In the last few years Russians have been witnessing a titanic battle as the country’s economy emerges from the remnants of the old communist state. Today the Russian elite is firmly split into two camps. On one side stands the government of Vladimir Putin, whose administration and style of is berated almost daily by the press as being authoritarian and politically regressive. On the other side stands Russia’s new business elite, spearheaded by men such as oil magnates Mikhail Fridman and Mikhail Khordokovsky, and media tycoon Boris Berezovsky.
On the face of it the battle seems clear cut. Putin is seen as being increasingly worried about the political influence the oligarchs could achieve with their astronomical fortunes. In essence their wealth is a potential threat to his continuing autocratic rule. The oligarchs for their part have been largely portrayed in the Western media, and especially in the financial press, as victims of Putin’s efforts to consolidate his position as president. These young entrepreneurs are, according to the press, being targeted purely because of the success they have had within the newly liberalised Russian economy.
Putin’s rule is becoming increasingly autocratic, but the growth, and consolidation, of Russia’s oligarchs is equally significant. The oligarchs influence over the country and its economy is clear, currently just 100 people own a quarter of the wealth in a country of 145 million people. Indeed, Putin’s attack on the oligarchs has proven popular with the majority of Russians who have yet to see any significant returns from the arrival of capitalism in their country. Therefore, who wins this battle between capital and the Kremlin is far more than simply a matter for the business pages, the cases against men such as Mikhail Khordokovsky will determine the way politics, society, and wealth is perceived and conducted in one of the worlds most influential economies.
The battle between business and politics can be seen daily basis as the government mounts a full on attack against one of the bastions of Russian enterprise, Mikhael Khordokovsky’s oil empire, Yukos. The fight for control of Russia’s second biggest oil company is going only one way. With Khordokovsky in jail under charges of tax evasion and his business being slowly but surely pulled apart and forcibly sold off, the government of Vladimir Putin is undoubtedly winning the war. A quick look at how Putin is tackling Yukos gives a good overview of the way he is trying to rein in the power and independence of Russia’s new corporate giants.
Yukos is a monolith within the Russian economy. With over 11 billion barrels worth of oil reserves and a multi-billion dollar turnover the company, formed in 1993, is quite simply a giant. The size and sheer scale of the wealth belonging to the company’s owner and its management is daunting. So the recent government onslaught is perhaps unsurprising. In a country with such a disproportionate distribution of wealth, one could argue it is only right for the government to ensure companies such as Yukos pay adequate amounts of corporate tax.
However, it’s the voracity of the attack on Yukos and other companies, which is alarming those involved with Russia’s business elite. Instead of endeavouring to find a compromise with Yukos, Putin and his cabinet have gone for the jugular and their actions have been running increasingly close to the boundaries of common law. Indeed, the state’s most recent move has proved especially controversial.
Instead of selling off smaller parts of Yukos first in order to pay the company’s tax burden, the government has moved to take control and sell off Yukos’s main asset, it’s oil production arm, Yuganskneftegaz. This seems to be an overtly political move, a vindictive action rather than a necessary immediate measure to raise funds. Adding to this, is the fact that Yuganskneftegaz is being sold off at a cut price rate, the price is thought to be even lower than the bottom rate of $10.4 billion suggested by Dresdner Kleinwort Wasserstein, the bank hired by the government to assess Yuganskneftegaz. The fact that the state controlled Gazprom will probably be the only bidder sheds light on the reasons for the governments desire to set the price low.
This virtual re-nationalisation of one of Russia’s biggest companies is a further sign of Putin’s fall into autocracy. His initial pragmatic, nuanced approach to government has all but disappeared. Putin’s approach to tackling terror has led to the recreation of a Soviet-style security service, and his approach to the media has virtually suffocated any real culture of criticism within the fourth estate. This culminated earlier this year in the near-farcical Russian media coverage of the atrocity at Beslan, with virtually all the major networks and print media unwilling, or unable, to fully highlight or report on the mayhem in the Caucuses.
But to look only at Putin’s glaring improprieties is to ignore the negative effects these new super-companies are having in Russia. Groups like Yukos, Sibneft and Slavneft do create great wealth, but the people benefiting from it are almost totally adrift from the mass population. The rest of Russia is left to stagnate. There is virtually no real small to medium-sized enterprise culture meaning that, over ten years after the end of communism, the country still looks like a backward state with an economy devoid of diversity, competition and structure. It would be wrong to interpret Putin’s actions as not politically motivated but the truth is that firms like Yukos needed to be reined in. Their approach to taxes was seen by many as laughable and their control of industries such as oil and the media were highly monopolistic. The fact that the state is making a determined effort to regain control of these respective industries is worrying but in essence all that is happening is that industries are simply passing from the control of un-elected plutocrats to a ‘democratically’ elected autocrat.
The future for Russia therefore looks bleak. Unlike the new republics in Eastern Europe, who, if nothing else, harbour progressive ambitions both politically and economically, Russia seems to be spiralling into a regressive state. The country seems stuck in a furious tug of war between politically ambitious oligarchs keen to attain as much power politically as they currently have financially, and a government and president in Vladimir Putin seemingly determined to pull Russia into a quasi-Soviet state dominated by state controlled industry, a heavily censored media, and a paternalistic and manipulative approach to its citizens. At the moment the state looks like winning the war but whether it will make any substantial difference to the lives of ordinary Russians is debatable. The vast majority of Russia’s citizens will still be poor, disenfranchised, scared, and completely and utterly disappointed with capitalism; a way of life, which had promised so much and has so far delivered to so little.