Chris Doss The Russia Journal ---------------------------- Boston Globe April 21, 2002 book review SOCIAL HISTORY The rise of Russia's new czars By Nicholas Daniloff Nicholas Daniloff, now a professor of journalism at Northeastern University, worked as bureau chief of US News & World Report in Moscow from 1981 to 1986.
The Oligarchs: Wealth and Power in the New Russia By David E. Hoffman PublicAffairs, 567 pp., $30
For much of the past century, the world grew accustomed to the vocabulary of the Soviet Union, which coined such terms as collective farm, five-year plan, Komsomol, gulag, and refusenik. In the mid-1980s, the words perestroika and glasnost were introduced and ultimately set the stage for the empire's fatal collapse in 1991. The new language of Russia became both electric and mystifying: cooperative, joint venture, voucher, privatization, and, of course, oligarch. In this ambitious and worthy effort, former Moscow correspondent David E. Hoffman acts as translator between these worlds, which are at once radically different and painfully similar.
Hoffman, who served as Moscow bureau chief for The Washington Post from 1995 to 2001, tackles Russia's unprecedented economic transformation and no-holds-barred explosion of wealth by telling the story of six talented and driven men, linked mainly by their uncanny ability to sense the winds of change, to adapt, and to turn the smallest crack of opportunity into gigantic gain. Sprung from dead-end beginnings, these industrious business minds would soon control up to half of Russia's economy and most of its major media outlets and influence significant political decisions. They would become, in a real sense, the board of directors for Russia Inc.
Meet Moscow Mayor Yuri Luzhkov, a bullish can-do city boss compared by some to Robert Moses, the controversial architect of modern-day New York City; Anatoly Chubais, the steely young economics professor who headed up mass privatization, the sell-off of Russia, as many came to see it; Vladimir Gusinsky, the failed stage director who created a media and banking empire; Alexander Smolensky, a street-smart rebel who went from dump-truck driver to financial tycoon in a matter of a few years; Mikhail Khodorkovsky, a Komsomol youth leader who later managed to smuggle one of Russia's largest oil companies out of the country; and Boris Berezovsky, the dynamic scientific researcher with Nobel-sized ambitions who transformed his role as media magnate into Kremlin kingmaker.
Much of the wheeling and dealing in ''The Oligarchs'' is complex and rapid-fire, the financial tricks and schemes often ingenious and ruthless.
Despite exhaustive research, Hoffman acknowledges certain transactions may remain hidden, even for the most determined investigator. Wisely, he devotes a chapter to each future oligarch before delving into the oft-murky waters of high-stakes money-making in the early '90s.
Hoffman lays out in rich detail the economic system as it functioned under Soviet leadership, describing the centrally planned approach as ''the beginning of a seventy-four-year experiment to defy the laws of capitalism and suppress the basic instincts of human nature.'' With consumers and money secondary considerations, the reality of the command economy was shortage. The oligarchs-to-be, too, had once stood in long lines, lived in cramped apartments, and longed for jeans or a used car. But they became skilled navigators of the shadow economy: ''a vast, informal human network of connections and friends that spread from family to family, from apartment landings to workplaces, from Moscow to the distant provinces, a chain of svyazi, or connections, that helped [citizens] survive when the system could not provide.''
When reform-minded Mikhail Gorbachev rose to power in 1985, he eased restrictions on commercial enterprise, paving the way for private hair salons, bakeries, cafes, and discos. It was a brave, new world, with plenty of loopholes.
After the failed 1991 coup against Gorbachev, the USSR collapsed and Russian leader Boris Yeltsin took over. The brash Yeltsin pushed dramatic economic reforms - shock therapy, he called it - figuring democracy had no choice but to thrive. Banks sprang up, state property went on the block, vouchers were issued to involve the citizenry in the myriad transactions. In less than two years, some 14,000 firms went through voucher auctions, and thousands more small shops and businesses were privatized. But no foundation had been laid for the free market and few regulatory institutions developed.
Factories were stripped of assets, auctions rigged, and pyramid schemes were rampant.
''The liberal reformers choose to provide maximum freedom first and rules later,'' Hoffman writes. ''Into this vacuum rushed chaotic forces of evil - the cheaters and charlatans, the hooligans, criminal gangs, corrupt politicians, bureaucrats, natural resource barons, Mafia kingpins, ambitious tycoons, and former KGB bosses.''
With capital bases built on easy money, the future oligarchs went on wild borrowing sprees, gobbling up undervalued state assets - newspapers, television stations, automobile factories, significant portions of the oil and gas industry. While Chubais believed market forces would eventually sort out winners and losers, Hoffman suggests that the new architects may have underestimated the peculiarities of Russia's long, tumultuous history.
Paternalism, corruption, oppression, brute force, and anti-Semitism (four of the six oligarchs were Jewish) would not disappear overnight.
Western investors flocked, too, from get-rich-quick artists to businessmen like George Soros. But in the end, the Russian tycoons shut out most of the competition, divvying up the spoils among themselves. The oligarchs lived up to their names: cash-saturated power brokers, media barons, and oil magnates, complete with private armies and intelligence-gathering teams. They turned on their enemies - often fellow oligarchs - with ''kompromat,'' or compromising material, their nascent independent news outlets exploited for political gain. Car bombings and contract murders became regular fare.
In 1996, however, the men joined forces to save the faltering Yeltsin presidency from Communist front-runner Gennady Zyuganov, realizing full well their own skins were at stake. The Yeltsin administration had come to depend on the oligarchs, both for image-making and financing. This was made all too clear in the notorious ''loans-for-shares'' deal, where the cash-strapped government traded shares of valuable industry for loans in what amounted to the single greatest property grab in Russia's history. Yet no one saw the real trouble ahead: a drop in oil prices, the Asian financial crisis, the flight of foreign investment, insurmountable government debt, and the eventual devaluation of the ruble. Countless citizens saw their savings and businesses decimated overnight. The oligarchs and lesser financial players, however, had already spirited their wealth to offshore accounts. The rapacity ceased only when Vladimir Putin came to power and wrested control of the media, sending several of the oligarchs into exile, and marginalizing the rest.
The drawbacks in Hoffman's narrative are few: a certain murkiness in the second half of the book as the financing schemes of the oligarchs get more ambitious and the intrigue darker, an overreliance by the author on the pronoun ''I,'' and a clumping together of the lesser players. But these are mostly minor complaints when measured against the fascinating document Hoffman ultimately delivers.