The first Russain oligarchs’ Mercedes were bought with Stalin’s money.
This post first appeared on Russia Insider
- The Soviet Union defeated the invincible German army because it created a superior economy
- Uncle Joe borrowed his war preparation plan from FDR
- Only US-inspired liberal shock therapy prevented the new Russia from capitalizing on the American post-WW II experience of turning a highly militarized economy into a prosperous consumer oriented one
- First Russian oligarchs enriched themselves by plundering the resources accumulated since Stalin’s times - forgetting dropping oil prices.
As paradoxical as it seems, the late Colonel Vitaly Shlykov, an intelligence officer, economist, historian and politician is best known as a spy. Several documentaries about him have been made, he gave interviews, including one shortly before his death to the Swiss press.
“I wanted to take revenge on the Swiss secret service by telling them what “Nikolayev” (Shlykov himself) was actually doing. They only managed to indict me on illegal border crossing and sentenced me to 3 years. In the US I could have received the death penalty, - he told me in one of our conversations.
Under the nickname “Bob”, Shlykov was a contact for Dieter Gerhardt and his wife Ruth, who worked for Soviet Military Intelligence (GRU) in South Africa for 20 years. It was they who reported to the Soviet leadership that racist South Africa, the "rogue state" at the time, was building an atomic bomb.
Considering how unnerving the possibility of Iran and North Korea having nuclear weapons is to everyone now, it’s obvious how important this information was for the USSR. We shared it with the US, and together we prevented the bomb being developed by racists.
“Considering the value of that information, this was one of the most successful intel operations of the post WW II period, said Shlykov, proudly.
But much less known is how Shlykov tried to prevent the collapse of the Soviet economy and make our country a prosperous power.
The price of victory
I met with Vitaly Vasilyevich Shlykov in May 1988. I had just become a deputy editor of International Affairs magazine, and he had just retired from the GRU (Main Intelligence Department of the Soviet Army General Staff). Soon he brought us an article “Our tanks are fast”.
It was known that on May 1, 1941, Germany had put up for the attack on the USSR 3,582 tanks with assault guns out of 5,639 that existed, Shlykov wrote. The USSR had more than 20 thousand tanks opposing them, most of a quality superior to the German machines. Similarly for other equipment: aircraft, artillery. He estimated our loss of tanks in the war at about 20 thousand a year.
Even today, almost thirty years later, these numbers are shocking, but in 1988, it was like an explosion. The disaster of June 22, 1941 had been explained to us by the superiority of Germans in quantity and quality of weapons. These numbers contradicted everything the Soviet people had been taught.
Interestingly, there was no official denial from the Ministry of Defense Shlykov had just retired from.
Whatever it was, no one could discern in these materials any admiration for the Soviet planned economy created during the first 5-year plans.
Wehrmacht against 5-year plans
‘Commanders win battles, but economies win wars’. Shlykov brought up this thesis when we worked with him on a big interview for the 65th anniversary of the Victory Day. Hitler had brilliant generals, strategists, and a great officer corps nurtured for over 150 years. The blitzkrieg strategy worked throughout Europe.
“The Soviet Union began to build a modern army only 10 years before the war, and could not have withstood a devastating first strike by the German war machine, even if there had been no repressions against the commanders. Stalin understood that his main resource was the economy and mobilization potential”, - Shlykov argued.
He explained that in the years covering the first five-year plans, the Soviet Union created the economy that ensured its victory over a stronger enemy in the Great Patriotic War. In the 1980-90s, this economy could have transformed the USSR into a prosperous power. However, another scenario played out: the USSR collapsed under the weight of the mobilization economy, and Russia turned from an economically and technologically advanced state into a developing country provider of raw materials.
The Bolsheviks assumed that wars were inevitable under imperialism. Shlykov insisted they prepared for them seriously, studying military mobilization models of various countries. They picked the American model of a dual-purpose industry, in which the same plants could produce tractors and tanks, cars and military aircraft, switching from civil to military production in a relatively short period of time.
"The main history lesson that must be understood is that Stalin’s mobilization model was almost totally copied from Roosevelt’s", - he said.
At the beginning of World War II, the US Army had 170,000 servicemen and only 200 medium tanks. The military industrial complex did not exist. The War Department had its own small arsenals working on designs for tanks and planes, but they were just blueprints. All the equipment could be produced at civilian plants.
When America entered the war with Japan on December 7, 1941, Americans were able to switch their civilian industry to the production of military equipment, which grew rapidly, as huge assembly plants and steel mills were built.
That is the American model we borrowed. The USSR did not have specialized industries until the second half of the 30s. The People’s Commissariat of Heavy Industry handled production of civil and military equipment. During peacetime, only a small part of industrial facilities was used for military production, but in the event of war they could quickly switch to defense needs.
In 1929, the Great Depression broke out in the West. The USSR had an opportunity to cheaply buy modern factories and technology and attract foreign skilled labor. As a result, by 1937, the USSR produced three thousand tanks - more than all other countries combined. By the beginning of the war, it had more than 20,000 tanks.
Hitler knew this, but he was sure of the superiority of the Wehrmacht over the Workers’ and Peasants’ Red Army. What the Fuhrer did not know was that by 1937, the Soviet Union had the ability to produce 70,000 tanks. Even in the most difficult first year of the war, the USSR was able to produce more tanks than Germany, even though all of conquered Europe was working for the latter (6,590 vs 3,250). By 1942, Soviet superiority was sixfold. With this ratio of forces, the German attack on the Soviet Union was a pure gamble, said Shlykov.
From militarization to prosperity
After the joint victory, the Soviet and American economies went their separate ways.
During the war, US unemployment disappeared, and even women went to work. Till then, few American women had done so. Housing construction, car and home appliance production was banned during the war, and people put their money in government bonds.
When the war ended, huge purchasing power had been accumulated. The state almost completely ceased production of conventional arms, transferring all capacity to the private sector for almost nothing. That huge military machine was reconverted to civil needs in less than two years without a rise in inflation and unemployment, despite the fact that 12 million people had been discharged from the army.
But the Soviet Union maintained a military economic structure in the post-war period. Moreover, the main burden was not strictly on military production, but on the so-called basic industries.
Imagine, Shlykov explained, that you are producing 3,000 tanks a year, but you must be ready to produce 70 thousand in a short time. You need to have workshops, assembly lines, stocks of fuel and materials for so many weapons. You might never build a single tank, but your economy would still be a war economy.
He called this "structural militarization”, adding that the Soviet economy collapsed, not due to overproduction of weapons - the actual MIC absorbed no more than 15% of all resources - but because of the overproduction of raw materials that were not needed.
"The USSR was destroyed by a crisis of overproduction, similar to the one that caused the Great Depression."
Do as America does
The reader has probably realized that the US post war situation was very similar to the one that took place in Russia in 1992, i.e. at the beginning of market reforms. Following is the essence of the program for transitioning to a market economy that Vitaly Shlykov offered to Russia when he was the Deputy Minister of Defense.
We must stop all military production for several years, and tell the military-industrial complex:
"Guys, you have accumulated huge resources, you have the best workers, managerial talent, and all the country’s scientific and design potential. There is a huge market, modest people worn out by deficits. Produce what you can: cars, refrigerators, computers. And we, the state, will cease price controls and protect you from foreign competition for a while”. It was clear - Shlykov recalled many years later - that reform of the Soviet economy had been easier than the Russian, since it was a single economic complex with a large market. “I assure you”, - he said - “that if this program had been adopted, we would have survived the transitional period without unemployment abd experience a housing boom. Today, the country would have been a high-tech power, less dependent on external factors.”
The failure of the economist
In our conversations about those fateful times, Shlykov meticulously showed proofs for everything he said, to the point of tediousness. He was bored by chatter such as: “You are smart people, but where were you when only Gaidar had the courage to take the responsibility?”
He described his official visit to the United States in October 1991, meeting with Robert Nathan, one of the fathers of "Plan V” ("Plan Victory"), who switched the American civil economy to a military one during the Second World War, and just as smoothly returned it to peacetime production. He was also among the authors of the South Korean economic miracle after a difficult war with North Korea in 1950 - 1953.
"He said to me once: I am ready to go to Russia tomorrow if you give me a contract. I will reconstruct your economy in a year or two"- Shlykov recalled.
Nevertheless, on November 6, 1991, President Yeltsin assigned Yegor Gaidar, a liberal monetarist, to lead the market reforms.
“... The first oligarchs’ Mercedes were bought with Stalin’s money”
The economy hit the skids. In late December 1991, the government of young reformers undertook a huge arms procurement program for 1992, far exceeding anything the Russian economy managed to produce in all the years prior to the current rearmament program. Then Boris Yeltsin allowed defense companies to sell their products on world markets. Forget about the moratorium on production of military equipment and support for a transition to civil production. Instead of establishing a state monopoly on foreign trade and introducing protectionism, foreign economic activity was liberalized.
What happened after that was inevitable, - said Shlykov:
At first, manufacturers performed according to the procurement objectives, betting on their overstock. Naturally, they did not get paid, and workers went without salaries. Why did the mighty military-industrial complex not even think of resisting this lawlessness?
The reason is simple: at each plant there were huge reserves of raw materials, parts, equipment, etc., and they went out of control. The difference in metal prices on the domestic and world markets resulted in a profit in the thousands of percent. Brokers appeared, then once disciplined "red” directors became addicted to it. Prices on world markets collapsed and reserves worth dozens, or even hundreds of billions of dollars were lost to the country for nothing.
That’s why I say that the first Russain oligarchs’ Mercedes were bought with Stalin’s money.
His train had left the station and wouldn’t come back for a long time.
This post first appeared on Russia Insider
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