austin-murphy-the-triumph-of-evil

222 THE TRIUMPH OF EVIL
most Russians, whose own limited purchases of imported goods also
contributed to the decline in domestic demand, output and income). This
uncertain and depression-like environment greatly decreased domestic
investment into new productive capital assets, thereby resulting in a
reduction in demand for (and output of) Russian heavy industries that
not only caused a further reduction in demand but also led to a signifi­
cant decline in productivity and competitiveness.
There was also a serious worker morale prob lem, which caused a fur­
ther deterioration in productivity. The morale problem was associated
not only with an inability of firms to pay wages but also by a worker
realization that wealth was obtained via crime and not by productive
activities. As one of the largest Russian businessmen, Boris Berezovsky,
stated, "There is no doubt that any person who did business in Russia
over the last 10 years broke the law" (Cullison, 2000c).
The chaotic mafia-controlled economy also made possible (and
encouraged) a fraudulent decline in tax payments (Himes, 1999). The
resulting decrease in government tax revenues (combined with outside
pressure from the IMF and others to reduce government budget defi·
cits) reduced the ability of the Russian government to create much real
domestic demand via transfer payments or spending on the Russian
defense/aerospace industries (the latter of which also reduced Russia's
ability to resist fo reign pressures fo r further destructive reforms).
The large real income declines in Russia were also partially caused by
the Russian central bank's successful attempts to eventually bring the
devaluation-induced inflation under control with monetary tightening,
dropping it from 1353% in 1992 to under 15% by 1997 {IMF, 1999). In
particular, monetary tightening increased interest rates, thereby reduced
borrowing for purchases, and therefore further decreased domestic
demand fo r real output that in tum reduced real incomes and increased
unemployment (at the same time that it successfully contributed to the
central bank's goal of lowering inflation via reduced upward pressure
on the prices of real goods and services).
Besides being used to help stop the inflation caused by the currency
depreciation, the very large real income decline in Russia also solved the
balance of trade problem. In particular, it reduced the demand for for­
eign products (as people had less income with which to import goods)
and made Russian exports more competitive (as unemployment drove
CHAPTER 6 223
down real wage demands). This pattern of reducing real income in order
to solve inflation and balance of payments problems (which themselves
were caused by opening up the domestic market to fo reign imports) had
also been followed in other formerly communist countries of Eastern
Europe (such as Poland and Hungary) that had been transforming them­
selves into capitalist societies, albeit generally in a less rapid fashion
and therefore also on a less extreme scale (Williamson, 1991 ).
In addition, because the Eastern European countries had previously
(under communism) conducted most of their international trade (via a
type of multilateral barter) with each other (Gwiazda, 1986), the decline
in real income in each country contributed to a decline in demand for
imports from the other Eastern European countries and further magni­
fied the depth of the economic depression throughout the area. The pro­
cess of opening up their economies to Western imports, thereby causing
declining economic output and declining trade with each other (which
caused further declines in economic output), had actually begun in 1990
in the other Eastern European countries with the election of capitalist
governments there in that year, but the Soviet Union had also already
contributed to furthering this reduction in trade and real income in early
1991 (even before it made its currency fully convertible in December
�991) when it switched from a system of multilateral barter trade with
•ts Eastern European neighbors to a system of requiring hard currency
payments, which few there could afford to make (Williamson, 1991 ).
The mafia seizure of economic power in most of the other Eastern Euro­
pean countries was a natural occurrence in this environment, just as in
Russia (Raith, 1994).
The result has been a long-lasting decline in real annual economic
output and income in this area of the world of almost 50%, as previ­
OUsly mentioned in this book. Although some modest economic growth
bas been recorded in some Eastern European countries in the late 1990s
(SUch as in Poland, Hungary, and the Czech Republic, which have suc­
�fu�ly attracted significant amounts of real foreign investment}, the
legion 8 real output remains very far below that of the level of 1989
OMF, 1 998: 171).
. � economic crisis in Eastern Europe in the 1990s is actually very
:lar to that in other countries around the world (both before and
1990), with crime and poverty increasing significantly after an ini-