Yeltsin's Wall Street Stock Swindle

By Sam Marcy (Oct. 15, 1992)
In the midst of a deepening crisis, the Yeltsin camarilla has embarked on what appears as a bold adventure to shore up the Russian government's counterrevolutionary effort to break up the vast state-owned socialist plants and technological equipment and convert them to private ownership.

The capitalist press has given considerable publicity to this adventure, and while it has put its stamp of approval on it, it has nonetheless viewed it with considerable skepticism. In Russia too, the press is skeptical, but nonetheless welcomed the plan. Resolute disapproval comes only from Communist publications.

In substance, Yeltsin proposed on Aug. 19 to distribute checks to each and every one of the approximately 150 million Russian citizens. Each will receive a check, as Yeltsin calls it, the equivalent of 10,000 rubles. Every citizen will thereby have a chunk of the formerly state-owned socialist property, if they choose to buy it with the check.

Dividing 1.4 trillion rubles

It is best, however, to let Yeltsin speak for himself.

"The value of the property of Russian enterprises that will be offered for privatization checks in 1993 is estimated by experts at 1.4 trillion rubles, in Jan. 1, 1992, prices. That works out to approximately 10,000 rubles for each resident of Russia. ...

"What rights to property will every citizen of Russia who has such a check obtain, and how can they best be used?

"Every checkholder can use his or her check to buy shares in an enterprise in any part of Russia and thereby become an owner, a proprietor.

"Shares are a real right to property. Stockholders will receive part of an enterprise's income and have an influence on the management of the enterprise. Of course, this way of using a privatization check involves a certain risk. After all, if an enterprise goes bankrupt, investments in it will depreciate or become totally worthless.

"Another option has been provided. A privatization check can be invested in one of the investment funds that are beginning to spring up throughout the country. These funds will themselves purchase shares in privatized enterprises, receive income from them and distribute it among the investors.

"Perhaps some citizens do not want to become property owners. In that case, a check can be sold to someone who wants to participate in privatization." (The Current Digest, Vol. XLIV, No. 33--1992)

On its face, this appears to be a very clever scheme on how to raise the morale of those among the millions and millions who badly need such a check. They especially could use such a large sum of money as 10,000 rubles to purchase the everyday things of life. If that is impossible, the check could be used to invest in state-owned industry--to have a chunk of it. And as its value appreciates, Yeltsin forecasts one could really get rich, if he or she holds on to the check.

Should arouse interest among speculators

So that from a thoroughly capitalist point of view it ought to awaken a great deal of interest. It should especially create that kind of enthusiasm among the sections of the population that likes any scheme which promises to enrich individuals even if it's at the expense of the collective.

Of course, if the scheme succeeds precisely as Yeltsin explains, it would completely disperse all state-owned property among all the individual Russians and their families. It would be like taking one great big pie, baked by collective labor, dividing that pie into many pieces and distributing the pieces to the population for immediate consumption.

The Russian press has reported no wild enthusiasm. There has been, one might surmise, a great deal of anticipation among the fraternity of imperialist robber banks, speculators, all kinds of financiers, and above all, those who could easily launder hundreds of millions in various exchange operations. Such manipulation would work to the detriment of the Yeltsin counterrevolutionary governing group's project.

Basically, Yeltsin's scheme is similar to many stock flotations, common phenomena in all the major capitalist countries, including Japan, and done most often in the United States. A stock flotation is the distribution of stock for the purpose of sale to the many. An aspect of these flotations is often overlooked, but is ABC in modern corporate finance.

It is now many years since professor A.A. Berle and G.C. Means wrote what has been regarded as a classic of corporate finance, The Modern Corporation and Private Property, 1932. (Revised edition, 1968.) In it, they demonstrated that the giant modern corporation had as one of its salient characteristic features the separation of management from ownership.

Separation of management and ownership

They showed something that is all too clear nowadays, 60 years later. It is possible for a giant corporation to distribute through sale many millions of stock certificates, to be bought up by hundreds of thousands if not millions of stockholders. Nevertheless, in the end, it takes only one half of one percent of the stock gathered in the hands of a few individuals to control the management and operation of a corporation, however large it may be.

It takes only one or two billionaires to purchase huge numbers of stock, let us say 1 or 2 percent, of AT&T, General Electric, Boeing, or even General Motors, to effect a change in management. The rest of the hundreds of thousands or millions of stockholders have only the right to sell their stock to one of the giant purchasers.

What this illustrates is the general tendency that follows the dispersal of stock among millions of stockholders. It only takes a few of the giants to buy out the thousands of stockholders who are ready and willing to dispose of their stock at what may seem to be good prices.

The holding company--a means for stock dispersal

The 1975 edition of The New Columbia Encyclopedia explains how stock dispersal into the millions is accomplished by various corporate means. As early as the 1970s, the holding company was a typical instrument of dispersing millions of shares by means of a controlling interest in other corporations.

A more recent type of corporation is the holding company, organized to buy a controlling interest in other corporations. The amount of cash needed to control a concern is lessened by pyramiding holding companies. This is done by creating a company to hold a voting control of one or more operating companies.

A third company is created to hold a controlling interest in the second, and so on. The control of the last holding company is sufficient to control all, and such control, because of the scattering of stock among many small holders, may need the ownership of only 10 or 20 percent of the stock available. ...

The large business corporation has greatly influenced the control of property in the modern world. Approximately 100 corporations are thought to own half of the total corporate wealth of the United States; they are typically controlled by a small minority of the stock holders.

There are several methods employed by small groups of stockholders to gain control of large corporations. These include pooling of the majority of stock in the hands of trustees having the power to vote it and the use of proxies (agents for the actual stockholders pledged to vote for particular candidates for managerial positions). Proxies are generally successfully used because stockholders rarely attend meetings or name proxies other than those suggested to them by management.

In broader Marxist terms, judged in the evolution of U.S. capitalism, for instance, stock dispersal by the millions successfully accomplished the concentration of the means of production into the hands of a few millionaires and billionaires. Stock flotations which are a function of the corporation are merely the legal form under which capital hides its exploitation of the working class.

The corporation is merely a legal form, the substance of which is capitalist accumulation and its concentration into fewer and fewer hands at the expense of the millions of exploited. The dispersal of stock, no matter how widely it is dispersed, is not a sign of enrichment of the mass of the people, but is a measure of the degree of the exploitation of the working class.

The fear of economic collapse, especially of a financial collapse, ends in a mad rush in a selloff by the millions and the appropriation of their property by the very few. It is an absolutely inevitable phenomenon, especially during times of economic crisis. The millions become expropriated of what they believe have been savings put away for hard times.

Stocks differ from bonds in this respect: a bond is like a promissory note, an IOU, which compels the corporation or the government to pay interest and principal, regardless of economic vicissitudes--government or corporate. A stock, on the other hand, does not obligate the corporation or the government to pay anything to the owner thereof, except dividends to be distributed at the discretion of the corporation. Viewed in this light one can see the general strategy so rosily outlined by Yeltsin, which in turn is the product of the Russian whiz kids, the trained seals of Wall Street teachings, like Deputy Finance Minister Anatoly Chubais.

Vouchers not legal tender

The stock certificates, or the vouchers, as they are now called, are not like legal tender that can be cashed in at a bank, for instance, so that one can take 10,000 rubles out of it immediately. Were that the case, it would be a tremendous exhibition of the economic strength of the Yeltsin regime. But such is not the case.

Even if the Yeltsin economists and bankers were ready to do this, such a distribution would immediately cause an astronomical inflationary rise. The IMF and World Bank, to which Yeltsin & Co. are beholden, would not permit it.

It would be one thing if these stock certificates were not saleable or the purchase thereof beyond a certain sum was prohibited. But they are saleable, and this gives the opportunity to foreigners to purchase them with virtually no restrictions. This therefore permits the operation of the law of capitalist accumulation, i.e., that the power flows into the hands of a smaller and smaller group of people.

This small group are expropriating the mass of millions who, even if they do not sell the stocks, have no economic and political power to do anything with them.

The inevitable result of the stock flotation is that it will become an instrument in the hands of foreign monopolies. It will also disrupt the efforts of the Russian central bank to stabilize the ruble, which has been plunging lower and lower, notwithstanding the bank's efforts to bolster it.

Such is the clever maneuver of the Yeltsin camarilla to get a temporary reprieve from hostile attack of its own bourgeois constituency at a time when the workers' movement is still girding its loins for the working class offensive which is sure to come.

Main menu Yearly menu