RUSSIA, LAND OF ENTERPRISE

Norman Lamont defends Mr Yeltsin, and rejects

the new orthodoxy that predicts inevitable crisis and failure for the former Soviet Union

SIX YEARS ago in Washington it fell to me as chancellor of the exchequer to intro- duce Yegor Gaidar, then Russia's finance minister, to a packed meeting of the IMF. It was rather like introducing a new mem- ber of the House of Commons. We walked together up the aisle, but instead of being greeted by the Speaker the newly admitted member shook hands with Michel Cam- dessus, then, as now, the IMF's managing director.

It was a historic moment. It was the acknowledgment of Rus- sia's wish to enter the global economy. I vainly attempted to interest the British media. None were interested. I was even taken to task by The Spectator's City columnist for spending too much time on Rus- sia.

It was then that I first met young eco- nomic reformers like Yavlinsldy, Fyodorov and Shokhin. They could have come straight from the pages of Turgenev's Fathers and Sons. They had all the passion of 19th-century Russian liberals for foreign ideas. I was impressed by their courage and understanding of market economics. I particularly wanted to help improve the efficiency of Russia's primitive banking sys- tem. I arranged technical assistance from the Bank of England. With Yeltsin's approval I devised a scheme for British banks, with government assistance, to take young Russians for training. I wrote to hundreds of UK firms and, as a result, over 1,000 young Russians were trained in British financial institutions.

Two weeks ago I found myself again reflecting on these matters in St Petersburg at the time of Yeltsin's double whammy of default and devaluation. At that point there was little sense of crisis. Admittedly there were a few queues outside banks, and in shops new price tags were being placed on top of old.

But at the Grand Hotel, the mobsters' molls, dressed head to toe from Prada, continued to slip through the metal detec- tor to the caviar hall, followed by squat men with crew cuts and open-necked check shirts. On the streets I noticed many four- wheel-drive vehicles with dark windows, and one Rolls Royce, though most cars were old. The shop windows seemed full of goods compared with the empty shelves in Moscow during my last visit.

However, away from the centre and up Moskovsky Prospekt you find a different city. The buildings are crumbling, the streets full of rubble and the shops much drabber. I wondered what life must be like in Gorky or Volgograd. Millions of Rus- sians today survive outside the formal econ- omy and have not seen money for years.

Commentators have eagerly written off Yeltsin's presidency as an abject failure. One wonders what they imagined success could possibly have looked like. The hold- ing and winning of the first direct election for a Russian president was a historic achievement. On the economic front, it was Yeltsin's lifting of price controls that brought many more goods into the shops. Russia has the beginnings of a new service economy.

In recent days it has been suggested that attempts at full-scale reform of Russia's economy were naive and always doomed to failure. It is ironic to recall that the original IMF programmes for Russia were criticised by economists like Jef- frey Sachs for being insufficiently radical.

It was always clear that economic reform was a more difficult task in Russia than in East- ern Europe. The differ- ence between 45 and 70 years of communism is huge. In Hungary, Poland and Yugoslavia the market economy was never entirely extinguished. Stalin's legacy was many giant, unprivatisable, single- product factories, frequently the sole employer in a city.

It is unsurprising that the 'oligarchs' have ended up controlling large parts of the new, emerging economy. That was the only way in which large parts of the economy could be privatised.

One of Gorbachev's fears was that pri- vatisation would mean that state assets would be handed over to a few billionaires. At the time I put that down to his lack of understanding of privatisation. I still think he misunderstood privatisation, but he was proved right.

Whatever government emerges from the present crisis is likely to try to 'get the economy moving' by printing money and breathing fresh life into the giant business enterprises with their banking affiliates. It is argued that this takes more account of the social realities of Russia. Sadly it will also prove a complete dead end.

Whoever is head of the Russian govern- ment, Chemomyrdin, Lushkov or Lebed, is unlikely to be able to call a complete halt to reform. The process may slow for a while, but than it will start again.

Millions of Russians have glimpsed the possibility of a better life. As the Iranians have discovered, it is impossible to close an economy off from the consumerist culture of the rest of the world. Many Russians have taken to capitalism. I once asked Grigor Yavlinsky — then an adviser to Gorbachev — whether communism had extinguished the spirit of enterprise. 'You do not realise', he replied, 'what enterprise ordinary people have to have merely to sur- vive.' There are plenty of enterprising Rus- sians.

The crucial issues will not go away. A stable currency must be the top priority. Two pressing problems are tax collection and inter-company debts. Many Russian firms continue to produce goods and spare parts for other firms regardless of whether they are paid or not. But this adds to the problem of tax collection. At the moment Russian tax revenues are below 20 per cent of GDP, which means the state cannot pro- vide basic services or pay its employees.

Another key failure has been the absence of a proper framework of law. A modern market economy needs a stable framework. The Duma has passed a continually chang- ing and bewildering array of laws.

The immediate future of Russia looks immensely bleak and frightening. But Adam Smith once observed that there is a deal of ruin in a nation. Many Russians have been living near to subsistence for years. They have shown great patience and stoicism.

Russia by itself will not cause a slump in the West. If there is a global slow-down or recession it will be for other reasons. But Russia matters for itself. What happens there will affect us all politically. Russia is a challenge to the West.

Nine years ago Francis Fukuyama wrote a bold and brilliant essay. Writing before Gorbachev's reforms had reached their cli- max, he predicted the 20th century would close by seeing the universalisation of Western liberal democracy as the final form of human government. The conse- quences would be the end of conflict between large states caught in the grip of history. He called this The End of History.

If Russia goes badly wrong, what we may see is history starting all over again.

`She was always a trend-setter. All her competitors are doing the same thing.'