Chris Doss The Russia Journal ---------------------------- New business elite replacing original Moscow "oligarchs"
Vremya MN 13 February 2002 [translation for personal use only] Feature, by RAN Institute of Sociology Sector for the Study of the Elite Director Olga Kryshtanovskaya: "Kremlin Habitues: Industrialists from the Provinces Have Pushed out Capital Oligarchs"
The 1998 economic crisis cut short the oligarchs' triumphant procession through the country by the oligarchs. This is what in recent years a group of 15 Moscow businessman who were not shy about candidly declaring their influence on the country's policy came to be called. The whole country knew their names--R. Vyakhirev, B. Berezovskiy, V. Gusinskiy, V. Alekperov, V. Potanin, M. Fridman, M. Khodorkovskiy, and others. For three years (1995-1998), their might and ratings rose steadily. On the political Olympus they had "their own" ministers, officials, and deputies everywhere. For this reason the country have come to feel that the state has been "privatized" and all the important decisions are being taken by the "moneybags."
And there are grounds for this: many key posts in the country are occupied by creatures of the fat cats, and the parties of the parliamentary majority have filled their own foreign bank accounts, pushing through the agreements the oil barons need on the division of output. Even the war has suited the mighty oligarchs. The President himself was forced to ask for support from media magnates on the eve of the elections.
Analysts began talking in earnest about the dilemma of who actually ruled Russia--the politicians or the businessmen? Their powers seemed equal. The August 1998 crisis changed everything, though. Some major businessmen went bust, some retreated into the shadows, and some made their way abroad. Of the "old" oligarchs, only the Alfa group has strengthened its presence at the top. But new entrepreneurs have appeared who have felt like habitues of the Kremlin corridors. With the advent of V. Putin, a policy of "equal distancing" of business from politics was declared which, in essence, meant the distancing of the "old" oligarchs of the Yeltsin era and the approach of Putin's own, "new" ones.
The Oligarchs' Ascent
Businessmen appeared on the list of the country's leading politicians for the first time in 1996. Before this, not a single entrepreneur was on the list of the most influential politicians. In just six years they had achieved maximum influence, and the group's leader, Boris Berezovskiy, was consistently one of the six top politicians. If during the period from 1995 to early 1998 the rating of leading politicians included 10-15 "oligarchs," then in the post-crisis period the situation changes markedly: the group's overall rating falls rapidly and business's representation in politics is cut back.
From 1995 until the 1998 crisis, there was a steady increase in the role of big businessmen in politics. In 1998 the reverse process began. But if in the first half of the year it went slowly, then after 17 August it speeded up drastically. Some oligarchs were buried under the ruins of their own banks (such as V. Malkin and V. Vinogradov), others got very quiet, and their influence on politics fell drastically (V. Potanin, M. Khodorkovskiy).
In 2001, of the old entrepreneurial elite of 1993, only 15 percent remained. What can explain such a strong renewal? The reasons for this are several: first, the spontaneous market underwent structural changes. If before 1998 financial structures (banks, exchanges, investment corporations) played the main role, then after the crisis their role was drastically reduced. The speculative sector of the economy was virtually destroyed by the dramatic events of August and never was restored in its former form. Commodities exchanges, which had once flourished, vanished into oblivion, and the number of banks dropped sharply.
In the post-crisis period, industrial enterprises entered the arena and gathered strength, which could not help but have an effect on the structure of the business elite. What happened to the remaining 85 percent of the 1993 business elite? Most of the entrepreneurs remained in business, however the scale of their activity does not allow them to be included among the country's leading businessmen. It is perfectly natural that the degree of their influence in society fell as well. Six percent of businessmen became professional politicians and at present are working on a permanent basis in parliament or else in the government. Nine percent retired on their pension due to age. For the most part, these are the bankers who during the first years of the reforms headed up the commercial banks created on the basis of the former state banks. Ten percent moved abroad, primarily in order to protect their personal safety. Two were killed (Ivan Kivelidi, the head of Russia's business roundtable, and Otari, the head of the XXI Century association). The fall of Kiriyenko's government concluded the stage of Russian politics during which not only control over financial streams but also the decision of the most important political problems ended up in the hands of a small group of oligarchs.
The Newest Russians Are Coming
A comparison of 1993 and 2001 data allows us to see graphically that the 2001 business elite is three years younger and now the average age of the group is 48.6 as opposed to 51.8 eight years ago. As before this is an exclusively male group. One in three of the business elite is a native of Moscow or Petersburg; the other 67 percent are representatives of the provinces, moreover 25 percent come from large cities and 42 percent come from rural locales and small settlements. Regional industrialists have come to take the place of influential Moscow financiers.
Characteristically, 14.0 percent of the new business elite came to business from high state posts. Only in the new Russia has this type of career come about. If previously a high official figure, as a rule, spent his retirement in the diplomatic service, then now most often state officials after retiring become top managers in major corporations. This tendency manifested itself for the first time in the years 1992-1993, when several members of government began working in commercial structures: Petr Aven became the president of Alfa-bank; Maksim Boyko, general director of the Video International advertising group; Viktor Ilyushin, head of the Gazprom-Media holding company; Andrey Kozyrev, one of the top managers of the American company ICN Pharmaceuticals; Vladimir Lopukhin, president of the Vangvard consulting firm; Vladimir Mashits, president of Mezhgosbank; Petr Mostovoy, first vice-president of Alros; Yuriy Petrov, chairman of the State Investment Corporation; Alfred Kokh, head of the Montes Auri company; Vladimir Polevanov, vice-president of the Zoloto Rossii investment fund; Oleg Sysuyev, vice-president of Alfa-bank. Subsequently, this process became widespread.
The Slogan Is Loyalty
In the post-crisis period, not only did the business elite itself change, but so did its influence on the political process. The old oligarchs of the Yeltsin era move off into the shadows, making room for a new generation of entrepreneurs. These "newest Russians" are more provincial, closely connected with domestic industry, and not as naively ambitious. The catastrophes of the old oligarchs, who suffered from their proximity to power, taught them caution. The new oligarchs are trying not to shock the public or flaunt their wealth, but are attempting to establish stable, non-garish relations with the establishment at all levels, acting more and more frequently not personally but through their representatives.
The destruction of the media empires of B. Berezovskiy and V. Gusinskiy led to the realization that the current regime will not allow itself to be blackmailed. Only those structures which are operating together with the government can have power in the media now. Loyalty has become the oligarchy's new slogan. Not to control politicians' fate but to help government--this is the role that has been allotted big business. These changes in the political context, however, certainly do not mean that entrepreneurs have crawled off quietly into the shadows. Their influence has changed form, but it has remained important. The oligarchy to a significant extent has been depersonalized.
Now it is isn't specifically Borov, Tarasov, Bryntsalov, or Berezovskiy men shining on the political arena but the closed-mouth representatives of powerful corporations like Gazprom, Lukoil, Yukos, and Alfa. Among the old oligarchs, only Alfa-gruppa is openly present in the political arena. Its representatives have joined the Russian establishment: at the same time two former top managers took posts as deputy directors of the President's administration (V. Surkov and A. Abramov). Alfa-gruppa men comprise a noticeable contingent on Old Square, occupying various posts, from consultants to directors of several administrations. Overall, for all elite groups, the growth of business's representation in power has more than doubled in the last eight years.
Velvet Nationalization
But the oligarchy has strengthened especially noticeably in the regions. The cruel blows that rained down on ambitious entrepreneurs in the center during the post-crisis period bypassed provincial businessmen. The old Yeltsin oligarchy suffered ruin, but in the regions the merging of business and government continued.
The 1998 crisis facilitated this: ruined Moscow businessmen shut down regional branches. Structures that had belonged to oligarchs transferred into the hands of local administrations or the companies affiliated with them. In essence, over the years 1998-2000, there was a new redivision of property. In the alienation of property from its "ineffective" owners "for debts," two development scenarios were possible: return the shares to the state (that is, nationalization), or replace one private owner with another (reprivatization). Both ways were actively utilized by local authorities.
The velvet nationalization of the post-crisis period was carried out in the interests of local authorities. The first experiment of this type was conducted by Pskov Oblast Governor Yevgeniy Mikhaylov, who introduced a monopoly on the production and wholesale trade of alcohol. The first state unitary enterprise (GUP) was created, Pskovalko. The model turned out to be highly effective, and another eight GUPs were created in a year's time: Pskovobllesprom, Ekoles, Pskovtorf, Pskovvtorma, and others. The local enterprise had its production assets taken away in favor of the newly created GUP--to help pay the tax shortfall. Regional fiscal organs worked indefatigably to expose "malicious debtors." Those in arrears went bankrupt, and their property went to the GUPs, that is, the local administration. Mikhaylov's actions corresponded so well to the spirit of the time and the interests of the regional elite that his experiment was immediately applied throughout the country.
Attempts were made everywhere to create regional monopolists along the lines of Gazprom or YeES Rossiya. The Moscow oligarchs were pushed out of the regions not only in favor of the provincial establishment. Local entrepreneurs friendly (or related) to the authorities found themselves on the winning side. In Kursk, Governor Rutskoy handed over the city's pharmacy network to his older son Dmitriy, who became general director of AO [joint-stock company] Kurskfarmatsiya. The governor's younger son was made manager of OAO [open joint-stock company] Kurskneftekhim, 49 percent of which is owned by the Moscow firm RuA, whose general director is, once again, Rutskoy the younger. The governor's brothers have also lucked out: the older heads up the state joint-stock company Faktor. The younger became deputy chief of the oblast's UVD [internal affairs administration] for Public Safety. Even the governor's mother, Zinaida Iosifovna, became co-founder of the firm Glat. In charge of culture in Kursk is Anatoliy Popov--the governor's father-in-law.
Reprivatization and reinforcement of the local oligarchy is proceeding like an avalanche through every region of Russia. But this process has acquired a special sweep in the national republics, where the characteristics of autocracy are standing out more and more distinctly. In Bashkiria a clan of the president's relatives is taking shape: Ural Rakhimov, the president's son, is vice-president of the Bashneftekhim holding company; Azat Kurmanayev, the nephew of the president's wife, is president of Bashkreditbank; the president's wife Luiza Raskhimova occupies an important position in the republic's Ministry of Foreign Relations and Trade. Nationalization of Bashkiria's economy is also going at full speed: state monopolies have been created in key spheres of the economy (Bashlesprom, Bashkirskaya Fuel Company, Bashkhleboptitseprom, Bashavtotrans).
By 2000, the forces of the regional oligarchs had become so strong that they began economic expansion into neighboring regions. Regional oligarchs appeared whose influence was based on horizontal, interregional ties. The development of their business was accompanied by the gradual acquisition of enterprises producing parts for other factories (suppliers or consumers of their output). As a result of the diffusion of their business, financial-industrial groups were formed which do not have a direct relation to the first wave of Moscow oligarchs. The most vivid example of this type is Aleksey Mordashov, general director of AO Severstal (Cherepovets, Vologda Oblast), who has become one of the country's most influential businessmen in the last few years. The same policy of interregional expansion has been demonstrated by entrepreneurs in Sverdlovsk and Samara oblasts and Bashkiria. New holding companies on a transregional scale in the last few years are the Uralskaya mining and metallurgical company, the Novolipetskiy metallurgical combine, Rumelko, an FPG [financial-industrial group] based on Bashkreditbank, the Petersburg FPG Novyye Programmy i Kontseptsii [New Programs and Concepts], and Yevrazkholding. The increase in the economic might of regional entrepreneurs has reflected as well on their political position. During the elections in the years 1998-2001, it became obvious that voters prefer to give their vote to prominent managers and directors of joint-stock companies and large, by regional standards, enterprises.
The same increase in business's direct influence on regional policy can be noticed as well in the formation of organs of executive power. With each passing year, the number of governor-businessmen has increased. The first swallow was Kalmykia, where well-known entrepreneur K. Ilyumzhinov was elected president back in 1993. In 1996, governor's chairs were occupied by three more local oligarchs--in Murmansk by Yu. Yevdokimov (representing the interests of Moscow AFK [joint-stock financial corporation] Sistema in the region), in Kaliningrad by L. Gorbenko (who lost the election in 2000), and in Nenetsk AO [autonomous oblast] by V. Butov. The wave of elections in the years 2000-2001 brought an increase--heads of the largest industrial structures in the region became governors of "their" territories: in Chukotka, R. Abramovich, head of Sibneft; in Taymyr, A. Khloponin, head of Norilsk Nickel; in Evenkia, B. Zolotarev, director for development of ZAO [closed joint-stock company] Yukos. In Krasnodar Kray, Koryakskiy Autonomous Okrug, and Primorye local oligarchs--A. Tkachev, V. Loginov, and S. Darkin--have won. 2002 has already brought two more victories: V. Shtyrov won in the Republic of Yakutia (Sakha), and Kh. Sovmen in the Republic of Adygeya. Thus, at the present time, major businessmen are in power in 11 regions, which is more than 12 percent of the gubernatorial body of Russia.
Support the Government or Move off into the Shadows
What main trends can be distinguished in the development of the business elite? Powerful financial-industrial groups have appeared that are based not in Moscow but in the provinces and that have set themselves the goal of interregional integration. At the same time, the shift of the business elite's business and political activity from the center to the regions has been accompanied by a strengthening of the role of the state, which has taken steps to restore its control over the economy and politics.
At the same time, in several republics, the further merging of business and government and the formation of local oligarchies has continued. Sometimes this process has acquired autocratic forms, when big business in the region has come under the complete control not of the state but of its top officials, which have formed financial-industrial clans.
The interests of big business have changed. If at first they merely involved privileges for their companies, then with the increased scale of their activities, entrepreneurs' lobbyist aspirations began to be applied to legislative regulation of the economy as a whole. This led to an increase in the economic influence of private business, which to a certain degree compensated for their lost political might. With the coming to power of Putin in 1999, private entrepreneurs began to be pushed out of the leading electronic media. The destruction of the media holding companies owned by Gusinskiy and Berezovskiy and the weakening of the role of Gazprom's media structures were supposed to demonstrate "who is boss in the house." The new government let it be known unambiguously that it would not permit the blackmail to which Yeltsin had been subjected by media magnates. Oppositionally inclined media were handed over to structures which had demonstrated their loyalty.
In the post-crisis period, big business has become a haven for many retired politicians. At the highest leadership of virtually every major commercial structures there are former highly placed officials and ministers. If previously the differences between the list of owners of major enterprises and the rating of the most influential oligarchs were substantially different, then now this discrepancy has been overcome. The new magnates are buying up or have already bought up all the country's largest enterprises and are busy putting their own holding companies in order.