Emerging Markets

Comrade Yeltsin

By, 04/25/2007

Even recent history suffers from rewrites. Gorbachev and his glasnost are frequently credited with ending Soviet Communism—but that's not right. He was a defender of Lenin's legacy, and hoped to create a kinder, gentler format. Perhaps his heart was in the right place, but he couldn't see Communism isn't possible without brutal repression.

It took Yeltsin, rough, hard-drinking, unsophisticated Yeltsin from a podunk mountain town, to stand atop a tank—defending Democracy and defying a coup de'etat. It brings to mind Reagan's "Mr. Gorbachev, tear down this wall," moment. Yeltsin was no Reagan, but why? Maybe he could have been, had he had centuries of democracy-embracing culture behind him. Instead, he had to bully his nation into democracy and capitalism.

And bully he did. He knew his crumbling economy needed privatization—privatization now! A good instinct, but poorly and even criminally implemented. Instead of letting market forces dictate who owned what, Yeltsin parceled out state goodies to loyal insiders. That and a tough-love monetary policy, among other financial mis-steps, bred runaway inflation and economic ruin.

Still, he was an adamant supporter of a free (well . . . freer) press and individual freedoms. Maybe, eventually, with a revived rule of law and strict protection of private property, the Russian economy could have righted itself after the dust settled. Shareholders would have run corrupt oligarchs out of town; foreign investors would have demanded more transparency. Had Mart Laar been born 300 miles east, or, ironically, Estonia not broken free after Yeltsin's famous tank moment, perhaps Milton Friedman's biggest fan could have succeeded Yeltsin.

How differently would we eulogize Yeltsin if Russia were now a model of economic freedom? Yeltsin might have been remembered as an avuncular curmudgeon who made tough choices—some of them shockingly bad—but set Russia and her now-free satellites on the road to tiger status. Alas, he was too concerned about protecting his legacy and needed a lackey capable of sweeping his large transgressions under history's carpet.

But Putin was no lackey. Yeltsin might now be remembered more than lukewarmly had his predecessor not made a right turn into authoritarianism. Instead of furthering market reforms and increased transparency, Putin pardoned Yeltsin, effectively preventing investigation of the handover of national assets to favored oligarchs and the troubling origins of the Second Chechen War, among other indiscretions. Yeltsin was no innocent bystander—he and his advisers handpicked Putin. But did they know the extent to which Putin would centralize power and seize private businesses and silence the press and political opponents and . . . and . . . and . . .?

Yeltsin's legacy isn't entirely in ruins. Estonia, Latvia, Lithuania, Ukraine, Armenia, a handful of -stans, Georgia, Belarus, etc. remain independent. Some are thriving—others who failed to embrace democracy and free markets remain mired in repression and economic stagnancy. But these nations didn't "exist" before Yeltsin climbed on a tank to shout down Communist Party hardliners while Gorby fled.

What's next for Russia—a land with vast resources and oil wealth? Does Mart Laar have a long, lost, Russian cousin who can lead Russia back to the freedom Yeltsin tried, but failed, to give his comrades? Perhaps Putin can learn a lesson from his neighbors and other now-thriving emerging markets who've more enthusiastically embraced economic freedom. As Putin prepares to handpick his own successor, that doesn't seem likely. Rest in peace, Boris, if you can.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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