Putin’s Trap

When I began working as a foreign correspondent in Moscow in 1995, the chaos of the place was, from a narrow professional point of view, one of its more attractive features. Nobody was absolutely sure of anything, which meant that your guesses about what was happening were as good as anybody else’s. Of the many theories hatched about the way the Russian state functioned (I use the verb loosely) in those days I can think of only one, by Thomas Graham and Lilia Shev-tsova, which proved to have any predictive value. It held that the members of Russia’s political and business elites had formed themselves into four or five warring “clans,” and that whenever one clan got too strong the others would unite to bring it down. This analysis both explained and predicted constant turmoil, and for that we commentators were grateful.¹

It turned out that there were stabilizing processes at work deeper within the Russian state which would gradually make themselves visible. The most important was the advance from middle- to higher-ranking jobs of a younger generation of Soviet-educated officials, who were in their thirties when communism collapsed and in their forties when Yeltsinism collapsed and they inherited power. They had stayed with the bureaucracy or the secret services because they were too dull or too high-minded to defect into business or crime along the way. Their best-known representative is now President Vladimir Putin. He and other members of his age group are reconstructing the secretive, centralized, militarized political culture of their youth, reversing much that was good, and much that was bad, about the Yeltsin years.

1.

If I could go back in time and visit the Moscow of 1995, one of the books I would want to take with me would be Vadim Volkov’s Violent Entrepreneurs: The Use of Force in the Making of Russian Capitalism. I see in it a hundred things I wish I had known in the mid-1990s as I tried to understand how business could survive at all in so lawless and corrupt an environment. Volkov supplies the missing link between almost everything else you may read about business in post-Communist Russia and almost everything else you can read about organized crime there. He treats the two activities, business and crime, with equal respect as fields of sociological inquiry, and so arrives at the first satisfying account of how they affect each other. If only he, or a similarly gifted analyst, were able to explain the interplay between politics and business in post-Communist Russia in a second volume, and between politics and crime in a third, we would come close to understanding how the new Russian state has been formed.

Violent Entrepreneurs is based on interviews with some professional criminals—Russians would call them “bandits”—as well as businessmen, policemen, and people who provide private security. Volkov describes how he won their confidence:

I had to learn speed writing because a tape recorder was out. I explained that, as a sociologist, I was interested in general patterns, schemes, and examples and that I had no interest in who killed whom and sought no information that would put him or myself at risk. During the interviews, I could ask any question, but my respondent answered only those he wished. It was agreed that he would simply ignore the questions he considered inappropriate.

Reassured, the bandits prove to be talkative. From “Roman,” a mid-ranking member of a Petersburg crime gang, Volkov extracted the following curriculum vitae:

At the age of seventeen he received the highest title in boxing, master of sports. After completing his schooling, he was drafted into the army and sent to fight in Afghanistan. On his return in 1989, Roman began to cooperate with various groups of swindlers and shadow businessmen, providing them physical protection and participating in violent disputes. At the same time, he never missed an opportunity to take part in local wars as a mercenary and fought in Abkhasia, the Transdniester Republic, and even Bosnia. His current major business is managing the illegal production of vodka from cheap ethyl alcohol imported from Belorussia.

A good man to know.

The bandits come from all sorts of backgrounds in which group loyalties are formed and can be depended on: criminal networks in Soviet prisons, sports teams, organizations of Afghan war veterans, Cossack unions, even the state security services. The professional criminals carry out the same basic activities. They intimidate, protect, gather information, settle disputes, give guarantees, enforce contracts, and impose taxes. They have the same resource at their disposal, organized violence. The better they manage its use, the stronger they become. Hence Volkov’s name for them, “violent entrepreneurs.”²

He distinguishes these bandits of the 1990s, whose techniques he traces back to the street markets and small-scale protection rackets of the late 1980s, from the more traditional type of Russian thief.³ The thief produces nothing, and does not claim to do so. The bandit, by contrast, claims to offer services based on the use or threat of force, and wants to advertise this fact. Hence, says Volkov, you could, in any known city during the 1990s, identify the bandits by their gold jewelry, crew-cut hair, leather jackets, big black cars, and assertive behavior. The thief aims to pass unnoticed in public places; the bandit wants to be recognized.

Economists may assume that Volkov is heading for a familiar explanation showing how, when the state is weak, businessmen depend on private groups, including criminals, to provide physical protection and to enforce bargains. But Volkov goes well beyond this, arguing that it is not nearly enough to treat these competing providers of security as “merely passive providers of a commodity.” The criminal organizations very often have the upper hand in their relations with the companies with which they are involved. Theirs is the offer you cannot refuse. Volkov wants to establish exactly who they are, what they do, and how they do it. By and large, thanks to his courageous firsthand research, he succeeds.

He finds that something close to a relationship of mutual dependence evolves quickly between bandits and businessmen. “We are enforcement partners of sorts,” one gangster tells him, and Volkov uses this phrase⁴ to describe the more intimate relationship between gangsters and businessmen that superceded simple racketeering in the early 1990s. By then the gangs had established their turf in a city or industry by violence and, in doing so, they gained general power over the particular businessmen who paid them tribute. The bandits see the businessmen as weaklings, too irresponsible and lacking in character to be trusted. Exploiting them is “often experienced by bandits almost as a moral obligation,” Volkov writes.

A businessman who pays tribute even once to a gang is considered the property of that gang and he is taxed forever after.⁵ But still, since the businessmen become, in effect, the property of a gang and a source of income, they need to be protected against other gangs, and even assisted in making more money. The bandits are drawn into providing the businessmen with information on competitors, collecting debts, and helping with other practical problems including relations with officials. In the terminology of the economist Mancur Olson, they become “stationary bandits,” with an interest in the continuing welfare of their victims, and not “roving” ones, who take everything. Crucially, the gangs, because they understand and in some sense respect one another, evolve into guarantors of the transactions into which “their” businessmen enter. This practice becomes the rule, Volkov finds, to the point that, throughout the Russian economy,

the majority of high-value business agreements could only be concluded on the condition that enforcement partners, be they criminal groups or legal security services, participate and provide mutual guarantees. The mere absence of a recognized enforcement partner on one side could spoil the prospective deal.

Volkov is reminded of the question with which Nietzsche opens the second essay in his Genealogy of Morals: “The breeding of an animal which is entitled to make promises—is this not the paradoxical task which nature has set itself with respect to man?” Three or four years of capitalism in Russia was enough to breed a version of this animal suited to local conditions, if one unattractive in most other respects.

But violence backing up the promises had to be real, and used from time to time. After a while, a principle of mutual deterrence gradually prevailed, and the peak of business-related killings in Russia was passed in 1995. By this time, too, new players were entering the market for protection, particularly the thousands of officers driven out of Russia’s security services and elite army units by the collapse in morale and lack of pay. They were joining or creating private security agencies offering more sophisticated services to businesses, and they maintained strong if informal links to the government. For a price, they could drive away the bandits infesting a company and substitute their own, more legitimate, protection. Such activities, called sniatie kryshi (“taking away the roof”), led to a significant decriminalizing of Russian business in the late 1990s.

As the criminal groups lost ground to the newer and less threatening private security companies, they adapted. Some tried to imitate the private security companies by reorganizing their operations and keeping them under tighter control. Others, such as the Tambov criminal group in St. Petersburg, diversified or changed course entirely, making investments and running businesses of their own.⁶

Volkov credits the “violent entrepreneurs” with having done “much of the dirty work” needed to prepare the way for the consolidation of state power which has been taking place under President Vladimir Putin. The Russian state is trying now to reclaim the monopoly over violence, the administration of justice, and tax collection, a monopoly it lost so humiliatingly in the late-Gorbachev and the Yeltsin years. The open question is whether this can be done without relying on the authoritarian and totalitarian methods that have prevailed throughout Russian history: Putin shows more and more signs of wanting to keep the authoritarian methods, at least, available for use.

2.

My work as a foreign correspondent in Moscow ended, probably for good, in October last year, when I encountered two violent entrepreneurs in a pedestrian walkway under Kutuzovsky Prospect, a main road in the west of Moscow where I had an office. A prolonged transaction ensued. I spent the following week in a neurological institute and much of the winter as an outpatient at hospitals and clinics. By Christmas I could open my mouth normally. By March I could write again. I left Russia and moved to Latvia, a country once annexed by the Soviet Union and now about to join the European Union.

The change of scene has served to remind me that the behavior of Russia matters directly to almost nobody in the United States or Western Europe so long as it does not involve explosions of nuclear missiles or nuclear power stations. But to Latvia and to other countries on Russia’s borders, Russian behavior and Russian intentions matter more than almost anything else in the wider world. In the Baltic nations, there is still the sense that each moment of independence might be merely a moment of remission in centuries of foreign dominance, mainly Russian. We may feel sure that Russia poses no conceivable threat to Latvia, or to any other country this year, and very probably not for the next ten years. But who can say what will happen in twenty-five or fifty years? It depends on how Russia evolves. To countries nearby, it is a matter of intense practical interest whether Russia has indeed ceased to be an intrinsically threatening form of government, a dictatorial empire, and is becoming instead an intrinsically peaceful form, a democratic state. Most international experts hold that such a change is taking place, or has taken place. We can only hope they are right.

Sir Rodric Braithwaite, Britain’s ambassador to Moscow between 1988 and 1992, offers a well-argued sample of such expert opinion in his deft and lively memoir, Across the Moscow River: The World Turned Upside Down. He tempers his optimism about Russia with an eye for its faults, for example, the Russian penchant for lying at even the highest official levels. It is, he says, “an integral part of the conduct of public business…. The government lied to the public and to foreigners.” But still, he feels, foreigners who take a predominantly critical view of Russia are either malicious or ill-informed, or both. It is only the “intellectually lazy” he insists, who think that

because Russia had always had an empire,…Russians would always be driven by imperial instincts. Because Russia had always been an autocracy, democracy could never flourish there and the Russians would always demand a strong leader backed by an oppressive police. Because the Russian economy had always been dominated by the state, Russians would never be capable of or-derly free enterprise. Because Russians had always been emotional, warm-hearted, patient, disorderly, drunken and mendacious, they would always remain so.

Braithwaite thinks otherwise. “History and geography,” he concludes, “may have placed Russia at some distance from the liberal European tradition, but there are no secure grounds for thinking that Russia is uniquely incapable of overcoming its past.”⁷

But if we are going to insist that Russia can break, or has broken, with an authoritarian and imperialist past, most recently the Soviet dictatorship, then we are bound to ask why post-Communist Russia has done nothing to disown, still less punish, anybody responsible for even the most unpleasant aspects of Soviet rule, which Russia is supposed now to have rejected. Here is Braithwaite’s explanation:

A lustration [or vetting of former Communist officials], of the kind which the Czechs set in train, would have exposed the major criminals. But it would also have exposed the innumerable otherwise decent people who under the pressures of the police state had compromised, lied, and informed on their colleagues, or even on their friends and relations. The burden on a society which was already finding it hard enough to cope with the trauma of change could have become more than people could bear. And it was an illusion to think that any sort of acceptable judicial process could have been put in place. For all Russians it would have been no more than the latest in the grim series of political show trials which have disfigured Russian history for centuries. Eventually the painful issue would be dissolved with the passage of time, the departure of the generations which lived under Communism, and the fundamental changes which were transforming the nature of Russian society. It was not a solution to satisfy the tidy-minded, the vengeful, or those who yearned after perfect justice. But it was probably the only one available.

We can understand some of the argument here, but not all of it. Is it really “vengeful” or “tidy-minded” to want those responsible for the gulags, or the Baltic deportations, or the murder of Raoul Wallenberg, or the persecution of Joseph Brodsky, to face justice? And how confidently can we hope for “fundamental change” in Russia if we are saying, in the same breath, that it cannot or will not face up to where it went wrong before?

When Braithwaite belittles the motives of those who might want justice, he is surely in error. When he speaks of Russia’s capacity for change, we must agree that he is already demonstrably right in many ways. You would have to be blind, literally, not to see the changes that have overtaken Russia in the years since communism. There have been many reports about the transformation of Moscow into a hedonistic, money-obsessed city, with stores and restaurants open around the clock.⁸ Less obvious to foreign visitors, but more encouraging as a sign of national rebirth, has been the revival of serious culture. Publishing, theater, music, and movies are all thriving as creative activities now, if not always commercially.⁹

The trouble is that the changes in Russia have not all been in the same direction, or at the same speed. Urban society has been liberalizing and Westernizing the fastest. Big business has followed more slowly and more selectively. The state has followed scarcely at all, and Putin’s fight to restore the Kremlin’s authority over the press and television, parliament, regional governments, and big business may be seen as a partial reversal. I once thought that Putin was torn more or less equally between his liberalizing and statist tendencies and that his liberal ones might triumph. But by now it is clearer that his deeper instincts are for control; he is at heart still a policeman, as he showed in the answer he gave to a Columbia University student, who asked him, during his visit there on September 26, whether he was “impeding freedom of speech in Russia.” He replied:

We have never had freedom of speech in Russia, so I can’t understand what I’m impeding…. At the beginning of the Nineties, we had the onset of a renaissance of freedom. This was also understood in different ways in society, and by the press as well…freedom and freedom of press in particular was understood as a free-for-all, as anarchy and as a striving for destruction at any price and at all costs.¹⁰

So much for free speech, the one product of the 1990s in Russia most surely worth preserving.

I wonder if even Rodric Braithwaite is quite as optimistic now as he was a year or two ago. He has little enthusiasm for Putin personally, describing him on a first meeting in 1995 as “a small man who found it hard to look you in the face,” and, later, as “a shadow from the secret world.” He finds it “depressing,” with Putin, a former KGB officer, in the Kremlin, to see Russia’s secret policemen “preening themselves again.” But when he finished writing his book at the start of 2002 he came to believe that even “the Moscow liberal intelligentsia” is reasonably happy with Putin, because its members believe that

almost regardless of its President, the country [will] continue to move in the right direction, towards greater prosperity without abandoning the democratic gains it had made under his two predecessors.

Nothing, unfortunately, ever happens in Russia “regardless of its President.” Putin’s inclinations in favor of pervasive state control are colliding already with the desire of Russia’s big private companies for more independence, as in the government’s campaign, discussed below, to intimidate the owners of the huge Yukos oil company and perhaps even take the company over. What will happen if Putin’s centralizing instincts diverge too far from the wishes of the population at large? I do not suggest that public opinion will generally turn against him anytime soon. He is still, by far, the best leader Russians can remember having had. The greater danger for Putin will be public disenchantment with the policies that the government has followed since he began stuffing the high offices of state with politically unskilled veterans from the KGB. There has been little progress in the fight against corruption, or in the reform of the military, or in the search for a lasting peace in Chechnya. As parliamentary elections approach in December, his latest move has been to harass big business, assuming that this will be popular with the public. And so it may. But if it leads to more government interference in industry, producing inefficient management, lower investment, and, inevitably, fewer jobs, his regime will be much less popular.

3.

State and Evolution—the title is a play on Lenin’s State and Revolution—comes as a timely comment on Putin’s Russia, even though Yegor Gaidar first published his book in 1994, when he left the government. He had served under Boris Yeltsin as finance minister and as acting prime minister in 1991–1992, and as economics minister in 1993 and 1994. He oversaw Russia’s first big economic reforms, the deregulation of prices—which impoverished many people—and the start of large-scale privatization by, among other measures, issuing vouchers that were then largely acquired by big investors.¹¹ His short but powerful book appears now in an excellent English translation by Jane Ann Miller, and it should be read both to remind ourselves what a clever and funny writer Gaidar can be, and to observe how few of the questions and doubts he raised almost a decade ago have been resolved satisfactorily since. So prescient is Gaidar, or so unchanging is Russia, that State and Evolution often reads as though it is fresh off the press. Take, for example, this warning against authoritarianism, surely more timely today than it was in 1994:

The signs of a new ice age are certainly upon us. Many people who in 1989–91 swore their allegiance to a civil society and democratic ideals are now just as passionately swearing their allegiance to a strong state, to a “firm hand.”

Equally to the point are Gaidar’s reflections on private property and its central role in any liberal society. The theme is one to which he returns often in State and Evolution, surveying Russian economic arrangements from the Mongol horde down to his own day. He justifies the economic reforms carried out by his government, hugely unpopular when this book was written and scarcely less so now, by the need to gain acceptance in Russia of both private property and capitalism. In his view, the main factor that “set Russia so tragically apart from the rest of Europe” for centuries was “the absence of any tradition of legitimate ownership,” culminating in the Communist crusade against any private property at all. Russia’s tradition, he says, was more that of “Eastern” states, where

property and markets were always suspect, always strictly controlled and directed by an omniscient and ever-present bureaucratic apparatus. Requisitions, seizures of property, loss of social status or title, restrictions on consumption of luxuries might be the lot of even the wealthiest property owners in a despotic regime, should they fail to cultivate their government connections…. Lose your position—lose your estate. Property is the natural prey, and the state is the natural predator, always in pursuit, always redividing and redistributing existing spoils.

What is unsettling about this description is that we can still find it so obviously evocative of Putin’s Russia. Gaidar may have tried hard to introduce the idea of inalienable private property, but did he succeed? Two years ago Putin looked on approvingly while police, tax men, and public-sector creditors stripped the media tycoon Vladimir Gusinsky of his companies and drove him into exile. That was explained by Putin’s supporters either as an unusual vendetta provoked by Gusinsky’s own opposition or, alternatively, as a simple commercial matter of debt collection. The hounding of Boris Berezovsky, the dark genius of Russian business in the 1990s, who recently obtained political asylum in Britain, was similarly explained.

This year Putin is at it again—or his prosecutors and tax police are, while he pretends to be observing from a distance. A Kremlin-sponsored campaign of harassment against Russia’s biggest oil company, Yukos, which began in July with the arrest of a financier closely linked to the company, reached a climax in late October with the arrest of Mikhail Khodorkovsky, Yukos’s chief executive and controlling shareholder. Khodorkovsky’s main crime seems to have been that he became too rich and too important, and started to behave like rich and important men do in other countries, giving money to political parties and speaking out on matters of public policy. Not only was Khodorkovsky thrown in jail, but his shares in Yukos, and shares belonging to the company’s other cofounders, were frozen by the public prosecutor on October 30. Supposedly, the shares were being held as security for the compensation and damages that would be owed to the state if Khodorkovsky or his associates were found guilty of various charges of fraud and tax evasion brought or threatened against them. But the value of the shares (about $11 billion) so far exceeded the likely value of any criminal liabilities (about $1 billion) that the seizure itself was of questionable legality and was widely seen as a first step toward forcing Khodorkovsky out of Yukos, either by renationalizing it or by requiring him to sell his stake to a buyer favored by the Kremlin, at a price fixed by the Kremlin.¹²

On November 3 Yukos duly issued a statement from Khodorkovsky saying that he would be “leaving the company.” He was replaced the next day as chief executive by Simon Kukes, an oil-industry veteran who had previously run another big Russian oil company, TNK, half of which was bought early this year by BP of Britain. Yukos shares rose sharply on news of the changes, reflecting hopes among investors that the Kremlin might relax its campaign against the company, even if it kept up the pressure on Khodorkovsky.

The second of those possibilities looked the more likely. The New York Times reported on November 4 that Khodorkovsky was toying with the idea of running against Putin in next year’s presidential election, a prospect which would more or less guarantee his continued persecution, if not incarceration.

Investors also hoped that Mr. Kukes might revive talks to sell part of Yukos to a foreign oil company. Rumors in September of an imminent deal with ExxonMobil of the US probably helped provoke Khodorkovsky’s arrest and the freezing of his shares, as a way for the Kremlin to stop him walking away with vast profits from the part-sale of a company which he had grabbed for next to nothing in the chaotic and often criminal privatizations of the mid-1990s.¹³

Khodorkovsky has been such an attractive and vulnerable target politically because like Gusinsky and Berezovsky before him, he is one of the “oligarchs” who all but seized control of the Russian state in the days of Boris Yeltsin, and stripped it of the oil companies and other natural resources that have made them so rich now. Putin said when taking office that the oligarchs could keep their property so long as they stayed out of politics and paid their taxes. Putin’s apologists now claim that Khodorkovsky has violated that pact, meaning that his property is no longer sacrosanct from renewed assaults by the tax men and the public prosecutor. Other oligarchs are looking on nervously. Roman Abramovich, cofounder of the Sibneft oil company and of the Russian Aluminium group, has been selling most of his holdings in the two companies.¹⁴

It can be said in Putin’s defense that the power of the oligarchs poses special problems. In other countries it may be common, even socially responsible, for businessmen to give money to political parties. In Russia, however, four fifths of all private industry is owned by a very small number of very rich men, including Khodorkovsky, and they might try to buy themselves a comparably monopolistic influence over national politics (as they briefly did before, under Yeltsin, backing his reelection both with financial contributions and through their television stations). It would be understandable, therefore, if Putin wanted to keep the oligarchs out of politics for fear they might dominate political debate, or start awarding themselves more oil companies. But the fact is that Putin wants them shut out in order to preserve his own monopoly of political power.

More political competition would be healthy for Russia, even from the likes of Khodorkovsky, who has moved on from being the predatory animal he was even five years ago. With one of Russia’s biggest companies under his control, he acquired a strong interest in making Russia a stable, prosperous, open, law-abiding country where property rights were respected. And that made him, in turn, much closer to Western liberal values than Putin now seems to be, especially given Putin’s recent moves to imprison him and seize his property.

Putin has constructed a trap for himself. He wants a strong Russia; he sees it can only be built on a strong economy; and he knows that a strong economy means powerful, independent businesses. But he wants the benefits of powerful, independent businesses without having to tolerate either their power or their independence. He is caught between his need for economic growth and his need for political control.¹⁵ It seems likely that he will choose control, if only because, while oil prices remain high, he can believe that economic growth is possible as well; and because he has too many greedy and envious men around him who see opportunities to control Russian business as a means to extract profit for themselves. They would like to become, as Vadim Volkov might put it, the new “enforcement partners” of business.

This is not the worst of outcomes for Russia. The consolidation of the state under Putin still leaves the country with more freedom than it had under communism, and far more pockets of prosperity too. Putin’s desire to be respected by Western leaders may continue to restrain his authoritarian streak, though that is by no means certain. There is always the danger that his recent return to strong-arm tactics at home betrays the rising influence of reactionaries around him who would also prefer a foreign policy that was more confrontational toward the West. One worrying sign here was the resignation in late October of Alexander Voloshin, the urbane and long-serving chief of staff whom Putin inherited from Boris Yeltsin.

Voloshin was, by Russian standards, a liberal. He was also well equipped with the political skills needed to keep at bay the former KGB and former army generals with whom Putin had populated so many of the Kremlin’s other offices. As the stock markets reeled from the Yukos affair, and capital fled Russia, Putin had the sense not to frighten investors further by giving Voloshin’s job to another security services veteran. He promoted Voloshin’s well-regarded deputy, Dmitri Medvedev. But Medvedev will be a much weaker figure than Voloshin was, and much less able to bar his master’s door when cronies from the KGB come calling. Time may also be running out for other powerful, pro-business figures with ties to Yeltsin. They include Russia’s prime minister, Mikhail Kasyanov, whose evident sympathy for Khodorkovsky may cost him his job after (or even before) next month’s Duma elections; and Anatoly Chubais, once the architect of the biggest Yeltsin-era privatizations, now the head of Russia’s state-owned power monopoly, who has spoken out in Voloshin’s defense.

If this is not the worst of outcomes, it is very far from the best. Putin’s Russia looks set to remain a country where policy is made, not on the basis of open and informed debate, but by a few people in the Kremlin, most of whom have no contact with the public and prefer it that way, and an increasing proportion of whom share the crude and aggressive political instincts of the Soviet era. This is a recipe for unpredictability, unaccountability, inefficiency, and, ultimately, weakness. A weak Russia will be an unhappy Russia. That, if it happens, will be a worrying prospect for those outside the country, at least as much as for those within it.

—November 5, 2003