Post-Soviet Russia has suffered an added burden because of the comprador nature of its new elites: that is, businessmen, bankers and the officials who are their clients and allies, people who are overwhelmingly dependent for their wealth on the export of raw materials, and only to an extremely limited extent on manufacturing, or on 'adding value' in some way to Russia's products. This perhaps is inevitable, given the intense wastefulness and incompetence of Soviet industry, many of whose sectors, as is now notorious, were actually value-reducing - that is to say that the raw materials would have earned more if sold on international markets than the shoddy and useless finished product.
None the less, dependence on the export of raw materials could well rep-resent a trap for Russia, of a kind that has closed around many other countries in the past. It enables the Russian state to support basic services and buy off significant parts of the population without having to conduct truly deep reforms. More importantly, it allows many Russian big businessmen and officials to become fantastically wealthy simply by using existing Soviet equip-ment to extract various substances from the ground, without having to reinvest a kopek in the new kinds of production and plant that the country will desperately need in the longer term.
Thus the move of Boris Berezovsky from the motor industry first to bank-ing and then to oil extraction (not by foundbank-ing a new company, but by usbank-ing state connections to seize an existing state one) is both typical and from his own financial point of view, entirely logical. It is not, however, in any way beneficial for Russia. Equally important is the way in which a business world concentrated on the struggle for control of strategic raw materials will tend to resist or ignore the new mentalities, business practices and legal norms so crucial to true economic progress. By their nature, oil and minerals can also be controlled by a small number of people or of big corporations - which can create the political domination of a narrow, corrupt and unproductive oligarchy, as Latin America found for so many decades.60
The comprador nature of the Russian oligarchy under ^feltsin is at its most glaringly visible in Vladivostok in the Russian Far East.6' This is an area which for several years has been undergoing an acute economic crisis, due to the collapse of local industries and the cost of shipping fuel and materials from Russia. In terms of infrastructure and manufacturing, it makes a pitiful com-parison with the East Asian states (except of course for North Korea). The Far East has been the scene of some of the most dreadful stories of contemporary Russian poverty and hunger, and in the winter of 1996-7, thousands of local workers were on strike because their wages were up to six months in arrears,
^et the crumbling, potholed roads of Vladivostok, where most of the street lights have long since failed or been turned off to save electricity, are jammed with second-hand Japanese cars (many of them admittedly originally stolen), and the casinos and night clubs are crammed with very prosperous-looking
types and their women. The wealth to buy these comes purely from the export of raw materials - timber, fish, oil, gold, metals, even tiger skins. As long as these last - and the tigers and the trees are admittedly going pretty fast - and there is anything of the old Soviet pie to carve up, the local elites will have no interest in manufacturing, let alone outside investment. In the bitter words of a local journalist, 'Why should they care about any of that? Half the wealth of Siberia passes through their hands!'
This is one key difference from the American robber barons of the nine-teenth century, or indeed the pioneering Russian capitalists of the same period, the Morozovs and Putilovs. These were true pioneers, who built from scratch. With extremely rare exceptions, the contemporary Russians of the early and mid-1990s exploited existing Soviet plant.
Equally importantly, the gains made by the great American magnates were mostly ploughed straight back into American production, or were at least spent at home. They were not sent out of America on a massive scale to Swiss or other bank accounts. In Russia, by contrast, capital flight was estimated by Western experts to have reached a total of between 60 billion and 73 billion dollars between 1992 and 1996, though by 1997 there were signs that some was returning.
Moreover, with rare exceptions, the new Russian compradors up to mid 1997 at least were deeply hostile to outside strategic investment - for after all, what could Western control of companies bring them but extra competition?
This hostility has been especially clear and overt in the case of the banks, but in a more muted way it is true of the extraction industries as well. For example, most Russian owners in this field supported the rule which bars non-Russian companies from owning more than 15 per cent of oil companies; and the privatisation process could then be rigged so that the blocks of shares auctioned at any one time were more than 15 per cent, thereby excluding Western participation altogether.62 This, on top of the general insecurity of the investment climate, the contempt for contractual obligations and the dread-ful tax situation, kept new direct foreign investment between 1989 and 1996 to a mere 5.3 billion dollars, a third of that in Hungary which has one-fifteenth of Russia's population.63
The possession of abundant raw materials can thus prove a curse rather than a blessing; first, because they spare both the state and many of its people from having to make hard choices and take real risks until it is too late; sec-ondly, because it encourages the creation of small, wealthy but unproductive elites; thirdly, because the interests of these elites lie far more in keeping their foreign markets open than they do in stimulating domestic consumption or investment; and finally, because the raw materials eventually run out - and if a state, or its businesspeople, have not reinvested the profits from them in some form of other production or infrastructure, then the country will even-tually find that from all this it has gained precisely nothing.
While evidence of reinvestment at home is therefore slight, so far, while evi-dence of wasteful conspicuous consumption is overwhelming. Newspaper
articles over Christmas and the New Year 1996-7 described the New Russians and their families queuing up at Sadko's Arcade in Moscow to spend hun-dreds - sometimes thousands - of dollars apiece on artificial Christmas trees from the West, in a country with the largest number of fir trees on earth, and while hungry workers and their children in the Far East had been reduced to a diet of stray dog. According to a reliable source, in 1995 one of the 'group of seven' spent 35,000 dollars in one evening at the new Hotel National in Moscow, on a birthday party for his seven-year old son.
Some kind of record in such behaviour was set by Chernomyrdin on his notorious Yaroslavl bear hunt of January 1997. Not merely did he break Rus-sia's hunting laws by shooting a she-bear and her two cubs, but in order to hunt in comfort he spent up to 500,000 dollars of the state's money to clear a helicopter landing strip, build two kilometres of new road through the forest, and fly in a small army of hunters and beaters.64 Despite having been so well defended, Chernomyrdin replied to later criticism by bragging in macho terms about the danger that he had been in, and offered no apology whatsoever. It is not easy to speak of real 'democracy' in a country in which the Prime Minister can brazenly ignore both the law and public opinion in this way.
The contrast with the plight of much of the population is all too clear. In the words of Joseph Blasi and his colleagues, all of them in principle strong supporters of the privatisation process,
the government as a whole has exhibited an unfortunate lack of concern for the plight of old people, the sick, the unemployed, and its soldiers while it has paid close attention to the demands for subsidies, favours and insider deals by powerful directors of big enterprises and other people with political connections... The IMF and World Bank have repeatedly stipulated that the government must make a social safety-net a priority to aid the weakest citizens during the transition. The govern-ment has ignored this injunction.65
Thus funding of health care has dropped by almost 50 per cent, not just in absolute terms but as a proportion of the budget: from 3.4 per cent of the Soviet budget under Gorbachev to only 1.8 per cent in 1996.66
The merging of the top ranks of the financial, industrial and comprador elites, and their achievement of supreme power over the state, was a culmi-nation of the Russian privatisation process, involving as it did the disposal of some of the most important and above all profitable state properties. The way that privatisation has been conducted in Russia is by now pretty well known, but it bears repeating because there is still a strong tendency in the West to hail it as the greatest success story of the 'economic reforms'.67 In terms of shops and small businesses, this is fair enough; the problem lies above all in the extraction industries, where the great comprador profits are to be made.
The privatisation programme introduced by the Russian government in
1992 allowed for the purchase of state property by the Russian people by means of vouchers worth 10,000 roubles each, one of which was given to every member of the population. This amounted to only a small fraction of the total value of the Russian state economy (and also only a tiny fraction of the savings of ordinary Russian people in savings banks, which were wiped out by inflation). In other words, an element of fraud was present from the start.
However, this was unavoidable. To have distributed freely tradable vouchers with a worth really equivalent to that of the state property for privatisation would have triggered an unstoppable hyperinflation - which apart from any-thing else would itself soon have nullified the vouchers' value.
According to official figures, around 39 per cent of Russians simply sold or gave away their vouchers; 8 per cent said that they used their vouchers to buy shares in the enterprises where they worked; and 9 per cent bought shares in other enterprises, mostly famous national or local ones.68 Another 30 per cent put their vouchers into investment funds, many of which simply stole them, passed them on, and then vanished into thin air. As for the people who bought shares in companies, very few have seen any dividends, while shareholder con-trol remains almost completely absent. Workers' shares generally became a means of consolidating management control, in an implicit deal whereby the workers allowed the management to run the companies as their own property in return for the managers guaranteeing the workers their jobs - albeit frequently without paying them. In the perhaps unduly contemptuous words of Albert Speransky,
The worker's most dangerous enemies are his own fearfulness, pas-sivity, readiness to give way before stronger, more powerful people, and his complete legal and economic illiteracy. At the beginning of privati-zation, he elected people whom he never considered his friends, to rep-resent his interests. They, in turn, sold him out and made him a hostage of the directors, and made him still more miserable and dependent...
Hired workers today have absolutely no idea what is going on with property, where the country is headed, or where they are being driven like a herd of sheep.69
The failure of privatisation to create anything like real mass shareholding, let alone control and restructuring of enterprises, is hardly surprising. Even the far better regulated, more democratic, and economically mature Czech Republic suffered innumerable problems both during and as a result of its own mass voucher privatisation, as the economic crisis of the spring of 1997 revealed.
The distribution of what could be called the 'commanding heights' of the Russian economy, and the creation of a new class of great compradors, how-ever took place largely separate from mass privatisation. Chubais's argument in defence of what has happened, which has been taken up and parroted by his Western allies, has been summed up and criticised by Andrei Piontkovsky,
head of the Moscow Centre for Strategic Studies (not, it must be emphasised a reactionary or left-leaning figure, and a great admirer of another reformer, Boris Nemtsov):
Like many reformers, Chubais believes that it is not important how property is distributed, as long as property owners are created. After they have had their share of thievery, so the argument goes, they will start to turn their efforts to raising productivity. But Russia has experi-enced not so much the privatisation of control over property as the privatisation of control over the state, over financial flows and budget resources. The reformers have created a Frankenstein reform, and those who have got a taste of this fabulous means of enrichment are like addicts who will never get off the needle of budget money.™
Sergei Kovalev, the former dissident and leading democrat, reported that Chubais had told him in 1994 that the new businessmen 'steal and steal. They are stealing absolutely everything and it is impossible to stop them. But let them steal and take their property. They will then become owners and decent administrators of this property.' Mr Kovalev commented that 'from my point of view this is economic romanticism. There is a view that the country will become a market economy and everything good will follow. Then there will be democracy. In my view it is a very dangerous mistake.' \egor Gaidar, the orig-inal father of Russia's free market reforms, has also warned against the way in which the new economic oligarchy, with its close ties to the state, was restrict-ing the free market and 'creatrestrict-ing the basis for enormous corruption'.71
The consummation of Chubais's privatisation and of the seizure of the most valuable assets of the Russian state was the 'loans for shares' scheme implemented in the autumn of 1995. This was presented as a response to the state's fiscal crisis, already looming in 1995. The idea was that in return for large loans from the biggest private Russian banks, the state would temporar-ily give them controlling shares in some of Russia's main companies in the extraction field.72 The greatest of these industries, Gazprom, (with a market capitalisation - for various reasons very undervalued - of 8.2 billion dollars in 1996), had effectively already been privatised into the hands of its manage-ment, notably Prime Minister and former Gazprom general director Chernomyrdin, while retaining its monopoly; thereby allegedly making Chernomyrdin the richest man in Russia (though of course he denies this).73
In return for these industries, the beneficiary millionaires promised to sup-port Yeltsin, and not some other and healthier anti-Communist candidate, in the upcoming 1996 presidential elections. They financed the campaign, and directed their respective newspapers and television stations to propagandise on behalf of the President.74 Boris Berezovsky had acquired an 8 per cent, but in effect dominant, stake in the central state television company, ORT, in 1994, allegedly with Chubais's help, and became its deputy general director (as of 1997, ORT remains 51 per cent state-owned). He also controls the
leading daily Nezavisimaya Gazeta Gusmsky controls NTV the newspaper Segodnya and the news magazine Itogi 5 All over Russia in these years, big companies were doing the same in their own areas Thus in Vologda region, the giant Severstal steel-making plant had by 1997 gained control of a radio station, four local TV stations and two newspapers, which it used to support favoured candidates in local and national elections 76 In 1997, after the 'group of seven' had broken up, Berezovsky and Gusmsky used their media quite openly to attack Potanm, as a weapon in the battle to sieze the remaining state extraction industries Potanm hit back with his own media, notably Komsom skaya Pravda So much for media 'independence'
Following the loans for shares deal, these men's chief representative and benefactor, former privatisation chief Anatoly Chubais, was reappomted to the government first as presidential chief of staff with responsibility for organ ising the electoral campaign, and then as Deputy Premier, and two of these men, Potanm and Berezovsky, later joined the government themselves On top of loans for shares, Chubais has also sought to increase the power of the banks by shaping the development of the stock market in the direction of the German model, where a few great banks play the leading role in investment Of course, this is not in itself illegitimate, but in Russia's circumstances it looks very like another attempt to both strengthen and justify the new status quo In the words of Joel Bismuth, Vice-President of Unibest Bank and a critic of this tendency, 'This gives incredible power to the banks They will hold the reins of the securities market and will have a strong influence on the pricing of shares An oligarchy of banks will gain predominance '
In an interview with the Financial Times in October 1996, Berezovsky him self was extremely frank, not to say boastful, about what they had done and the power and wealth they had achieved He said that the businessmen con-cerned - himself, Potanm, Vladimir Gusmsky of the Most group, Mikhail Khodorkovsky of Menatep, Alexander Smolensky of Stolichny Bank and Pyotr Aven and Mikhail Friedman of Alpha Bank - had decided that it was vital at all costs to defeat the threat of a Communist victory in the June 1996 presidential elections, and that they engineered the appointment of Chubais as campaign organiser, and first the alliance with General Lebed and then his dismissal He said in particular that the Jewish members of the group feared a nationalist and anti-semitic backlash in Russia 8 (Berezovsky himself from 1993 to 1996 had Israeli dual citizenship, he took it, he explained later, not because of identification with Israel, but because in 1993 there were power-ful people in Russia out to get him and he wanted an escape hatch for himself and his family)'
Above all, he said, he and Vladimir Gusmsky 'were the first who realised how the mass media could assist the different steps we wanted to take' He said that apart from using the media, he and his associates had paid 3 million dollars to a special election committee headed by Chubais and including Yeltsin's daughter Tatiana Dyachenko because 'she is the most effective
Above all, he said, he and Vladimir Gusmsky 'were the first who realised how the mass media could assist the different steps we wanted to take' He said that apart from using the media, he and his associates had paid 3 million dollars to a special election committee headed by Chubais and including Yeltsin's daughter Tatiana Dyachenko because 'she is the most effective