MICHAEL HUDSON: The Russian kleptocracy made its money from economic rent, basically natural resource rent. The United States’ promise to the Russians was, well, if you just give all of the property to the owners, give every factory to the factory manager, give the gas company to the heads of managers of Gazprom, if you give it to them, then nature will take its course and they will all be led by the invisible hand to invest and act just as the United States did. But, actually, this is the exact opposite of every way that the United States got rich. And the Russians did not even have a progressive income tax for all of this.


Well, here’s what happened in 1994, 1995, when Russia decided to privatize, essentially, there was a scheme that was put into its hands to privatize all of the nickel and the raw materials and the oil companies. And so the government borrowed money from the banks. The banks would write a check to the government, let’s say, for $5 billion. The government would take this check, and it pledged as collateral, the holdings and Neurolch nickel and other oil and others. And the government then deposited this $500 billion check back in the bank that wrote it. So the bank wrote a check, it was redeposited there, it was free. The banks created free money. That’s what banks do. They create it on their computers, on a balance sheet. And sure enough, Russia ended up giving all of its natural resource rent to the kleptocrats.


Well, you mentioned that they wanted to get dollars. Well, how do they get the dollars? Here they have the stock in Neurolch nickel and Yukos oil. The only way they can get money from the stock is to sell it abroad in England and America because the Russian savings were wiped out with the hyperinflation. So the Russians didn’t have any ability to buy their own rent-yielding natural resources. Only the foreigners did. And from 1995 to 1997, Russia’s stock market was the leading stock market in the world. And that was because it was a bonanza. It was free money from the public sector.
And if you look at the last 2,000 years of history, almost all the fortunes in every country in every century have been made by getting money from the public sector. Fortunes are made by privatizing what was in the public sector and by insiders giving it to themselves. That’s how the Roman Empire made its money, by seizing land right down to the United States, grabbing land from the Native Americans.


So you had all of this privatization, and needless to say, the kleptocrats’ modus operandi was that of a rentier. It was a rent-seeking economy that the neoliberals advised Russia to do, not a profit-making economy where industrialists would hire labor to produce more goods and services. The fact is that the factories, as you know, stopped paying the labor.
And the one thing that Russia did not privatize and give away freely was the housing. I made three speeches before the Duma in 1994 and 1995, and I brought over America’s former Attorney General Ramsey Clark and others, trying to convince them that you should give everybody their housing, just give it in their own name, then they wouldn’t have to buy it. You’d create at least their own housing, you’d create an internal market. That wasn’t done until very, very late in the game, until a point was reached where the Russians and also the Baltic states and all the post-Soviet states had to pay enormous amounts of money just to get housing, while all of the rest of the land and natural resource wealth was given away freely by the kleptocrats. That was the neoliberal travesty of rentier capitalism.

俄罗斯唯一没有私有化和免费赠送的是住房。1994年和1995年,我在杜马前做了三次演讲,我请来了美国前司法部长拉姆齐·克拉克(Ramsey Clark)和其他人,试图说服他们,你应该给每个人住房,只要以他们自己的名义提供,这样他们就不必购买了。你至少会创造自己的住房,你会创造一个内部市场。直到游戏进行到非常非常晚的时候,直到俄罗斯、波罗的海国家和所有后苏联国家不得不支付巨额资金才能获得住房,而所有其余的土地和自然资源财富都被盗贼统治者免费赠送。这是对食利者资本主义的新自由主义嘲弄。

I think that’s why when you read the speeches of President Putin today or Secretary Lavrov, you can see just the disgust that they feel almost for themselves for ever having been suckered into this kind of neoliberal plan. I think that’s spurred them to say, well, look, we have to turn east, not west. This is how all of Europe and America are making its money. They’re turning into a rentier economy. We’ve seen what that did to us, and as President Putin said, Russia lost more of its population economically in the 1990s as a result of neoliberal rentier policy than it lost militarily in World War II. Well, it’s never going to do that again, and that is what has set its mind so much on to creating an alternative. When there’s a will, there’s a way, and there’s now the will, and that’s been the precondition for creating a much sounder basis for growth in Russia, China, and the rest of the global majority.


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GLENN DIESEN: You mentioned the will, but what would be the way, because do you see, I guess, Russia following the same path now as China has? Because when we began this program, I mentioned the American system, because I sometimes feel like this is the model maybe at least China, but also to a large extent, Russia might be following because they were in a very similar situation now as the Americans were in the early 19th century, in which the Hamiltonian economics all transformed itself into this American system where the Americans said, we can’t be dependent on British manufacturing, its infrastructure, ports and such, and its national banks, and later on currency. So they began to develop their own system through a lot of protectionist policies, one would have to add.
And you also saw towards the end of the 19th century how people, I know you referred to many times economists such as Simon Patten, who viewed the idea of building a physical industry that is, well, at least the infrastructure to be something imperative investment for the government to make, because it has a dual effect, on one hand, it makes industries more competitive by having the infrastructure in place, but it’s also something that elevates the standard of living for the average citizen. So it seems at least for the Chinese that physical industries has been a key focus of its economic policy.


But I was therefore curious if it’s the same in Russia, because the same three pillars of the American system, I seem to see it in both countries, in one hand, where they seek technological sovereignty, that is what Alexander Hamilton would have focused on manufacturing. But now of course, they look at digital platforms and their own, well, it was in critical industries and technologies that there’s some level of autonomy, they both seek this very vast infrastructure projects to find new areas of connectivity to avoid, you know, American choke points. And last, they both focus on de-dollarization, their own banks, to not end up paying all the rent to the not just Americans, but the Europeans as well.
So I was just curious if you can say something about this. Do you see Russia effectively having learned its lesson from the 90s and following that path or what is the way that the Chinese and Russians are going?


MICHAEL HUDSON: Well, both the Russian economy and the Chinese economy are operating on an ad hoc basis. There’s no economic theory or doctrine that either countries develop to explain what they’re doing. In fact, China is still sending its economic students to the United States where they’re taught neoliberal financial policy. And my students tell me that the American educated students get priority in being hired over domestic students.
So China and Russia are acting pragmatically in a way to create an alternative to the neoliberal growth. But they don’t have, they haven’t systematized it in the way that industrial capitalists in the United States and England spelled out. Here’s our strategy. Here is our set of laws that we have.
I guess you could say what President Putin is doing is jawboning the kleptocrats, the wealthy class saying, okay, you can keep your money, but you have to invest it in ways that we agree will help the Russian economy become self-sufficient, independent, productive and more prosperous. So it’s all done on an ad hoc basis.


One of the problems is that Russia by the 1990s was probably the only country in the world that had no background in Marxism at all. Largely, this was a result of Stalin’s popularization of volume one of Capital to say, well, capitalism is an exploitation of workers by their employers. Well, all that indeed was in volume one, but Marx wrote volume two and three all about finance and rent seeking. And the one thing that Russia did not see coming in the 1990s was rent seeking and financialization and simply using the banks as a means of creating and backing monopolies as their source of income in a non-industrial way.
Marx would have called this a pre-industrial way. And Marx said, well, the revolutionary contribution of industrial capitalism was to free Europe from feudalism, from the legacy of feudalism, from the hereditary landlord class. We’re going to get rid of the landlords so that there can be popular ownership. And yet there’s still, they never got rid of land rent. But land rent is now, instead of being taxed away as the tax base, it’s paid to the banks as mortgage interest in the United States. And in Russia and China, if you want to buy a house, the land rent still, as China becomes more prosperous, people can afford to pay more and more for the housing they buy. And this, they take out a larger loan in order to buy the house and the rent is paid to the bank.


So China is letting a rentier financial sector develop in its midst because it hasn’t really defined what is the model of growth that we want to have. They’re doing it by experimentation, ad hoc, I think. And what needs to be done and what obviously is going to emerge in the kind of, is a consciousness of how are they going to make the economy more productive, more efficient, and use the economic surplus to raise living standards instead of to create a wealthy rentier financial and rent-seeking landlord class monopolist that you’re seeing in Europe and the United States.


ALEXANDER MERCOURIS: The interesting thing is, when you say ad hoc, you’re absolutely correct in the sense that in Russia you get the sense that at the very high level of government, Putin himself, very frustrated right from the outset with a neoliberal model, but at the same time very intimidated by the oligarchs around him, very, very wary of taking on neoliberals within the finance ministry and the central bank, but at the same time as if frustrated himself and going gradually, ever so gradually, with the grain of what is needed to try to bring the system back to some kind of stability.


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So you can see this. You can see this, for example, in the banking system. I mean, the banking system, which people don’t know about this or think much about this, I mean, the banking system has been changed completely in Russia over the last 30 years. I mean, it’s become…it had become almost completely private. The Sverbank was still functioning as a state bank, but there was always the possibility that it would be privatized. Now, we’ve gone from a largely private banking system with banks…a Russian banker once said to me, Russian banks are black holes, they’re black holes in the economy, they are a disaster as they are. We’ve gone from a private banking system to one that is almost entirely state-owned.


There are a few Russian private banks still, but the big banks, the really important ones, are state-owned. We’ve also…but we’ve also had other things happening. We have now the emergence of industrial policy. But all of this has been reactive, and to some extent it’s been…it’s happened in response to pressure from the West. So we have financial sanctions, which in effect almost oblige the sort of state control of the financial system. We’ve had a shift in the way in which the ruble is managed from, you know, policy go full convertibility towards now we’re getting capital controls coming back. We’re starting to see a kind of protectionism imposed on the economy from the outside. But it is all completely reactive up to this time.