Yuri
Tsyganov1
The transition in Russia has seen the rise of traditional forms of economic, social and political coordination. This involves a significant role for specific groupings, which can be called clans. This name is somewhat artificial, since such clans usually have nothing to do with kinship and family ties; rather, they are often based on a common origin (for example the Moscow group) and/or professional ties (for example the Gazprom group). In advancing their economic and political interests, such groupings do not use official procedures. The latter are only a cover for a hidden mechanism designed to balance and promote their interests: the groupings simply buy the governmental decisions they are interested in, or else exert pressure on government bodies through the mass media that they control.
The accession to power of Vladimir Putin was accompanied by broad expectations that he would put an end to the system of clans. But what we see today is a new round of the clans struggle, with a new group brought to the top by Putin that has started to fight the old oligarchs. Paradoxically, the fight against corruption has become a bargaining chip in this struggle. There is nothing new in this. For example, in 1997 the so-called writers case when it was alleged that the participation in a book on Russian privatisation by several high ranking officials was in fact a cover-up for paying them bribes was used as a tool to root the young reformers (Anatoly Chubais and others) out of the government. However, despite much discussion of and symbolic campaigns against corruption, the problem remains essentially unaddressed. Moreover, the struggle between the leading political and economic groups provides fertile soil for it.
The clan system received a significant boost in the 1990s, due to the fact that Yeltsins government lacked a proper legislative basis,2 and there was mutual mistrust between the central administration and the state bureaucracy. Yeltsins administration attempted to address important issues by using personal ties, bypassing the government apparatus. This later developed into a vital link between the government and the approved financial groups. A special theory was introduced to explain that the government should support selected individuals in creating financial and industrial groups (FIGs), since these individuals, as heads of FIGs, were expected to become the driving force of market reform. Kryshtanovskaya (2002) has called this pattern a system of business by approval that had its roots in the komsomol3 economy (the Communist nomenklatura started its experiments in exchanging political power for economic resources and property by appointing young Communists to positions where they were allowed to engage in business).
Yeltsins reforms destroyed the old mechanism of macroeconomic management based on a system of industrial ministries. The rapid privatisation undermined the very basis of this system.4 At the same time, the view that large FIGs should play the key role in Russias economy they were seen as the units that could close the management gap and accumulate serious resources for development became increasingly popular. The Japanese zaibatsu and Korean chaebol were often cited as models to emulate. The loans for shares scheme of 199596 triggered the process of creating FIGs headed by the most influential banks. By 1998, there were more than 70 such groups, and, as a result, large joint-stock companies became key elements of the national economy in the late1990s.
One of the most important features of the FIGs is a high level of ownership concentration. Moscow-based economists Peter Boone and Denis Rodionov of UBS Brunswick Warburg, analysing 64 of Russias largest non-government companies, found that 85 per cent of the capital was controlled by just eight shareholder groups (Rodionov and Boone 2002) (see Table 7.1). According to Alexandr Dynkin, of Moscows Institute of World Economy and International Relations (IMEMO), the eight groups account for 40 per cent of industrial output, 30 per cent of exports, and 1.6 per cent of the labour force (Sergeev 2003). Observing this concentration of ownership in Russia, some analysts (for example Cottrell 2002) speak of a chaebolisation of the economy comparing the rise of FIGs to the rise of the chaebol business groups in South Korea.
Table 7.1 Russian integrated business groups
|
Business Group |
Number of Companies in the Group |
|
Lukoil |
378 |
|
Alfa-Group Renova |
193 |
|
YuKOS |
312 |
|
Basic Element Sibneft |
138 |
|
InterRos |
201 |
|
SurgutNefteGaz |
51 |
|
AFK System |
169 |
|
Severstal |
136 |
Source: Strana.Ru,
31 January 2003, http://www.strana.ru/stories/02/02/06/2462/170352.html,
visited January 2005.
The informal connections between business groups and the government not only provided the latter with important information and a source of alternative advice, but also created opportunities for the political participation of business tycoons, later known as oligarchs. After the 1996 presidential elections, the oligarchs positioned themselves as groups of political influence, and this influence had little to do with the interests of the majority of society. The influence was supported by strong financial flows over which they had obtained control.
The new business structures headed by oligarchs seriously changed the political landscape. They were not simply making strenuous lobbying efforts, but were starting to participate in politics directly, interfering in decision-making and the administration of political appointments. Under such circumstances, corruption turned out to be the most efficient method of privatising the government. The situation was complicated further by the semi-official nature of political participation. Glinkina (1998: 18) is correct in arguing that the uncertain legality, together with the extensive practice of telephone rule, gave politicians, bureaucrats and judges an unusually free hand to apply their own assessments of right and wrong.
The political struggle of 199799 revealed that the political structure of Yeltsinism with the clan system as a part of it had started to destroy itself from within. The 1993 Constitution granted extremely broad powers to the President. As a result, he was expected to play the role of referee between all the clans and political groups. However, being created around Boris Yeltsins personality, the system of super-presidentialism appeared to be equal in its strength to the political weight of the man. For reasons relating both to his poor physical health and to the political situation, Yeltsin failed to play the expected role, and the country found itself in a political deadlock.
Although Yeltsins positioning of himself as the only barrier against Gennady Zyuganovs accession to the Presidents office and an eventual Communist restoration did help him to win the 1996 presidential election, 1998 saw Yeltsins rating fall to the 2 per cent mark. Yeltsin lost popular support, and he had neither sought support from an existing political party nor tried to create a new party to acquire such support. His health problems aggravated the situation. At the end of the day, he could rely only on his administration and the inner circle the so-called Family. Migranyan (2004) has pointed out that the super-presidential republic created by the 1993 Constitution had by 1996 lost its substance. The President had the authority to dismiss the Cabinet or sack a minister, and even to decide the fate of a governor or an oligarch. However, in reality, the Presidents authority was limited to downtown Moscow.
In early 1999, Yeltsins weakness encouraged a struggle for power between four major players: the Family, the Communists, Yevgeny Primakovs group and Yury Luzhkovs Fatherland. Unlike its political rivals, the Family did not have a political structure as well as a candidate to run for the presidential office. At the end of 1998, it seemed to be a loser. But then it put a final stake on Vladimir Putin. Unexpectedly, the Family managed to create a new party of power to provide support for Putin. Changing personalities in the Presidents office, curbing the clans political activities, and suppressing unapproved competitors aspiring to the main office, were seen as a way out of the political crisis. Striving for independence from the oligarchs, the Family was also successful in increasing the level of autonomy of the government. Putin, who did not belong to any major political group and had carefully hidden his political preferences, was viewed as a suitable person to become a successor.
Putin came to office being promoted by the mass media as a strong man able to solve a broad range of problems from eliminating the Chechens rebellion to bringing the oligarchs under government control. By this time, the political elites and ordinary people had developed a consensus that the country did not want new shocks, even for the sake of reforms. Putin emerged as a symbol of the new stability. He completely hid his political and economic views, so as not to give observers an opportunity to interpret his stance in the interests of the particular social groups they represented. He was backed by the freshly established Unity party (now transformed into United Russia), which also declared no political or economic goals other than support for the President.
The political elites and clans agreed to a policy of equal distancing from state power. This meant that no business group or political clan would receive preferences on an individual basis. Putin tried to roll back the practice known as privatisation of power and to rebuild the so-called power vertical. The two strategies are similar, in that they consider large corporations to be the only significant political force, and ignore small and mediumsized businesses. The major difference between these two practices lies in their methods of interaction. Informal ties of exchanging money for power (official decisions) were substituted by the principle of equal distancing, which emphasised the leading role of the government in decision making. The capacity of big business directly to influence official appointments and other governmental decisions was significantly reduced.
Some steps were taken to create a more transparent mechanism of contact between the government and the so-called oligarchs (business tycoons). The latter turned towards the Russian Alliance of Industrialists and Businesspersons, which was initially established as a representative body for the so-called red directors.5 In 200001, nearly all large-scale businesspeople joined the Alliance. It was an attempt to change a pattern: instead of individual bargaining, which was common when Boris Yeltsin was in power, businesspeople had shown their readiness to act in the framework of a body representing the entire business community. This also changed the agenda the state and businesspeople started to discuss broader issues of economic policy (for example taxation, currency control, joining the WTO). Big business acquired a structure for their participation in determining strategic approaches to the social and economic situation in particular regions and in the country as a whole.
Despite this stabilisation policy, two oligarchs became the targets of instant attacks by law enforcement bodies supported by Putins administration. Boris Berezovsky demanded special status for himself as an author of project Putin. Vladimir Gusinsky also wanted to gain exclusive benefits from the government, using his NTV company the only independent national television channel in Russia as leverage. Moreover, Gusinsky had refused to grant NTVs support to Putin and the Unity party, and was put on the Kremlins black list. Both oligarchs acted against the informal agreement struck between Putin and the oligarchs in July 2000, and were punished accordingly. They lost their stakes in two major national television channels, ORT and NTV respectively, and were squeezed out of Russia.6 This seemed to be in line with the rules of the new game of equal distancing. Nevertheless, it later became obvious that Putin was playing another game, and was gradually appointing former secret service officers to government bodies, and expanding their control over mineral and financial resources.
Looking back to 1999, we can see that the quick recovery of the Family was ensured by a new approach to methods of political financing. The Family made a titanic effort to bring financial flows under its control. On the basis of personal ties and selective appointments of heads of government bodies, the group obtained access to budget and other government financial resources as a source of political financing. Thus, by the end of 1999, the oligarchs had lost their importance as a source of funds that could be allocated to election campaigns. In 1996 the oligarchs had supported Boris Yeltsin through converting budget funds into anonymous monies (for example, in the famous case of a box for a Xerox machine). During the elections of 1999 and 2000, the Family did not need the service of the oligarchs banks any more. The oligarchs lost their significance after emerging as a pillar in the political structure under Boris Yeltsin. Thus, the earlier mechanism of buying governmental decisions was undermined.
Putin, who had had no personal support basis in the government apparatus, took advantage of these changes. He began to promote his protgs to government positions, gradually increasing the political significance of the newcomers. In 2001, Sergey Ivanov became the Defence Minister, Boris Gryzlov was appointed Interior Minister, Alexandr Rumyantsev became the head of the Ministry of Nuclear Energy, and Mikhail Fradkov was appointed head of the Taxation Police and subsequently Prime Minister. Practically all these people had come from St Petersburg. Alexandr Miller, who also represents the Petersburg group, was elected Chairman of Gazprom, the largest company in Russia. According to a report by the Russian Academy of Sciences Institute of Sociology, in 200103 up to 22% of the top officials (3500 positions were analysed) were newcomers. Former military and secret service officers constituted 70% of the administration in federal districts, and 35% of deputy ministers. Their numbers among governors increased twofold. Big business controlled 16% of the top official positions, 17% of the Federal Council, and 5% of the government. The old nomenklatura those who had worked for the state during Brezhnevs times accounted for up to 30% of the top bureaucrats in the early Putin era (Kaftan 2003).
The former military and secret service officers have a good understanding of, and broad experience with, the mechanisms of Communist society, and the current ruling group is trying to restore many aspects of the Communist-style system of governance. Putins slogan of strengthening of the power vertical implies such a restoration. The current presidents political structure relies on the so-called administrative resource, coupled with a policy of intimidation; there appear to be attempts to create an atmosphere of Andropov-style low level fear, which can be seen in the apparently fabricated spy cases of Sutyagin, Pasko, Moiseev, Danilov, Nikitin, and so on. Valentin Moiseev, a former leading Korea specialist in the Russian Foreign Ministry, argues that the fabrication of spy cases and anti-spy paranoia are aimed at strengthening the position of the secret service and intimidating society (Moiseev 2003).7
At the same time, the secret service conducts covert operations against the rare critics of Putins regime. This can be in the form of a grenade exploding near the door of an apartment owned by the author of an anti-Kremlin book, or a visit by professionally equipped burglars stealing a notebook and a PC hard drive from a journalist critical of Putins foreign policy. Baker (2004) writes that, in certain circles, fear is creeping back into Russia. As a result, self-censorship has developed. For example, the NTV channel, in contrast to the two governmental television channels, is believed to be exempt from direct Kremlin advice or instructions, but checks (censors) its own broadcasts to avoid any potential difficulties (Mursalieva 2004). Thus, in early June 2004, NTVs management closed a popular program by Leonid Parfenov and dismissed him. Parfenov was guilty of publishing an interview with the widow of Zelimkhan Yandarbiev, a former Chechen leader, killed in Qatar by Russian agents.
There were serious institutional changes that ensured strengthening of the power vertical. This policy of Putin included three major steps that virtually substituted the government structures with unconstitutional bodies. First, the country was divided into seven federal districts headed by the Presidents representatives. Second, the regional governors were moved from the Federation Council (according to the Constitution, the Upper House of the legislature) to a new consultative body the State Council. Subsequently, the Federation Council lost its power. Third, the federal bodies were granted the right to interfere in the regions, to dismiss governors and regional legislatures. Furthermore, in September 2004 Putin used the tragedy in Beslan to sneak in his proposal to abandon direct elections of governors. This unconstitutional structure of political management is oriented exclusively towards the President, and is not subject to control by society. Thus, Putin created a new mechanism for the super-presidentialism inherited from Boris Yeltsin.
Petrov (2004) points out that the federal districts coincide with the boundaries of regional deployment of Internal Forces of the Interior Ministry. Five of the seven Presidents representatives are military generals. Their offices, as well as the offices of federal inspectors, have been filled by former military and secret service officers. The Presidents representatives are members of the Security Council and regularly report the situation in their districts to the President. In the districts, they created special structures to control all military-like and law enforcement bodies. There is no transparency in the activities of the Presidents representatives, and there is no clear review of their competence.
Interestingly, the architect of perestroika, Alexandr Yakovlev, testifies that the former KGB head and then Communist General Secretary Yury Andropov advocated a system of vertical management based on seven to ten federal districts (Bykov 2004). In this context, it is noteworthy that, in June 2004, the 90th anniversary of Andropovs birth was widely celebrated in Russia, and he was portrayed as a reformer. Clearly, Putin took the old KGBs project from a dusty shelf and is implementing it 20 years after the death of its notorious author.
Significant changes in the political landscape of Russia allow us to speak of a serious transformation of the regime established by Boris Yeltsin and inherited by Vladimir Putin. Boris Nemtsov and Vladimir Kara-Murza argue that there is a new political formation Putinism. It is a mix of a one-party system, censorship, a manipulated parliament, the absence of independent courts, a high level of power and finance centralisation, uncontrollable secret services and bureaucracy, and the subordinate position of business (Nemtsov and Kara-Murza 2004). Medushevsky (2001) has emphasised the systems dual legitimation (a combination of democracy and autocracy), technical government and the emerging personality cult, and suggests that the regime is moving towards a form of classical Bonapartism.
The reliance on the administrative resource increases the role of bureaucracy, undermines positions of previous favourites, and turns bargaining into a hidden process inside the system. The administrative resource is the main driving force for the so-called managed democracy. The term managed democracy in regard to the Russian political system was introduced by the former editor-in-chief of the daily newspaper Nezavisimaya Gazeta, Vitaly Tretyakov. Describing the political agenda of President Putin, Tretyakov (2000) argued that the president, without restraining democratic institutions and freezing political freedom, could ignore the Parliament, mass media, and the opposition if this was beneficial for national development. Such a system is supported by the political elite, which has no romantic expectations or illusions about Russias political system.
Many observers have pointed out that the victory of the managed democracy policy can be seen clearly in the last parliamentary and presidential elections. For example, the main reason for the extraordinary efforts the regional authorities exerted in mobilising the electorate and ensuring a high level of participation in the 2004 presidential election was an informal promise by the Finance Ministry to allocate budget funds according to the level of participation (Butrin 2004). The most undeveloped regions showed the highest achievement; Chechnya, Ingushetia and Chukotka demonstrated the best results in terms of participation and support granted to Putin.
However,
this is not a new phenomenon. The presidential and parliamentary elections of
1996 and 19992000 revealed a similar pattern. In a sense, the elections of
19992000 were even more remarkable: the Kremlins political manipulations
turned a hastily gathered group of people into the party of power, and an
unknown mid-level official into the president.
The essence of Putins stabilisation is the fact that managed democracy has given new opportunities to bureaucracy. Former Deputy Head of the Central Bank Oleg Viugin calls Putin a leader of the new nomenklatura (Yasin 2001: 623). According to Viugin, Putins policy reflects the interests of this stratum. The nomenklatura has rearranged its relations with the oligarchs. Viugin is correct that the oligarchs have adopted a misguided approach, believing that power comes with money. But the formula is contrariwise power leads to money. Those who agreed with the latter formula see their businesses flourishing; those who did not were ousted from business, and in several cases from the country. The policy of equal distancing has significantly undermined the oligarchs capacity for influencing the decision-making process in government bodies. However, this has not stopped what Yasin (2001: 68) has called the privatisation of power. One group is prevented from further participation in such privatisation, but this only means that a much larger group the nomenklatura no longer has any competition. Managed democracy appears to be a system allowing an unchallenged position for the nomenklatura.
It should be noted that the nomenklatura was disorganised and disoriented in the early1990s, due to both the new policies and the inflow of newcomers with academic backgrounds to government offices. But it never lost its position as a major element of the political system. Albats (2000) argues that Russias liberal reforms should have gone further than simply introducing the market instead of the planning system and allowing private ownership. It should have included the elimination of absolutism and the bureaucratic state that was a tradition in Russia for many centuries. The last two centuries have seen significant changes in social relations, the structuring of elites, ideology and ownership. However, the bureaucratic nature of the state persists, and the unlimited power is still in the hands of the bureaucracy. On this point, the events of 199192 were not a revolution, but rather yet another attempt to modernise the bureaucratic state. The reforms of 199192 legalised the nomenklatura privatisation of 198591, and permitted a change in elites. Citing Sergei Kovalev, the famous human rights activist, Albats (2000) further suggests that Boris Yeltsin deliberately rejected the reform of the government apparatus. According to Kovalev, Yeltsin as a politician and a public manager developed within the Soviet party bureaucratic system. As such, he tended to preserve the basis of the nomenklaturas existence, despite bringing in reformers and creating links to the FIGs. Having extremely good skills in backstage management and in nomenklatura intrigues, Yeltsin was afraid that under a new system he could lose control over government bodies.
Olga Kryshtanovskaya points to the fact that during Yeltsins presidency the political longevity of people in the ruling elite decreased dramatically (Naryshkina 2003). Under Brezhnev, top officials enjoyed about 18 years on average in the elite. Yeltsin, who was quick to dismiss people, cut this period to 1.7 years. This was a dramatic purge of the system. However, it created a large group of disaffected people, who formed the basis of the opposition to the regime; this opposition included younger officials (those who were 30 to 40 years old when the reforms started) who had planned their careers in the nomenklatura hierarchy, and who suffered when the old ladder of gradual career movement was abandoned along with the Communist system. The opposition was not necessarily against the new political course: rather, their chief concern was to regain their positions and opportunities. Putin increased the average tenure in the elite to more than 3 years, and normalised the situation (Naryshkina 2003). The nomenklatura regained a feeling of stability. At the same time, the Communist practice of creating sinecures for dismissed officials was re-established. This effectively undermined the opposition.
Voslensky (1984: 441) has described the nomenklatura as a class of privileged exploiters that acquired wealth from power, not power from wealth. This privileged position was made possible by monopoly monopoly in ownership and monopoly in power. The last two decades have provided a brilliant opportunity to the members of the nomenklatura to cut personal pieces of their own from the pie of the former all-peoples economy. Many of them welcomed this opportunity. Abandoning the all-peoples that is state ownership has allowed a conversion of official privileges into real property rights. Paradoxically, it has also undermined the very foundation of the nomenklaturas existence, since it created some level of competition in economic and political life.
The period of chaos that followed the USSRs collapse was a period that gave people from all walks of life the opportunities to capture pieces of the value that the nomenklatura intended to divide among themselves. There were many reasons for this, including a lack of control, propagandistic measures (for example a simulation of equal opportunities), and the necessity to have a group of pioneers who were to examine the new opportunities and show the way (appointees to the role of businesspeople, who were mentioned above). It should also be noted that the changes came so quickly, and the internal transformation of the nomenklatura was so significant it lost the ideological axis that provided legitimation of its privileged position that it simply lost its grip on the national assets.
Now the nomenklatura is restoring its position. Certainly, the restoration includes an attempt to re-establish control over the most important assets in the country. Under such circumstances, the attack against the oligarchs became inevitable. It started when YuKOS, Russias second largest oil company, found itself under pressure from the authorities. The use of tax exemptions granted earlier was declared to be an illegal activity, as a result of which the company producing 20% of Russias crude oil output, and the second largest taxpayer in the country, was brought to the brink of liquidation. The Kremlin actually destroyed this lucrative business in order to teach others a lesson.
Big business is to be a part of the new system, but in a subordinate position. Prime Minister Mikhail Fradkov explicitly called on the oligarchs to turn themselves to solving the problems the government faced (Obukhova and Skornyakova 2004). Blant (2004) suggests that now the oligarchs do not need their trade union that was previously oriented to a dialogue with the Kremlin. The Russian Alliance of Industrialists and Businesspeople can be closed, since it has become obvious that there would be no such dialogue in the new conditions. Now the Kremlin prefers to speak through the office of the Prosecutor General, as the case of Mikhail Khodorkovsky and his company YuKOS made absolutely clear. Judging by the lack of serious protests on the part of businesspeople, it is clear that they have submitted to the new pattern of relations between business and power. This is despite the possibility that more of them might follow Mikhail Khodorkovsky in the near future.
Besides the nomenklatura and the oligarchs, there are other participants in Russias politics that cannot be ignored. Avtorkhanov (1991) has described three major political elements of Brezhnevs regime the party, the police and the army. He suggests that the political balance between these three corporations was a result of recognising the fact that the Communist Party could not rule without the support provided by the police and the army. In the triangle, the army technically was the strongest part; yet it was the least independent in terms of realising its corporate interests. At the same time, it was the corporation most influenced by patriotic slogans. The police and the party were initially two parts of one political mechanism, but later the two corporations clashed in a battle for control of the state.
After Stalins death, Nikita Khrushchev organised a coup against the police (as a result of which Lavrenty Beria, three ministers of national security, and thousands of secret service officers were killed). He later ousted Marshal Zhukov, then Defence Minister, who had ensured military support for the party leaders in this struggle. Thousands of military and party officers were moved to leading positions in the police apparatus. The party control over the other two pillars of the regime was restored. However, the police gradually regained its influence, and the 1970s saw the abovementioned balance re-emerge, with its hidden struggle for power.
One more player should be added to Avtorkhanovs analysis a very important part of the Soviet nomenklatura, the state bureaucracy (opposed and at the same time complementary to the party apparatus). Obviously, the specialisation in political and economic management created two relatively separate parts of the Communist hierarchy the state and party nomenklatura. In the late 1980s, the state nomenklatura used Gorbachevs perestroika to seize the leading position in the power structure. Yeltsin effectively destroyed the party hierarchy, but hardly touched the state nomenklatura. There were also hectic attempts to reform the police structures, but these mostly failed.
In the end, three out of the four major political elements of the Communist regime (the police, the armed forces and the state nomenklatura) survived and started to adapt themselves to the new conditions. In addition, a newcomer appeared on the scene a group of businesspeople holding significant assets created by privatisation. They often originated from the party, government or secret service structures, but now had independent interests. Kurginyan (1998) has an interesting argument about oligarchs (whom he calls appointees to the role of so-called oligarchs). He argues that the essence of the emergence of the group that called themselves oligarchs was not in their political role or position. Rather, what was really important was the fact that a certain group actually called itself a new class. They openly stated that they did not belong to the nomenklatura and did not want to. Demonstrating political ambitions and aspiring to power, the group became an obvious antipode to the nomenklatura.
In the rectangle of four competing forces, the police currently seem to be the most successful. Portnikov (2003) has pointed to the struggle between the army and the police (chekists8). Since Communist times, there have been special controlling bodies ensuring the chekists control over the army. Now the main referee that resolved the conflicts between the military and the chekists the party nomenklatura has gone. The chekists appear to have gained the upper hand in the struggle. Former KGB officer Sergey Ivanov was appointed Defence Minister. His appointment probably represents additional control over the top brass. At the same time, the role of the General Staff was downgraded, as it lost its functions of operational command. It is also important to note that the FSB (the successor organisation to the KGB) regained control over the border guard troops, which gave the service a significant boost in real military strength.
Today there exists an interesting situation in Russia. The army is controlled by the representatives of the secret services. Chekists have flooded into many offices and appear to have managed to outclass the nomenklatura. However, it is probably correct to speak of a kind of emergency team recruited both to restore the hierarchy of state management that collapsed more than a decade ago, and to fill leading positions of the nomenklatura in Russian society. Indeed, Putin and many of those who rose with him had either retired from the service or else had hardly had a chance to reach the top of the KGB, not to speak of their domination in the current Russian government.10 Moreover, the collapse of the Communist system undermined demand for the services of the political police. The cooperation with the rival corporation (the state nomenklatura) has opened up a new career path for the chekists. The nomenklatura has its benefits too; while the oligarchs showed them the path to personal wealth, the chekists could help re-establish the privileged position of the nomenklatura and protect its wealth. No wonder then that officials of all ranks and kinds quickly adapted to the new rules of the game, and showed no opposition to the Kremlins attempts to put the screws on.
In most cases, the former members of the democratic movement that was born out of perestroika, and the independent representatives of the intelligentsia who became officials in the late 1980s and early 1990s, have now been ousted from office. As in Communist times, only affiliation with a particular group can secure a place within the ruling elite. Gradually increasing its strength, the Petersburg Group initially found its place at the top exclusively due to its old ties with Vladimir Putin. The newcomers brought their own mates to the government offices, and this turned into a self-sustaining process. The ten years 19932002 saw a serious qualitative change in the ruling elite (see Table 7.2). Although the number of people with a tertiary education remains high, the share of those who had an equivalent of a PhD declined 2.5 times. This fact clearly mirrors the exit of intellectuals from the elite, who were substituted by people with a military or similar background. The unchanged proportion of economists and lawyers can be explained by the fact that the elite recognises their utility, while pushing out other academics.
The recruitment of officials following the principle of common origin is an old political tradition in Russia. Leonid Brezhnev brought to the top his comrades from his native region the so-called Dnepropetrovsk mafia. Mikhail Gorbachev promoted people from his native city of Stavropol. Boris Yeltsin opened excellent career opportunities for the natives of Sverdlovsk (now Ekaterinburg). Today the doors are open for those coming from St Petersburg, especially for Putins former colleagues from the KGB.
However, the scale of the Petersburg invasion is really unprecedented. Many joke that nowadays the place of birth or dwelling registration in Petersburg is the main if not the only requirement for promotion to a senior position. In fact, this joke contains some truth. Very often, Putins protgs cannot demonstrate any significant achievements or strong skills and knowledge that would justify their appointments to the leading posts in Russias political hierarchy. However, these people do have one valuable feature namely absolute loyalty to the group and its leader. Bulavinov (2003) argues that it was his undoubted loyalty to the leader that opened the doors of the Presidents office for Vladimir Putin. Now the same key is opening the doors for his former colleagues and fellow Petersburgers.
Table 7.2 Ruling elites under Yeltsin and Putin
|
|
|
Yeltsins
elite (1993) |
Putins
elite (2002) |
|
Average age |
Years |
51.3 |
51.5 |
|
Women |
% |
2.9 |
1.7 |
|
Those from
rural areas |
% |
23.1 |
31.0 |
|
Persons with
tertiary education |
% |
99.0 |
100.0 |
|
Research
degree holdersa |
% |
52.5 |
20.9 |
|
Persons with
military education |
% |
6.7 |
26.6 |
|
Persons with
economic or law education |
% |
24.5 |
25.7 |
|
Persons
graduated from prestigious tertiary institutionsb |
% |
35.4 |
23.4 |
|
Those from
the Presidents native cityc |
% |
13.2 |
21.3 |
|
Representatives
of business |
% |
1.6 |
11.3 |
|
Military |
% |
11.2 |
25.1 |
Notes:
a. PhD equivalent
b. Moscow University, Moscow Institute of
International Relations, Moscow Institute of Foreign Relations, Party High
School, Academy of National Economy, Academy of Social Sciences (now Academy of
Government Service), Finance Academy, Foreign Trade Academy and Diplomatic
Academy
c. Yekaterinburg or St Petersburg
respectively
Source: Institute of Sociology, Russian Academy of
Sciences. Pro et Contra, 7 (4), Fall
2002: 162.
The years between Putins first and second elections became a period of significant change in the clan structuring of the ruling group. The Family that recruited Putin to the post of the systems stabiliser (Shevtsova 2004a: 1) managed to recover its political position, which had been undermined after the 1998 crisis. Putin came in as a guarantee that there would be no significant forcible redistribution in the ownership of property. Together with the new guarantees for the nomenklatura, this was the basis for Putins consolidation.
At the same time, during recent years the Family has passed through a series of transformations. Boris Berezovsky, who used to be the major author of political schemes in the group, lost its support. Subsequently, his former protg Roman Abramovich became the leader in this informal association; but then his influence drastically diminished too. Following the agreement on the merger of oil companies YuKOS and Sibneft, Mikhail Khodorkovsky assumed the leaders role. By approving Khodorkovskys arrest and ousting both Mikhail Kasyanov (the former prime minister) and Aleksandr Voloshin (former head of the Presidents Administration), Vladimir Putin has shown that he now feels free of any obligations to the group.
In parallel, several new clan-type groupings emerged. The most important one is the Petersburg chekists (that is KGB-FSB people originating from Petersburg). They derived their political (and economic) influence from their support for President Putin. There are three major players promoting the economic interests of this group: two leading figures in the Presidents Administration, Viktor Ivanov and Igor Sechin, plus Sergey Pugachev, commonly known as the orthodox oligarch. The economic basis of the group is its close connections with MezhPromBank, Rosneft state oil company and Gazprom.
At a certain point, the newcomers, who favour an increase of government interference in the economy, attempted to gain access not only to government resources, but also to those that had already been transferred to new owners during privatisation. Their basic approach is to reinstitute the hierarchical lines of power, which were one of the main features of the Communist system. Instead of several clans or groupings competing for control over the government, one particular group made attempts to monopolise this control and to use it to establish control over economic resources. Businesses are to be integrated into this system.
Although
Putin had promised not to revise the results of privatisation, the draft
reforms of the fuel and energy sector that were introduced by his
administration in 2002 advocated the nationalisation of oil and gas deposits,
and the conversion of oil companies into contractors (Subbotin 2002: 5860). If
this program is implemented, the Rosneft company controlled by the government
(and the
The main stockholder of YuKOS, Mikhail Khodorkovsky, refused to incorporate his business into the new vertical system. He proclaimed certain political interests and eventually clashed directly with the new grouping expanding its power. It should be noted that, at the same time, some 70% of the capitalisation of Russias stock market came from oil companies, including some 35% from YuKOS and Sibneft alone. It is not surprising that YuKOS which, after acquiring Sibneft, became the largest oil company in Russia found itself under open attack sanctioned by the highest authorities, for both political and economic reasons.
Khodorkovskys intention to sell 4050% of YuKOS shares to an American company (Exxon or Chevron) triggered the attack against him and the company. This decision had the potential to weaken the efforts of Putins administration to enhance Russias economic ties with, and leverage over, the West, in particular the USA. It was not about the economic exchange per se, but rather about who would control it and how. Apparently, it is much easier to control the process when Russias major oil company is fully Russian owned. Although the government announced in early October 2003 that there were no regulations that could obstruct the deal, three weeks later they arrested Khodorkovsky (Gurova and Privalov 2003).
The possible deal was criticised by pro-Kremlin observers as an enormous threat to the fundamentals of Russias political system (see for example Svyatenkov 2003). They produced a threatening forecast. The oligarchs, who have obtained former government companies above all in the oil industry for bargain prices and/or for privatisation vouchers, are seeking business alliances to sell the assets to foreign partners, so as to obtain real money for what was purchased at knockdown prices. For example, British Petroleum bought 50% of the TNK oil company. The Interross group was considering the possibility of inviting a foreign investor to participate in the holding. YuKOS was preparing the sale of a significant share to US corporations. The critics argued that, as a result of such transactions, the Russian government could lose much of its control over the oligarchs activities, since the oligarchs would obtain a certain amount of protection from the West. Under such circumstances, it was maintained, the oligarchs would turn into agents of the Western bourgeoisie. Leaving corporate management to their foreign partners, the oligarchs would turn their focus onto politics. Building political influence on foreign capital, they could turn the country into a Western colony and a banana republic. The fact that the oil industry is of strategic importance further aggravates the situation. To avoid such developments threatening national security, strengthening government control over the gas and oil industries, by means of nationalisation or increasing the level of taxation, was proposed. The oligarchs, initially portrayed as engines of reform, are now considered to be demons conspiring against the nation.
Piontkovsky
(2004) has addressed the issue of whether or not Putins group is opposed to
private ownership; his conclusion is that it is not at all. He argues that the
conflict between chekists and
oligarchs is a rebellion of dollar millionaires against dollar billionaires.
What makes this rebellion the current redistribution of assets from Yeltsins
oligarchs to Putins chekists easy
is a low level of legal protection for property rights. Sergey Peregudov cites
Ya. Pappe, who argued that in
Yulia Latynina discusses the same problem. According to her, private ownership does not exist in Russia. In ownership relations, the law is substituted by personal connections. Private ownership appears to be a system of vassal rights connecting the business owner with a governor, a presidents representative, the taxation police chief, the FSB head, and so on (Latynina 2001). Oligarchs are at the top of this chain, and are dependent on the Kremlin. At the regional level, many businesspeople are dependent on friendship with the local governor.
The chekists desire to redistribute the assets acquired by the oligarchs in the process of privatisation coincides with the understandable intention of the nomenklatura to restore its position in the economy. Putins group thus looks like a kind of ice-breaker, leading the charge on the assets redistribution process. The result of this should be a new economic structure, in which the government formally controls major assets, but which in practice benefits certain groups inside the nomenklatura. Such a structure resembles the Communist system of industrial ministries, though with elements of a market economy.
There are no contradictions between the restoration of the nomenklaturas positions and the new round of struggles for wealth redistribution. Naishul (2004) argues that the Communist economy was not a command economy, but an economy of agreements. This system is known as an administrative market. It is a hierarchy based on bargaining, including horizontal bargaining between subjects independent of each other, and vertical bargaining between subjects superior or inferior to each other. Relations between a boss and an employee were also based on bargaining. That is why Brezhnevs epoch can be called a time of bargaining. This system was ready for the exchange ties long before the reforms. The essence of the recent reforms was to introduce money into this system. The current system is basically the same administrative market. The difference is that now, together with power, it recognises the importance of money (Naishul 2004). Administrative resources and administrative currency are the key concepts of this system. The negative consequence of the system is rampant corruption.
Corruption is obviously a public bad, that is something of which a normal society prefers to have as little as possible. However, it has now become an important element of the Russian regime. The system of administrative bargaining provides officials with excellent opportunities for profiteering. On the other hand, corruption has turned into an effective method of ensuring loyalty. Corrupt officials, military officers with business interests, and businesspeople who acquired their assets through various schemes are subjects who provide a convenient leverage against themselves; the leverage is the compromising information about their involvement in certain wrongdoings. Thus, the ruling group converts this social bad to their own good, consolidating their power and creating the illusion of stabilisation.
According to research by the Indem foundation, 82% of Russian businesspeople pay bribes (Litvinenko and Belimov 2004). In the years 2001 to 2005, the total annual sum that went into the pockets of Russian officials increased from US$33.5 billion to US$316 billion (Indem 2005). Each citizen spends an average of US$100 a year in bribes; each businessperson spends approximately US$244,000 (http://2005. novayagazeta.ru/nomer/ 2005/55n/at06-big.jpg, visited 2 August 2005). The businesspeople agree to pay because they are aware of close informal ties between local officials and local law enforcement bodies. The latter are dependent on the former for receiving housing and other benefits. At present, the members of local legislative bodies are usually strongly influenced by the executive. As a result, local legislatures cannot control their executive counterparts, which, according to the same research by Indem, take 87% of bribes in the country (http://2005. novayagazeta.ru/nomer/2005/55n/at07-big.jpg, visited 2 August 2005). At the same time, local governors, mayors and local governments have bought stakes in local mass media, either directly or through businesses loyal to them. Thus, there is no control from this side either.
The problem of corruption became the last straw that triggered the attack against YuKOS. Meeting Vladimir Putin in February 2003, Mikhail Khodorkovsky blamed the government for turning a blind eye to the problem of corruption. Khodorkovsky addressed the case of the Northern Oil Company. On his retirement, Deputy Finance Minister Andrei Vavilov had bought the company. In March 2001, the company managed to win the tender for a large oil deposit in Nenetsky Autonomous district, offering a bonus of only $US7 million, while other companies (for example, LUKoil and Surgutneftegaz) had offered $US70100 million. The better offers were not considered at all (Latynina 2004). The Ministry of Natural Resources subsequently had to annul the license for the deposit, but the company continued the development. LUKoil, YuKOS, Surgutneftegaz, TNK and Sibneft appealed to the Arbitration Court, pointing to the preferential treatment of Northern Oil during the tender. Seemingly because of the scandals, Vavilov opted to sell the company. With an estimated market value of $US300 million, Northern Oil was sold to Rosneft for $US600 million. Rosneft, which is under state ownership, is known for close ties with Viktor Ivanov and Igor Sechin, both of whom belong to Putins inner circle.
The striking gap between the estimated market value and the real sum paid drew attention to the deal. Following a request from the Russian Alliance of Industrialists and Businesspeople, Mikhail Khodorkovsky asked Vladimir Putin about his attitude towards the abnormally expensive sale of Northern Oil to Rosneft (Latynina 2004). Putin was apparently extremely angry to be asked who benefited from the deal; it appears that Khodorkovsky openly pointed to the alleged corruption involving people from the Presidents administration. Putins response was to go on the attack, claiming that the sources of Khodorkovskys own enormous wealth were illegal. In June 2003, the Office of the Prosecutor General opened a case against one of YuKOSs employees. In the following month, YuKOSs top manager, Platon Lebedev, was arrested. The arrest of Khodorkovsky followed in October. In July 2004, YuKOS was brought to the brink of liquidation by the Taxation Ministry and the Office of the Prosecutor General, who used legal procedures to achieve unlawful results. Mikhail Khodorkovsky called the YuKOS case a demonstration of force indifferent to the law, though observing legal rituals and procedures that was extremely dangerous to Russias development prospects (Mikhail Khodorkovsky Press-centre 2004).
It
is not surprising that the Office of the Prosecutor General has turned into a
tool for suppressing any business group that tries to demonstrate its
independence. The office itself has not once responded to questions about
corruption in its own ranks. The Commission for Public Control in the
Anti-Corruption Union has compiled a list of questions about activities of
allegedly corrupt officials (Samotorova 2004).12 The first question refers to two
deputies to the Prosecutor General, Yury Biriukov and Vasily Kholmogorov.13 The Anti-Corruption Commission
of the previous State Duma demanded their dismissal, but failed in this attempt.
Both officials were accused of creating obstacles to the anti-corruption
investigation into the activities of several federal officials, even though
there was serious documented evidence. The Anti-Corruption Commission tried to
initiate investigations regarding Transportation Minister Sergey Frank, the
head of MinAtom, Yevgeny Adamov, and the former head of the
Now the Office of the Prosecutor General has its own material interests in participating in the investigations into numerous economic cases. In January 2000, Putin approved the regulations for the Foundation for the Development of the Office of Prosecutor General. The foundation was granted the right to accumulate 10% of all monies that were received from companies and organisations following the Offices initiative. These funds can be used not only for the needs of the Office itself, but also for the private needs of its employees, such as housing, holidays, interest free loans, and so on. All economic entities are obliged to pay 10% when they file lawsuits. The percentage has to be paid irrespective of whether the case reaches the courtroom or not. Similar foundations were established for the Interior Ministry and the secret service. Zamoshkin (2000) has pointed out the inherent threat of corruption in these arrangements.
The situation in the Interior Ministry (militia) is even more dangerous. Yury Levadas Analytical Centre revealed the results of a survey conducted in 12 large cities in May 2004 (Kolesnichenko 2004). Respondents were asked about their attitudes towards the Russian militia (police). Some 64% said that they did not trust the militia, while only 24% trusted them fully, and a further 10% trusted them to some extent. Some 46% were actually afraid of the militia, while no less than 78% believed that the militia in their city was corrupt. More than half (58%) agreed that bribe-taking by police officers had become systemic, while 40% believed that the militia had criminal connections. Approximately 46% claimed that they had been arrested or searched unlawfully during the previous three years, and fully a quarter had been victims of the militias violence. Some 61% considered recent measures against dirty police officers the case of the so-called werewolves in uniforms and operation clean hands to be purely political campaigns that would not improve the situation. Experts from the Analytical Centre have argued that the strengthening of the power vertical has not changed the situation (Kolesnichenko 2004). On the contrary, during the previous three years it had become even worse. In reality, the government does not control and manage its police force effectively.
Corruption
has become normal for the Russian Armed Forces, too. Just one example will be
cited.
But Kuroedov is evidently only one of many. In July 2003 Komsomolskaya Pravda published a list of 120 generals and admirals who were accused of various crimes, including bribery, embezzlement, abuse of office, and so on. (Nepodsudnye Generaly 2003). Although the total loss to the budget due to their activities amounted to 43 billion roubles, none of them was sentenced to jail. The newspaper failed to gain access to dozens of other criminal cases of high-ranking officers. Meanwhile, a large proportion of crimes conducted by them remained hidden. Thus, the newspaper suggested, the real loss was much more serious.
On the whole, despite much discussion of corruption and dozens of commissions to combat it, Russias authorities have not really addressed the problem. Firstly, it is extremely widespread, and a real struggle against this social evil would affect the interests of many groups, including the ruling elite. It is, moreover, a convenient tool for ensuring the loyalty of officials at all levels and from all fields. Thirdly, as mentioned above, the Presidents circle is allegedly not free from corruption. And finally, the current version of nomenklatura promotes corruption, making it a feature of the system.
The five years of Putins presidency have been a period of further attempts to strengthen the power hierarchy on the basis of Yeltsins model of super-presidentialism. To this end, a series of unconstitutional measures has been undertaken. This was designed to introduce a functioning mechanism to the model that initially existed only on paper, and did not work under Yeltsin.
At the same time, Vladimir Putin proclaimed a policy of equal distancing of big business from the government. The policy turned into a purging of oligarchs from the economy, that is the removal of businessmen who acquired their wealth through close connections with Yeltsins group. Now those who came with Putin are redistributing the wealth to their benefit. Putins strengthening of the power vertical provides excellent opportunities for this.
The interests of people that followed Putin to government offices (former KGB/FSB officers and those from St Petersburg) coincided with the broader interests of the nomenklatura. As a result, the latter received fresh blood and actively restored its position in society. The system that seemed to collapse in 1991 is re-emerging without its axis of Communist ideology. This ideology has been substituted by the pursuit of wealth.
The Communist system that evolved after two coups Khrushchevs and then Brezhnevs was a system of bargaining. It was based on administrative exchange, and money was not important for it. Recent reforms introduced money into it, and money exchange became a norm for the system. Nowadays everything can be bought or sold within the system from the lives of entire army battalions to ministerial offices. For example, the terrorists who seized the school in Beslan in September 2004 paid bribes to the local police to turn a blind eye to their preparations; this allegedly even extended to escorting them. The suicide bombers who blew up two Russian airplanes in August 2004 also paid bribes in order to get on board. The system is working for itself, ignoring national interests. Rampant corruption promoted by the system is a serious obstacle for national development. However, paradoxically, it also destroys the system from within and prevents the country from falling into real authoritarianism, a propensity to which was obvious during Yeltsins presidency and which became a state policy under Putin.
1. I owe thanks to Dr Catherine Hirst for her help in preparing this
chapter.
2. Boris Yeltsin used to his benefit the August 1991 coup that was a
conspiracy of the state nomenklatura
dissatisfied with Gorbachevs rule.
3. Komsomol is an abbreviation for the All-Union Young Communists
League.
4. Aslund and Boone (2002) point out that, . . . whereas only 10
years ago Russia's industry was fully state-owned, today 90 per cent of it is
privatised and 61 per cent of the companies have one controlling shareholder
group.
5. Red directors is a euphemism for directors and managers appointed
by the Communist party, who tried to stay loyal to the old system.
6. In May 2004 the European Court of Human Rights ruled that the
three-day arrest of Vladimir Gusinsky in 2000 (after which he chose to sell his
NTV channel and to leave the country) was unlawful. (Moscow News, No.18, 2004, http://www.mn.ru/issue.php?2004-17-58).
7. Valentin Moiseev was a Deputy Head of the First Asian Department,
Ministry of Foreign Affairs. He was sentenced to four and a half years in
prison for transferring a paper, Russian Policy on the Korean Peninsula, to a
representative of the South Korean National Security Agency. Moiseev and his
lawyers insist that the paper was an academic one and contained no confidential
information. They have applied to the European Court of Human Rights, claiming
that Moiseev was a victim of a violation of The Convention for the Protection
of Human Rights and Fundamental Freedoms.
8. Officers of the Russian secret service still often call themselves
chekists. The name derives from the acronym of ChK the Extraordinary
Commission for Combating Counterrevolution and Sabotage that was established
in December 1917.
9. This term refers to representatives of the secret service, law
enforcement bodies and the military.
10. Vladimir Putins transformation is a good illustration of this
process. A low-ranking KGB officer, Putin was appointed to a position in East
Germany. Later he recognised that he had preferred this appointment to a more
serious professional career within the USSR, because he wanted to go abroad
(working in a foreign country meant a much higher standard of living)
(Gevorkyan et al. 2000: 50). Since
Putin had no special achievements, after several years of service he was
transferred to an insignificant position at the local university in Leningrad
(St Petersburg). Seeing no prospects in his KGB career, he retired, and was
later invited by his former university professor to take the office of
deputy-mayor of St Petersburg. His movement into the nomenklatura ranks was finalised when he secured a position in the
Kremlin administration. Vladimir Putin then returned to the FSB (KGB) as its
director. But this awesome career jump became possible only due to the fact
that Putin was an appointee of the Family. Later, in the same manner, he was
appointed as Boris Yeltsins successor.
11. I use the term bads as opposed to goods. Goods are the
cases in which more of a commodity/service is preferred to less, while in the
case of bads, less of them is preferred to more (Pindyck and Rubinfeld 2001:
70). Since services provided by officials can be treated as public goods,
phenomena such as corruption will be public bads.
12. The Anti-Corruption Union was created 8 April 2004 by the Indem
Foundation, the National Anti-Corruption Committee, and the All-Russian
Organisation for Small and Medium Entrepreneurship (OPORA).
13. Yury Biriukov played an active role in the
case of YuKOS; Vasily Kolmogorov was in charge of Berezovskys and Gusinskys
cases.