’s Shock Doctrine blamed Sachs and America for imposing what she called “free trade and democracy”… (imposed) with Shock and Awe military force. Klein called Russia just one of many countries where “economic shock therapy” was applied “without restraint” through “sell-out privatizations” that created “the country’s infamous oligarchs.”

For a long time I believed this basic story was true. Now I’m not so sure.

A few weeks ago I heard from fellow Substacker and former Intercept writer Ryan Grim, to whom Sachs had sent a note and an essay. With the professor’s permission, he kindly let me read it. I was shocked. The point of Sachs’s essay was not that American economic policy toward Russia was wrong or poorly executed, or even that he was misunderstood. Rather, he described an American strategy in which the economy was always subordinate—and crucially, from the beginning—to a security mission. Led by military and security agencies that believed that “the Cold War never ended,” the U.S. viewed subjugation of Russia and NATO expansion as primary goals from the beginning. In retrospect, this makes much more sense than the conventional wisdom that Bill Clinton, Strobe Talbott, and Dick Cheney were trying to befriend Russia and just made a mess of it.

In the essay, printed in Ryan’s Waste site and also here on Racket, Sachs describes repeated attempts to convince U.S. policymakers to make a genuine effort to bring Russia into the fold as a democratic partner. His idea, both before and after the collapse of the Soviet Union, was a Marshall Plan-style stabilization effort, involving temporary debt freezes and targeted investments to keep the country afloat during the transition. Why not? After all, they had supported them in Poland and they had worked there. “I thought, ‘It’s the same thing,'” he recalled. today on Breakpointslaughing. ‘Multiply it by four.’

Ideas that American and European leaders supported for Poland, however, were rejected for Russia. In this section of his essay, Sachs describes what happened after he advised Gaidar to ask the G7 for debt relief:

In November 1991, Gaidar met with the G7 delegates (the deputy finance ministers of the G7 countries) and requested a freeze on debt servicing. This request was flatly rejected. On the contrary, Gaidar was told that if Russia did not continue service to the last dollar as it should be, Emergency food aid on the high seas en route to Russia would be immediately reversed and sent back to their home ports. I met an ashen-faced Gaidar right after the G7 delegates’ meeting.

After Yeltsin came to power in what was now democratic Russia, Sachs surely thought the authorities would change their minds. No way. Here he describes a meeting with former George H.W. Bush Secretary of State Lawrence Eagleburger after presenting his “Marshall Plan” on TV

Early in 1992… I was on the radio with Acting Secretary of State Lawrence Eagleburger. After the show he asked me to ride with him… Our conversation went something like this. “Jeffrey, let me explain to you that your request for large-scale aid is not going to happen… Do you want to know why? Do you know what this year is?”

“1992,” I replied. “Do you know what this means?”

“An election year?” I replied.

“Yes, this is an election year. That’s not going to happen.”

Ordinary Russians certainly believed that Americans wanted to be their friends. I know this because they wanted to be their friends. Mine friend, during the period of the “messy transition” when people like Bill Clinton and Boris Yeltsin were exaggerating their brotherhood. However, I remember that the Russian attitude changed after the bombing of Kosovo in 1999, and especially when NATO began to expand toward Moscow. Most Americans have not heard the story that James Baker III, in the negotiations for the dissolution of the Soviet empire, promised Eduard Shevardnadze that NATO would not “spill” East Germany toward Russia. CIA whistleblower Melvin Goodman confirmed that story for me years ago, and I remember that it meant a lot to the Russians.

According to Sachs, NATO’s expansion into Ukraine was a goal from the start. Why not bring Russia in as an imperfect but more stable and democratic partner? Because “the men in suits,” as Sachs described the natsec officials behind the White House, never wanted to be part of a Russia that retained significant military power or its own sphere of influence. “They sought, and continue to seek, a unipolar world led by a hegemonic US, in which Russia and others would be subordinate,” Sachs writes.

That is why we are in deep trouble in Ukraine right now, on the brink of nuclear threat: we did not want to change, or even try to take advantage of such a rare opportunity for cooperation and peace. We were in a Cold War and chose to stay there, maybe until it got hot. It turns out that we too are like the Russians: “Hoped for better, but as always it turned out fine.”