A History of Wealth and Poverty: Why a Few Nations are Rich and Many Poor, by John P. Powelson.


Russia: Trade, Entrepreneurship, and Institutions


Socialism in the Soviet Union collapsed in the 1980s and 1990s because the economy could not sustain the minimum quality of life that the people had come to demand. Seventy years of experiment were required for this lesson. But another lesson is not yet learned: that underlying the economic collapse is the failure to create an interlocking society, with checks and balances on the enormous power that has been concentrated in the center since at least the thirteenth century. Current Western and international proposals to resuscitate the successor states, through economic measures and financial bolstering, serve only to prolong the power imbalance.

Trade and Entrepreneurship

Lack of entrepreneurship is not the problem. Throughout their history, Russians, Ukrainians, and neighboring peoples have excelled as both traders and entrepreneurs.

While the Kievan state of the tenth and eleventh centuries was based largely on conquest, agriculture, and land, its international reputation was made by commerce from the Baltic to the Black Seas. [1] After defeating the Khazars, Kievans traded to the far corners of Islamic territory. [2] Constant warfare [3] and a shift in Mediterranean routes from north-south to east-west after the First Crusade (1096-99) [4] led to the demise of the Kievan state, but Novgorod quickly filled the gap. Then Mongol rule reopened the north-south routes, enabling northern Russia to trade again with the Black Sea. By 1270, Italian merchants had formed colonies in Kaffa and Tana, trading as far as Turkestan and central Asia. [5] New towns such as Itil and New Sarai became commercial centers in an extensive Mongol trading empire. [6] Contrary to popular belief, the Mongols were "more interested in developing commerce than in despoiling their subjects." [7] Trading prospered when the Russians took Narva in 1585, opening relations with French and Dutch sellers of wine and manufactured goods. [8] The British plied routes to ports on the White Sea, to avoid their enemies in and around the Baltic.

Entrepreneurship also flourished. Although risking confiscation of land and liberty if they fell out of favor with the tsars, medieval seigneurs established industries, using serf labor. By the eighteenth century peasants were cooperating with seigneurs in these ventures. "An exceptional number of large peasant-owned factories were concentrated in the villages of Ivanovo in Vladimir Guberniia, and in Pavlovo and Vorsma in Nizhnii Novgorod." [9]

Even in the Soviet period, private plots consistently outproduced collective farms. [10] Upon the collapse of the Soviet Union, "private entrepreneurs, inventive economists, and capable administrators have sprung up as if they had been lying in wait since the region's short period of capitalist independence between the two world wars." [11]

But in Kievan times foreign trade was done chiefly by the rulers, [12] and thereafter industry was principally undertaken by tsars, high nobility, and later Soviet bureaucrats. The failure of these rulers and elites to develop an interlocking society with bourgeoisie and farmers is a principal historic reason for Russian backwardness, and it remains so today. A study of the institutions of economic development, starting with the law, supports this assertion.


"Russian social and legal institutions emerged from a background very similar to those of the West. . . . a social order not essentially different from that of the Germanic peoples . . . they produced an essentially similar law." [13] But Russian law did not adopt, and in practice it still has not adopted, the Western concept that the king is subject to his own laws. While law became centralized in both the West and Russia, that centralization possessed a different quality in each place. In the West, the rulers dispensed justice through their courts, but they became obliged to respect precedent and to explain the logic and justice of their decisions. In Russia, the tsar and his bureaucracy ruled capriciously, composing the law themselves and not being bound by western-style constraints.

Until the nineteenth century, Russian law was not commented upon, re-written, or argued and modified by scholars, lawyers, merchants, and others, as was law in the West. Instead, except for local law beyond his reach, the tsar or his bureaucracy were the prime makers of law. In its organizations, however (as opposed to its institutions), the Russian legal system became modernized over the centuries. Courts and an infrastructure were created, usually intended to copy the West. Especially in the times of Ivan the Terrible, the early Romanovs, Peter the Great, and Alexander II, efforts were made — by command from the center — to convert Russian law into that of a "Western" society. The same is happening at the end of the twentieth century. Few are asking why it is necessary to perform this task so many times.

From the Tenth to the Sixteenth Centuries

The principal sources of early Russian law are the Primary Chronicle and the Russkaia Pravda (Russian Law). The Chronicle, a history of Kievan Russia probably written by a monk about 1100, "when speaking of pre-Christian times, often referred to the 'Russian law', the customs, usages, traditions, etc. of the Russian tribes." [14] It also contained the earliest known legal texts. [15] The Pravda, written by Kievan Grand Prince Yaroslav about 1015-36 and expanded by his sons in 1072, covered rules on the property of princes and their servitors. It also compiled lists of penalties to be paid by perpetrators to victims as compensation for injuries. [16]

While law may at first have been based on tribal custom, nevertheless its codification and enforcement were the province of the prince. In Africa "customary" law was interpreted by tribal chiefs and colonial authorities in ways convenient to them. The same was so in Russia, where "each prince or landlord administered customary law on such principles as seemed good to him. There was no 'common law' for the Russian land and no judges appointed by central authority to dispense even-handed justice." [17]

Berman characterizes medieval Russian law as "five hundred years behind the West. . . . The development of Russian law from the eleventh to the fifteenth centuries is in many ways a recapitulation of Frankish legal development from the sixth to the tenth centuries." [18] Lawrence is more pithy. While the West philosophized upon and fine-tuned Roman law to apply to its own cultures, Russia, he says, was left with "nothing but third-hand epitomes of Justinian." [19]

In search of reasons, let us first examine Novgorod. [20] Because of Novgorod's charter of self-government granted in 1019 and its subsequent trade with the West and connection with the Hanseatic League, this northern city would seem the most likely part of Russia to develop commercial law similar to that of the West. Indeed, "the powers and revenues of the prince of Novgorod were strictly limited by custom and enshrined in a contract between townspeople and the prince." [21] In addition, "the straightforward business methods of the merchant princes of the north contrasted with the tortuous ways of other Russian traders." [22]

Secondary sources pay scant attention to drawing up and enforcing contracts on joint ventures, investment, and trade; security for delivery and quality of merchandise; debt repayment; and the like. Instead, the emphasis is on the subordinate relationship of merchants to the prince. For example: "Generally inclined to monetary fines, the Novgorod code also included provision for restoration of losses incurred by the victim. But, like its Muscovite successor, Novgorod took care to compensate the emerging bureaucracy for the myriad tasks associated with litigation . . ." [23] Disputed contracts, inheritance cases, and quarrels over land were brought before the prince's court. [24]

Possibly the primitive legal development simply mirrored the Hanseatic League and all of northern Europe, which lagged behind the Italian city states in commercial and financial law, contracts, and the use of accounting. Why this should be, no one has explained.

Berman puts some of the blame on the Mongols. He argues that the "conquest of Russia and most of Eurasia by the Mongols in the thirteenth century, and their domination for almost 250 years, exercised a deteriorating influence of the first magnitude upon Russian legal development." [25] The Yasa (law code) of Ghengis Khan (r.1206-27) called for "absolute and unqualified obedience" and "assigned to each person a specific position in service to the state, from which he could not depart without penalty of death." [26] Yet the Mongol khans also promoted trade throughout their far-flung empire. Why would they not perceive the necessity of decentralized commercial law as requisite to that trade?

Furthermore, Russian law did recover and become institutionalized in the centuries right after the Mongols, and many of the processes known to the West were introduced, such as "higher and lower courts, procedures for impaneling a jury, for appeal, and for obtaining bail, a recognition of 'conflict of interest' as applied to a judge, . . . rules of evidence, and authenticating transcripts to assure that a rational format had been followed in conducting a trial." [27]

These organizations (not institutions) had been imposed from on top rather than negotiated from below. Also, true to historical form, the sophisticated machinery of the 1497 law code (Sudebnik) "was devoted almost exclusively to the role of state officials and detailed a juridical apparatus over which the Moscow grand prince reigned." [28]

An English visitor in the 1580s wrote of the Russian "ruler controlling legislation, appointment of officials, conduct of diplomatic relations, war and peace, and even all final decisions in matters of law." [29] Some western "authors believed these codes played a very small part in the administration of justice and one doubted their very existence." [30]

By 1568, Ivan's own great Law Code had been openly pushed aside. "Fear not the law, fear the judge," warned a contemporary Russian proverb; and once in prison even for a misdemeanor a man might languish "until his hair hung down to his navel." Just about everyone in the system received kickbacks, from magistrate to bailiff, and it is said that a petitioner or litigant couldn't even get into court without paying off the guard. [31]

This description differs from English law under the Tudors and Stuarts only in degree and direction, but the degree and direction are momentous.

The Seventeenth and Eighteenth Centuries

In 1649, Alexis, the second Romanov tsar, prepared the Subornoe Ulozhenie, a codification of all existing Russian law. This code clarified two major points: first, the supremacy of the tsar in all matters of law, and second, the complete subjection of peasants to serfdom.

Five quotations from different historians affirming these purposes and describing the cruel punishments of the tsar and are found in Appendix 13.1.

It was against this background that Peter I, later known as the Great (r.1682-1725), set about reforming Russian society including its laws. An Austrian visitor of the time wrote that "each new monarch makes new laws; for in a country governed despotically, nothing but the sovereign's pleasure has the force of law." [32] Since the 1649 Ulozhenie had been prepared hastily, in three weeks, Peter made several attempts to revise it, a task not completed when he died in 1725. [33]

The changes that he did make failed, for the reasons mentioned by Berman:

This was an attempt to incorporate into the Russian social order, at one stroke, a public-law system similar to that which had been developed in Western Europe over centuries. The attempt was bound not to succeed for two reasons . . . the basic principle of autocracy was preserved intact [and] the absence of a decent system of private law on which to build. [34]

Law was further divorced from practical and personal applications during the eighteenth century under Anna, Elizabeth, and Catherine II, when it was pegged to the cameralism of "enlightened despots." This "scientific" interpretation of society was transplanted to Russia from the court of Frederick the Great of Prussia. "The new law codes transformed the law into a consistent, uniform framework for interpreting individual relations in a quantitative manner and established rules and procedures for the regular and mechanical application of the statutes." [35]

In 1766, Catherine called an assembly of more than five hundred representatives of social estates, to "explain the needs of their communities and participate in the drafting of a new law code. [However] No law code emerged, nor did the assembly reach any conclusive point in its deliberations." [36] A commission appointed by Catherine in the following year, to respond to petitions from urban groups, was dismissed when its deliberations took an "overly liberal and critical turn." [37] Thus law, like other social relations, became subject to the belief that the sovereign and her bureaucracy, knowing what was best for her subjects, might interpret and mold the law to fit the occasion. Conflicts over land resulted in "bitter lawsuits, . . . with one party taking the law into his own hands, sure of his superior strength or of protection from patrons and officials won over by bribes. . . . The legal system offered no real protection: there was no civil code, since the code of Tsar Alexis . . . had been rendered largely obsolete by the changes wrought by Peter the Great. . . . The personalization of authority was incompatible with regular legal procedure." [38]

The Nineteenth Century

In pursuit of his liberal reforms, Tsar Alexander I (r.1801-25) in 1809 instructed his minister, Mikhail Speransky, to prepare a new Statute on State Laws. In 1830 his task was complete, with forty-two volumes of laws enacted since 1649. These were compiled into a new code in 1833, complete with commentaries, the "first systematic presentation of law as a whole in all Russian history." [39] Speransky revised the bureaucracy into "something of a compromise between an oligarchic system and a bureaucratic system." [40]

In the following three decades, "the beginnings of a Russian legal literature appeared. A class of Russian jurists emerged, educated abroad in the capitals of Europe." [41] Finally, beginning with Tsar Alexander II (r.1855-81), the Russian legal system became westernized. A comprehensive reform of 1864 copied many of the principles of a western system, including courts independent of the bureaucracy, local courts, justices of the peace, oral pleadings and testimony, and trial by jury. [42] These reforms helped to supply "a legal system capable of dealing with modern commercial relationships and institutions impartially, swiftly and predictably." [43]

All these reforms took place "from above," by the bureaucracy and its legal scholars, with no participation by peasants and workers and little by business groups or independent scholars. While they may have formed a framework in which spectacular industrial advances occurred from 1890 to 1914, the laws did not attend to peasant needs arising out of the emancipation of 1861. Except for major crimes, peasants were judged by a separate system (volost courts). Furthermore, from 1885 on the government restrengthened its control over the judiciary. [44]

Peasant land, peasant mobility, and peasant economic choices were still woefully inadequate and not justiciable. The demands of a rebellious group, the Peoples' Will (Narodnaia Volia), which was composed of intellectuals rather than peasants, could not be handled by any court. Terrorism — including the assassination of Alexander II in 1881 — was the chosen route. The legal system proved incapable of handling the crises that gave rise to the Bolshevik Revolution. [45] Berman's summary of the situation shows that the power-diffusion process had not been at work at all in the law:

[T]he Bolshevik Revolution . . . forces us to consider two hypotheses . . . the first . . . that legal development, brilliant as it was, took place only on the surface of Russian life, that it was not actually an incorporation of the fundamentals of Western law into the Russian tradition, but largely an adoption of Western forms without the substance, and that it did not penetrate into the consciousness of the Russian people as a whole, particularly the peasants. [46]

Thus, it constituted "old institutions in new organizations."

The Soviet Union

Although not all at once, Soviet law adopted the institutions of the prerevolu-tionary period in the following ways:

  • First, the Soviet Union continued a religious conception of the state. The rulers "take responsibility for both the political and spiritual life of their subjects and expect from them not only respect but also worship." [47] Placing dissidents in psychiatric hospitals in the 1970s, so condemned by the West, may have reflected a belief that their maverick nature was indeed something akin to mental illness.
  • Second, "Soviet criminal law has built on the nineteenth and early twentieth-century reforms." [48] "The emphasis on community action to correct the offender and bring him back into harmony with the group has echoes of the . . . cultural tradition of collective responsibility for individual misconduct." [49] In this way Soviet law was similar to Chinese, as described in Chapter 12.
  • Third, under Stalin, the Soviet worker did not have the right to move freely from one location to another or to quit one employment for another, without permission of some authorities. This limitation was partially relaxed later.
  • Fourth, work requirements of Soviet citizens were the responsibility of the state. According to the 1961 edict of the Russian Soviet Republic on parasitism, which is applicable to nonworking people, "adult able-bodied citizens who do not wish . . . to work honestly according to their abilities . . . shall be subject . . . to resettlement in specially designated localities . . . with confiscation of the property acquired by non-labor means, and to obligatory enlistment in work at the place of resettlement." [50]
  • Fifth, "the management, use, and disposal of the property of the household are in the members as a whole; in the absence of unanimity, . . . a majority vote of the adult members is decisive." [51]
  • Sixth, "man is conceived to be in need of education, guidance and training to make him better-disciplined, more honest and hard-working, more conscious of his social obligations." [52] This educational role of law was stressed in political literature and speeches. "Soviet labor law . . . protects, guides, and trains both management and labor, educating them in discipline and self-discipline, inculcating in them a sense of their mutual rights and duties." [53]
  • Seventh, legal accountability for the use of resources entrusted to business managers or others was not a primary virtue.

Thus Soviet law was perceived as an instrument through which the state would guide the economic, social, and political actions of its citizens. While law respected the humanity of the person more than in earlier centuries and was enforced with less cruelty, nevertheless in the aforementioned functions it had not changed substantially since Ivan the Terrible or Peter the Great. It was not perceived as a means to guarantee rights to personal liberty or to own or alien possessions or to make contracts or to enforce agreements or to move freely about the country.

The Situation Today

It is too early to say how law will develop in the successor republics, but there is no reason to expect a quantum leap into Western precepts. Principles of law similar to the Soviet have ruled through Russian history at least back to the thirteenth century, if not before; they have been imposed by an elite upon its subjects and are still so imposed; they are not necessarily the laws which would have emerged from free negotiation among independent groups; and finally, by restricting the inventiveness and entrepreneurship of individuals and the accumulation of capital, they have retarded economic development and continue to retard it.

The Monetary System

The Russian monetary system before the twentieth century reflects its primary purpose: to finance consumption by the elite. By contrast, credit instruments arose in northwestern Europe and Japan mainly to finance private trade. For trade in Kievan Russia, foreign coins were sufficient. Thereafter, as production and trade were suppressed by wars and invasions and also were dominated by the central government, they required only the coins of the tsars.

In all societies, heavy consumption borrowing by the elites marks the transition from a subsistence to a market economy. In northwestern Europe, kings, nobles, and princes borrowed in the thirteenth to sixteenth centuries, as did daimyo and shogun in Japan. But in these areas, towns and trade were also growing, so the same instruments that financed borrowing by the rulers also financed production and trade.

Unlike Japan and northwestern Europe, Russia's early monetary system did not depend mainly on money changers, lenders, and private credit instruments, although these existed. Instead, the earliest "system," in the ninth century, was simply the use of foreign currencies. Later, under the tsars, coins were struck and persistently depreciated. (The same happened in northwestern Europe and Japan.) In the sixteenth century, the government recoined foreign money, extracting a 100 percent profit. A paper assignat was issued by Catherine II in 1769, which quickly depreciated and lost its convertibility in 1777, in a set of events not much different from those of the French Revolutionary government fifteen years later. A silver ruble was proclaimed in 1810 and was made the standard unit in 1839, with a fixed value in convertible paper currency. But in 1841, new "credit notes" were issued; paper issues multiplied during the Crimean War; and convertibility was suspended. Only with the advent of the gold standard in 1897 did Russia obtain a stable currency. [54] As late as the early eighteenth century, the seignorial estate was financing its luxury consumption primarily by taxing the serfs and secondarily by the sale of agricultural product. Then it turned more to borrowing. [55]

If overwhelming indebtedness for consumption was characteristic of the Russian gentry, and if loans were extended but not repaid, then surely the concept of credit for productive enterprise, which requires repayment, could not have been well advanced. We have seen how the balance of power between merchants and daimyo in Japan and between elites and bourgeoisie in Europe resulted in consumption and production loans competing with each other for available savings. In Russia before the twentieth century, merchants and industrialists had little power vis-à-vis the gentry, so consumption by the latter mainly won.

In 1754, the Russian government established and then owned and managed the State Loan Bank for the Nobility and the State Commercial Bank. The former lent to the nobility on land mortgage while the latter financed trade in the port of St. Petersburg, [56] but the commercial bank lent to favorites rather than merchants with bankable projects, and it was closed for mismanagement in 1786. In the same year, the Bank for the Nobility became simply the State Loan Bank. Its purpose was political. Needing the support of the nobility, Catherine wanted to preserve them as a class by protecting their estates from loss to outside creditors. Therefore, the State Bank presumably absorbed much of the available credit, channeling it into consumption by the nobility.

A new State Loan Bank of 1797, together with other state-organized financial agencies, lent mainly to the government's favorites at low rates, who in turn re-lent at much higher rates. Thus the financial system became a private estate for the benefit of a few. A State Commercial Bank founded in 1817 to discount notes of merchants and industrialists found little business in these lines. In 1854 its assets were transferred to the Loan Bank and thus made available for consumption by the gentry. [57]

During the 1850s, the banks were compelled to pay 4 percent interest on new deposits created in the Crimean War inflation. Little opportunity was afforded to invest these funds, however. Furthermore, a group of favorites developing railroads received government guarantees for bond issues at 5 percent, while the government ordered the banks to reduce their interest rates to 3 percent. As deposits fled for more profitable investment in joint-stock companies, the government temporarily banned the formation of these companies. These moves derailed economic development and emasculated the banking system. "The banks had in their portfolios nothing but 'frozen' assets consisting of long-term loans to the nobility and of loans to the government." [58]

During most of the nineteenth century, the state itself was a major borrower from the State Bank, so much so that it forced "the State Bank to use its resources otherwise earmarked for commercial operations in order to support the Treasury accounts." Therefore, the claim by historians and economists that the Treasury contributed to the development of the banking system can be applicable only to the period of the 1890s and afterward. [59]

Modern banking "was a strictly post-emancipation [1861] phenomenon, . . . there was hardly any tradition of banking (except for land banks) providing loans to an economy that was diversifying and industrializing, where capital was scarce relative to the economically advanced countries of Western Europe." [60] In 1860, the old state banks were closed and a new State Bank was formed, with the burden of discharging the obligations of its predecessors. Before 1890 it had few funds for loans to business. [61] But in 1864 it did establish the first joint-stock bank, the St. Petersburg Private Commercial Bank, owning one-fifth of its capital. Thirty-one other joint-stock banks were formed from 1864 to 1873, but few from then until 1890.

From 1890 until 1914, Russia experienced unprecedented economic growth, paralleled only by Germany at that time. In 1912, a French economist who followed Russia closely gave the following opinion. "If things develop in the major European countries as they have between 1900 and 1912, Russia will, toward the middle of the present century, dominate Europe politically as well as from the economic and financial point of view." [62] To finance this spurt, joint-stock companies were formed during the 1890s imitating German commercial banks. At first they discounted commercial paper but quickly expanded to ordinary lending on current account. By 1908-14 the balance in lending had shifted from state banks to private commercial banks. [63] They obtained their finance from the savings of peasants, workers, and private and government lower-level employees, as well as from foreign banks and the Russian state bank.

Both the spurt in economic growth and the surge in private banking ended with World War I and the Bolshevik Revolution. Specie payment was suspended in 1914, and note issues were expanded. Gold disappeared from circulation. All banks were nationalized in 1917. [64]

During the Soviet period, the banks served the state and its enterprises, including the collective farms. Both the government and its enterprises borrowed from the banks to finance their deficits. Although inflation broke out immediately after World War II, it was held in check primarily by price controls and rationing.

However, the government continued to increase its deposits and to print currency for its own use, thus transferring goods and services to itself and its enterprises. During the 1970s and 1980s, the quantity of rubles greatly increased, compared with the goods and services available to the public. The eruption of this latent inflation is a current concern of officials in the successor states, as they contemplate freer markets. In the meantime, Russians have been holding three kinds of currencies: foreign exchange; government coupons available to those with special privileges, such as workers abroad; and rubles, with little purchasing power. [65] The principal problem is that during the decades of government as the sole financer of wealth, a diversified financial market to attract private saving, with instruments representing differing degrees of risk and maturity, has not been needed.

Just before the end of the Soviet Union, Feldstein summarized these problems as follows:

  • "[T]he Soviet public has too much financial wealth relative to the annual production of goods and services."
  • "[T]he Soviet interest rate is far less than the currently expected rate of inflation. . . ."
  • "[T]hey must create a more complete financial market, . . . offer the Soviet people an opportunity to exchange their cash balances for deposits bearing an interest rate that reflects expected inflation." But "creating financial assets that are attractive enough to absorb excess cash balances won't be easy because successful financial markets depend on the credibility of contractual obligations. A government that has lied to its public for decades isn't a credible issuer of bonds. . . ." [66] In addition, he might have added, the bonds would be a dead-weight burden on the government, for they would not be counterpart to productive assets.

Corporate Groups

In the thirteenth century, Novgorod presented many of the same characteristics as towns in the West. "Through its veche or town meeting, the people elected their chief officials by direct democracy, much as in the ancient city-state republics of Athens and Rome. But sovereignty resided in the town itself." [67] Political action was taken by corporate bodies. [68]

In the West, the modern corporation grew out of guilds (along with other sources such as Roman corporations). But guilds were not a feature of either Novgorod or any medieval Russian towns. [69] "The economic historian of Novgorod, Nitikinsky, affirms that in that city 'there was never any trace whatever of western European guilds, a view supported for other cities by his contemporaries. The leading economic historian of the Soviet period concluded that 'during those centuries when craft guild organizations flourished in western Europe, they made no progress whatever in Moscow, though Pazitnov finds the evidence weak." [70] Most likely, guilds did not arise in Russia until the nineteenth century, at just the time they were becoming obsolete in the West. Thus they could not perform the function that they did in me-dieval western Europe, as foci of cooperation among workers, guildmasters, and town patricians.

Kaser attributes the lack of guilds to the Mongols, whose practices were continued by Russian tsars: "The 'Tatar yoke' made its imprint upon entrepreneurship by its fiscal imposts," many of the terms for which in present-day Russian are of Tatar origin. [71] Once again, however, censure of the Mongols — who were powerless after the fifteenth century — seems misplaced. The question is not how guild suppression began, but why it continued — probably because subsequent rulers preferred more subservient organizations and had the power to attain them. They arranged their "inferiors" in a rigid hierarchy because nothing forced them to do otherwise.

With the bourgeoisie sidelined and the church dominated by the tsar, from the fifteenth century on, the active political classes were the tsar and his bureaucracy and nobility of different levels. The great gulf in communication between peasants and merchants on the one hand and the upper classes on the other left little opportunity for vertical alliances with leverage, so lower-group identities withered.

Although Catherine II attempted to form trading companies to encourage manufacturing, the social and economic agencies capable of carrying out her policies did not materialize. Groups either to fulfill these functions or to be counterweights to the government were not allowed to form. [72] Instead, the separation of merchants, who might manufacture, from nobles, who monopolized agriculture, was in principle complete. (The same separation did not exist in England, at least by the sixteenth century, and in France it was not complete.) Any local initiative to change this was suspect, under both Catherine and Paul. These two monarchs set up "corporations" of nobility, similar to "orders" in the West, with charters that were highly paternalistic, reserving to the crown the right to arbitrate among them. [73] A Free Economic Society, established in 1765, debated peasant bondage but played no political role. [74] As a result, private initiative was limited to certain individuals, mainly landowners, who acquired enormous power over their territories and their serfs. Local governments of the type emerging in the West did not form. There was still no prospect for the dispossessed to establish corporate groups or to exercise leverage.

Change nonetheless crept in at the beginning of the nineteenth century, when the "corporations" of Catherine and Paul began to demand social roles. Masonic lodges and secret societies were privately forming, along with "cultural circles" both inside and on the periphery of the university. At first these promoted the culture and scholarship of an intellectual elite. [75]They also made contact with the West, whose new ideas helped them turn to the political and the economic. [76]

During the Napoleonic wars, these groups came into touch with peasants and urban workers and discovered that they were reasonable people after all. [77] Their first political action was to reject the crown's paternalism and to advocate a greater role in civil society for "little people." The Decembrist rebellion of 1825 was a brief attempt by intellectual elites, plus military officers who had served in France, to increase their power vis-à-vis the monarchy. Although it failed, two trends were now in motion. First, nongovernment elitist corporate bodies were in Russia to stay. "The government's stubborn refusal to allow the generation of 1815 to fulfill its dreams of civic action drove some members of that generation to organize secret societies." [78] Second, those elitists replaced the monarchs in their paternalistic attitude toward peasants.

They remained in that role at least until the 1890s. Intellectuals were largely responsible for drawing up the conditions of peasant emancipation in 1861, which I have described in an earlier publication. [79] University students, influenced by imported socialist ideas, organized rebellions such as by the People's Will (Narodniki) in the 1870s. Peasant rebellions "required previous consultation and organization of the participants." [80] But grass-roots organizations — of the peasants themselves — that genuinely negotiated peasant interests and exerted peasant leverage have not been formed. Perhaps, however, they are among the new groups emerging today.

The same has been so for business groups. "A middle class of the kind the West has known since the end of the Middle Ages did not exist in Russia before about 1860." [81] Only about 1913 did "a few representatives of the commercial and industrial bourgeoisie . . . take an active role in public life [forming] associations and parties." [82]

Labor unions were legalized in 1905 and were freed from legal encumbrances in 1917 by Aleksandr Kerensky, head of the provisional government after the February revolution. [83] During the New Economic Policy (1921-28) collective bargaining was encouraged and collective contracts introduced. All these "benefits" to labor were decreed "from on top," not bargained for by workers. Under the ensuing Soviet system, therefore, no corporate power existed to defend them. Unions became state organizations, reporting to the same officials as the management. [84] Free collective bargaining was restricted under the first Five-Year Plan (1928-33). Collective contracts were discontinued in 1935. Nominally reintroduced in 1947, they were designed primarily for the state "to play a parental role in the Soviet industrial plant." [85]

Until the collapse of the Soviet economy in the 1980s and 1990s, therefore, corporate groups had never played in Russia or the Soviet Union the political roles common in the West for centuries. With that collapse and with the reform announcements by Mikhail Gorbachev (last President of the Soviet Union) and Boris Yeltsin ( first President of newly independent Russia) in 1989 and 1990, however, private-interest groups suddenly began to pro-liferate, and workers began to take control of unions. Popular fronts, associations of entrepreneurs, alternative parties, political action groups, are sprouting everywhere.

30,000 to 50,000 clubs and organizations — with their own causes, constituencies and communication channels, which make up the fabric of the "post-Communist" civic society [are forming]. [86]

More than 60,000 informal social and political groups have sprung up around the country; at the same time, assorted non-political groups concerned with ecological or historical preservation have increasingly been adopting their own political platforms and asserting themselves in areas where the party is losing influence. [87]

Tolz has catalogued many interest groups and presented case studies of some. She says that such groups had been forming, clandestinely, since at least the beginning of the Soviet Union, but that in the 1980s they began to proliferate. [88] Additional references to the formation of interest-groups in the successor states are found in Appendix 13.2.

However, the mere existence of corporate groups with political and economic objectives is not enough for the power-diffusion process. They also must display sufficient clout so that other power groups respect them as potential cooperators or adversaries; they must have sufficient cohesion to appoint emissaries to bargain with the power groups; and they must learn to ally with power groups for leverage. In Russia, all this is for the future, if indeed it happens at all.

Politics in the 1990s

Toward the end of 1991, President Yeltsin of Russia swept up the remaining organizations of the erstwhile Soviet Union and attempted to promote his own liberalizing economic plans. While he consulted international organizations, seeking and being promised assistance from the Western powers and the International Monetary Fund, he continued to ignore the interest groups within his own country.

As Yeltsin squared off against parliament in 1993 to determine who was the primary leader of Russia, voters expressed overwhelming confidence, while demanding new parliamentary elections. [89] Later that year, he disbanded the parliament, which refused to leave its building but instead impeached the president, electing a new one. [90] For a few days Russia had two presidents, in a scene reminiscent of fifteenth-century Europe, when at one point the church had three popes and at another France had two kings. In October Yeltsin called on the troops to attack parliament and arrest its members.

During that month, we witnessed an extraordinary spectacle: Western governments cheered while the Russian parliament was emasculated and power was concentrated in one man — the president — who promptly suspended the high court. [91] He also banned opposition organizations and newspapers. fired political opponents, [92] and dismissed an elected local governor, showing he could do so for all governors if he wished. An impartial observer ("visitor from Mars") might have been astonished that instead of standing up for a division of powers among executive, legislative, and judicial branches, the world's democracies supported the engrosser of absolute power. While expressing a vague wish for democracy in Russia, the President of the United States was more eager for the immediate conflict to be won by free markets (Yeltsin) over Communism (parliament). Probably his reasons were political — the security of the United States — rather than economic or altruistic. Furthermore, Yeltsin began to waver on his free-market stand in less than a year. Most serious of all, the roles of popular groups — businesspeople, farmers, and other interests — were not considered, either within Russia or by international circles.


  1. Lawrence 1978:39.
  2. Lewis 1988:64.
  3. EBMa 1974:16:40.
  4. EBMa 1974:16:41.
  5. Lewis 1988:156.
  6. Lawrence 1978:58.
  7. EBMa 1974:16:43.
  8. Bobrick 1987:168,328.
  9. Blum 1961:300.
  10. Wadekin 1982:97.
  11. Keller, Bill, "The Baltic Republics Are on the Road to Capitalist Socialism," New York Times, 8/6/89.
  12. Blum 1961:20.
  13. Berman 1963:188-89.
  14. Feldbrugge 1977:5.
  15. Feldbrugge 1977:2-3.
  16. Berman 1963:192.
  17. Lawrence 1978:85.
  18. Berman 1963:191.
  19. Lawrence 1978:39.
  20. Novgorod will be considered at greater length in Chapter 21.
  21. Lawrence 1978:69.
  22. Lawrence 1978:71.
  23. Kaiser 1980:91.
  24. Kaiser 1980:103.
  25. Berman 1963:193.
  26. Berman 1963:195.
  27. Bobrick 1987:46.
  28. Kaiser 1980:3.
  29. Kleimola 1977:29.
  30. Butler 1977:69.
  31. Bobrick 1987:222.
  32. Korb 1863:186-87, cited by Butler 1977a:69.
  33. Berman 1963:206.
  34. Berman 1963:203.
  35. Raeff 1984:30.
  36. Milner-Gulland 1989:109.
  37. Raeff 1984:91.
  38. Raeff 1984:80-81.
  39. Berman 1963:208.
  40. van den Berg 1977:218.
  41. Berman 1963:212.
  42. A more extensive listing of the reforms is found in Berman 1963:213-4 and in Raeff 1984: 177-86.
  43. Wagner 1976, cited in Kaser 1978:465.
  44. Kaser 1978:465.
  45. Hazard 1977:237.
  46. Berman 1963:216-17.
  47. Berman 1963:228.
  48. Berman 1963:237.
  49. Berman 1963:297.
  50. Berman 1963:292.
  51. Berman 1963:261.
  52. Berman 1963:298.
  53. Berman 1963:351.
  54. Arnold 1937:3-5.
  55. Blum 1961:390-91.
  56. Arnold 1937:6.
  57. Arnold 1937:7-8.
  58. Arnold 1937:8.
  59. Kahan 1989:58.
  60. Kahan 1989:54.
  61. Arnold 1937:17.
  62. Théry 1912, Preface.
  63. Kahan 1989:49.
  64. Arnold 1937:30, 53.
  65. Taubman, Philip, "In Soviet Shopping: Rubles, Coupons, and Real Money," New York Times, 7/22/87.
  66. Feldstein, Martin, "Why Perestroika Isn't Happening," New York Times, 4/21/89.
  67. Bobrick 1987:241.
  68. Lawrence 1978:70.
  69. Bobrick 1987:29.
  70. Kaser 1978:430.
  71. Kaser 1978:426.
  72. Raeff 1984:66.
  73. Raeff 1984:100.
  74. Milner-Gulland 1989:109.
  75. Raeff 1984:134-35.
  76. Raeff 1984:136.
  77. Raeff 1984:137.
  78. Raeff 1984:142-43.
  79. Powelson 1988:115-17. This publication also covers the landholding system, cooperative communities (mir), and peasant emancipation, which are not subjects of the present book.
  80. Kahan 1989:192.
  81. Lawrence 1978:196.
  82. Raeff 1984:217.
  83. Berman 1963:216.
  84. Berman 1963:346.
  85. Berman 1963:354.
  86. Broder, David S., "Passing the Torch — Soviet Style," Washington Post Weekly, 8/6-12/90.
  87. Petro 1990:115.
  88. Tolz 1990:1.
  89. Schmemann, Serge, "Russians Appear to Hand Yeltsin a Victory in Vote," New York Times, 4/26/93.
  90. Melloan, George, "Yeltsin Triumphs, but Some Bills Will Come Due," Wall Street Journal, 9/27/93.
  91. Wall Street Journal, 10/08/93.
  92. Schmemann, Serge, "Yeltsin Uses Decrees to Curb Dissenters," New York Times, 10/6/93.

Copyright © 1994 by the University of Michigan. First published in the USA by the University of Michigan Press, 1994.

Published on the World Wide Web by The Quaker Economist with permission from the University of Michigan Press, 2005.

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