Is President Boris Yeltsin seen as a hero or a traitor to the Russian people for making the transition to capitalism?

by Yung_bernie
Shashank1000

To give short answer, he is not perceived positively by a vast majority of population.

It would be useful to look at the policies pursued by Yeltsin and their consequences which made him unpopular because I don't think the term "traitor" is quite correct. Before explaining the reforms, it would be necessary to know the policies that were pursued by the Soviet State in general. I have tried to explain it in detail here. In essence, the basis of market reform came within the Soviet bureaucracy which had come into increasing contact with Western businesses through increase in trade and engagement with Western countries in order to improve the economic performance. This was also made easier by the fact that many aspects of Capitalist enterprises like firm division of labour, professional management with the chief aim to increase output with incentive based payments. The Soviet Union had also separated Ministries and Management. The support for market reform came from bosses of successful enterprises. Gorbachev's reforms created market relations between firms by converting them into Joint Stock Companies, released foreign trade from State monopoly, opened up Moscow Stock exchange and encouraged the development of the financial system by splitting up the Monobank into three State owned banks. This had disastrous consequences for the economy most of which were unintended consequences.

After the coup attempt failed, Yeltsin who was now empowered and backed by foreign countries and certain sections of the bureaucracy, State enterprise managers and private entrepreneurs sought to give a shock treatment by transitioning to Market Capitalism through complete liberalization of prices, privatization of most Industries and further liberalization of trade and foreign Investment. The hope was that bringing in Foreign Capital and Domestic Private Capital through liberalization of Investment would allow Russia to enter into New Industries (This was tried to implemented by Gorbachev through his "Innovation Centers") and loosening the grip of the State on distribution of goods because of price liberalization would improve output and the shortages which had always been the hallmark of the Soviet Economy that were becoming increasingly prominent 1980's would be reduced. They were actively encouraged in this process by IMF, World Bank and European Bank for Reconstruction and Development.

The problems however quickly became apparent. Every country has to maintain it's Balance of Payments which are made up of Trade Balance (Exports- Imports), Foreign Investment (Inward Investment- Outward Investment) and Remittances send by people working abroad. The dramatic liberalization allowed great increase in imports but which were not matched by any increase in exports.The Soviet exports had little competitiveness and imports rapidly increased dramatically. This was the same problem in all former Socialist State. In East Germany, two years after Integration, imports reached 110 percent of GDP while exports remained the same at 10 percent of GDP. Part of the reason was that very few of Soviet Enterprises had competitiveness in International Markets and very little experience for doing so.

Ha Joon Chang has shown that merely allowing or liberalizing does not bring in Foreign Investment. Foreign Investors would want to come only when there is a functioning economy and where there is scope for making profits. This paradoxically requires a State policy that pursues economic growth and heavy Investment in Infrastructure, Education and Industrial Policy. There was widespread restrictions on Investment in China and yet foreign Investors heavily came because of rapid economic growth. The US in the 19th century was much more liberal, yet the Government maintained a strong preference for Domestic Investors. Foreign Investors were not protected by law in many State and neither were patents of Foreign Firms. Yet, it was the biggest importer of Foreign Capital. Foreign Capital played a key role in form of Investments and loans for the development of Railways. This was because it was growing exceptionally fast. By contrast, the Russian State had turned into a worst sort of rent seeker that had basically lost control over it's economy. Indeed, by 1996 Russia attracted $1.6 Billion in Foreign Investment. Private Investment was less than 1 percent of GDP. That made for a grand total of $11 per person. Russia was entirely dependent upon aid from Western countries to keep it from being bankrupt.

The Privatization created a new class of oligarchs many of whom were members of the former Soviet bureaucracy. The collectivist bureaucracy thus was transformed into the Capitalist Class.The EBRD distinguished between "real private companies" and the Non State Companies like the ones which I described above. The State continued to hold substantial shares in the privatized companies like Gazprom where the State owned around 38 percent of the Company in 1998 (which was hiked to 50 percent 10 years later by Putin administration). A research paper showed that out of 439 Industrial Companies chosen, 110 were owned by the State, 140 were Worker Co-operatives, 40 were owned by Managers and only 30 were owned by Private Sector and Foreign Investors. In 70 privatized Companies, about 51 percent of shares were held by Workers and Mangers.

The problem of course, was that this did not nothing to improve productivity which was the problem as the output was not enough to cover the cost of operating them much less run it profitably. After privatization, these new "shareholders" continued to demand subsidies to keep the companies open and prevent bankruptcies. A large share of workers had to be fired or take substantial pay cuts to remain employed. The shares were soon brought by oligarchs in exchange for small amount of money. The amount of inter enterprise debt was very large and many "Red Directors" soon fed up with the continuing disasters and pubic dissatisfaction,and slowly started regaining control over the Enterprises. The prominence of reformers like Chubalis were reduced and the entire program was discredited.

So, to conclude he was extremely unpopular by the time his presidency ended with approval ratings of about 2 percent because of economic collapse with GDP per capita reduced by as much as 40 percent, rise in inflation to over 150 percent because of price liberalization and foreign debt made worse by a dramatic decrease in value of rouble and which was already a problem in Soviet era leading to a ultimate default in 1998. The State services also vanished because of lack of revenue owning to the above situation and loss of control over the economy along with the rise of Mafias who took tributes that were as high as 20 percent of the income earned. Moreover, most of workers went back to informal sector as unemployment increased dramatically. Life expectancy decreased to around 63 by 1998.

References:

The Piratization of Russia: Russian Reform Goes Awry by Marshall Goodman

The Collapse of Stalinism and the Class Nature of the Russian State by Ted Grant

Transition Report 1995, European Bank for Reconstruction and Development.

Mafia Capitalism or Red Legacy? by Gary Dempsey; CATO Institute