austin-murphy-the-triumph-of-evil

220 THE TRIUMPH OF EVIL
with Yeltsin and the imposed policy) predicted the effect "would be
something much more destructive than an atomic bomb" (Hays, 1991).
In fact, the resulting chaos permitted organized crime to seize a vast
portion of the economy in Russia, as such rich criminals were among
the few willing to take the risk and enter into the uncertain Russian
market to seize many assets whose prices were close to zero at the
going exchange rates for those with foreign currency (Raith, 1994).
Organized crime in the form of drug trafficking and black market activities
(including in previously illegal foreign currency transactions) had
already begun to seize significant economic power in the Soviet Union
under Gorbachev's market reforms in the late 1980s (Marcy, 1990),
with a claim on annual revenue in excess of $1 00 billion by 1990 (Der
Tagesspiegel, 1990p ). However, Russian mafia groups were able to utilize
the chaotic economic environment of the 1990s to greatly expand
their activities and wealth. For instance, after the convertibility of the
currency in late 1991, they increased their smuggling activities o � a
potentially fa r grander scale than was possible under communism, ��th
the profitable purpose now being the avoidance of government tanffs
(Davis, Cloud, and Becker, 2000), as opposed to the avoidance of
currency controls under communism. In addition, organized criminal
groups in Russia have begun to extort most businesses in that country
(including foreign ones) to pay them 15-30% of their revenues as "protection"
against violent attacks and murder (Roth, 1996). As a result
of this huge increase in income, the Russian state prosecutor's office
estimates that mafia wealth has grown to the point where about h . al! of
the entire Russian economy is now under "mafia control" (Dommwn,
1999).
Besides causing hyperinflation and laying the groundwork for mafia
seizure of economic power, the removal of currency controls also created
the opportunity fo r imports from Western countries to win a very
large share of the Russian domestic market. While the Western goods
were very expensive at the ridiculously low market exchange rate,
the pent-up demand for such goods (along with their quality ima � e
and superior technology) motivated significant purchases. Much ofthts
demand for foreign imports came from the growing Russian mafia,
whose criminal activities gave them an ever-increasing share of disposable
income in Russia, and whose riches enabled them to pay almost
CHAPTER 6
22 1
any price for foreign luxury goods. The increased demand for foreign
luxury imports reduced real demand for domestically produced goods,
thereby fo rcing many Russian companies to cut back domestic production
and employment (thus creating unemployment in Russia). With
gross revenues for Russian companies reduced by falling demand for
their production and with their net revenue further reduced by the mafia
extortion payments, the amount of money left to pay wages and government
taxes was greatly reduced. The result was lower real wages
and even a suspension of wage payments altogether at many Russian
companies (Economist, 1998), while the drop in tax revenues reduced
the financial power of the government to provide economic aid to the
increasingly large number of poor Russians at the same time that it
reduced the ability of the government to fight the mafia which was causing
many of the problems.
In actual fact, the growing economic power of the mafia increased its
political influence to the point where it virtually controls an increasingly
corrupt Russian government (Roth, 1996). 2 The government therefore
can no longer even make a meaningful attempt to terminate the criminal
cycle of reduced domestic demand causing reduced domestic income
causing reduced domestic demand. It would have theoretically been
possible to stop such a vicious circle (even without government inter­
vention) if sufficient private investments had been made into new Rus­
sian production facilities that would have domestically met the demand
for luxury goods in the new capitalist order (i.e., if new factories �ad
been created to produce for those with a significant amount of spendtble
income and wealth, which is concentrated in the hands of rich Western
countries and the mafia). However, the economic chaos, crime, and cor­
ruption in Russia scarred off most investors, including not only West­
ern companies but also to some extent the Russian mafia itself, which
invested an estimated $500 billion of its loot outside of Russia in the
1 990s (Barron s, 1999).
The economic chaos, crime, and related cycle of ever-falling real
��and for domestic goods certainly contributed greatly to the producltvtty
and output decline in Russia that approached 500/o in the 1990s
(Murp h y, 1998). More specifically relatively greater income in the hands
of the mafia reduced the demand for (and output of) Russian industries
Pl'oducing non-luxury goods for the masses (and thus impoverished