Sustainable Capitalism

Is nuclear power, and it is green, including its glow. And it is now being promoted as an environmental, green, alternative to the Peak Oil crisis.

And the Conservative governments in Ottawa as well as in Alberta embrace the green glow of nuclear power.

IPCC sees role for nuclear energy in new report

Current nuclear power is included as a 'key mitigation technology' in the field of energy supply while advanced nuclear power is considered key for the 2030 timeframe, alongside advanced renewables like tidal and wave energy, concentrating solar and photovoltaics.

The text states: "Given costs relative to other supply options, nuclear power, which accounted for 16% of the electricity supply in 2005, can have an 18% share of the total electricity supply in 2030 at carbon prices up to 50 US$/tCO2-eq (tonnes of carbon dioxide equivalents), but safety, weapons proliferation and waste remain as constraints.

Nuclear industry welcomes climate report backing

The world nuclear power industry welcomed on Friday the tacit backing given to their technology by some of the world's top scientists and economists in the latest analysis of the climate change crisis.

The Intergovernmental Panel on Climate Change (IPCC) meeting in Bangkok said tackling global warming was both technologically and financially feasible as long as action was taken promptly, and that nuclear power could be in the arsenal.

It is common sense. What else is there for most of electricity generation that is carbon free," Ian Hore-Lacy of the World Nuclear Association said.

"If you have a major technology that is capable of being deployed on a larger scale than now that emits no carbon, you don't need a Phd (doctorate) to work out that it has got an awful lot of potential," he told Reuters in London.

The civil nuclear industry, which saw its future evaporating after the reactor explosion at Chernobyl in 1986 sent a pall of radioactive dust across Europe, has seen its prospects improve dramatically in the hunt for a solution to global warming.

See:

Tarsands To Go Nuclear

Nuke The Tar Sands

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Liberals Planning Spring Election

Must be because now that we have set election dates in Canada, as of this week, the Conservatives can't call and election only the opposition can. And in my neighbourhood, Edmonton Strathcona, the Liberals have bought billboards for their candidate Claudette Roy which have sprung up like May flowers.

Unfortunately even though they advertise her web site on the billboards, this is what appears.

This site is under construction, please come back soon

And since they did so badly last time I guess they are going on the offensive, not against Conservative MP and climate change denier Rahim Jaffer but the NDP candidate Linda Duncan who is an environmentalist.

So much for the politics of compromise to build an environmental alliance
for the next election.

What is good for Elizabeth May in Nova Scotia does not apply to Linda Duncan in Edmonton Strathcona despite her being an environmentalist. Of course Linda doesn't believe Stephane Dion is the greenest candidate for PM, unlike May.

And Linda's website has been online for months now.

See:

• My Planet, My Party

• Liberals New Green Politics

• Canada's New Progressive Right

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Another Sad Day

They said they needed the Anti-Terrrorism Act to get to the truth of the Air India bombings, which would give them the right to arbitrary arrest and imprisonment of Canadians for information.

Well we don't need that since the Air India inquiry has exposed that the Keystone Kops are incompetent.

Red tape stymied CSIS surveillance, Air India inquiry told



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If It Ain't Broke

Don't fix it...See Forward To The Past

Dollar rise has helped Canada growth, inflation: Dodge

The rise in the Canadian dollar in recent years has helped Canada maintain stable growth and inflation as commodity prices rose sharply, Bank of Canada Governor David Dodge said on Friday.

Dodge made no comment on the most recent spurt in the Canadian currency or on the economic outlook but extolled the virtues of a floating exchange rate, which he says can help absorb shocks without costing jobs and output.

"In recent years, the demand for and the prices of Canadian commodity exports have been rising sharply. This has helped to create an economic boom, and investment flows into Canada have increased. Our floating dollar has appreciated sharply and thus has forced some necessary adjustments," he said.

High dollar woes worth it, Dodge says

Canada converted to a floating exchange rate in the 1950s, but until about 10 years ago the Bank of Canada occasionally intervened by buying and selling dollars to smooth out sharp fluctuations.

Officials were right to cease their interventions in 1998, Dodge said, adding he has seen no exceptional circumstances since that have warranted a change in policy.

"There's absolutely no thought on our part of reversing that decision and markets I think are pretty sophisticated, pretty deep and do a pretty good job," Dodge said in response to a question from conference delegates.

Dodge conceded that the loonie's 35 per cent appreciation against the U.S. dollar since 2003 has been hard for businesses, particularly manufacturers whose exports into the United States have risen in price and hence become less competitive.

"Yes it's very tough for the manufacturers here in this city of Montreal right now. Strong global competition and an exchange rate that has appreciated very substantially but they are making those adjustments."

Earlier this week, Dodge told two separate parliamentary committees that it would be wrong to rein in the loonie because its recent rise to above 90 cents (U.S.) reflects the fundamental strength of the Canadian economy and is not due to speculation.

Returning to the theme Friday, he said the loonie's strength has helped the Canadian economy adjust to the boom in Canada's commodities producing sector as a result of sky-high global demand and prices for commodities such as oil and minerals.

Citing another example, Dodge said having a flexible exchange rate helped Canada through the 1997 Asian crisis, explaining that the loonie's sharp decline helped absorb some of the shock felt by the commodities sector when global prices plunged.

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Dirty Laundry Business as Usual

You could say Casino Capitalism is criminal capitalism or rather all capitalism is criminal......

The Financial Times has named Capitalism’s Achilles Heel (Wiley, 2005) by Raymond W. Baker as one of the best business books of the year.

“Books that deal with the darker side of business can disturb and entertain in equal measure. In Capitalism's Achilles Heel (Wiley Pounds 16.99), Raymond Baker reveals the methods by which corrupt governments and crooked executives - as well as terrorists - move money through the global financial system. The book even includes a ‘Dirty Money User Guide’ - alas more appealing to aspiring fraudsters than reforming policymakers.”

For over forty years in more than sixty countries, Raymond Baker has witnessed the free-market system operating illicitly and corruptly, with devastating consequences for scores of fragile nations. Now, in Capitalism’s Achilles Heel, Baker—the internationally respected authority on money laundering, corruption, and development issues—takes you on a fascinating journey that winds its way across the global free-market system and reveals how dirty money, poverty, and inequality are inextricably intertwined.

You’ll discover how little illicit transactions lead to massive illegalities used by drug kingpins, racketeers, terrorist masterminds, and multinational corporations. You’ll learn how staggering global income disparities are worsened by the illegalities that have come to permeate international capitalism. And you’ll see how distorted philosophical underpinnings appear to justify flaws in the practice of capitalism.

Selling the biggest lie of them all – Capitalism

Review: Gangster Capitalism – The United States and the Global rise of Organized Crime by Michael Woodiwiss

The spirit of graft and lawlessness is the American Spirit.
– Lincoln Steffens, The Shame of the Cities, 1902

‘Gangster Capitalism’ documents the lie in all its sordid details from the days of the ‘Robber Barons’ through to the ‘War on Terror’ and all the stops in-between, the ‘War on Communism’, the ‘War on Drugs’. Between them, they are responsible for an assault of unparalleled brutality that is global in scope and a lie that has been so successfully sold, it has dragged much of the planet into going along with it.

From the United Nations to so-called independent states, all have been bribed, blackmailed, threatened or finally invaded/occupied into participating in the various ‘wars’ the US is waging, ultimately to the benefit of capital. That all of it has been done in the name of ‘morality’, mostly of a Christian flavour, is perhaps what makes it all so sordid, so disgusting and hypocritical.

There is a direct relationship between the extermination of ‘inferior’ peoples and the crimes of the Gangster Capitalists, from the owners of the plantations, to those who built the railroads that opened up the interior of America, to those who built the stockyards of Chicago, the auto plants of Detroit that consumed the immigrants in their millions and co-opted them into swallowing the ‘American Dream’.

‘Gangster Capitalism’ does one heck of a job in documenting the process, indeed it is relentless in its exposure and all the while revealing the underlying motivations; power and control by the few over the many. Underpinning the process has been the use of a twisted Christian ‘morality’ that in reality justified a system of exploitation that is unparalleled in history. And, Woodiwiss emphasises the role that race plays in the process, something that cannot be stated too strongly if we are to understand why US capitalism has been so successful at persuading so many to go along with the lie.

Gangster Capitalism: The United States and the Global Rise of Organized Crime

The title of Michael Woodiwiss's book plays on the term "gangster capitalism." It asks the question: Are there gangsters who are capitalists? Yes, indeed, is Woodiwiss's answer. But it also raises the more important question: Are capitalists gangsters? His answer is a resounding affirmative.

The Enron Stage of Capitalism

In much simplified terms, the thesis is that the pursuit of profit has gone too far. Specifically that we have now entered a new, and worse, stage of capitalism where elements of the public good (by which the book means healthcare, water, power and others) are being privatised and sold to corporations who care more about profit than the welfare of the population. The two really damming parts of the thesis are that (1) the privatisation is often occurring under coercion - threats from the US military machine, and (2) the rich nations set the rules to favour the rich (consider which organisations have international power, and which nations control them). The bottom line is that the rich corporations have found a new way to exploit the poor (even in the 'overdeveloped' world the poor are exploited - their standard of living is allowed to increase slowly, but the majority of the gains go to the few). The pursuit of profit has become so all encompassing that little else matters (particularly not morality).

We Can No Longer Afford Vulture Capitalism

Morality and the Market in Victorian Britain

See:

Casino Capitalism

Are Income Trusts Money Laundering

Calgary Fraud Funds Dubai Boom

The New Market States

Criminal Capitalism Redux

Unproductive Capital

CEO

Stock Options

Corporate Crime

White Collar Crime

Criminal Capitalism

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Casino Capitalism

Betting in the marketplace....

Bank of Canada Governor David Dodge also repeated a concern over a sharp reduction in the pricing of risk in financial markets, singling out the carry trade as a possible source of trouble.

The carry trade is a popular strategy that involves borrowing money in low interest rate currencies like the yen and then reinvesting in riskier emerging markets.

"One-way bets are always dangerous things," he said in response to a question about such trades.

....like betting on natural gas....

Bank of Montreal, Canada's fourth-biggest lender, said last week it will post a pretax loss of as much as C$450 million ($406 million) from trading in natural gas contracts. The bank plans to fire trader David Lee and Bob Moore, an executive managing director, over the losses, the National Post newspaper said today. The men are staying with the bank until the firm can unwind its trading positions, the paper said, citing unidentified people.

BMO said the losses are primarily from natural gas trading, while Desjardins Securities analyst Michael Goldberg expects more losses in the future.

“The commodity trading losses were the result of decisions that did not adequately recognize the vulnerability of the portfolio to changes in market volatility,” Bill Downe, President and Chief Executive Officer of BMO Financial Group, said in a statement.

Mr. Goldberg interpreted this statement as “faulty trading algorithms were based on garbage in, and they generated garbage out,” he told clients in a note.

This is the same bank that laid off staff knowing full well it was losing money based on a bad bet.

BMO More ATM's Less People

Banks Profit From Job Cuts

Fool me once....fool me twice.....ah heck fool me thrice

U.S. hedge fund faces billions in losses on natural gas bet

Monday, September 18, 2006 | 7:08 PM ET

Amaranth Advisors, a big U.S. hedge fund, has told its investors to brace for huge losses as a result of its costly bet that natural gas prices — now at a two-year low — would rise.

Some reports said the fund's losses could amount to $4 billion US.

"We anticipate our year-to-date losses might be in excess of 35 per cent as we near completion of the disposition of our natural gas exposure," the hedge fund said in a letter to investors obtained by several media organizations.

Amaranth traders apparently placed hugely leveraged bets that natural gas prices would rise.

A Hedge Fund’s Loss Rattles Nerves - New York Times

Enormous losses at one of the nation’s largest hedge funds resurrected worries yesterday that major bets by these secretive, unregulated investment partnerships could create widespread financial disruptions.

Alan Zale for The New York Times

Amaranth Advisors’ trading floor in Greenwich, Conn. The hedge fund said that it had lost more than $3 billion in the downturn in natural gas.

The hedge fund, Amaranth Advisors, based in Greenwich, Conn., made an estimated $1 billion on rising energy prices last year. Yesterday, the fund told its investors that it had lost more than $3 billion in the recent downturn in natural gas and that it was working with its lenders and selling its holdings “to protect our investors.”

Amaranth’s investors include pension funds, endowments and large financial firms like banks, insurance companies and brokerage firms. The Institutional Fund of Hedge Funds at Morgan Stanley was an investor in Amaranth; as of June 30, it had a stake valued at $124 million. The turnabout in the fortunes of the $9.25 billion fund reflects the decline in energy prices recently; natural gas prices fell 12 percent just last week.

The scale of Amaranth’s losses — and how quickly they appear to have mounted — was the talk of Wall Street yesterday, as was speculation on how much the bet was leveraged, or made on borrowed money. Still, there were no signs of ripples on the financial markets as a result.

Amaranth’s woes are largely the result of a decline in natural gas prices that began in December, well before the spring months of March or April, when they typically fall off. Amaranth’s biggest stake was a combination bet on the spread between natural gas futures prices for March 2007 and those for April 2007. Amaranth had often bet that the spread on that so-called shoulder month — when natural gas inventories stop being drawn down and begin to rise — would increase.

But instead the spread collapsed. In the last six weeks, for example, the spread between the two futures contracts ranged from $2.50 at the end of July to around 75 cents yesterday.

Traders briefed on Amaranth’s problems, including one person who examined the fund’s books yesterday, said that the losses might be considerably larger than the firm estimated. Over the weekend, according to one person briefed on the situation, Goldman Sachs examined the fund’s positions.

Amaranth is not the first hedge fund to experience problems in energy markets. MotherRock Energy Fund, a $400 million portfolio, shut down last month after losing money on its bets that natural gas prices would fall. Summer heat sent prices soaring and the fund lost 24.6 percent in June and 25.5 percent in July, according to one investor.

The natural gas market is exceptionally volatile, making it an ideal playground for hedge funds that thrive on wide price movements in securities. Natural gas prices are subject to more severe swings than oil, in part because gas cannot be stored easily.

Amaranth Advisors LLC was an American multistrategy hedge fund managing US$9 billion in assets. In September 2006, it collapsed after losing roughly US$6 billion in a single week on natural gas futures. The failure was the largest hedge fund collapse in history.

Amaranth’s energy desk was run by a Canadian trader named Brian Hunter who placed "spread trades" in the natural gas market. Hunter had made enormous profits for the company by placing bullish bets on natural gas prices in 2005, the year Hurricane Katrina had severely impacted natural gas refining and production. Hoping for a repeat performance, Amaranth wagered with an 8:1 leverage that the difference between the March and April futures price of natural gas for 2007 and 2008 would widen.

Natural Gas: Amaranth Advisors & Centaurus Energy

And although the loser in this, Brian Hunter is doing much better than the Amaranth investors. He’s still has the couple hundred million he made before he nuked Amaranth and being quite cheeky, he’s actually shopping around a new fund!

Econbrowser: Amaranth hedge fund losses

Of course, if anybody ever audited Amaranth's holdings, they would have seen what was going on immediately, and indeed NYMEX apparently inferred from the volumes that something was wrong and warned Amaranth to reduce its positions. But the way the hedge fund game is often played, foolishly credulous investors never get to see the books and base their decision simply on the fund's track record and slick sales pitch. I have to join Big Picture and Motley Fool in blaming the folks who supplied Amaranth with capital, rather than the managers themselves. Anyone who tells himself that 35% annual returns with no risk are there to be obtained by some unseen hedge-fund magic is soon to be parted from his wealth.

When you hold a significant portion of the outstanding contracts, you have the potential to move markets in a big way when you liquidate, making your swan song all the more dramatic when it comes. This is what happened to Long Term Capital Management, and it seems likely that a significant part of the September volatility in the graphs above is directly due to Amaranth.

I have often argued that as long as speculators make a profit, their actions tend to be stabilizing, as they have helped direct resources to where they are most needed. But by that metric, we got $6 billion worth of destabilization out of Amaranth last month. And when I hear a story like this, my first instinct is that there could well be a lot more of this going on. Amaranth's staggering losses leave me more open to the claim that a significant part of the general commodity price increases we have seen in recent years might be the result of actions by speculators who are destined to earn spectacular losses.

See

Criminal Capitalism Redux

CEO

Stock Options

Corporate Crime

White Collar Crime

Criminal Capitalism

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Yeltsin's Legacy

Kleptocracy in the Guise of Reform

The decision to transform the economy of a huge country without the benefit of the rule of law led not to a free market democracy but to a kleptocracy with several dangerous economic and psychological features.

In the first place, the new system was characterized by bribery. All resources, at first, were in the hands of the state; businessmen thus competed to “buy” critical government officials. The winners were in a position to buy more officials, with the result that the practice of giving bribes grew up with the system.

Besides bribery, the new system was marked by institutionalized violence. Gangsters were treated like normal economic actors, which tacitly legitimized their criminal activities. At the same time, they became the partners of businessmen who used them as guards, enforcers, and debt collectors.

The new system was also characterized by pillage. Money obtained as a result of criminal activities was illegally exported to avoid the possibility of its being confiscated at some point in the future. This outflow deprived Russia of billions of dollars in resources that were needed for its development.

Perhaps more important than these economic features, however, was the new system’s social psychology, which was characterized by mass moral indifference. If under communism, universal morality was denied in favor of the supposed “interests of the working class,” under the new reform government, people lost the ability to distinguish between legal and criminal activity.

Official corruption came to be regarded as “normal,” and it was considered a sign of virtue if the official, in addition to stealing, also made an effort to fulfill his official responsibilities. Extortion also came to be regarded as normal, and vendors, through force of habit, began to regard paying protection money as part of the cost of doing business.

At the same time, officials and businessmen took no responsibility for the consequences of their actions, even if they led to hunger and death. Government officials helped organize pyramid schemes that victimized persons who were already destitute, police officials took bribes from leaders of organized crime to ignore extortion, and factory directors stole funds marked for the salaries of workers who had already gone months without pay.

From "Criminal Communism" to "Criminal Capitalism"

Satter said that Russia's transition from "criminal communism" to "criminal capitalism" had occurred in three stages: hyperinflation, privatization, and criminalization. Hyperinflation began on 2 January 1992, when the Gaidar government freed virtually all prices, consequently wiping out the life-savings of millions of Russians. According to Satter, this same government also chose to ignore a law passed by the Supreme Soviet calling for the indexation of savings accounts in the event of price liberalization, deeming it the responsibility of the old regime. Yet while the majority of the population was being driven into poverty by inflation, a group of well-connected insiders was becoming very rich.


Satter mentioned several ways in which people with access to the state budget and ties to state officials were able to amass wealth including: establishing and fooling the public into investing in pyramid schemes, speculating in dollars, obtaining lucrative licenses to export raw materials, and appropriating and collecting interest on state credits that were supposed to support industry. Satter asserted that by the time privatization got underway, the country was already divided into haves and have-nots.


This hyperinflation had been briefly preceded by "wild privatization," during which government and party officials began to privatize whatever they could get their hands on, noted Satter. Former government officials who had once been in charge of state resources became the new owners and proceeded to sell off these resources. In addition, an amendment to the law on cooperatives allowed factories to create cooperatives within the framework of the factory, which encouraged massive theft as factory directors were now given the means to establish cooperatives through which to write off and sell factory supplies.


However, according to Satter, the real theft of the state's most valuable enterprises began with money privatization in 1994. At "public" auctions for state property, the bidders for the most desirable enterprises were well-connected to local officials, with the results of these auctions being largely determined in advance. The loans-for-shares program, in which the government exchanged shares of enterprises for loans, greatly benefited the banks empowered by Yeltsin in 1993 to handle government accounts. These banks used government money to make short-term loans at extremely high rates of interest. Then, having made a profit using the government's money, the banks were able to loan it back to the government in exchange for valuable enterprises. This is how the much-talked-about oligarchy came into being and eventually began to dominate the political and economic scene, explained Satter.


Satter then commented on the final stage of the rise of the criminal state in Russia--criminalization. In short, the first cooperatives were established at a time when all property in the Soviet Union belonging to the state was completely unprotected. It was also illegal to have a private security service. Both of these factors made the first Russian businessmen attractive targets for criminals. As the number of independent businessmen grew, the underworld experienced phenomenal growth. With no one to protect them, Russia's new economic elite, composed largely of corrupt insiders, had no choice but to turn to criminal gangs for protection. Eventually, Russian businessmen found gangsters useful in other aspects of business, including curbing the growing epidemic of non-payment of debt.


According to Satter, as these groups became more interwoven, the entire commercial and political apparatus in Russia was poisoned. On a final note, Satter reflected that the only rule in business and political life in Russia continues to be the rule of force and that without the rule of law, Russia has no hope of resurrecting itself.

Yegor Gaidar

GAIDAR: The loans-for-shares deals took place at a time when I hadn't worked in the government for a long time. There were people with more authority, who were responsible for that question. That would be Yeltsin, Chernomyrdin, Anatoly Chubais.

But I discussed that subject, at least with Chubais, many times, and I had my own
understanding of the situation. In my opinion, the major motive at that moment was a political one, connected with providing stability and not allowing the return of communists to power. In 1995, a large portion of the property in Russia belonged to the so-called Red Directors, people who sympathized with the Communist party, who stole money from their enterprises, which they directed badly. And the point was that they were not attracted to the new regime. And if I understand correctly, the loans-for-shares deals were first and foremost directed at creating a critical mass of influential and powerful political forces that would have been vitally interested in not allowing the return of the communist regime. For these deals, we paid endlessly a great deal during the second term of Yeltsin's presidency. Masses of things that we dreamed about, that we could have done in the second term of Yeltsin's presidency, were not done because there was this compromise. A great many characteristically unpleasant features of Russian capitalism today were brought about as a result of that series of compromises. Nonetheless, when, in the intervening years, I asked myself the question: would it have been better to take the risk of the communists coming to power and see what would have happened, knowing what the Communist party was and knowing what Russia was like and knowing how dangerous the situation was for ourselves and for the rest of the world-well, I cannot convince myself that this would have been better.

Criminal capitalism?

YAVLINSKY: Loans-for-shares privatization was a way of creating criminal capitalism in Russia. We learned a very important lesson [in the process], by the way. Karl Polanyi, as you know, wrote a book Open Society and Its Enemies, and he described two main enemies of the open society-fascism and communism. In the last 10 years Russia has found out that open society has one more enemy. That enemy is capitalism that is not limited by laws, by civil institutions, by tradition, by belief, by trade unions, by anything-simply the wild will for profit at any price. That was the key idea of privatization here, that was the key of all changes here.

INTERVIEWER: Yegor Gaidar believes that loans-for-shares privatization was a
necessary evil that helped save the country from the surging communist party.

YAVLINSKY: It's not true, because it's very likely that [those behind the scheme]
were paying the communists to [reinforce this point of view]. It would have been
much better not to pay the communists and to take a different approach. The mob of communists in the country was growing together with the poverty. Communism is a social disease coming from poverty. You can have a lot of disease from poverty. For example, if you have no soap you have a lot of disease. Communism is something like that. If you have a poor society and poverty in the country, you have communists. The reform as these guys were doing it was creating more and more poverty. And the poverty was producing more and more communists. So it was absolutely possible to use a different approach and not to distribute the property between 10 personal friends. There was no need for that. The task was to give the property to millions of people. The [privatizers] were not doing anything for small and middle businesses, and that was one of the key issues. They were all the party of big business. But the big business in Russia was [corrupt] business.

One of the main reasons why in Eastern Europe the reforms were very successful
and in Russia they were not was that in 1991 in Eastern Europe the real democratic revolutions happened. New people came to power. It was a real replacement of the political elite, like it was after the war in Germany and Japan, when the Nazi leaders were completely ripped out and new people came in. The same happened in Eastern Europe after 1991. In Russia it was [different]. The same people changed their jackets and changed the portraits in the rooms, and instead of saying "Communism" and "Lenin" and "five-year plan" started to use "market democracy" and "freedom" as their key words-with the same substance that was with "Lenin" and "Communism" and "five-year plan." They came to power, and you can see: we had Mr. Yeltsin, who was a member of the Politburo, as president of the country. For ten years we had a member of the Politburo as a leader of the country. But we also had 8 or 7 Prime Ministers during the 10 years; all of them were members of the Central Committeeof the Communist Party or representatives of the KGB, with one minor exception of Kirienko, who was a Komsomol leader of his region. So it was the mentality of these people, the approach to life of these people that was the main factor of our failure.

These people hired young economists to present a business card [of reform] to the
world. And they were very successful, because they got about $50 billion in loans
[thanks to] the so-called [economic] dream teams-nice faces speaking English. Mr.
Yeltsin certainly used them, and they brought in money to support the new system.
$50 billion, that's a pretty big number.

INTERVIEWER: What went wrong in Russia's case?

STIGLITZ: Well, there [were] an enormous number of mistakes, one after the other. They began with the shock therapy of liberalization, of eliminating price controls for most of the commodities. The result of that was that there was a massive inflation.

So the high levels of inflation were, in fact, a consequence of the shock therapy
strategy in the beginning. That wiped out the savings of an enormous number of
people. You didn't at that point have any basis of people having wealth to have a
legitimate privatization process. They then had a privatization process that was
corrupt and in which the country's assets were turned over to a few, to the oligarchs.

The strategy was privatization at any cost. Do it quickly, is what the IMF kept telling them. The IMF kept a score card-how many privatizations had you done. But it's easy to privatize, give away the state assets to your friends. And in fact, it's not only easy-it's rewarding, because then they give a little bit of money back to you. So that was the strategy that was advocated and pushed. They then had policies like capital market liberalization before they were ready.

So what did that mean? You had an illegitimate privatization. The people who had
been able to use their political influence to get these billions and billions of dollars of
natural resources for a pittance were then told, Well, you have a choice, keep your
money inside Russia or take it to the United States. United States was having a
boom, Russia, because of the policies, was in a depression. Well, if you were smart
enough to persuade Yeltsin to give these billions of dollars, you were smart enough
to figure out it's better to take your money to the United States or, even better, to
Cyprus, to secret bank accounts, to Switzerland, knowing full well that there'll be a
change in government. When there's a change of government, there'll be a
questioning of whether those privatizations were legitimate. If you had your money in Russia, people might say, we want to do that over again; you effectively stole the country's assets. So the experiences in Russia show that in some sense economists are right: incentives matter. But under the IMF strategy, you put in place incentives that lead to asset stripping rather than wealth creation and to the implosion of the economy rather than to economic growth.

INTERVIEWER: How did this affect the poor in Russia and the average person?

STIGLITZ: A number of things happened that contributed to the increase in poverty. Poverty increased from around two percent to forty percent or more, depending on how you calculate it. [It was] one the most rapid increases in poverty that the world would have seen in that short span of time, apart from a natural disaster. With the tight monetary policies that were pursued and the other policies, firms didn't have the money to even pay their employees. What was tragic about it is while they didn't have enough money to pay their pensioners, to pay their workers, they were giving away the valuable state assets to a few rich people. So in a way, resources were leaving Russia in massive amounts, billions and billions were leaving, with these open capital markets. Russia privatized before they had a good tax system in place.

It's very easy to tax oil, and you can monitor the amount of oil that's being shipped
abroad. It's actually relatively easy. But they privatized it before they put in the
means of taxing this most basic resource of the Russian economy.
And so by not getting the sequencing right, by not pacing right, they lead to the
impoverishment of massive amounts of their people. Then, with the government not having enough revenue, other aspects of life started to deteriorate. They didn't have enough money for hospitals, schools. Russia used to have one of the [best] school systems in the world. Now they didn't have enough money for that. So this began to affect every dimension of people's lives.

Interim outcome of the Russian transition: clan capitalism

"When Postmodernism Came to Russia"

'Political capitalism' and corruption in Russia

U. S. S. R.: The Corrupt Society: The Secret World of Soviet Capitalism

Foreign Affairs - Russia's Phony Capitalism - Grigory Yavlinsky

See:

Yeltsin Schmeltsin

State Capitalism in the USSR

Crisis in the Ukraine

Oligarchs

Ukraine Gases Government

Tags
state capitalism, USSR, Russia, Putin Lenin, Bureaucratic Collectivism, , Soviet Union, Bolsheviks, Boris Yeltsin, socialism, marxist, communist, state-capitalist,
oligarchs,