Stalemate in Moscow
Jude Wanniski
September 27, 1993


On the surface, Boris Yeltsin holds all the high cards in his struggle with the Russian parliament, but, in fact, he is losing ground. In St. Petersburg this weekend, leaders of the regional governments urged a compromise, by which both the president and parliament would retreat from their edicts to dissolve one another, and instead would agree to hold simultaneous early elections. In the gridlock that has developed concerning the nature and timing of economic reforms, this has been parliament's position all along. In his decree dissolving parliament, Yeltsin announced new elections only for parliament in December. He subsequently announced, presumably on advice from the west, that presidential elections would be held in June. The fear of the parliamentarians, led by Vice President Alexander Rutskoi and chairman Ruslan Khasbulatov -- both of whom were allies of Yeltsin in his contest against Mikhail Gorbachev -- is that Yeltsin will use the interim to consolidate his ability to manipulate the presidential elections in his favor. 

The G-7 western governments, following the lead of President Clinton and British Prime Minister John Major, remain unqualified in their blind support of Yeltsin. As far as I can tell, nobody in Washington in either party really knows what's going on and they are simply backing Yeltsin on the grounds that he is a good guy and his opponents (his old friends) are bad guys. The western press corps, taking its cue from the western governments, is still presenting Yeltsin as their favorite, with the parliament an obsolete collection of "hardliners." The developments this weekend in St. Petersburg reveal political complexities at the grass roots that will force politicians in the west to take a closer look at the genesis of the crisis. If they proceed blindly behind Messrs. Clinton, Major and the G-7, they risk blundering into a political morass that indeed creates a Yugoslavia with nuclear implications. There are now reports that three of the most important of Russia's 12 military districts -- the St. Petersburg, Siberian, and Volga districts -- are considering opposition to Yeltsin. According to Reuters, the chairman of Siberia's parliament has offered Rutskoi the option of relocating the national parliament in Novosibirsk, the center of gravity in the military-industrial complex and the staging ground for most of Russia's ICBMs! 

When Yeltsin declared dissolution of parliament, my guess was that he would fail as the military was forced to choose sides. This is precisely because Yeltsin's political opponents are correctly characterizing him as a pawn of the west. Yeltsin originally surfaced in the west as a pure, defiant agent of democracy in opposition to Gorbachev's defense of the Old Guard and its incrementalism. He thrilled all of us with his principled boldness. In September 1989, though, on my return from Moscow with Fed Governor Wayne Angell, a story appeared in The New York Times that Yeltsin was about to arrive in New York for a speaking tour of the United States. In my client letter, "Mission to Moscow," 9-14-89, I wrote:

It suddenly struck me why Yeltsin makes me nervous. The story related that he would be feted by David Rockefeller, by the Council on Foreign Relations, by MIT's zero-sum economist Lester Thurow, and by leading liberals of the Democratic Party...My nervousness about Yeltsin is not only related to the dubious company he is keeping in the U.S., but the fact that he does not have a specific agenda. He simply demands that Gorbachev move faster. Where? How? What does Lester Thurow advise? Another devalued ruble, of course, and higher taxes to balance the budget, so that by the year 2005, the ruble can be made convertible to the dollar.

Yeltsin came to power two years later, with the backing of Rutskoi, Khasbulatov and the Russian military. The new regime immediately took on a more democratic coloration, one far more committed to free-market economic reforms. Alas, Yeltsin allowed his Ivy League patrons in the United States to guide his economic policies toward the "shock therapy" they were then devising for Poland. In my report, I also noted that Solidarity's "[Lech] Walesa's chief economic advisor is Jeffrey Sachs of Harvard, who with Lester Thurow has been among the economists behind Jimmy Carter, Walter Mondale, and Michael Dukakis." This was the team that won the support of The Wall Street Journal editorial page, Jack Kemp, Newt Gingrich and practically every conservative political commentator in the United States -- not to mention GOP regulars like Senators Bob Dole, Phil Gramm, and Richard Lugar. Indeed, some of my old neo-conservative friends supported this team maliciously, wanting to cripple our old adversary in Moscow and knowing there is no better group to accomplish this than the Ivy Leaguers. The Israel Lobby is fanatically supportive of Yeltsin, on the grounds that parliament houses an anti-Semitic, anti-Yeltsin faction. On the other hand, Yeltsin's shock therapy is feeding anti-Semitism the same way it did in Germany in the 1920s. In this circular fashion, the anti-Semites in parliament are correct in their suspicion that the Israel Lobby in the U.S. is supporting the policies that have led to the economic miseries of Russia.

What is absolutely amazing to me is that the same Eastern Establishment that decries China's violations of human rights in suppressing dissent, so casually and universally applauds the dictatorial dissolution of an elected parliament. I've scoured the newspapers and watched countless hours of pontification on the talk shows, and not once have I heard the question raised: What exactly did the parliament do to warrant its dissolution? That is, what specifically is its beef with Yeltsin? If any members of Congress were impertinent enough to ask that question of President Clinton, you can be sure that they would be branded troublemakers, at best. 

The answer, of course, is that gridlock in Moscow has developed over a question of public finance. On the advice of the Ivy Leaguers, Yeltsin wants to balance the budget with a policy mix that involves higher taxes and cheap money -- the same formula the Ivy Leaguers pressed on Jimmy Carter, Walter Mondale and Michael Dukakis. Parliament, reflecting the genuine demands of the masses of ordinary Russians for relief from this insane policy, correctly refuses to balance the budget, correctly opposes higher taxes, and correctly blames Yeltsin for raising state-controlled prices on everything from bread to crude oil. Even amidst a crisis that could well propel Russia into civil war, The Wall Street Journal's "Washington Wire" last Friday reports: "Steps to resolve the political paralysis divert attention from Moscow's failure to meet economic promises. But the U.S. and others still press Russia to agree to raise energy prices, impose a value-added tax and curtail subsidies in order to get more money from the IMF." On the WSJ editorial page Friday, we got another in a series of witless commentaries on how the 2000% inflation in Russia is due "to the monetary clueless parliament," which for reasons the Journal cannot understand, refuses to shut down the money-losing state enterprises and accept, at best, the 20% unemployment rate estimated by the Ivy Leaguers. In that spirit, the Journal hailed the decision of the central bank to sever its legal commitment to the parliament and submit itself to the commands of the President!

Over the weekend, CNN's Walt Rogers, a veteran journalist I've known for 25 years, waded into the crowd of anti-Yeltsin demonstrators outside the parliament and asked them what their beef was. He didn't find any commies. He found a tattered group of people old and young who have been completely impoverished by the Yeltsin shock therapy. An old woman told Rogers the money she had saved to be buried has vanished in the inflation. A teenage girl said her family could no longer afford to pay for her wedding. An old man summed it up: When Yeltsin came, bread was 13 kopecks per loaf [one eighth of a ruble], and now it is 130 rubles. 

We will watch now to see how the Establishment deals with this new twist from St. Petersburg. If there are new elections in both the legislative and executive branch, simultaneously, it is by no means clear that Boris Yeltsin will win, as he barely did in the June referendum, when there was no opponent. We can expect all kinds of circuitous rationales from the White House on why this cannot happen. The real reason is that if the parliament is reconstituted to the status quo ante, the central bank by law will have to reattach itself to the parliament. This would mean shock therapy would be suspended pending the outcome of the elections.

What I will bet my shirt on is that the new parliament that is elected will be just as stubborn in its opposition to shock therapy as the present one -- in parallel to the new government in Warsaw. There, the voters brought back the old "communists" to replace the "good guys," the shock therapists who had been administering high-voltage reforms on the advice of our Power Elite and their friends at The New York Times and The Wall Street Journal. There are no communists in Russia or Poland, I assured several U.S. Senators last week. There is only a group of paranoid patriots who cannot understand why all the advice they've gotten from the west has made life miserable for ordinary people.