The Last Empire (36 page)

Faced with a choice between Russia and the Union, Silaev eventually chose the latter. He was helped in that decision by Yeltsin himself, who called him in mid-September and suggested that he remain in charge of the all-Union economic administration. At the top of the Russian power pyramid, Silaev lost a bureaucratic battle to Yeltsin's immediate entourage—people whom the Russian
president had brought to Moscow from his native city, Sverdlovsk. In private conversation with James Baker, Nursultan Nazarbayev referred to them as the “Sverdlovsk mafia.” They included the second most influential person in Russia after Yeltsin himself, State Secretary Gennadii Burbulis, as well as the head of the presidential administration and the first deputy head of government. While Silaev advocated a cautious approach to reform and its coordination with the other republics, Burbulis argued for what became known as “shock therapy,” an aggressive reform effort associated with rapid liberalization of prices and an initial sharp decline in living standards, which had been tried successfully in Poland.
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Burbulis and his supporters—who included the Russian foreign minister, Andrei Kozyrev, and the information minister, Mikhail Poltoranin—put Russia's interests first, seeking to grab as much power as possible from the center and to do so as quickly as they could. They were not willing to hold up Russian reform so as to accommodate republics that rejected their strategy or were as yet unprepared to join Russia on the road to rapid economic and social transformation. Burbulis placed his hopes for reform in the group of young economists who had been working since late August on an assessment of the economic situation.
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The economists were based in a government resort in the village of Arkhangelskoe, where Yeltsin and his entourage had awoken on August 19 to news of the coup in Moscow. The group was led by Yegor Gaidar, a rising thirty-five-year-old scholar who had served during the perestroika years as economic editor of the Communist Party's two main publications, the journal
Kommunist
and the newspaper
Pravda
. The boyish, moon-faced Gaidar was born into the world of Soviet privilege. Both of his grandfathers were famous authors. One of them, Arkadii Gaidar, was by far the most popular Soviet writer of children's literature; every Soviet teenager read his best-selling 1940 novel
Timur and His Team
, describing the battles of the book's main character, Timur, with hooligans in a dacha settlement near Moscow. Timur was in fact the name of Arkadii Gaidar's son and Yegor Gaidar's father, who grew up to become a high-ranking Soviet naval officer and a military correspondent for
Pravda
. Yegor spent a good part of his childhood and youth abroad, first in Yugoslavia and then in Cuba, where his father was stationed as a reporter.

In 1980 Yegor Gaidar graduated from the prestigious Moscow University with a postgraduate degree in economics, joined the Communist Party, and went to work in economic institutes and think tanks in Moscow. His main obsession became Soviet economic reform, which he modeled on the market transformations then taking place in Yugoslavia and Hungary. Perestroika allowed Gaidar to popularize his reformist views in the party's main publications. He also established his own research institute and emerged as the leader of a small group of young economists developing a reform program for the all-Union government. According to Gorbachev's economic adviser Vadim Medvedev, Gaidar “took part in many situation analyses and brainstorming sessions in the presidential apparatus.” For months, Gorbachev had been playing with the idea of radical economic reform, and he had even thrown his support behind a 500 Days Program for the transition to the market proposed in August 1990 by a team of economists led by Stanislav Shatalin. Eventually, however, he settled for a watered-down version with no mechanism or timetable for implementation.
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After the failed August 1991 coup, the Russian presidential administration became Gaidar's main client. His principal contact and promoter there was Gennadii Burbulis, whom Gaidar met for the first time in the besieged White House when he came to defend the nascent Russian democracy. In late August Gaidar was among the early supporters of the takeover of all-Union institutions by the Russian government, which he saw as the only hope for the continuation of the Union. “Gorbachev immediately gives up his post and passes it on to Yeltsin as president of the largest republic of the Union,” Gaidar later said, describing his scenario for saving the empire. “Yeltsin legitimately subordinates Union structures to himself and, wielding his then absolute authority as leader of the whole Russian people, ensures the merger of the two centers of power.”

Gaidar's vision was not realized at the time, for which he blamed the indecisiveness and passivity of the Russian government. A few weeks later, that very same government was giving Gaidar and his team an undreamed-of opportunity to test their economic models and finally move from words to actions in the sphere of market reform. They had been pushing for such an opportunity for months, but the Gorbachev government had dragged its feet. Now the
situation was so bad that the Russian government had to act. Gaidar and his group went to work. They believed that if something was not done immediately to stabilize the situation, the collapse of the economy would become not only inevitable but irreversible in a month or two.
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As Gaidar later wrote, it became clear to him and his circle early on that “there can be no effective economic union without a political one. And there was obviously no chance of restoring one quickly.” They therefore concluded that Russia would have to go it alone. Their first priority was to liberalize prices in order to revive collapsing markets and create incentives for state and collective enterprises to start trading again. But liberalization would inevitably lead to a collapse of the financial system unless the government drastically cut its own expenditures, including subsidies for food products. That could produce a social explosion, but the young economists believed that neither they nor the politicians had any other viable alternative—they had to take the risk. They hoped that their shock therapy would jump-start the dying economy, opening the way for privatization of state property and a full transition to a market economy.
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Along with other members of the Russian government, Burbulis visited Gaidar and his team at their Arkhangelskoe resort and concluded that there was no alternative to their shock therapy. If Yeltsin did not try to implement it, despite the obvious risks, his popularity would soon evaporate like Gorbachev's, and a popular revolution would drive him and his entourage out of office. Burbulis asked for specifics: Gaidar and the young economists came up with their estimates and proposals. After discussing them at the Russian State Council, Burbulis flew to Sochi to sell the plan for saving the Russian economy and Yeltsin's presidency to the president himself. The memo he brought to Yeltsin was titled “Russia's Strategy for the Transition Period,” but it became better known as the “Burbulis Memorandum.” No one could tell how Yeltsin would react to the plan. “Everyone waited, as they say, not by the day but by the hour to see what would happen there,” recalled Burbulis later.
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Burbulis and Yeltsin spent long hours on the shore of the Black Sea discussing the plan. Aleksandr Korzhakov supplied them with food. “The situation was actually extreme in the sense that the legacy we inherited was monstrous,” remembered Burbulis. “And Boris
Nikolaevich understood that very well.” Sitting on a deck chair, Burbulis argued that Gaidar's economic plan was their only hope.

Yeltsin's first reaction was a blunt refusal: “I can't do it. What do you mean?”

But Burbulis insisted. As he later summarized his response, “What was good was that in Gaidar's papers the idea was immediately accompanied by steps and an instrument. A law, then a decree; a decree, then a law, a resolution. And it was clear what was being proposed and how to do it.”

One of Gaidar's basic premises was that Russia could not afford to subsidize the other republics: Russian resources were needed to overcome the current crisis and make a giant leap into the market economy without causing social upheaval. This in turn raised questions about the need for a Union center, not only in political terms but also in economic ones. “Objectively, Russia does not need an economic center standing over it and busying itself with the redistribution of its resources,” read the memo. “But many other republics are interested in such a center. Having gained control of property on their own territory, they are trying to use all-Union agencies to redistribute Russia's property and resources in their own interests. Given that such a center can exist only with the support of the republics, it will objectively carry out a policy, regardless of the composition of its cadres, that runs counter to Russia's interests.”

At some point Burbulis asked Yeltsin, “What are we to do with the republics?” and then gave his own answer: “We will cooperate mildly with them, but we have no food or drink to offer.”

Yeltsin eventually began to incline toward Burbulis's proposal. “What, only that way and no other?” he asked.

Burbulis insisted, “No other way.”

Yeltsin asked again, “Is there another possibility?” Burbulis said no. The president finally gave in: “If there is nothing else, then that is how we will proceed.”

In Sochi Burbulis met members of the competing group within the Russian government, made up of Silaev's allies, who were trying to convince Yeltsin to follow a more cautious strategy, but he flew back to Moscow with new hope for the future. If Yeltsin put Burbulis's memo into effect, then Russia would embark on something unprecedented in
its history: instead of putting the empire first, it would start building its own ark to survive the coming flood.
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AS HAD HAPPENED
in August 1991, Yeltsin's unexpected departure from the capital created a political opportunity for Gorbachev. He wanted to return to center stage in Soviet politics, and his main instrument for doing so was the idea of a new union treaty, which he wanted the leaders of the republics to sign as soon as possible.

Gorbachev's first postcoup meeting with Yeltsin and the leaders of the other republics, which took place on August 23, had left no doubt that not only the old Union but also the old union treaty that triggered the coup were now dead. In the days following the meeting, Gorbachev called one of his top advisers, Georgii Shakhnazarov, and asked whether he was working on a new union treaty. The question took Shakhnazarov by surprise: “It never entered my head to do so.” He doubted whether negotiations could be resumed.

Gorbachev insisted, “If we sit with our hands folded, we will lose everything. They will tear the country to hell.” Shakhnazarov pointed out that the republics would now want more from the center. “Definitely,” Gorbachev told Shakhnazarov, “but for our part, we should explain to them that without the Union not one of them will survive. Not even Russia. It will be bad for everyone.”
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On September 10, with James Baker in Moscow, Gorbachev convinced Yeltsin to rejoin the negotiating process. Yeltsin agreed on condition that the new union treaty create a confederation—a decentralized entity in which the center would deal largely with issues of defense and foreign relations. That was also the position taken earlier by Kravchuk of Ukraine and, after the collapse of the coup, by Nazarbayev of Kazakhstan. Although Gorbachev wanted a new union, not a confederation, he had no choice but to take Yeltsin's offer. In late September, with Yeltsin out of Moscow, Shakhnazarov met with Burbulis and Yeltsin's legal adviser, Sergei Shakhrai, to discuss the parameters of the new treaty. Burbulis gave Gorbachev's adviser an introduction to the new order of precedence: the days when “Russia, as a ‘donor,' the savior of the Union, would lie down on the embrasure to cover any breach in it” were over. Russia needed time “to look after itself and gather strength.”

Burbulis and those around him did not believe that Gorbachev's attempts to revive the all-Union market offered a solution to the Union's economic problems or served Russian interests. The republics were flooding Russian banks with ever more worthless money in order to drain Russia of its natural resources. “That is why we must save Russia and strengthen its independence, separating ourselves from the rest,” argued Burbulis and Shakhrai. “After that, when it is back on its feet, everyone will rally to it, and the question [[of the Union]] can be resolved again,” they assured the representative of the Union center. For now the Russians wanted a confederation, not an entangling union. They also wanted Russia to become the legal successor to the USSR, which would give it primacy in the confederation. They were prepared to work toward that goal with the center, which they considered an intermediary with the republics. This arrangement would allow Gorbachev to remain in politics, if not in power. “We understand,” said Burbulis, “that Gorbachev is an outstanding reformer, and that he is playing a major role on the world stage, as before. And if a negotiating process is announced according to the Russian scenario, then coordinating structures will be required in order to produce a defense strategy and develop diplomatic agencies. No one can carry out that function better than Gorbachev.”
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Translated into plain language, Burbulis's proposal meant the following. The revolutionary takeover of the center by Russian institutions immediately after the coup had failed. Because of the position taken by the leaders of the Union republics and George Bush, Yeltsin was obliged to work with the center. His advisers were prepared to turn the center into an ally. If Gorbachev cooperated, he could provide a screen for Russian hegemony in the Union and help maintain it. The Russian proposal was formally based on confederal principles, corresponding in that sense to the informal Yeltsin-Gorbachev agreement reached a few weeks earlier. But that was not what Gorbachev wanted from the impending negotiations. His ultimate goal was a union state with a strong center, and he was prepared to bend every effort to get it.