Relationship between Russian Oligarchy and the Kremlin - Article Example

RELATIONSHIP BETWEEN RUSSIAN OLIGARCHY AND THE KREMLIN In 2000, Vladimir Putin succeeded Boris Yeltsin as the president of Russia, a country which was reeling under a major economic crisis during those times. Since then, the state has witnessed rapid economic growth, spurred predominantly by the vast reserves of oil and natural gas that it supplies to the west. Given the new life that Putin’s government has managed to show to the people, the man enjoys immense popularity among average Russians. Russia was the largest remnant of the mighty erstwhile Soviet Union, which disintegrated into 15 new states as a result of widespread discontent within the republics in 1991. In the run up to the split, the soviet economy had crumbled and citizens were subjected to severe economic hardships. There was no food left in the markets and people had to wait endlessly in long lines, which eventually led to mass protests. With the fall of the communist party, Boris Yeltsin’s Russia stepped into a new era of democracy, which arrived with its own problems. Much of the state machinery had been rendered obsolete and defunct and the economy was tumbling at an accelerated pace (Kuznetsov, E., 1995). One of the first priorities of the new government was to dispose all state owned enterprises through sale to private entities, which was done at a brisk pace. Most of the companies that were privatized went into the hands of a group of powerful businessmen, known collectively as the ‘Oligarchs’. Most of the Oligarchs were former members of the Communist party or had strong links to it and it was soon evident that most of them had been the favored choices for the proposed privatization drive (Yavlinsky, G., 1998). The best example of an oligarch, who became rich overnight by securing several private businesses for throwaway prices is Mikhail Khodorkovsky. The smart looking Russian businessman had for long been one of the staunchest members of the communist party during the soviet times and had grown through the party ranks, mainly through his business acumen that saw him rise to become the chief managing entity of some of the biggest corporations in Soviet Russia. His association with the rich Oil industry and his rapport with people in the Yeltsin government soon allowed him to gain a major stake in Russian Oil Companies, which were soon amalgamated into Yukos. The new Oil Company made him a billionaire and his fortunes continued to rise as he began to expand his businesses into several other sectors including banking and insurance. The story was similar with other oligarchs, who were lucky enough to acquire factories and businesses for cheap prices and succeeded in churning billions through them. However, all were unaware of the fact that the Yelstin era was one of the weakest in Russia’s history, where the government was merely looking to consolidate its position and trying to get the sliding economy back on track. The accompanying lack of oversight led the oligarchs to expand and profit unabated. Things however, changed with the turn of the new millennium, when Yeltsin’s failing health forced him to turn power to the hands of a young former KGB officer named Vladimir Putin. Since then, the state has shown that it still holds the upper hand when it comes to controlling the economy and dictating policies (Gustafson, T., 1999). Mikhail Khodorkovsky had in 2001 famously said that in Russia, unlike in the United States, the government machine was significantly stronger than an individual, company or a group of companies. One of the first moves made by Vladimir Putin upon assuming office was to reestablish the control and authority of the Russian government over business entities, whose output, performance, efficiency and transparency had been on the decline ever since the Gorbachev era of the 1980s. However, the primary purpose of asserting the supremacy of the state in all affairs was meant to embolden the control of the presidency over other important institutions and stakeholders in the political system. The government had been severely weakened by 2000 and the oligarchs were running their enterprises as personal fiefdoms (Tsygankov, P, Tsygankov, A., 2004). Putin reformed some of the most important laws in the Russian constitution that gave the Kremlin significant powers and changed its relations with the Duma, the federal assembly in a significant manner. in order to regain the lost control, it was important for Putin to weed out the powers held by the regional elite and the handful of extremely wealthy people and had even been dominating Russian politics through back door tactics. Amongst the state institutions that were targeted, the State duma turned out to be the easiest as well as the most important national institution, which had to be consolidated from Putin’s perspective. The fall of the Soviet Union had rendered the Duma into a powerless government body and the elections in 1999 simply helped created a new batch of state legislators who merely followed and passed every act issued by the president without any considerable debate or assessment. Putin instituted radical changes into the constitution of the upper house known as the Federation council, which was until then controlled by regional bosses elected through undemocratic means. These officials were replaced with new senators who underwent a formal election process. However, unlike the earlier bosses, these new senators had relatively very few powers and were at a severe disadvantage to provide an counteraction to the decisions of the executive. However, this move was widely seen as a reform to help eliminate the unnecessary power held by the members of the council. The changes were greeted with mixed feelings though it raises very little doubt that the changes have highly succeeded in strengthening the concentrating power in the hands of the Kremlin at the expense of the powers held by the state (Nicholson, M., 2001). With these new powers, the attention now turned towards the oligarchs, who had infiltrated the Russian political system to a large extent and were squeezing it for their benefit. Putin, as part of his election campaign, promised to bring in the much needed changes that would help weed out the oligarchs and as he put it – ‘cease to exist altogether as a class’. He further reiterated his intention to maintain a very safe distance from dealing with anyone belonging to that class and expressed an interest to contain them in an effort towards obtaining stability within the political system. the intention was not to do away with the Oligarchs and their businesses, which were highly profitable despite a crumbling state, but to redefine their mode of operation and institutionalize them so as to align them with the strategy of the state. Achieving this has been an on-going process for the Russian government under Putin, which over time has shown on several fronts that it still controls the affairs of the state with utmost impunity. As the forthcoming discussion will go on to show the ensuing relationship between the Oligarchs and the Kremlin has not been cordial due to a number of reasons. The primary reason lies in the tendency of both sides to not stick to their word and swerve from any agreement of promise that they had made earlier. Additionally, it would have been highly difficult to uphold any such promises despite having the drive and the intention to do it. Also, both have been found to be unreliable even in the wake of a common agreement, which arises from the mutual distrust that continues to exist between both to this day. SUBJECTING THE OLIGARCHS TO PRESSURE The Kremlin has over the past 2 decades expressed deep interest in asserting its control over the industrial and financial sector, which was concentrated in the hands of a few individuals. However, colliding head on with the Oligarchs would have resulted in loss of revenue through tax and other disadvantages, which would have put severe pressure on the effort of the Putin government to consolidate its position. However, the arrival of Putin signaled a remarkable shift in the approach of the Kremlin, glimpses of which were first shown within 3 months of Putin assuming power. The government began its crackdown on the oligarchs by taking on the powerful Vladimir Gusinsky, a media tycoon who had backed the opposition during the 1999 elections. Gusinsky’s companies were tried for criminal conspiracies and the process was anything but transparent and fair. Subsequently, Putin took on long time supporter Boris Berezovsky, who was one of the architects who engineered the required victory at the Duma during the elections (Yavlinsky, G., 1998). Most of the firms and their bosses, many of whom had helped Putin during his election, were not spared and were mostly tried for charges ranging from corruption, economic malpractices to illegal procedures during privatization. However, these moves did not achieve anything significant in offsetting the oligarchs and instead, each time one would see the emerging Putin as the savior and protector of people’s interests. During these trials, the Kremlin negotiated with many of the oligarchs who had been jailed and awaiting trial and many of these ventures saw the companies under these tycoons being wrested under the control of the state. Many of the industries that were nationalized and their boards replaces were from the Oil and Gas industry, which was one of the major contributors to the Russian GDP. In all these cases, the Kremlin sent out a clear signal signifying that the once powerful oligarchs were also vulnerable before the powers of the state and that the President was ever present to help protect them (Tsygankov, P, Tsygankov, A., 2004). CONSTRAINMENT During the first term of the Putin government, the Kremlin made it clear that it had no intention whatsoever to overturn any previous privatization deals. This assurance seemed to have instilled faith in the oligarchs that their assets, which had been acquired through shoddy and chaotic privatization drives would after all remain with them. This approach seemed to assure that businessmen with good behavior and adherence would be left untouched. In a private meeting with 21 of the wealthiest businessmen in the country, Putin assured that genuine privatization deals would be allowed to exist and that those done under suspicious circumstances would be overturned (Lane, D. 2000). This is widely believed to be the event where both groups began to develop a sense of mistrust for each other as the oligarchs found it hard to believe that maintaining political restraint guaranteed the safety of their ownership. Meetings and declarations over the next few months seemed to convince the public, the press, investors as well as the Oligarchs themselves that Putin was simply a continuation to Yeltsin’s policies, which would soon turn out to be a myth though many among the oligarchs expressed reservations over the promises made. Berezovsky and Gusinsky were subjected to further scrutiny in what followed to be several criminal and civil charges that one by one deprived them of their assets. Soon, both businessmen fled the country to avoid imprisonment and continue to live in exile to this day. The freedom of the press was suppressed alongside and several protests began to arise over the alleged politicization of the government agencies, the judiciary and the police. This period also witnessed the disintegration of the unity within the oligarchs and each was left to fend for themselves. The reminder of the commercial elite felt relatively at ease during these years as the nation was engrossed in the trials of Berezovsky and Gusinsky. The Kremlin was not interested in controlling the vast media assets that they had acquired and wished to use it for purposes of propaganda and advance the Kremlin’s political agenda (Lane, D. 2000). It also appears that while most oligarchs had used the political system as a buffer for protecting their interest, the duo under scrutiny as these media assets were seen as sources used by the oligarchs to further a favorable political agenda. However, the reasons for Putin to turn against a supporter in Berezovsky remain unclear and are widely regarded as a means to clip his high political ambitions. The excape of Berezovsky and Gusinsky led the rest among the oligarchy to believe that they had to remain low in politics and accept the restrictions imposed on them by the new order in Kremlin (Nicholson, M., 2001). Putin himself made it highly difficult for anyone among the oligarchs to obtain access to high ranking officials. While initiating several reforms that was welcomes by the industry, Putin worked simultaneously towards ensuring that the grip over monopolies such as Gazprom or Sberbank was tightened, which was a move aimed at leveraging the Kremlin’s position against the big businesses predominantly affected through the control of the government over the pipeline network throughout the country. From Putin’s perspective, handing the control of the cash rich Oil sector over to private businessmen did not seem to be a wise option for managing the industry in an effective manner. ECONOMIC BOOM While Putin’s initial approach towards the Oligarchs seemed to be pretty clear and straightforward as a mere swap of property rights for political restraint, such an equation remained in place only for a short period. Soon, it was perceived that the government’s approach was meant to provide a congenial atmosphere for the tycoons. Having become enormously rich during the Yeltsin period by exploiting the vulnerabilities in the government, the oligarchs believed they had a lot to gain from the new rebuilding of the economy, which Putin intended to achieve. In a move to solidify their positions, the tycoons believed that a stronger state was better equipped at protecting their interests and allow them to be even more profitable. This was the belief with which individuals such as Potanin and Khodorkovsky, who had created Yukos from state Oil companies, were projecting themselves as champions of reform and better governance. This change of stand on the part of the oligarchs reflects their recognition of the need to reassess and reinvent their approach in tune with the revised order at the Kremlin (Hashim, SM, 2005). Many of the new economic reforms that Putin introduced were adopted with appreciation, which aimed to civilize Russia’s economy by consolidating property rights and raising the standards of corporate governance. Growing confidence in new measures allowed more oligarchs to discard their protectionist stance and led them to invest and develop newer assets. This positive momentum allowed the Russian economy to register positive results for the first time in 2003 with the first positive cash inflows since the Soviet times. Several blue chip firms including Khodorkovsky’s Yukos were experiencing a boom and a new era was hailed in the world media . Many of the oligarchs were evidently cautious all along as many of the ownership structures were still placed offshore. However, Russian companies were seen to be highly transparent for the first time ever (Reddaway, P. and D. Glinski, 2004). However, analysis by researchers such as Barnes seems to suggest that firms were still competing and struggling for properties and assets. In most cases, the drive towards acquiring assets was not from their feasibility or profitability, but from their perceived political utility in the future and their potential in providing strategic importance to their owners. RELATION UNDER STRAIN However, since 2003, the tension between the Kremlin and the oligarchs renewed and was driven predominantly by splits and divisions rather than policy. The oligarchs had all along been lobbying for reforms in the Duma and were working towards changes in several rulings of the government. These tensions increased due to the resulting divisions within the Kremlin and the government, which had resulted in a strong concentration of power in the hands of the government. Suddenly, in mid 2003, the government launched a campaign that led to the arrest of key people in Yukos, which was subjected to a highly selective judiciary. Despite allegations and protests that the case was politically motivated and was the result of the collision course that Khodorkovsky had adopted against the Kremlin. As each oligarch was on their own, Khodorkovsky became increasingly critical of the government and often commented and criticized amidst media and public glare. He also made the mistake of declaring that he intended to succeed Putin and began to fund opposition parties (Reddaway, P. and D. Glinski, 2004). This sudden declaration and display of freedom was not welcomed by the Kremlin, which took steps to clip the feathers of the oligarch, thus confining him behind bars to this day in a distant Siberian prison. CONCLUSION Despite the grip that the Kremlin has been maintaining over the oligarchs during the current decade, it should never be mistaken for the widespread economic progress that Russia has experienced during this period. The appointment of a qualified economic team has ensured that progress remains unaffected by the actions of the oligarchs. The crackdown against the oligarchs has forced many of them to flee Russian soil, though it has allowed most of them to enjoy their amassed fortunes. Putin is widely regarded and popular among Russians as a champion of Market reforms and he continues to do so despite remaining notorious for ruling over companies such as Yukos with an iron fist. Putin is also known to be popularizing the concept of non-oligarchic capitalism, and favors more powers for the Kremlin that allows more effective control. However, these reforms and the strained relations with the oligarchs are not guaranteed to repair the defects within the Russian institution. Putin’s recent political moves at seeking a new presidential term in 2012 seem to suggest that he is in no mood to let go of his control over Russian affairs and intends to rule the economy and the industry with the same effect that has characterized his approach so far. REFERENCES 1. Yavlinsky, G., 1998, “Russia’s Phony Capitalism”, Foreign Affairs, 77:3. 2. Tsygankov, P, Tsygankov, A., 2004, “Dilemmas and promises of Russian liberalism”, Communist and Post-Communist Studies, 37:1. Available on CitySpace. 3. Hashim, SM, 2005, “Putins Etatisation project and limits to democratic reforms in Russia”, Communist and Post-Communist Studies, 38:1. 4. Lane, D. 2000, “What kind of capitalism for Russia?” Communist and Post-Communist Studies 33, 485-504. Available on CitySpace. 5. Gustafson, T., 1999, Capitalism Russian-Style, Cambridge: CUP. Chapter 1 6. Kuznetsov, E., 1995, ‘Is Russia Becoming a Developing Country? 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