Anthony J. Pennings, PhD

WRITINGS ON DIGITAL STRATEGIES, ICT ECONOMICS, AND GLOBAL COMMUNICATIONS

Russia and the Era of Pan-Capitalism

Posted on | October 9, 2020 | No Comments

The fall of the Berlin Wall and the disintegration of the Communist Union of Soviet Socialist Republics (USSR) bloc meant the world was no longer significantly divided by Cold War antagonisms. Communist China had already embraced market dynamics and global trade and a pan-capitalist condition of free flows of information and money was spreading globally. This post briefly discusses the breakup of the USSR and the globalization of digital capitalism.[1]

Although a Communist bloc, the USSR had become deeply indebted to the global banking system, exerting additional pressure on a system already addicted to military spending. The term “Eurodollar” reportedly gets its name from a Russian bank in France that was laundering dollars after the Communist Revolution in 1949. The cable address of the bank happened to be “Eurobank.” The Russians also placed their dollars in the Paris-based Russian Banque Commerciale pour l’ Europe du Nord and the Moscow Narodny Bank in London. It was soon traded by other European banks and purportedly took the name “Eurodollar” from the cable address in Paris.

As mentioned in my earlier work on digital monetarism, Eurodollars were the prime credit vehicle for recycling OPEC’s petrodollars worldwide during the 1970s. Through syndicated lending, banks lent Eurodollars excessively to many nation-states, including those in the USSR.

The result of petrodollar recycling was the “Third World Debt Crisis,” that created havoc throughout the 1970s and into the 1980s. Debt put pressure on public resources that were often transformed into state-owned enterprises (SOEs) and eventually sold off to investors. Excessive debt led to an era of imposed deregulation, liberalization, and privatization. Although painful, it opened up the telecommunications world to the Internet and its World Wide Web applications.

The “official” start of the world debt crisis can be traced to the March 1981 announcement by Poland that it could not meet its payment commitments. Previously, banks found it easy to reschedule old debt and lend them new Eurodollars. An “umbrella theory” circulated which held that the Soviet Union would guarantee the debts of the countries in its sphere. But the USSR was having economic problems that went unnoticed by the banks. They still retained a high credit rating and the banks continued to pour money into it.

By 1984, the Communist bloc was gathering significant debt and the economy was faltering, largely due to the drop in oil prices. Defecting spies were reporting that the USSR was a mess. Workers were unmotivated because the store shelves were empty. Lines to purchase scarce goods were everywhere. Nearly half the Russian economy was devoted to military spending and the other half producing shoddy and scarce consumer goods, determined and designed by Communist committees.

With Reagan’s “Star Wars,” Premier and Communist Secretary-General Mikhail Gorbachev knew that the USSR could not keep up with the capitalist world’s innovation and spending. He pleaded with Ronald Reagan at a Reykjavík Summit of 1986 to give up the militarization of space and instead work to reduce nuclear weapons. But Reagan refused. So Gorbachev instead began a public relations campaign to encourage more debate about the USSR, and it’s political and economic future.

In June of 1989, Gorbachev made the call to Poland to tell their Communist party leaders to accept the results of their democratic election. The decision started the processes of glasnost and perestroika throughout the Soviet system. The first term meant political openness – media freedom, democratization of power, and the release of political prisoners. The second meant gradually allowing entrepreneurial activities, reforming state-owned industries, and privatizing government assets.

Deng Xiaoping had already started to reform Communism in China during the 1980s with his “socialism with Chinese characteristics.” Deng and other post-Mao Communist leaders argued that “China had mistakenly entered into Communism during its feudal stage instead of waiting until advanced capitalism, as Marx had theorized. Private ownership and a market economy were suddenly embraced as solutions, not problems. This allowed the Chinese Communist Party to legitimize both its turn to market capitalism and the continuance of its political control over the country through Marxist ideology.”[2]

The fall of the Berlin Wall in 1989 began the process of dismantling the Warsaw Pact and, with it, the USSR Communist bloc. Started in 1955, the Warsaw Pact was initially a defense treaty among Albania, East Germany, Poland, Hungary, Romania, Bulgaria, Czechoslovakia, and Russia. But after East Germany left, the other countries clamored to leave as well.

Czechoslovakia and the Baltic states (Estonia, Lithuania, and Latvia) soon declared their independence from the USSR along with the Republic of Belarus and the Ukraine. Some joined Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, and Uzbekistan to create the Commonwealth of Independent States (CIS).

President George H. Bush met with Gorbachev in early December 1989, just a month after Europe’s “9/11” dissolving of the barriers between East and West Germany. Meeting in Malta, they resumed START negotiations on nuclear arms control as well as came to agreement on how conventional forces would dismantled in Europe. Gorbachev’s decision to allow a multi-party system and presidential elections in Russia also began to destabilize Communist control and contributed to the collapse of the Soviet Union.

A coup was engineered by Communist hardliners in August of 1991 and although it failed, Gorbachev resigned by Christmas. But not before dissolving the Central Committee of the Communist Party of the Soviet Union and resigning as its Secretary General. Also in 1991, the Soviet military relinquished control over the other militaries. Russia also agreed to take on USSR debt held by the USSR, in excess of US$70 billion.

By promising glasnost and perestroika, Gorbachev changed the political dynamic of a dying system. It was the promise of a political and legal infrastructure for a democratic and market political economy integrated into the world system. The process accelerated in Russia with the election of Boris Yeltsin in 1991 as the first President of the new country. Yegor Gaidar, an economist known for pushing free markets, became the Prime Minister. Yeltsin worked with a group of opportunistic Russians to outmaneuver the Communist directors of the USSR economy to take control of major industries, many going on to become billionaires, the so-called “oligarchs.”

In the first few months of 1992, the new government freed prices and legalized entrepreneurial activity in a process called “shock therapy” – rapid liberalization of the economy. By 1994, Yeltsin worked with Russian banks to raise cash to help privatize major companies. The Russian “loans for shares” program lent the government money in exchange for temporary shares in state-owned companies. When the government defaulted in 1995, they auctioned off major stakes in companies involved in aluminum, oil, nickel, and other important resources as well as food production, telecommunications, and media.

The end of the Warsaw Pact signaled a new liberalization by Moscow and the satellite countries of the USSR. However, it was displaced by economic “shock therapy” – severe austerity and privatization that crippled economic recovery. The resultant chaos led to the return of the Russian “strong man.” Vladimir Putin became the President of Russia in 1999.

Notes

[1] I use the term digital capitalism here as many parameters operate to shape types of capitalism.
[2] Pennings, A. (2014, April 22). E-Commerce with Chinese Characteristics. Retrieved from http://apennings.com/global-e-commerce/china-e-commerce-ipo/

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AnthonybwAnthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

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    Professor and Associate Chair at State University of New York (SUNY) Korea. Recently taught at Hannam University in Daejeon, South Korea. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, media economics, and strategic communications.

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