The Influence Of Oligarchs In Russian Political And Economic Life In The Period 1993-1999 - Essay Example

Why the Oligarchs exercised so much influence in Russian political and economic life in the period 1993-1999. Introduction. The period 1993-1999 wasa particularly colourful one in Russian history. The Gorbachev era of Glasnost (openness) and Perestroika (restructuring) which tried to steer a middle way between totalitarian socialism and free-market capitalism in the 1980s had given way to the Yeltsin era. After barely two years in office, President Boris Yeltsin found himself in direct conflict with the Supreme Soviet and other former communist political groups over the speed and nature of economic reforms. When in March 1993 he made it clear that he was about to push forward with these reforms using unspecified new powers, the Prime Minister and other political leaders attempted to organise an impeachment process. They did not move quickly enough, however, and in the autumn of that year Yeltsin simply dissolved the old former soviet political apparatus and declared that a new Duma (Parliament) would be elected. The Duma election was scheduled for 1995 and Yeltsin himself ran for re-election as president in 1996. These events characterized a period of immense political and economic instability and this was the environment in which a new breed of key players was born: the so-called “Russian Oligarchs”. The term “oligarch” is derived from the Greek meaning “governing by the few” and it usually has negative connotations relating to the abuse of power. There are at least four important factors which contributed to the emergence of the oligarchs and their growing influence in both politics and economic life in the period 1993-1999. This study will look at each of these in turn: 1. The power vacuum caused by the fall of communism. 2. The personality and presidential style of Yeltsin. 3. A lack of separation between political and business interests. 4. Inadequate regulation and controls in the financial sector. 1. The power vacuum caused by the fall of communism. By the autumn of 1993, it was clear to all observers that the old Soviet systems had fallen away and there was no immediate substitute in place. Yeltsin relied upon his personal authority and the support of the military to wrest control out of a disintegrating situation. The scene was set for a new era. Waller (2005: 13) analyses this decade under the heading “The Yeltsin years 1991-1999: reaping the whirlwind” and this is a good description of the mood in Russia across all sections of society. Old systems and habits had simply been swept away and no one could tell what would happen next. Other commentators stress the risks inherent in the new situation: “Russia and the other post-communist societies had to feel their way forwards on the edge of a precipice in the dark.” (Sakwa, 2008: 303). The majority of the population seems to have suffered a certain amount of shock and paralysis. The old communist regime had produced many inefficient industries and a labyrinth of bureaucratic state systems which were barely fit for purpose in the late twentieth century but at least people knew how to access these systems and make a living in these industries, even if it meant taking more than one job or using contacts and bribes to obtain permissions and paperwork. Most people were simply overwhelmed by the prospect of losing their jobs and the comfort of familiar social structures. The new situation required new skills and a new approach. The fall of communism removed the old structures but it did not remove the old dominant personalities. In the scramble to establish a new parliament in this new, post-communist environment many of the old communist establishment figures found ways to shift their allegiance and their resources so that they could retain their inherited privileges. Yeltsin appeared to be the only stable figure in the last months of the communist regime. This power vacuum needed to be filled, and for many senior figures it mattered little what ideological label guaranteed their prosperity. So it was that several leading figures in the former Communist Youth League such as Mikhail Khodorkovsky and Vladimir Gusinsky became ardent Yeltsin supporters and began to adopt decidedly un-communist methods in their increasingly lucrative business dealings, a process which is described by Braguinsky (2009) in detail. A number of academic high-flyers also saw potential in the new economic and political scenario that was developing in 1993. Boris Berezovsky, for example, was a software engineer involved in the prestigious Russian space programme who turned his hand to business as soon as the Yeltsin regime allowed for private enterprise and new types of international co-operation. He set up joint ventures with Italian car manufacturer Fiat and managed to buy up unprofitable old soviet car plants so that he could mass produce cheap cars and sell them at great profit through private dealerships in which he had ownership interests. He later tried the same trick with Aeroflot and became one of the richest and most influential of the oligarchs, and the target of several serious assassination attempts. Another well connected oligarch was Vladimir Potamin, the son of a communist diplomat. He used his family’s communist connections to set up various international trading companies and then channelled the profits into two new, enterprise friendly banks. These examples all demonstrate that many of the oligarchs were just old communist players in a new guise. Self interest transcended ideology and the benefits of higher level education, extensive commercial networks and a huge amount of available capital meant that these oligarchs were well placed to spot opportunities for their advancement in the chaotic Yeltsin years. These players had been held in check by the limitations of the old regime and its disappearance released them to expand their influence in new directions. Besides these establishment figures, there were also others, mostly younger and less prominent individuals, who were already dissatisfied with the slow pace of change under Gorbachev. For this group there was more of an intellectual commitment to a market based economy and also a desire to change Russian society. Some would call this opportunism, while others would call it entrepreneurship. A good example of this type of oligarch is Mikhail Fridman from Lvov, Ukraine, whose family had Jewish origins. He may at first seem to be an unlikely candidate for oligarch status. Like millions of other young men in the former soviet republics, he was largely excluded from the wealth and privilege of communist establishment families, but he did have access to the underground networks of the former soviet black market. While still a student he started a small businesses offering theatre tickets and as the monolithic old soviet companies began to disintegrate he took advantage of various emerging market niches such as window cleaning, raw material trade and various small and large scale import and export ventures. Braguinsky (2009) points out that there were several oligarchs of Jewish origins who emerged to play a significant role in the Yeltsin era. Alexander Smolensky, for example, also began with small business activity under the radar of the communist authorities and used his practical enterprise skills to build up a huge construction and raw materials co-operative. Using a network of semi legitimate business contacts he had a followed a very different path from the former communist elite but nevertheless he finished up with very similar achievements such as founding new trading companies and banks to nurture his growing interests. For this group, the disappearance of a restrictive and discriminatory communist regime removed obstacles to their natural talents and opened up an avenue for them to grow and prosper. 2. The personality and presidential style of Yeltsin. While the power vacuum provided a general background, the personality and presidential style of Yeltsin provided an immediate focus. Danks observes (2000: 117) that the rise of the oligarchs “was an important consequence of the absence of a presidential political party under Yeltsin”. He was a forceful individual had a difficult job to do and very little in the way of role models and precedents to follow. Just as the communist politicians had used an almost feudal system of barter and bribes to manage relations between individuals and government officials, so Yeltsin built up a close-knit inner circle consisting of members of his own family and a few trusted others including Anatoly Chubias. This former industrialist realised the importance of the media in a free market economy and set about creating a Yeltsin-friendly television network. Chubias also aligned himself closely with Yeltsin’s daughter Tatyana, and former communist oligarchs like Berezovsky. This constellation was likened to the old Russian clan system, and the Italian and American mafia system and indeed there were many similarities both in style and in substance. Yeltsin took advantage of all the perks of his position, and emulated the American presidential style in carefully stage managed press releases and televised speeches to the nation. Ledeneva (2006) examines in detail the way in which Yeltsin adapted old communist methods to build relationships and also adopted newer media-savvy techniques to consolidate his reputation and power. In particular the use of a technique called kompromat (compromising material) was a Yelstsin speciality, combining old KGB style surveillance with threats of reputational damage through the increasingly unfettered mass media : “Some information can be partially leaked to the press to signal the gravity of the threat. When published for a select audience, kompromat resembles an encoded correspondence performing the function of a warning, threatening and giving clues with a purpose of neutralizing the opponent.” (Ledeneva, 2006: 80). Yeltsin’s presidential style, therefore, offered a further avenue through which the oligarchs could exercise political influence. 3. A lack of separation between political and business interests. The third major factor in the success of the oligarchs was the fact that Yeltsin directly encouraged the wealthiest industrialists to give him financial support. He relied upon this resource very heavily in his re-election campaign of 1996. In return the oligarchs demanded from Yeltsin licences and permissions to buy out more and more formerly state owned businesses. This was perhaps an understandable bargain in the very early months of the post communist era when emergency measures were needed to keep industries going and kick start the economy. It became a much hated practice, however, when the oligarchs started buying up Russian natural resources or state monopolies and turning them into hugely profitable businesses with high profits which were then collected in foreign bank accounts for the personal benefit of the oligarchs. Sakwa (2008) explains one particular scheme known as “loans for shares” which had the scandalous effect of asset stripping Russian state firms and allowing the oligarchs to “consolidate themselves as a class” (Sakwa, 2008: 290). As time passed the close relationship, and in some cases overlap, between the presidential elite and these few wealthy individuals grew to be one of mutual dependence. Yeltsin needed the backing of the oligarchs to finance his presidential style, while the oligarchs needed an acquiescent president to smooth the way for their insatiable greed for more and bigger business acquisitions. Economic opportunities were reserved for Yeltsin supporters, and huge fortunes were made at the expense of ordinary citizens and other potential investors who could have injected proper competition into the Russian business scene. In effect the oligarchs enjoyed an unfair business advantage and this guaranteed them huge profits. 4. Inadequate regulation and controls in the financial sector. The last factor behind the success of the oligarchs turned out to be a very useful but temporary advantage. In most twentieth century western societies there are plenty of would-be oligarchs but they rarely attain significant levels of power and influence. This is because most developed economies have formal organisations like a well trained civil service, tax and monopoly legislation, and a system for the oversight of banks and currency speculators. The interplay of these forces creates a certain amount of balance in the system, however imperfect, and no one group is allowed to attain dominance. In the late 1990s in Russia, however, the oligarchs managed to control over 50% of the Russian economy in terms of GDP (Danks, 2009: 68). This was obviously good for those individuals, but disastrous for the Russian economy as a whole. When one adds to this an increasing tendency to rely on mafia-style organised crime, the situation becomes unsustainable. Danks (2009: 73) describes how the creeping criminalisation of economic activities damaged the development of a market economy while Sakwa (2008: 86) refers to the “law of the jungle of primitive economic empire building”. Half hearted efforts like the discredited “loans for shares” mechanism mentioned above and some weak anti monopoly legislation could not work in the absence of an effective administration who could be relied upon to carry out both the spirit and the letter of the law. There was no effective measure to stop the oligarchs from breaking financial laws, or making up new procedures and founding new organisations to suit themselves, and there was no one to monitor, let alone curb, their massive profit taking and wholesale appropriation of wealth into bank accounts abroad. Conclusion. The meteoric rise of the oligarchs was the product of a very exceptional set of circumstances. The four factors outlined in this study all contributed to their ability to amass wealth and influence which should ideally have been more equitably shared out in a properly regulated society. It was not until the demise of Yeltsin and the presidency of Putin that these excesses were addressed. In the end the oligarchs had taken so much out of the system that they threatened to destroy it altogether and this had become plain for all to see. It is to be hoped that the benefit of hindsight will ensure that such excessively close linking of business and politics, along with a mature and properly regulated market economy in Russia will prevent any such recurrence in the future. Works Cited. Braguinsky, S. (2009) ‘Postcommunist Oligarchs in Russia & Quantitative Analysis’ The Journal of Law and Economics, vol 52, May, pp. 307-349. Danks, C. (2009) Politics Russia, Harlow: Pearson. Ledeneva, A. (2006) How Russia Really Works: The Informal Practices that Shaped Post-Soviet Politics and Business, New York: Cornell University Press. Sakwa, R. (2008) Russian Politics and Society, 4th edition, London: Routledge. Waller, M. (2005) Russian Politics Today, Manchester: Manchester University Press White, S., Sakwa, R. and Gitelman, S. (2005) Developments in Russian Politics 6, Durham: Duke University Press. Read More