Russia's Crony Capitalism

by Anders Aslund

  Among Russia’s historical leaders, Putin seems most attracted to Nicholas I, the founder of the tsarist secret police who tightened authoritarian order after the liberal Alexander I and the Decembrist uprising. In 1848–1849, Nicholas I culled uprisings all over Eastern Europe. His tragic finale, however, was the Crimean War, 1853–1856, which dealt a devastating blow to Russia’s rising great power ambitions.10

  In 2017, Putin made an uncommon historical diversion. In July, he quoted the famous motto of the conservative Alexander III (1881–1894), “Russia has only two allies: the army and the navy,” and in November he unveiled a monument to Alexander III in Crimea. Also in July, Putin tried to rehabilitate Ivan the Terrible, lamenting negative historical myths about Russia:

  Take for example the famous legend that Ivan the Terrible killed his son. It remains unknown in fact whether he really killed his son or not. Many researchers believe that he did not kill anyone at all and that the Pope’s nuncio made it up when he visited Russia for talks with Ivan IV and tried to turn the Orthodox Rus into a Catholic Rus. . . . He was made Ivan the Terrible, an extremely violent individual. Although, if one examines other countries in this period of time, everything was the same everywhere.

  Russian history, by contrast, considers Ivan IV (1547–1584) the most frightful of Russia’s rulers. Before Putin, Stalin was the last Russian ruler who attempted to rehabilitate Ivan the Terrible, promoting Sergei Eisenstein’s famous film about him. Putin avoids mentioning liberal tsars, notably Alexander II.11

  Values do not seem particularly important to Putin, while power is. He appeals to the existing values of his chosen electorate as a seasoned politician and draws on arguments that justify his rule.

  During the years 1991–1994, I visited St. Petersburg a couple of times a year for high-level events attended by the city’s political stars. Mayor Anatoly Sobchak was an outstanding speaker. The darling of the Western community (including myself) was First Deputy Mayor Alexei Kudrin.

  But no. 3 in St. Petersburg also attended. His name was Vladimir Putin, though few paid attention to him. Nor did he so desire. He behaved like a security guard who was not to be seen rather than an official. Because of his creepy manners, the local Scandinavian diplomats strongly disliked him, and they warned me that he was a KGB officer. Somewhat more softly, Hill and Gaddy observe that “Vladimir Putin managed to keep a remarkably low public profile during his time as deputy mayor of St. Petersburg.” He loved secrecy and had no need to show himself.12

  Although Putin was a relative failure as a KGB officer, retiring with the rank of major, he has displayed extreme loyalty to this odious organization. Putin gave his most relevant thoughts on the KGB in his book First Person. When questioned about Stalin’s Great Terror: “When you agreed to work in the agencies, did you think about 1937?” Putin responded, “To be honest, I didn’t think about it at all. Not a bit.”13

  Putin disclosed a similar attitude to the East German Ministry of Security, in charge of the severe repression in that country. “There were all kinds of people who worked there, but the people I knew were decent people. I was friends with many of them, and I think that the way they are now being castigated isn’t right. . . . Yes, there were probably some [Ministry of Security] agents who engaged in persecution of people. I didn’t see it. I don’t want to say that it didn’t happen. But I personally did not see it.” Putin showed that he focused on his friends, not on abstract principles. He did not mind torture, at least as long as he did not have to see it.14

  When asked what he wanted to do in the KGB, Putin seemed more human: “Of course I wanted to go into intelligence. Everyone did. We all knew what it meant to be able to travel abroad.” Putin’s cellist friend Sergei Roldugin delivered the final nail in the coffin of the “nice” KGB, by recalling having told Putin: “There’s no such thing as a former intelligence agent.”15

  Putin is obsessed with information. During his three-to-four-hour phone-in programs and press conferences twice a year, he displays an amazing knowledge of facts. At a press conference in 2001, Putin emphasized, in a response to the journalist Christian Caryl, the importance of being able “to work with a large amount of information. That’s a skill that is cultivated in the analytical services and special services, the skill of selecting what is most important from a huge flood of information, of processing information and being able to use it.”16

  When Putin became prime minister in 1999, he changed the information flow. Previously, three or four competing agencies had delivered their information and analysis to the top independently of one another. Desiring only one version, Putin put four FSB generals in charge of the information flow. Similarly, the journalist Ben Judah has reported: “The master begins his work day by reading three thick leather-bound folders. The first—his report on the home front compiled by the FSB, his domestic intelligence service. The second—his report on international affairs compiled by the SVR, his foreign intelligence. The third—his report on the court complied by the FSO,” or Federal Protection Service.17

  All the material comes from his three favorite intelligence services, and nothing is open information. Apparently, Putin pays little attention to economic information. Neither the Central Bank nor the Ministry of Finance is a daily supplier of information. Putin’s reliance on intelligence reports makes him vulnerable to internalize their biases and conspiracy theories.

  Putin is an outstanding influence agent who knows how to “work with people,” as he puts it. He elaborated on this theme in 2001: “In order to work with people effectively you have to be able to establish a dialogue and bring out the best in your partner. If you want to achieve results you have to respect your partner. And to respect means to recognize that he is in some way better than you are. You should make that person an ally, make him feel that there is something that unites you, that you have some common goals. That skill I think is the most important skill.” Putin has repeatedly excelled in these skills. Putin likes everything about the KGB: its secrecy, its skills, its intelligence, analysis, and values.18

  One of Putin’s outstanding features is his reliance on old friends. Putin has been extremely careful in his choice of associates, and this is probably one of his greatest strengths. He selects people he can really trust, drawing on a narrow circle of past contacts from the KGB and St. Petersburg. He is very loyal to his top appointees, rarely dismissing anybody and, when he does, allowing them to decline in rank over time.

  Early on in Putin’s administration, Russian sociologist Olga Kryshtanovskaya and British political scientist Stephen White presented their thesis that Putin was building a “militocracy” of primarily KGB officers, or siloviki, men from the power services. The rising prominence of secret police as well as military officers is undisputable, but as scholars Sharon Werning Rivera and David W. Rivera have argued, the siloviki have not become overly dominant. The Russian state administration abounds with ordinary technocrats.19

  Putin’s selection of cadres looks traditionally Soviet. The key to advancement has been trust, gained through working closely with Putin for years early in his career. Trust and loyalty have had outsized importance, as in the Soviet system under Leonid Brezhnev. His loyalty to old associates has been as great as his negligence of merits. Putin’s selection of top associates seems quite natural, describing his career. Only one man of significance has known Putin since they were teenagers, his judo partner Arkady Rotenberg. Yet in his financial dealings two childhood friends have popped up, the cellist Sergei Roldugin and butcher Petr Kolbin.20

  Karen Dawisha has carefully documented Putin’s acquaintances. His great coming of age was his entry into the KGB, where he met many key associates in Leningrad and the Higher School of the KGB, such as Sergei Ivanov, Nikolai Patrushev, Alexander Bortnikov, Vladimir Yakunin, and Viktor Ivanov. Some have retired, notably Yakunin and Viktor Ivanov, but Sergei Ivanov, Patrushev, and Bortnikov remain heavyweights on the Security Council.21

  Putin’s life in Dres
den in 1985–1990 appears to have been quite boring. Only three current top people are known to have become closely connected with him there: his KGB colleagues Sergei Chemezov and Nikolai Tokarev and his East German Stasi colleague Matthias Warnig. Chemezov is now the CEO of the state armaments corporation Rostec, Tokarev is the CEO of the state oil pipeline company Transneft, and Warnig is one of Putin’s favorite corporate board directors.22

  From 1991 to 1996, Putin surged as first deputy mayor of St. Petersburg. During this time he developed two circles of close associates. One comprised friends mainly in private business in Bank Rossiya and the Ozero dacha cooperative. Key members here were the future cronies Gennady Timchenko, the brothers Arkady and Boris Rotenberg, Yuri Kovalchuk, and Nikolai Shamalov, as well as future top government officials Yakunin, later CEO of the Russian Railways, and Andrei Fursenko, later education minister.23

  The other Putin circle in St. Petersburg was located in the mayor’s office, from which he selected many later ministers, such as Prime Minister Dmitri Medvedev, longtime finance minister Alexei Kudrin, economy minister Herman Gref, and Deputy Prime Minister Dmitri Kozak, as well as current CEO of Gazprom Alexei Miller and CEO of Rosneft Igor Sechin. Among these, only Sechin is identified as from the security services.24

  Putin’s key associates can be divided into three groups: KGB officers, technocrats, and cronies. The three characteristics that Putin clearly requires are trust, obedience, and secrecy; merit, efficiency, and results are of subordinate significance.

  Anyone who has stepped out of line and criticized other members of the elite has been accused of washing the elite’s dirty linen in public and ousted. The prime example is Putin’s KGB colleague from St. Petersburg Viktor Cherkezov. He surged with Putin, but when he published an article criticizing FSB colleagues for corruption in October 2007, he was quickly demoted.25

  The only women in high positions are the Federation Council chair Valentina Matvienko, who is also a member of the Security Council, the chair of the Central Bank Elvira Nabiullina, and a few ministers. Ethnicity does not appear to be a consideration, reflecting great tolerance in that regard.

  Putin’s personnel policy appears pretty standard: he appoints and trusts whomever he knows well, and he does not rely on strangers. In this regard, Putin acts like Soviet leaders Mikhail Gorbachev and Leonid Brezhnev, while Boris Yeltsin differed, by being remarkably detached from his environment. Yeltsin appointed many young and highly qualified people whom he barely knew to top positions. Not having worked for a long time in Moscow, Putin broke the traditional Moscow dominance, which offended the Muscovites. Ideology does not seem to have played any role. The current Russian saying is that the country is ruled by ponyatie (understanding), which is a Mafia term, implying that everybody knows what to do.26

  A new feature of Putin’s third presidential term was the nationalization of the elite. In his annual speech to the federal assembly in December 2013, Putin called for “deoffshoreization,” asking Russia’s large companies to move their registrations from offshore havens to Russia and bring home their profits for taxation. In practice, this policy has not brought private Russian companies back to the motherland. Instead, it has divided the elite into a nationalized state and security elite staying in Russia while it has driven private companies and their owners and families out of the country. Like wealthy Chinese, well-to-do Russians have opted for excellent European and North American education for their children, but Putin has gradually adopted the policy of discriminating against foreign education and prohibited millions of men in uniform from traveling abroad. The natural consequence is a declining level of qualifications and increasing parochialism and isolation of the Russian elite.27

  Putin’s personnel system can be seen as three circles. The first circle comprises the top national security officials, Sergei Ivanov, Nikolai Patrushev, and Alexander Bortnikov. A second also very wealthy circle consists of the top loyal state enterprise managers, Igor Sechin, Sergei Chemezov, and Alexei Miller, discussed in chapter 4. A third circle is the cronies, the foremost and richest of whom are Gennady Timchenko, Arkady Rotenberg, Yuri Kovalchuk, and Nikolai Shamalov, all discussed in chapter 5. All these men are close Putin associates, while they compete among themselves.

  Putin’s authoritarian orientation was evident from the eruption of the second war in Chechnya in 1999. His intention from the outset was to build a vertical state power. His two first objectives were to seize media control and to restore centralized state power.

  In September 1999, somebody blew up four Russian apartment buildings: two in Moscow, one in southern Volgodonsk, and one in Buynaksk in Dagestan. Altogether 293 people were killed. The authorities blamed Chechen terrorists, but since the government failed to investigate these events convincingly, the contrarian view—that they were carried out by the FSB—appears more likely, though the case remains open. Putin used these terrorist acts as an excuse to start a second devastating Chechnya war, which served as his election campaign in 1999–2000. The journalist Anna Politkovskaya, who was murdered on Putin’s birthday in 2006, reported the horrors of this war.28

  Putin started his presidency with a major attack on the leading media oligarch, Vladimir Gusinsky, and forced him to give up his outstanding television channel, NTV, in the summer of 2000. Putin presented it as a case of bankruptcy. Next, he took over another leading television company, ORT, from Boris Berezovsky, claiming that he had privatized it unlawfully. Gradually, Putin consolidated his control also over other television channels, but he never acknowledged this as his purpose, always claiming mismanaged finances as the cause of state takeover. He developed a powerful propaganda apparatus, which the Soviet-born British journalist Peter Pomerantsev has elegantly characterized as “Nothing is true and everything is possible.” Putin and his propagandists have become the masters of fake news. Initially, they maintained the high quality of Russian television news of the 1990s, but increasingly they omitted unpleasant news, and at present Russian official television is nothing but aggressive propaganda.29

  Putin’s foremost goal was to reinforce federal power, to build a strong “vertikal” of power. As he put it in 2000: “From the very beginning, Russia was created as a supercentralized state. That’s practically laid down in its genetic code, its traditions, and the mentality of its people.” When becoming president, Putin formulated his key task: “It was clear to me that work with the regional leaders was one of the most important lines of work in the country. Everyone was saying that the vertikal, the vertical chain of government, had been destroyed and that it had to be restored.”30

  Six days after his inauguration in May 2000, Putin strengthened central control over Russia’s eighty-nine regions by decree. He eliminated the regional governors from the Federation Council, the upper chamber of Russia’s Federal Assembly, allowing the governors and chairs of the regional legislatures to appoint the senators, who in practice became obedient to the Kremlin, rendering the Federation Council a rubber-stamp body.

  He also introduced a new administrative level of seven federal districts, each headed by a presidential envoy. Federal law was thus imposed on the whole country, leveling the playing field and increasing the federal share of tax revenues. Putin’s objective was to restore a strong and effective state power or statism (gosudarstvenost’). In 2004, Putin took a further step, replacing elections of regional governors and in effect appointing them.31

  Putin has built up the state administration and modernized it. The number of civil servants has increased greatly, and in 2005 he multiplied senior officials’ wages, which was highly justified because until then public salaries had been pitiful. It became popular to join the state service. Putin personally has paid great attention to the World Bank Ease of Doing Business index and demanded that Russian state administration improve greatly, and it has done so. Russia has surged from number 124 in the world in 2010 to number 35 out of 180 countries in 2017. E-government has been brought in on a big scale. Ordinary Russian stat
e administration functions quite well today.32

  During his many years in Moscow, Putin has transformed the government slowly and deliberately. In the spring of 2001, he made two major moves, cleaning out the leadership of the ministries of defense and interior as well as of Gazprom, but his moves were against people he clearly could not trust. In the winter of 2003–2004, Putin carried out a major personnel change. He ousted Prime Minister Mikhail Kasyanov and the head of the presidential administration Alexander Voloshin, who were top officials that he had inherited from President Yeltsin’s administration. While in Moscow, Putin has coopted and promoted many holdovers, including Minister of Defense Sergei Shoigu, First Deputy Prime Minister Igor Shuvalov, Moscow Mayor Sergei Sobyanin, and Duma Chairman Vyacheslav Volodin. None of them is known to have a KGB background, but none seem as close to Putin as his prime St. Petersburg associates.

  Russia’s democratic transition was haphazard and incomplete. The former US ambassador to Russia Michael McFaul lamented as early as 2001 that because its “illiberal institutions and norms exist, Russian democracy is more susceptible to collapse than are liberal democracies. The institutional defenses against authoritarianism such as a robust and independent media, a developed party system, and a vibrant civil society do not exist.” Yet, he concluded rather optimistically: “That the Soviet Union and then Russia experienced two breakdowns in the past decade suggests that a third breakdown is likely.” Putin is painfully aware of that possibility, which he is determined to prevent.33

  The deinstitutionalization and personalization of state power have proceeded far under Putin. The State Duma and the Federation Council as well as their regional counterparts are no longer legislative bodies but merely administrative organs, because they do not represent the people in any meaningful way, while the state administration writes laws and decrees.34