5   Farewell to the Oligarchs?

   Presidency and Business

   Tycoons in Contemporary

   Russia

         YURI TSYGANOV

 

 

 

 

Despite claims recently made by some observers1 suggesting that the role of clan politics in Russia is of small importance, particularly in relation to Russia’s major social and economic problems, the developments of the last few years have yet again demonstrated that not only does the problem exist, but that it also affects many areas of contemporary Russian development. The roots of the problem go back to the start of the Russian reform in the early 1990s. At that stage Russian politics were often seen as a struggle between a small group of reformists who were determined to pursue changes, and a vast majority of conservatives, most of whom were a part of the previous Soviet nomenklatura. However, as recently noted by Sam Vaknin, the motivations that formed the background of policies pursued by these Russian reformists were far from altruistic.

 

With very few exceptions, they [reformists] were out to enrich themselves by all means, fair and foul. The kith and kin of Chubais and the Chubais-like were as ruthless and iniquitous as any Russian gangster. A lot can be explained by attributing the worst of intentions to this lot. The haste in privatising state assets and lifting price controls afforded them with the touch of a Midas and the wealth of a Croesus. A mobsters’ pact divvying up territory led to the rising political fortunes of the regions. The illicit nature of the ruling classes is the parsimonious explanation to recent Russian chronicles.2

 

But what is even more important than the selfishness of the Russian contemporary political class which has rejected any form of social paternalism that could have smoothed the path of transition, is the fact that Russian social and economic life continues to be easily manipulated by a relatively small group of people who form the ruling elite. After 1996 the so-called political technologies, i.e. the arts of manipulation, have developed rapidly in Russia. The last parliamentary election saw these arts at their best, when one political group (the so-called ‘Family’) systematically crushed all competitors in an attempt to secure another decade of political life. Political manipulation had to a large extent pre-determined the results of the parliamentary election of 19 December 1999 as well as the outcome of the 2000 presidential election. The main emphasis of this manipulation was to encourage so-called ‘negative selection’ by the electorate, while the main emphasis of the election campaign was on the weaknesses and possible implications of the election of an opponent rather than on the strengths and advantages of your own candidate. This phenomenon of Russian politics was widespread under the communist regime and often ensured election of the most malleable (and often the least capable) candidates to bodies of power. As a result, the ruling group became overloaded with politicians most of whom might be regarded as political nonentities lacking positive experience in politics, but who, whenever required, will act as loyal ‘soldiers of the party’.

       Andrei Piontkovsky, a Russian political commentator, described the December 1999 election in terms that leave little to add:

 

A crook despised and hated by the entire nation, but close to the extremely unpopular presidential family, travelled across the country and talked governors into creating a new pro-Kremlin party just several months before the election. He managed to persuade three or four of them, including those most famous for corruption scandals and the one who is suspected of organising the murder of an opposition journalist. Two months later this ‘party’ gained a remarkable victory at the parliamentary election. What happened during these months and why was the famous crook so prudent as to invest in an undertaking which seemed to be so hopeless? 3

 

The ‘crook’ alluded to in this quotation is apparently one of the so-called ‘oligarchs’, Boris Berezovsky, while the artificial party Piontkovsky speaks about is the new political movement Unity, which comprises middle-rank nomenklatura and was set up to fill what has long been the vacant place of the ‘party of rulers’ in Russia.

 

 

Vladimir Putin: Another Virtual Strong Man

 

Answering to the question that Piontkovsky asked above, an observer would note that the Kremlin group managed to use the events preceding the election with a high level of efficiency. I would like to remind the reader of three major events that greatly increased Putin’s chances of election. These were: the Chechen incursion into Dagestan, the explosions that demolished two apartment buildings and killed 200 people in Moscow, and the beginning of a new war against Chechnya. Regarding Chechnya, I wish to point out that in my considered opinion the reasons for the outbreak of the second Chechen War were nothing to do with the real or false existence of terrorist groups in this breakaway republic. The need to bring Russian military forces into action, including massive bombings and artillery strikes, emerged from the decay of police force structures and, more generally, of all security services. In post-Soviet Russia police functions were de facto privatised, in a growing number of cases policemen were in fact no longer working for society, but instead serving their own clans and groupings. Such a police force was unable to deal with the numerous criminal groupings that emerged after the first Chechen war. Military units sent to Chechnya with the officially proclaimed goal of fighting terrorists disguise the fact that a vast part of the Russian state machine can no longer act efficiently due to corruption and decay.

       As there is not enough evidence, I do not intend to discuss the role of the successor to KGB, the Federal Security Service (FSB), in the above events. However, it is important to note here that Vladimir Putin served in both secret agencies, a fact that undoubtedly has facilitated his way to the top office in Russia. While the latest Chechen War has left more questions than answers, its one major outcome is obvious. It is well known that the war enormously increased Putin’s rating and indirectly played a crucial role in the rise of the Unity political movement, which from the start was endorsed by Putin. In the months leading up to parliamentary and presidential elections a wave of patriotism swept the country. The largest media companies came under the control of the ruling group. As a result, about 60% of the population supported Putin as Premier and three months later 52.94% voted for him as the new President.4

       I would divide Putin’s electorate into three main groups: those who always vote for authorities (about 20% of the population); a very significant section of voters who really felt grateful to Putin as he personified the end of the ‘Yeltsin epoch’; and of those who long for a ‘strong hand’ in Russian politics and favour re-establishment of a Stalinist-type regime. In modern Russia advocates of authoritarian rule can be found everywhere; even some well-known former liberals today prefer to be counted among the neo-Stalinists (see Tretyakov, 1999; Belotserkovsky, 2000).

       Paradoxically, in the wake of the elections and during the first months of Putin’s rule, very few asked the question just who this man was who, only eight months before his election, was absolutely unknown to the public. This seems to be a very important question, although its answer proves rather discouraging. The peak of Vladimir Putin’s career with the KGB was in the 1980s when he held the insignificant position of KGB major in charge of Friendship House in the former German Democratic Republic.5 In the early 1990s he worked in the Administration of Mayor of St.Petersburg, Anatoly Sobchak, and at the time was accused of shady dealings in the barter of oil products.6 When in mid-1990s Sobchak was not re-elected as mayor, Putin left the administration but later managed to move to Moscow and was appointed to a middle-ranking post within the Presidential Administration (Golovkov, 2000). He soon replaced Nikolai Kovalev as the Director of the Federal Security Service (FSB). According to Kovalev, this was done in order to close criminal cases that had been launched by the FSB against several persons close to the Presidential Administration (Voschanov, 2000). In 1999 Putin played a very active role in ousting Yuri Skuratov from the office of Prosecutor-General. This happened after Skuratov sanctioned investigations into several corruption cases involving high-ranking officials, the ‘oligarch’ Berezovsky among them (Golovkov, 2000). Later in the year Putin portrayed himself as a hard-liner in the escalating Chechen conflict and in August was promoted to the office of Premier. Finally, in March 2000, this middle-level bureaucrat completed his four-year ascent to the top when he was elected by an absolute majority of voters into the position of Russia’s new president.

       In my view, the rise of Putin can be explained by an symbiosis between the centuries old Russian tradition of favouritism and the modern achievements of ‘information technologies’,7 which are more known. The result of this symbiosis was another ‘virtual’ leader, one created in accordance with the same scenario that was earlier invented and successfully used in Yeltsin’s case. ‘Virtual’ Yeltsin appeared in Russian politics on the eve of the 1996 presidential election. In late June, between the two rounds of elections Yeltsin suffered a massive heart attack and was set to lose the election race. However, he chose to hide his illness and instead presented himself as a healthy and strong leader, capable of leading the country. It was at that time that Yeltsin’s ‘virtual’ image was created through the staging interviews that the President never even held, through to the introduction of weekly pre-recorded radio addresses to the nation, etc. Valentin Yumashev, a professional journalist who until early December 1998 was the Head of the Presidential Administration, had re-arranged the work of the Administration around public relations and was the driving force in making ‘virtual Yeltsin’ a real political figure at a time when Yeltsin himself often had a very dim idea of who he was and where he was (Timakova, 1998).

       Since the autumn of 1997, when it became clear that neither real nor ‘virtual’ Yeltsin had any chance of winning a new presidential election, the Kremlin group, or the so-called ‘Family’, became engaged in the search for a successor to Yeltsin. One of the first choices of the group was a young ‘reformist’, Boris Nemtsov, who for a short period became widely acclaimed by the mass media but soon proved to be incapable as a statesman. The next attempt, which also failed, was the appointment of Sergei Kirienko as Russian Premier in March 1998. At the time he was presented as another ‘young reformist’ who was capable of implementing unpopular, but necessary, measures in order to promote Russian reform. However, very soon Kirienko demonstrated a low level of professionalism and a high level of dependency on those political leaders who played behind the scenes. Following the August 1998 financial crisis Kirienko was ousted from office and transferred to a ‘reserve force’, while Yeltsin and the ‘Family’ tried to bring the former Premier, Viktor Chernomyrdin, back to power. The attempt to re-appoint Chernomyrdin was undermined by the combined efforts of Yuri Luzhkov and the Communists (Tsyganov, 1999, pp.278-9). In a compromise move Yeltsin appointed Yevgeny Primakov as the new Premier. Primakov turned out to be too independent from the Kremlin and eight months later he was replaced by the former head of the FSB and then Interior Minister, Sergei Stepashin. However, Stepashin, who shared responsibility for the First Chechen War of 1994-96, refused to support the start of the second war and eventually lost his position, seen by the Kremlin as too soft a leader.

       During the crisis of August 1998 the first attempt was made to create a new power centre in Russia that could parallel the official presidency. Chernomyrdin tried to unite the ‘business nomenklatura’ (which he himself represented), regional leaders (governors Lebed and Shaimiev) and some of the few surviving oligarchs (first of all, Berezovsky). This was a chance for the post-Soviet nomenklatura to consolidate its position under Chernomyrdin’s leadership and to weaken the ‘new generation’ of Russian managers and politicians. At that time Chernomyrdin also had the best chance among Russian politicians of succeeding Yeltsin as the new president. Ironically, it was the most offended nomenklatura group, the one that was united around the Communist Party (KPRF) that played the crucial role in undermining Chernomyrdin’s chances. This group was supported by Moscow’s mayor, Yuri Luzhkov, who at that time decided to make public his own presidential ambitions (Tsyganov, 1999, pp.278-9). It was not long before it became clear that neither Luzhkov nor Primakov were acceptable to the ‘Family’ as Yeltsin’s successors. This started a new round of power struggles in the Kremlin, which eventually brought Vladimir Putin to the forefront.

       The real success of the ‘Family’ efforts might be the creation of a ‘virtual strongman’ image for Putin. This was done with the use of intensive, communist-style, propaganda methods. Throughout the second half of 1999 and in early 2000 Vladimir Putin was frequently shown by the media visiting troops in combat; flying a jet fighter, sailing in a submarine. His specific use of language dotted with criminal slang added to this image and his promise to ‘slaughter terrorists even in the shithouse’ became a sort of electoral slogan for his campaign. A significant part of the population was confirmed in the view that Russian problems could not be solved on the basis of liberal values and that only a ‘strong hand’ could put the country in order (Roitman, 2000). Apparently, this illusion was successfully exploited in Putin’s campaign. It is worth mentioning that Yeltsin’s own success in defeating the August 1991 coup was largely ensured by a popular perception of him as a strong man, which became especially evident in comparison with Mikhail Gorbachev, who failed to control his closest appointees during the days of the coup.

       There is evidence that Yeltsin’s inner circle tried to use the image of a ‘tough politician’ on the eve of the 1996 presidential election (Porfiriev, 2000). To this end, a special plan was elaborated. According to the plan, Yeltsin would exchange his democratic image for that of the ‘strong man’ in order to keep the power and prevent property redistribution. However, Yeltsin, being seriously ill, rejected the plan.  It was General Lebed, who in the second round transferred his support to Yeltsin, who successfully filled in the ‘vacancy’ of strongman during the crucial 1996 presidential election. In 1999-2000 this experience was used again to put Yeltsin’s successor into Russian politics. The major task that the successor was expected to fulfil was the same: keeping power, preventing property redistribution and suppressing alien clans.

       On the last day of 1999, when Putin had successfully adopted his new hard-line image, Boris Yeltsin made a spectacular move. Yeltsin, who at the time was moving and speaking with great difficulty and in appearance was the twin brother of his late party comrade Leonid Brezhnev, announced his voluntary resignation from the post of president. Although the possibility of such a decision had been discussed for several months (Babasyan, 2000), it was the outcome of the December 1999 parliamentary elections that prompted him to take the final decision. According to Mikhail Gorbachev (2000), it was the ‘Family’ that persuaded Yeltsin that it would be the right step to make Putin an Acting President, thus utilising his high rating in the most efficient way. Yeltsin himself eventually closed the last ‘page’ of his eight-year unchallenged rule that had started with an unscrupulous continuation of the August 1991 coup and the ousting of Gorbachev from the presidential office. Yeltsin’s retirement put an end to ‘Yeltsinism’ as a specific form of rule that had emerged in the early 1990s.

 

 

Unity: a New ‘Party of Rulers’

 

It was the August 1998 crisis that marked the collapse of Yeltsin’s political regime. This regime was established under the 1993 constitution, which was drafted in a situation of acute struggle for power inside the group that had come to power in Russia back in 1991. The constitution was designed to enshrine political power in the hands of Yeltsin and the ‘reformists’. It gave vast rights to the President in the areas of executive and even legislative power and formed the basis of a ‘superpresidential system’ in Russia. At the centre of this system was an extraordinarily strong, nearly authoritarian, presidential position, which was described by many observers as a nouveau ‘tsarist rule’.8 This system also brought to life the phenomenon of favouritism so common to tsarist times. Moreover, Yeltsin himself often encouraged the struggle between different groups of his supporters, each aspiring to gain ultimate influence over the President. In the end, the actions of these groups balanced each other, allowing the President to stand aside from political struggles and act as a supreme referee.

       This was the general framework of ‘Yeltsinism’, a specific political system that emerged during the chaos of the Russian transition.9 Inside this system a version of the democratic principle of ‘checks and balances’ emerged. It substituted for the counterbalance between different branches of power a system of struggles between rival cliques. This arrangement became deadlocked when the referee (the President) failed to play his role, mainly because of the poor condition of his health. This situation was further complicated by the loss of popular support for the regime. By the mid-1990s it was clear that seven years of ‘radical economic reforms’ had destroyed all of the ‘credit of trust’ that the Russian people had initially awarded Yeltsin. In 1997 Russia again found itself ruled by a weak leader who was surrounded by rival political groups, each seeking to promote their own goals and displaying little care for the common people and the future of the country. The regime was clearly politically weak and incapable of solving the grave problems the country faced.

       Another distinguishing feature of ‘Yeltsinism’ was the lack of normal political parties. Decades of suppression of any individual initiative, and the elimination of elites that could not be integrated into Communist party structures, had predetermined the development of a post-Soviet situation where Russian political circles would fail to establish normal political parties that could protect and promote the interests of various elites and social groups. There are no consolidated elites in modern Russia, and there are also no mature legal political structures. In such a situation only clan- or mafia-type formations can survive. In contrast to traditional political parties, these groups are based on a sense of common origin or on a common aspiration to dominate other groups. Among the two hundred parties and political movements that have been registered in Russia only a few have known leaders and practically none of them has adopted a programme that clearly states plans and programmes for solving Russia’s problems. Following this trend Vladimir Putin, in the course of his presidential campaign, having said that he wanted to avoid possible criticism, continually rejected requests to reveal his views on the economy or to produce an election programme (Sharyi, 2000). However, this in no way complicated his accession to the highest office in the country.

       It appears that many of these so-called parties and movements are just tools used by their leaders to obtain power. On this point, Unity is just following the pattern: a political leader – in the case of Unity there was a ‘division of labour’ between Vladimir Putin as the presidential candidate and Sergei Shoigu as the direct promoter of the movement - who manages to secure political financing and strong support from part of the mass media, campaigns in the regions to attract local political aspirants, who make up the body of the political formation. The only distinctive feature of Unity was that, in contrast to earlier political struggles with their epicentre in Moscow, this time the ruling group put its stake directly upon the provinces, targeting middle level local nomenklatura. Very few local politicians in Russia would pass up an opportunity to join the top-level political game.

       In 1995-97 a particular version of the two-party system emerged in Russia, one which united the so-called ‘party of rulers’ against the so-called ‘systemic opposition’ (Tsyganov, 1999, pp.261-2). At the time the ‘party of rulers’ was based on the Russia is Our Home (ROH) movement that was created in 1995 by then Prime Minister Viktor Chernomyrdin. All major political groups that supported the President and the federal government joined this ‘party’. It was a rather flexible coalition that attracted a large number of minor parliamentary factions and groupings, as well as some democratic and reformist parties and movements that lacked parliamentary representation. On the other hand, KPRF formed the basis of ‘systemic opposition’. However, in practice it often turned out that the confrontation between the ‘party of rulers’ and the ‘systemic opposition’ could easily be bridged. In many instances both sides managed to cooperate, including on such major issues as the adoption of the state budget, changes in taxation policy, etc.

       In March 1998 the sacking of Viktor Chernomyrdin from the post of Prime Minister destroyed this system. At first, following the resignation of its leader from the top government position ROH immediately lost its attractiveness to regional leaders and the federal bureaucracy. Later, in August 1998, the federal government lost all of its earlier political support in the Parliament when it became obvious that no parliamentary faction was prepared to support the ‘young reformist’ Prime Minister Sergei Kirienko. Thus, the federal government remained as the only basis for the ‘party of power’. In September 1998, Yevgeny Primakov’s appointment to the post of Prime Minister gave the ‘systemic opposition’ hope that it could transform itself into the ‘party of rulers’. However, a strange impeachment attempt in May 1999 ruled out all such hopes. The ‘Fatherland’ movement launched by Moscow mayor Yuri Luzhkov was the next to try to occupy this vacated political space. Under the circumstances the ‘Family’ saw the task of another Prime Minister Sergei Stepashin and then Vladimir Putin (as the former failed) as the destruction of that movement. The latter was successful with the ‘Family’s’ support, and now Unity incorporating the remains of ROH and ‘Fatherland’s’ former ally ‘All Russia’ has become the new ‘party of rulers’.

       It appears that very few of the national political collisions that drew public attention in Russia in the period after the summer of 1999 10 – the Kremlin-Luzhkov conflict, the establishment of Unity, the two election campaigns – were a reflection of the real processes that were driving the political establishment. The political parties that are represented in the current Russian Parliament (Duma), such as Unity (also known as Medved’ or the Bear party), SPS (Union of Rightist Forces), the Liberal Democratic Party of Russia, ‘Yabloko’ and even a significant part of the ‘Fatherland’ movement, are all fingers on the same hand of behind-the-scenes manipulators. Very often they have the same sources of political financing. Being ideologically neutral they can easily achieve compromises with each other. Despite recent changes in the leadership and in the names of some parties, they still represent the same old ‘party of rulers’ and the same old ‘systemic opposition’ of Yeltsin’s Russia. In the course of recent years these two groupings have developed a variety of mechanisms that now allow them to peacefully coexist. During the 1999 parliamentary election campaign they did not fight each other; it was rather the party of rulers that was suppressing an ‘uprising’ inside its loose formation. This was Luzhkov’s attempt to create an electoral bloc, which was effectively destroyed by a broad attack through the mass media.

 

 

Russia’s ‘Clan-Corporate’ Capitalism and Its Crisis

 

This specific ‘two-party’ system is the tip of the political iceberg of Russia’s ‘clan-corporate capitalism’ as developed during the last decade. The first symptoms of this development were already visible during the Brezhnev period. This development has its roots in the legacy of the command economy – now a number of small management pyramids have emerged from the collapse of the central, authoritarian, bureaucratic government. In addition to Soviet roots these pyramids have also been based on emerging capitalist relations and have incorporated traditional forms like semi-feudal clan relations which existed in Russia in various forms since Tsarist times. Privatisation of state property has completed this process, leading to the emergence of the so-called ‘oligarchic’ groups. Even before privatisation became an official state policy, various political groups were already actively privatising state property. The result of this process was the emergence of the so-called ‘oligarchic’ groups.

       Specific features of the Russian economy, like its monopolistic and highly centralised structure, have greatly facilitated the process of development of ‘clan-corporate’ capitalism in Russia. In Russia 80% of all taxes in the federal budget are paid by just 50 companies. At the same time, just 2% of companies account for 80% of the share market (Novoprudsky, 2000a). Such a high level of centralisation of wealth in the economy means that there is a very narrow circle of executives and property owners controlling the bulk of the Russian economy. This, together with the existing strong links between business and the government, has created fertile ground for the rapid development of oligarchic structures in post-Soviet Russia.

       Another important factor that played a crucial role in the development of oligarchic relationships within contemporary Russia was the former Soviet nomenklatura system, which largely has managed to retain its control over the post-communist management system. In 1992 Dmitri Yuriev argued that the nomenklatura, as a special group of administration professionals united by common political and economic interests, managed to preserve 80 to 90 percent of Soviet positions at all levels of government in the areas of economic and land management.11 The emergence and growth of the oligarchic groups in Russia was based upon their connections to Russian officials who in the early 1990s were substituting for the former USSR’s apparatus. In contemporary Russia the level of proximity to federal or regional authorities became one of the most important determining factors of the influence of any particular group. On the other hand, as became evident at the 1995-96 elections, the state authorities in turn had become dependent on the oligarchs.

       However, it is necessary to note that the formation that is usually called ‘oligarchy’ includes a variety of financial and political groupings which often have different agendas. In the strict sense of the word, this formation does not even deserve the term. It is rather common for an oligarchy to be an extremely amorphous entity with its various groups engaged in continuing struggles with each other. There are serious policy and economic interests that divide the oligarchs, for example the issue of economic protectionism. At the same time one of the major conflicts that divides the oligarchy is the conflict between the bureaucracy and the new manager-bankers: these two groups coexist, but they do not merge. In his recent study on the ‘new Russian corporatism’ Sergei Peregudov (1998, p.114) points to the dispersed and chaotic character of interaction between oligarchic groups and official authorities in Russia, which eventually forces elites to pursue mere egoistic and short-term goals.

       Following Yeltsin’s re-election in 1996 the oligarchs started to publicly demand ‘rewards’ for the support they had provided during the election, including provision by the state of unrestricted access to the property that still remained in the state ownership. These favours did not come automatically and in reality many oligarchs had to fight for them. The situation was further complicated by Yeltsin’s health problems; this was when power in Russia became mostly concentrated in the hands of one political group within the Presidential Administration, i.e. the notorious ‘Family’. Only one of oligarchs managed to get into this group: Boris Berezovsky (Dikun, 1999).

       The August 1998 crisis was the last straw that broke the political and economic might of the Russian commercial banks controlled by oligarchs. For several months before the crisis the Kirienko government was making attempts to protect the rouble from devaluation, supporting bankers and helping them with their repayments on international borrowing.12 The government was successful in securing an enormous amount of funds from abroad and in the 2-3 weeks before the crisis a significant part of this new credit (more than US$ 6 billion) was sold by the Russian Central Bank to commercial banks in order to prevent these banks from going into liquidation. However, by mid-August the state currency reserves were exhausted and the government was forced to undertake a devaluation of the rouble. But this devaluation was carried out with little planning and even less responsibility; its immediate effect was chaos in the entire Russian economy. However, massive sales of currency by the Central Bank in the days preceding the crisis helped the oligarchs to at least save their own personal assets. Kirienko’s government did nothing to protect individual customers, who lost access to their savings (only comprising 7% of total bank assets), which rapidly depreciated following the devaluation of the rouble. The crisis demonstrated that by the end of the 1990s Russia’s oligarchic businesses had failed to become self-sustaining and could not survive without continuing governmental support.

       Thus, it would be right to say that most of the recent discussions about the overall dominance of oligarchs in Russian political and economic life have not been well grounded. In practice, their influence has turned out to be much more limited than was thought at the time. In the late Yeltsin period the oligarchs were a small group of seven people, all of whom had made a large part of their fortune through the servicing of state accounts in the commercial banks they controlled. However, with the collapse of the system of Russian commercial banks in 1998, a majority of the oligarchs failed to recover much of the economic control and political influence they had earlier enjoyed.

 

 

Oligarchs Come and Go

 

In this section I will examine more closely what happened to the businessmen who used to be called oligarchs. On the of the seven oligarchs, Vladimir Vinogradov, who used to be the head of one of the largest commercial banks in Russia, Inkombank, was ousted by his partners from business, while in 1999 the bank in which he personally held 8% of shares was declared insolvent.13 SBS-Agro, a bank headed by another oligarch, Aleksandr Smolensky, was also declared bankrupt. Smolensky, however, managed to preserve control over several companies that were earlier controlled by his bank. Russian state authorities recently opened a criminal investigation into Smolensky’s activities.14

       Boris Berezovsky was the only one of the oligarchs who was not engaged in the commercial banking business on a large scale. In 1999 he was sacked from his post as Executive Secretary of the Commonwealth of Independent States (CIS).15 Later he was accused of breaking the law while pursuing business activities, including money-laundering operations that used the money and accounts of the Russian national air carrier, Aeroflot.16 But in the last months of Yeltsin’s rule Berezovsky managed to secure the support of the Kremlin grouping, the ‘Family’, and expanded his influence in the mass media. He established his control over the Kommersant newspaper and channel ‘TV-6’. Criminal proceedings against him were stopped and in the December 1999 parliamentary elections he was even elected to the lower house of the Russian Parliament (the State Duma) as a representative of a tiny Caucasian republic of Karachaevo-Cherkessia. In recent months Berezovsky has announced that he is creating a new Russian media holding.17

       Another oligarch, Vladimir Gusinsky, had established one of the most powerful media holdings in Russia, ‘Media-Most’. This controls the only national independent TV channel NTV. With the help of the Moscow government he managed to save his Most-Bank from bankruptcy in 1998. When he later became involved in the power struggle between the Kremlin and Moscow mayor Luzhkov the state-owned Vneshekonombank refused to restructure Most-Bank’s debts of US$42.2 million. This was followed by a series of other state actions against his holding, including a search of ‘Media-Most’ headquarters in May 2000 by a joint team of investigators from the FSB, the Procurator-General’s office and the Taxation police.18 In a court ruling later these actions were characterised as illegal. That, however, did not stop the state authorities from applying further pressure. In June 2000 Gusinsky was himself arrested and put in prison. He was released three days after without any charges being laid.

       According to some observers, there are grounds for believing that the entire operation undertaken by the state against Gusinsky and his ‘Media-Most’ holding were aimed at transferring the control of his NTV channel to the state. At the time of writing, in September 2000, the state-controlled gas monopoly Gazprom was in possession of 14% of ‘Media-Most’ shares. However, in addition to that, the gas-producing giant also controlled two packages of shares equal to 40% of Media-Most. Gazprom received these packages as collateral for loan guarantees that it provided on behalf of ‘Media-Most’ to Credit Swiss-First Boston bank. Thus, in practice a total of 94% of shares of Gusinsky’s media holding were controlled by Gazprom and its Chairman, Rem Vyakhirev. Moreover, ‘Media-Most’ itself owes US$211 million to Gazprom.19 It is no surprise that the state, which owns Gazprom, has attempted to convert these ‘Media-Most’ debts into a real influence over the holding. In September 2000, at the time of writing, Alfred Kokh, the head of the ‘Gazprom-Media’ company which was specifically created with the task of managing media assets that belong to Gazprom (including the NTV channel and ‘Media-Most’ shares), was engaged in a series of negotiations on the issue of transferring part of ‘Media-Most’ shares in repayment of the media holding’s debt.

       The criminal case against Gusinsky was closed on the 26th July 2000. Six days before that it was announced that an agreement had been signed between Alfred Kokh and Vladimir Gusinsky, under which Gazprom had de facto established its control over ‘Media-Most’. The Russian Press Minister, Mikhail Lesin, personally supervised this deal and also provided guarantees to Gusinsky that no further legal action would be taken against him.20 But when on 9 September Vladimir Gusinsky publicly announced that he viewed the deal as one made under pressure, it became clear that he was not going to fulfil it. The criminal investigation against him was immediately reopened, while the Procurator’s office put an arrest on the stocks of ‘Media-Most’ and its affiliated companies. While at first sight this story looks like a struggle for property control between a private company and the state, some observers emphasize that this is in fact a political issue. There is plenty of evidence pointing to direct pressures coming from the Kremlin, as the ‘Family’ attempts to effectively destroy the independence of Gusinsky’s media holding in an effort to prevent any further criticisms of the Kremlin grouping (Bovt, 2000).

       The fifth oligarch, Vladimir Potanin, was one of those closest to reformists who had been in the Russian government and was himself part of the government in 1996-1997. During the 1998 crisis Potanin’s Uneximbank transferred a large part of its funds to an affiliated Rosbank, leaving only the shell of the business. In mid-2000, after the Russian Central Bank restored its banking license, Uneximbank announced its merger with Rosbank through an exchange of shares with Rosbank shares.21 Potanin’s banks also managed to maintain their control over the largest group of companies in Russia. These include the ‘Norilsk Nickel’ joint stock company, the Novolipetsk Metallurgy Plant and the ‘Perm Motors’ joint stock company. These three companies together have a combined share of about 7% of gross Russian exports. It seems that Potanin’s holding will also be able to retain its control over the ailing oil company Sidanko (Pravosudov and Mason, 2000).

       Despite the fact that the 1998 crisis only marginally affected Potanin’s business interests and influence, in the attack on oligarchs launched from Kremlin in 1999-2000 Vladimir Potanin is often seen as the second target after Gusinsky. In July 2000 it was announced by the Office of the Procurator General that Alfred Kokh, the former head of the State Property Committee and an important member of the Anatoly Chubais ‘team’ in the Kremlin, had received bribes in relation to his organisation of the privatisation auction of ‘Norilsk Nickel’, the world’s third largest producer of non-ferrous metals with a global market share of about 22%. The auction was organised in such a way that the Uneximbank-Interros financial group (controlled by Potanin) managed to establish its control over the company for an exceptionally low price.22 According to the investigation team, the support from Kokh enabled Potanin’s Uneximbank to obtain 38% of shares in the company at a price that was US$140 million lower than the market price. The Office of Procurator General demanded that this sum be paid back to the state budget.23

       The sixth of the oligarchs, Mikhail Khodorkovsky, became prominent as the head of a large commercial bank Menatep. However, this bank did not survive the August 1998 crisis and went into liquidation. But an affiliated company of Menatep, the oil company Yukos, has continued its operations and is doing well, particularly because of the recent increase in world oil prices. In September 2000 Yukos finalised its takeover of the Eastern-Siberian Oil and Gas Company (ESOGC) through buying a 19.9% stake in it (Davydova and Manvelov, 2000). In previous months companies controlled by Yukos had already acquired a controlling share in ESOGC and by the end of 2000 the company should be fully integrated into the organisational structure of Yukos. ESOGC explores for and produces crude oil in the Yurubcheno-Takhomsky oil and gas zone of Krasnoyarsk region in Eastern Siberia. This zone contains about 700 million tons of oil reserves and has a significant amount of natural gas. The Eastern Oil Company, a Yukos affiliate, together with Slavneft are the main producers of crude oil in the area. A takeover of ESOGC will allow Yukos to significantly expand its influence in one of the most oil-rich areas of Russia, making Khodorkovsky one of the most successful Russian oligarchs in the post-crisis period.

       The last of the former seven oligarchs was Mikhail Fridman, whose Alfa-Bank survived the 1998 financial collapse without many losses, mainly due to the fact that the bank was significantly less dependent on servicing budgetary funds than the other leading Russian commercial banks. In the post-crisis period Alfa-Bank received much broader access to state funds and with the election of the new Russian president the bank seems to have become the Kremlin’s new ‘court bank’.24

       The last months of Yeltsin’s rule and the rise of Putin were accompanied by the inclusion of new people in the oligarch group. For example, one newcomer is Roman Abramovich, who is Boris Berezovsky’s partner in the oil company Sibneft. In early 2000 he was thought to have the same influence as Berezovsky. At the beginning of 1999 Roman Abramovich managed to organize a scheme through which Sibneft stocks were exchanged on a non-equivalent basis (one to four and one to eight) for the stocks of its affiliates. This ‘technical’ operation reduced the government share in Sibneft to less than 10%.25

       The rise of Abramovich signifies an important development in the evolution of Russian oligarchic capitalism. If in the earlier years the Kremlin group was exercising its influence through the control or supervision of other business groups or individual oligarchs, in the early 21st century this group has started to acquire business interests of its own. This process was facilitated by the fact that Anatoly Chubais, leader of the ‘reformist’ group that virtually made-up the Russian government throughout the Yeltsin period, left the government in the late 1990s and transformed himself into a ‘normal’ oligarch. He did this by securing control over the Russian electricity monopoly, UES.

       In the recent months there have also been two other newcomers to the group of Russia’s business tycoons. These were Rem Vyakhirev of Gazprom and Vagit Alikperov of LukOil. In previous years the two were never considered part of the notorious oligarch group of the ‘seven bankers’. Moreover, Vyakhirev actually openly demonstrates his dislike for political struggles and has publicly proclaimed that the stable development of Gazprom is his only policy priority. These declarations, however, mask the fact that Gazprom brings in one-third of government revenues, which inevitably makes Mr Vyakhirev a very important figure in the modern Russian ruling elite. Recent moves by Gazprom towards increasing its control over the mass media, as described above, also contradict these statements. As in the case with Vyakhirev, the mere fact that Mr Alikperov heads Russia’s largest oil company also makes him one of the leading players in Russian politics.

       An updated list of the Russian oligarchs in 2000 can easily be compiled from their signatures on the letter published on 14 June that year and addressed to the Prosecutor General. The letter called for the release of Vladimir Gusinsky from custody and the signatories included V.Potanin, A.Chubais, V.Lisin, M.Fridman, P.Aven, V.Vekselberg, K.Benukidze, M.Khodorkovsky, A.Karachinsky, A.Kokh, A.Mordashev, V.Yevtushenkov, V.Maschitsky, Ye.Shvidler, R.Vyakhirev and O.Kiselev. Understandably, the list did not include Gusinsky himself. While Sibneft president Yevgeny Shvidler did sign the letter, the two people who control his company, Berezovsky and Abramovich, were not among signatories. As was widely reported in the Russian press in mid-2000 it was actually Berezovsky who was considered to be the main initiator of Gusinsky’s arrest.

       Vladimir Potanin, Anatoly Chubais, Mikhail Fridman, Petr Aven, Mikhail Khodorkovsky as well as Viktor Yevtushenkov and Rem Vyakhirev are often mentioned in the Russian media as being among the leading ‘oligarchs’, either as members of the group of ‘seven bankers’ or just as having an equal influence.  The other signatories included businessmen who are little mentioned in the mass media but who have significant political influence and can be included in the group of ‘oligarchs’. These are, in particular, the Chairman of the Board of the Novolipetsk Metallurgy Complex V.Lisin; the head of the large aluminium producer, SUAL, V.Vekselberg; the General Director of the Urals Machinery Plant K.Benukidze; the president of the International Business Systems Group, a partner of Dell Computer Corporation, A.Karachinsky; the General Director of Vympelcom, a large company in communications, L.Zimin; A.Kokh of ‘Gazprom-Media’; A.Mordashev, General Director of the Northern Steel Plant; the president  of the Rosinvestneft Group, a crude oil-producing company, V.Maschitsky; and the president of Impexbank O.Kiselev. Although drawing up a full list of all Russian oligarchs is rather a difficult task, the above listing gives a picture of who some of the most important of these people are.

       In general, the post-crisis developments in Russia over the last two years have lead to a significant decline in the almost absolute influence that the oligarchs had enjoyed during most of the 1990s. Five of the initial seven business tycoons are no longer actively engaged in politics. Moreover, if in the early years of Russia’s post-communist development politicians were often seeking the support of the oligarchs, nowadays it is the oligarchs that seek support from the authorities and try to demonstrate their loyalty to the state. The explanation is simple: in modern Russia businesses continue to depend greatly on the state while their leaders are often afraid of authorities. This is because the economic environment in Russia is still more defined by the personal inclinations of the national leader and his appointees in the government, rather than by the rule of law. Even if they provide politicians with substantial funding Russian businessmen continue to be in an inferior position to state officials.  In the words of one of Russian commentator, this new pattern of relations between the government and business that has emerged in 2000 can be summarised by the following phrase: ‘What is good for Putin is good for business’ (Novoprudsky, 2000b). Thus, the dominant role that was played by the state (in a direct or indirect way, legally or through breaking the law) in the creation and development of all large Russian businesses has lead to the appearance of a specific form of Russian capitalism and has prevented Russian businessmen from organising themselves into an alternative and independent source of power.

 

 

Consolidation of the Ruling Elite around the Kremlin Grouping

 

Despite the political weakness of the so-called ‘oligarchs’, Russia in 2000 did see a number of attempts aimed at consolidating the unity of its ruling elite. If successful, this process could lead to the creation of a real oligarchy in Russia, where several people determine all the major developments in the country. A major feature of this new development would be the desire and ability of a new oligarchic circle to absorb some of the most important representatives of the old nomenklatura, private and state-owned businesses, the secret services and the military. The main initiator of this process was the Kremlin’s ‘Family’ and so far it has been quite successful in its attempt.

       Although the notion of the ‘Family’ comes from the closeness of its members to the real family of Russia’s first president, Boris Yeltsin, it is not made up exclusively of members of Yeltsin’s household. Strictly speaking, Yeltsin’s daughter Tatyana Dyachenko is the only representative of Yeltsin’s family in the group. All the others are former favourites and colleagues of Yeltsin. It was reported that on some occasions Yeltsin’s wife Naina interfered in decision-making, but apparently she always had a very limited influence; for a number of years Tatiana was the real leader of the grouping. Two other important members were Valentin Yumashev, who received the informal ‘title’ of Yeltsin’s adopted son, and Aleksandr Voloshin, who joined the group in the late 1990s and who served as the head of Presidential Administration under Yeltsin and continued in the post under Putin. This ‘trio’ forms the basis of the ‘Family’. Reportedly, all others depend on this trio. This includes Boris Berezovsky, who apparently lost his influence within the group because of the scandal involving Aeroflot, which is headed by Yeltsin’s son-in-law Valery Okulov.

       A new member of the ‘Family’ group is Roman Abramovich, who has managed to get a leading position within a very short time. In the spring of 1999, during the fierce struggles between the ‘Family’ and Procurator General Yuri Skuratov, who at the time was trying to pursue a criminal investigation into the activities of some of the members of the group, the ‘Family’ received its newest member, the then FSB Director and Secretary of the Security Council Vladimir Putin. At the time Putin was characterised as ‘stubborn, purposeful and loyal to the team’ (Dikun, 1999). Another member of the ‘Family’, Anatoly Chubais, had recently lost a lot of his earlier influence, but he remained a person whose advice was always valued by Yeltsin. Chubais was usually called to the scene in critical moments. Although in mid-2000 there were signs that his position as head of the UES electricity monopoly was coming under increased scrutiny, it was still too early to conclude that his political role has diminished.

       It was President Yeltsin himself who drew the boundaries of how far the ‘Family’ could intervene in decision-making and in what areas. While the ‘Family’ had a very low influence in military or foreign policy-making, in economic issues the authority of the ‘Family’ easily competed with that of the Russian government.

       The origins of the rise of this and other ‘clan-type’ political groupings in modern Russia can be traced back to the 1993 Russian constitution. This constitution was rather authoritarian in nature and was drawn up mainly as a tool for political struggle that Yeltsin could use against his current and future rivals. It gave the president wide powers and responsibilities, which inevitably had to be transferred to a third body. Memories of past confrontations and the fear of losing his grip on power discouraged Yeltsin from transferring part of his absolute power to the parliament, the government or the Constitutional Court. Instead, what appeared was the so-called ‘collective Yeltsin’ represented by the president himself, along with the inner circle of his favourites. At first these favourites included Burbulis and Poltoranin, then Korzhakov, Ilyushin and Barsukov. It was after the 1996 presidential election that the ‘Family’ finally replaced the previous groups of favourites. The names of the favourites might have changed but the nature of the phenomenon has remained the same.

       From 1996 this Kremlin grouping was concerned with the need to find a suitable successor to the ailing Yeltsin. It was then that the ‘Family’ started to actively build up its financial base. A recent independent investigation has found, for example, that the mass capital outflow from Russia is actually being controlled by a group of powerful Kremlin insiders.26 Aleksandr Mamut, the head of the Board of MDM-Bank and also a member of the ‘Family’, is closely connected with Tatyana Dyachenko, Valentin Yumashev and Roman Abramovich, is playing a key role in capital export. Although he always keeps a low public profile, Mamut is considered a very powerful person. For instance, recently channel NTV revealed that it was Mamut who had initiated the removal of Dmitri Saveliev from the executive office of the Transneft, Russia’s monopolist in the field of oil transportation. Aleksandr Mamut is a son of a professor at Moscow State University and is married to the ex-wife of Andrei Brezhnev, grandson of the late Soviet communist leader Leonid Brezhnev. MDM-bank, which Mamut controls, is a project financing company and supervises the allocation of World Bank funds. Mamut also controls another financial company, Sobibank. He is known to have close and friendly relations with Alfa-Bank, which is controlled by one of the seven oligarchs Mikhail Fridman. The three banks together - MDM-bank, Sobibank and Alfa-bank - have in their deposit accounts approximately half of the money belonging to the State Customs Committee. In addition to its ability to influence the appointment of the head of the Customs Committee, this direct control of the Committee’s accounts gives the ‘Family’ a very strong lever of control over Russia’s exports and imports.

       It is in this context of the continuing struggles to control Russia’s diminishing financial resources that one should view recent attacks against oligarchs. In July 2000 Vagit Alikperov was the third ‘oligarch’, following Gusinsky and Potanin, to find himself under pressure from the state. This time accusations of fraud came from the Federal Tax Police, they announced that Alikperov’s LukOil company was guilty of tax evasion and had not paid the federal budget dozens of millions of dollars. While some years ago LukOil received an official title as a ‘Good Taxpayer’, and was even awarded a prize, the recent audit suggests that in 1998-1999 the company managed to evade taxes via receipt of value added tax rebates under the pretext of false export of oil products. 27

       Indeed, Russian business is known to be one of the most corrupt and probably the least law obeying in the world. On the other hand, the Russian state has to carry a great deal of responsibility for creating this criminal environment. It provides draconian, and at the same time contradictory and extremely obscure business legislation, as well as having corrupt and inconsistent practices in dealing with business. Moreover, in its attempts to implement justice the state has acted very selectively. While some ‘oligarchs’, who for this or any other reason have fallen out of favour, suddenly find themselves prosecuted by the state, others, still in favour, have enjoyed almost total immunity from the law.

       In conclusion, I would like to emphasize that in my view it was not by mere chance that Yeltsin decided to appoint Vladimir Putin as his successor. In the post-crisis period all earlier candidates in this role had connections with the Russian or Soviet secret services. If Russian developments in the future were to take a critical turn, the ruling elite could easily sacrifice democracy altogether or whatever democratic façade Russia still has. Democracy, or rather Russia’s pseudo-democracy, has performed its role in masking the real outcomes of privatisation, it has helped to exchange the political power of the nomenklatura for property rights and to establish oligarchic control over the economy. Now democracy is no longer needed. What Russia’s real ‘oligarchy’ needs is safety and the security for its capital, and protection from the millions of frustrated people who were impoverished and deceived during the so-called ‘reforms’. The very nature of the oligarchy, as an exploitative but not a development and asset-increasing force, is an obstacle to any further extensive expansion of new ‘oligarchic’ groups. This means that the current ‘oligarchs’ will inevitably continue to clash with each other in competition for scarce national assets. These groups will increasingly feel the need for a ‘supreme referee’ to whom they can appeal and who can guarantee a certain order within the country. Russian political commentator Boris Kagarlitsky (2000) argues that it is the possibility of the establishment of an oligarchic state through future reforms that poses the real threat to Russia’s democratic development. While in the past many observers expected and feared a possible dictatorship in Russia coming from the ‘left’, as a result of the return to communism, it is the dictatorship of the ‘right’ that has more chance today of becoming Russia’s next reality.

 

 

Notes

 

1       For example, Malle (2000, p.6) wrote: ‘What is worrying is the perception among Russians that petty politics, the formation of inner circles of power and sordid alliances are the main causes of Russian problems …  In my view, these perceptions are highly questionable …’.

2       Central Europe Review, vol.2, no.26, 3 July, 2000 (http://www.ce-review.org/00/26/ books26_vaknin).

3       Novaya Gazeta, 22 December, 1999.

4       Vybory Presidenta RF priznany sostoyavshimisya’, Elections.ru, 5 April, 2000.

5       According to the last KGB Chairman, Vladimir Kryuchkov, this position was a mere sinecure, one of many others used by the KGB to provide its officers with sources of additional income. Kryuchkov told a correspondent of Moscow News that Putin did not serve in the intelligence service and was an officer of other department (so-called the Department for the Security of the Constitutional Regime, which played the role of political police). This is why, upon returning from the GDR, Putin, who did not achieve any remarkable results, was removed from active duty and joined the reserve force of KGB (Nikitinsky and Shpakov, 2000).

6       ‘V 1990 godu Putin obvinyalsya v korruptsii’, Lenta.ru, 13 January, 2000 (http://www.lenta.ru).

7       Editor’s note: The Russian notion of ‘information technologies’ used in a political context refers to what is more commonly known in the West as ‘public relations’.

8       See for example Lidia Andrusenko, ‘President ili tsar?’, Nezavisimaya gazeta, 1 February, 2000.

9       For more on ‘Yeltsinism’ see Tsuladze, 2000.

10     For example, the conflict between the Kremlin and Moscow Mayor Luzhkov, the establishment and rapid rise to power of the Unity movement, the two election campaigns of 1999 and 2000.

11     Rossiiskaya gazeta, 4 March, 1992.

12     In my view, one of the best analyses of Russia’s 1998 crisis is that was published recently by Andrei Illarionov, Director of the Institute of Economic Analysis and economic adviser to the President. See Illarionov, 2000.

13     Aleksandr Persikov, ‘Kak rossiiskiye oligarkhi proveli 1999 god’, Komsomolskaya Pravda,  25 December, 1999.

14     Alexey Zhuravlev, ‘Pomenyaet li Aleksandr Smolensky zamok v Vene na kameru v “Matrosskoi tishine”’, Argumenty i fakty, 14 April, 1999.

15     ‘Otstavka B.Berezovskogo’, Polit.ru Monitor, 5 March, 1999 (http://www.polit.ru/ monitor/99/0399-1/050399-1.htm#snos3).

16     ‘Priglasheniye na kazn’’, Profil’, No.13 (135), 12 April, 1999 (http://www.profil.orc.ru/koi/archive/n135/hero.html).

17     Mila Kuzina, ‘Berezovskomu ne dayut stroit Media Kholding’, Gazeta.ru, 27 July, 2000.

18     Pavel Zimin, ‘Shagi komandora’, Utro.ru, 6 July, 2000.

19     ‘Gusinskiy peredumal prodavat ‘Media-Most’’, Gazeta.ru, 9 September, 2000.

20     This was reported in ‘Khronika tonuschego kholdinga’, Izvestia, 20 September, 2000.

21     Nils Iogansen in Izvestia, 19 September, 2000.

22     ‘Prokuratura Moskvy osparivaet prodazhu Norilskogo Nikelya’, Lenta.Ru, 20 June, 2000.

23     ‘Prokuratura sobiraetsya peresmotret’ rezul’taty zalogovykh auktsionov’, Lenta.Ru, 21 June, 2000.

24     ‘“Alfa” shturmuyet Kreml’’, apn.ru, 26 April, 2000.

25     The Joint Stock Company Sibneft was established under a 1995 presidential decree. At the time the controlling share of 51% was left with the government. The company consists of four oil-producing and oil-processing companies: Omsk Refinery, Omsknefteproduct, Noyabrskneftegaz and Noyabrskneftegazgeofizika. The major production unit is Omsk Refinery. In 1998 Sibneft produced 17.32 million tons of crude oil. On 1 January 1999 the Joint Stock Company Sibneft had 1837 stockholders, but just four months later, on 6 April 1999, the figure had already reached 5840. When, at the annual meeting of stockholders on 29 June 1999, government representatives were not elected to the new management board, the state totally lost its control over the company ownership. The major stockholders were the Financial Oil Corporation Ltd. (46%), SINS Firm Ltd. (14%), Rifan Oil Ltd. (10%) and Dart Management (5%). However, despite this official listing of corporate control over its shares it is believed that the real owners of Sibneft are Roman Abramovich (who controls more than 40% of shares) and Boris Berezovsky (30%). The President of Sibneft is Yevgeny Shvidler and Chairman of Board of Directors is Konstantin Potapov (Politkovskaya, 1999).

26     This was a newspaper investigation based on information received from sources in the Government, the Presidential Administration, the State Customs Committee, and the Federal Tax Police. See ‘Kto i kak organizovyvaet ottok kapitala iz Rossii?’, gazeta.ru, 4 October 1999 (http://www.gazeta.ru).

27     Lenta.ru, 11 July, 2000.

 

 

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