Russia experienced one of the largest mass privatization efforts ever undertaken in the history of the world, says Wharton legal studies and business ethics professor Philip M. Nichols. “Virtually everything was at one time controlled by the state. Now that is no longer true. Virtually all assets in Russia have been privatized. However, some of the largest and most valuable assets have been renationalized, or they are privatized in a way that allows the state to continue to control them.”
A prime example is the energy conglomerate, Gazprom, Russia’s biggest company and one in which the Russian government now holds a controlling stake. Another, very highly publicized example is the state’s seizure of the petroleum company Yukos, whose former head, Mikhail Khodorkovsky, was convicted of acquiring the company illegally and is currently in prison.
It is against this backdrop that Nichols recently interviewed Vitali Naishul, president of the Institute for the Study of the Russian Economy and the Center for the Study of Russian Socio-Political Language, and widely acknowledged as one of the creators of the market economy in Russia. During the Soviet era, Naishul worked in the inner circles of Gosplan, the Soviet Union’s central planning agency. In addition, he was one of the founding members of the Snakehill Group, a gathering of economists who met regularly to study and develop strategies to manage the future of the Soviet Union. A paper Naishul wrote for that group, later published as the book Another Life, became the blueprint for the Yeltsin-era economic reforms. “Essentially, he is the architect of the modern Russian state,” says Nichols.
In the interview with Nichols, Naishul talks about privatization in Russia as well as life in Russia today — improvements in material well-being, but also a renewed awareness of insecurity about individual and property rights. As Nichols explains it, “there is no sense that the state cannot take back what it gave you, no sense that property is inviolate. As long as people still see the state as a powerful actor that can take property, there is a feeling of unease. Will your house be your house tomorrow? Will your car be your car tomorrow? That is the kind of uncertainty that Vitali speaks about.” In Russia today, Nichols adds, “it’s not that people worry on a daily basis that some physical harm will come to them; it’s more the sense that physical harm could come to them.”
Naishul remains a well-known figure today in Russia, adds Nichols, who works with him on projects involving business ethics and Russian values. He says he has seen strangers come up to Naishul on the streets of Moscow and ask to shake his hand. “Then they giggle,” Nichols says, “because in Russia, an intellectual is a rock star. That’s how Vitali continues to be seen in Russia today.”
Below is an edited transcript of the conversation, along with video excerpts from the interview.
Philip Nichols: Vitale thank you for spending time with all of us here at Wharton and particularly spending time with Knowledge at Wharton.
Vitali Naishul: It’s a pleasure to come here.
Nichols: I wonder if you could tell us how successful the economic programs in Russia have been, how people in Russia feel about life and their country.
Naishul: They don’t like life in their country, but the economy is very successful. What has happened since 1991 is a very serious transformation, and this led to people now living much better than they ever did before. But at the same time, as soon as people are better off, other problems became most important. People are not protected. Their property is not secure, and they would like to have their country be better organized. That is the aspiration of people who have made their careers in the new business, who are successful by themselves, who can organize both themselves and other people. So it’s not the kind of traditional Russian intelligentsia speaking about better lives and better ways of organizing life, but people who [already] know how to do it.
Nichols: You say that people are materially better off than they have ever been in the history of Russia.
Nichols: Does that translate into a vibrant market for material goods? Is there an appetite to buy things in Russia?
Naishul: Yes, of course. There are a lot of goods, and if you go to Moscow, you can buy everything that exists in the world. Many people — not only oligarchs, but many people — enjoy a very high standard of living. For example, the careers of young people are very successful, so a typical situation is that youngsters are supporting their parents because they earn much more than them, and many have careers that have just skyrocketed.
Nichols: And yet at the same time, they are not happy about the state of Russia, the place that Russia is right now?
Naishul: Well, just imagine [it this way]: You have a great meal but you don’t have any drinks…. That’s the situation that we have now in Russia. No drink of self respect, mutual respect, protected rights, well established society and [so forth]. When you were hungry, you probably thought about different issues…. But if you are materially well off … the richer you are, the more intolerable the situation becomes.
Nichols: I know that before you were in the United States, you were in Italy and the United Kingdom. How would Russia compare in terms of the expectations and attitudes of the people, regular people, to Italy or to the U.K.? Or even to the United States?
Naishul: What I would say is that in Italy, people are less depressed than anywhere else. Talking about standards of consumption — that’s another issue and economists do it perfectly, so I don’t have anything to add. But I think that in London, people [are] less happy. And I would say that in certain places in the United States, there is some sort of depression here as well. In Russia, of course , there is a much stronger depression.
Nichols: You mentioned that part of the depression, part of the attitude, has to do with property rights or expectations regarding property… Do people still feel as insecure as they felt during the times immediately after Perestroika?
Naishul: Insecurity changed. At that time, insecurity was because different people were in this mess of bleak economic and social transformation. Now it’s insecurity because institutions do not work properly, so if you are attacked by somebody and this person is stronger, the chances of getting justice are less. [It’s not so much that] life itself is somehow dangerous — it’s not that; you can live happily — but the feeling that potentially, you may be deprived of some rights. It’s the feeling that potentially, you can be ill…. You’re healthy, but at the same time, you understand that you have a chance of getting a disease. So I would like to stress that ordinary life still is fine. There’s nothing dangerous for natives or for people who come to Russia.
It also has to be understood that Russia has some areas of very high culture, [such as] Russian literature or Russian music. In some respects, people compare our greatest achievements with poorer realities that we have in areas like the legal system, or the system of the government. So we have aspirations for having much better systems.
Nichols: What Russia does have is an astonishing cultural history. As you know, Dostoyevsky is my favorite author. But today, right now, what would be the areas where Russia is strong, where it is excelling?
Naishul: I would say that Russian intellectuals, Russian intelligentsia — some of them have moved to other countries, living elsewhere and some of them have organized themselves in small groups — are finding their ways of survival. I don’t think that we have a complete decline, but I think that we have problems in this area as well. It relates not only to institutions but to a lack of general understanding of what Russia is going to do. What is the role of Russia?
Nichols: When you speak of general ideology, a very interesting schism in the United States is between people who experienced the Cold War and people who didn’t, between people who have stereotypes about Russian ideology and people who don’t. Demographically, the U.S. is almost split in half between these groups.
How do people in Russia perceive the relationship with the United States?
Naishul: If you look at very old generations, I was surprised when I was in some deep rural areas and was asked, “What do you think about the United States?” in the Soviet times. They said, “We ate American meals during World War Two.”
Nichols: Are you referring to the aid that the United States provided to the Soviet Union?
Nichols: They were eating canned meat from the U.S.
Naishul: Yes. And that was, to them, extremely important, because it let them survive. It was not an additional meal; it was the kind of meal that at that time was in scarcity. It has to be understood that World War Two was a time of extreme hardships, much greater than anything else. For example, in my father’s generation, only five percent of males survived.
Nichols: That’s a number that in the United States and probably in many other countries in the world is almost hard to make sense of.
Naishul: Yes. People died. There was hunger, and at the same time, we fought and we crushed the strongest army in the world at that time. So that was a difficult time, and people remember it was an American meal. For the younger generation, of course, the United States is some sort of example because, well, everybody knows that the mother of modern democracy is America. Also, the whole world is falling into patterns that emerged in the United States…. But there is also the usual anti-Americanism which exists everywhere…. I found it in very many different places because the United States brings new patterns and the whole world has to adapt to these patterns…. It’s a hard process, actually. At the same time, I would say that despite stereotypes, the U.S. and Russia can be much closer than they are now. For example, the feeling of spaces. Geographically, we are huge countries. And we think similarly about this kind of neutral space.
Nichols: Siberia. The wild west.
Naishul: yes, Siberia, the wild west. We have eight time zones.
Nichols: Well, if you count Alaska, we’ve got a few ourselves.
Naishul: Yes, yes. And maybe it should be remembered that Russia was the first country to recognize the United States. And in all major conflicts, we were on the same side.
Nichols: That’s really interesting because we tend to think only of the Cold War. But you bring out a very interesting point. In all actual conflicts, we have been allies.
Naishul: Yes, and so it looks like when there is nothing to do, we invent problems. As soon as there is a real issue, we are together.
Nichols: You mentioned how difficult transition is. You are uniquely situated to talk about those difficulties as a member of the Snake Hill Group. Can you tell us how the Snake Hill Group formed and why?
Naishul: It is difficult to answer this question. To me, this question is like, “How did you get married?”
Nichols: It’s a far more difficult question for my wife than for me. But give it a shot.
Naishul: In the 1980s, a group of different people in different parts of Russia started to think about the coming economic crisis. I, myself, understood in 1979 that the Soviet Union would be dead soon. So I worked on the state planning committee and I observed huge economic discouragement, huge and growing, and I knew that it was not because of some evil forces but because the consensus was that we had failed. So I started to think about how to change from this system to a market economy. Later, I met other people who thought about that and about deep economic transformation. We understood from the very beginning that there was quite a lot that should be done. It’s not just systemic change but change of the whole system. So I immediately began to think about privatization, about how it should be carried out. I thought about voucher privatization in the beginning of the 1980s.
Nichols: What model did you use? How did you even know about privatization? Where did this information come from?
Naishul: I worked on the state planning committee. And I [asked the question], Who is an economist? An economist is the person who understands that all the resources are scarce. By working on [the state planning committee], I had this feeling of what the economy can do and what it cannot do. And after that, I read books on market economies, but I must say, they were very familiar to me. So I remember being surprised that reading this Western literature gave me the feeling that they understand the same things as I. I think that other members of this group [thought] the same way.
Nichols: Of the Snake Hill Group.
Naishul: By the way, the Snake Hill Group was ready to think about very radical changes in approaches. For example, when some members of the Snake Hill Group went to Chile, Chilean reformers were surprised that the first question they got from Russians when they talked about the Chilean system of private pension reform, was, “Why do you need the pension system at all?” So we were ready to look. We were searching for any decisions, including radical decisions. And in 1991, when the Soviet Union collapsed and the economy collapsed as well, there seemed to be only one group of people who were able to give consistent recipes of what should be done. Actually, all the Russian economic reforms were [centered around] two decrees. They were most important for Russian economic reforms. One decree liberalized prices. The second [allowed] people to trade in the streets. So it opened the way for people to participate in a market economy. On January 1, 1992, the market economy started. I think that all other things — including privatization — were secondary to this.
Nichols: I want to thank you very much for explaining the present, providing a glimpse of the future and offering a window into the past that not all of us understand.
Naishul: Thank you.