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What Really Happened Right After The Collapse Of The USSR

It was years in the making, but when it actually came, the collapse of the Soviet Union in 1991 occurred suddenly. In the immediate aftermath, the Russian people hoped for blue jeans and other Western goods - and the freedom that came with them.

Their hopes were not fulfilled as Russia underwent a dramatic transformation from a planned economy to the market economy via a highly controversial “shock therapy” process. Amid the wild fluctuations in currency value came a constitutional crisis, a widely condemned invasion of Chechnya, and the rise of a new breed of politician.

This explainer looks at the facts behind Russia’s so-called “wild '90s.”

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  • The People Were Hopeful Of An Immediate Influx Of Freedom And Blue Jeans

    If one thing symbolized Western freedom more than anything else, in Russian eyes, it was a pair of blue jeans. Those most ordinary of lower garments were a glimpse into a world beyond the Iron Curtain. A genuine pair of Levi’s would command a huge price in the Soviet Union, while there was a vibrant underground market in counterfeit denim. For all the hard power the USSR possessed, it lagged far behind its arch-rival in soft power. As the French philosopher Régis Debray noted:

    There is more power in rock music and blue jeans than in the entire Red Army.

    Even propaganda pieces that highlighted the dire poverty that existed in the inner cities couldn’t hide the fact that even the poorest Americans could still sport a pair of jeans that a Russian engineer would have to forsake a month’s salary for.

    So when the Soviet Union collapsed, ordinary Russian people yearned for a flood of real denim and other Western goods and the freedom they promised. But the reality wasn’t nearly so decadent. The luxuries of the West were slow to come, stores emptied, and millions were plunged into dire poverty. 

  • Crime And Corruption Skyrocketed As The Russian Mafia Seized Control
    Photo: Brian Kelley / Wikimedia Commons / CC-BY-SA 2.0

    Crime And Corruption Skyrocketed As The Russian Mafia Seized Control

    The Russian mafia has a long history that stretches back to the days of the Czar. Under Mikhail Gorbachev in the late 1980s, some 785 criminal gangs operated in Russia. They mostly dealt in the black market, bringing in Western contraband, but otherwise kept a fairly low profile. When the system that constrained them collapsed, the number of groups exploded tenfold by the mid-1990s. 

    The mafia eagerly filled the power vacuum the fall of Communism created. The ranks of criminal gangs swelled with ex-KGB agents and returning military-trained veterans from Afghanistan. There was a surplus of skilled muscle with no other options - violence had never been cheaper. A hit in the '90s could be carried out for as little as $1,000. Little wonder the opulent graves of slain mob bosses began to fill the nearby cemeteries.

    The lifting of restrictions on business allowed ordinary Russians to open their own ventures, which in turn gave the syndicate a steady stream of protection money. As Valery Loktionov, a former bodybuilder and film director recalled: 

    Businessmen were the prey and gangsters were the hunters. Because the law didn’t work, it was the criminal leaders who were the main source of power. People came to them willingly seeking help and so did businessmen, to seek protection. If you secured protection (“крышa”) from a good gang then you didn’t have to worry much.

    The government estimated that about 40% of private and 60% of state businesses were controlled by the mafia in 1994; the vast majority of banks were also under criminal control. At the lowest levels of society, young gopniks picked clean the pockets of passersby. At the upper levels, unscrupulous officials attempted to profit from the sale of Soviet hardware to anyone willing to buy it. There was even an infamous attempt to sell a submarine to the Columbian cartel.  

  • A Handful Of Oligarchs Got Absolutely Stinking Rich
    Photo: Kremlin.ru / Wikimedia Commons / CC-BY 3.0

    A Handful Of Oligarchs Got Absolutely Stinking Rich

    The collapse of the USSR brought about one of the fastest transfers of wealth in human history. With the vast reserves of petroleum, natural gas, and metal deposits ripe for plunder, a tiny number of Russians were well-poised to take full advantage of the situation. The transfer of state assets into private hands for a pittance was supposed to make their operation more efficient and prevent a reversion to Communism. 

    In this economic power vacuum, three distinct groups of oligarchs rose. The first was the factory directors, who used their position to assume ownership of the facilities they once ran. By far the biggest profiteers were the nomenklatura and non-nomenklatura oligarchs (related to the English word nomenclature - relating to names or designations).

    The nomenklatura were ex-Soviet elites who assumed control of the assets they once managed in the USSR. For example, Viktor Chernomyrdin went from the minister of gas production to the head of the world’s largest natural gas company. He would also serve in several high-profile political positions in the 1990s, including Prime Minister from 1992 to 1998.

    The non-nomenklatura oligarchs were outside of the traditional circles of power in the USSR, but had black market experience and, crucially, the means to raise large amounts of capital as bank owners to take full advantage of the fire sale. The controversial "loans-for-shares" scheme introduced in 1994 involved bank owners funding the ailing Russian government in exchange for "temporary" stakes in state assets. Should the government default on the loans, those temporary shares would become permanent. Of course, that's exactly what happened. Vladimir Potanin (pictured) was one of the main architects of the scheme that helped him amass a fortune of more than $24 billion. 

    What was supposed to kick-start the new market economy only served to enrich a small number of Russians, while sharply contracting the economy at large. Russia went from having not a single millionaire in 1991 to 17 billionaires by the early 2000s. 

  • People Saw Their Life Savings Evaporate And Incomes Halved
    Photo: Александр Стручков / Wikimedia Commons / CC-BY-SA 3.0

    People Saw Their Life Savings Evaporate And Incomes Halved

    Savings carefully built up over a lifetime of work rapidly became worthless as inflation soared in the wake of the USSR’s fall. For many ordinary Russians, economic liberalization had some very had consequences. The lifting of price controls saw the cost of everyday essentials rapidly get out of control, and the ensuing inflation meant savings carefully built for years - and even decades - soon became worthless.

    For millions of Russians, the early reforms brought about a sharp decline in their standard of living, and the purchasing power of their salaries was cut in half. The ruble's value was so volatile that many transactions and savings were done with dollars. The people were especially vulnerable to scams such as the MMM Cooperative, one of the largest Ponzi schemes in history. 

    As Prime Minister Viktor Chernomyrdin put it in 1993:

    We wanted the best but it turned out like always. 

  • Forced Austerity Saw The Poverty Rate Soar

    Boris Yeltsin emerged as an unlikely hero during the dying days of the Soviet Union when he helped thwart an attempted coup in August 1991. As a result, he was well-positioned to take over from Mikhail Gorbachev and lead Russia in the immediate post-Soviet years. To facilitate Russia's transition from a planned economy to a market economy, he asked for and received extraordinary powers to facilitate the transformation. 

    He was essentially given carte blanche for a year to enact his program of economic "shock therapy" - drastic reforms deemed necessary to reshape the economy. The international funding so desperately sought was conditional; funds would only be released if Russia deeply cut spending. Yeltsin promised that after six difficult months, Russia would be reborn as an economic titan and the painful reforms were necessary to bring about a bright new era.

    After a year, there was no sign of the promised prosperity. The deep cuts to social spending had a high human and political cost. Rather than grow the economy as hoped, the controversial reforms shrank it considerably and plunged huge swathes of the population into poverty. Yeltsin's popularity flatlined as politicians and the public demanded accountability. Vice President Aleksandr V. Rutskoi decried the reforms as "economic genocide." 

  • The Dire Economic Situation Led To A Constitutional Crisis In 1993

    The conflict between Yeltsin and the Russian parliament reached a boiling point by the summer of 1993. As parliament sought to curb Yeltsin’s power and slow down the controversial reforms, the embattled president went on the offensive.

    After months of gridlock, Yeltsin issued decree No. 1400: the dissolution of parliament and the abolition of the constitution. The US tentatively backed his move. Two days later, a special session of parliament voted to impeach the president, but their ruling was ignored as power and water were cut off from the building. Violent clashes between the police and anti-Yeltsin demonstrators broke out in Moscow. 

    The standoff ended in October when Yeltsin ordered the military to storm the building. Russia’s White House was shelled (pictured) and the uprising came to a definitive end. In the aftermath, substantial presidential powers were enshrined in law that continues to be exercised to the present day.