Business oligarchs like Fridman continue to power the Russian economy — and to hold the fate of minority shareholders in their hands. According to a December 2001 study by Brunswick UBS Warburg, a Moscow-based investment bank, eight financial-industrial groups control the 64 largest private companies in Russia. Among the prominent oligarchs cited in the study alongside Fridman and Khodorkovsky were Roman Abramovich (Russia's second-richest man, who is merging his oil operations with Khodorkovsky's), Oleg Deripaska (who owns the largest aluminum producer in the country) and Vladimir Potanin (who used part of his oil proceeds to corner Russia's nickel output). Critics contend that this concentration of wealth creates barriers to competition, makes it more difficult for new businesses to get started and offers portfolio investors very limited choices on the local equity markets. The big financial-industrial groups “aren't acting very differently from monopolies anywhere else,” says Christof Ruehl, chief economist at the World Bank's Moscow office.“
Defenders of the Russian capitalist model argue not only that it isn't broken but that it doesn't need fixing. Only China's economy is expanding faster, they note. Besides, say the optimists, oligarchs have moderated their hard-boiled approach to business. But skeptics remain. “With Russia's kind of growth, it's hard to convince people that business and banking reforms are urgent,” says Stephen Jennings, chief executive officer of Renaissance Capital, a leading Moscow-based investment bank.
Fridman is often cited as a paragon of the evolving oligarch. “He played some rough games earlier in his career,” says Marshall Goldman, a Harvard University economics professor whose recent book, The Piratization of Russia: Russian Reform Goes Awry, offers a scathing vision of buccaneer capitalism. “But nowadays he looks like one of the more enlightened entrepreneurs.”
Nothing better illustrates Fridman's progress from notoriety to celebrity than his dealings with his new partner, U.K. oil giant BP. Even though BP once sued Fridman for seizing valuable petroleum fields for which the British company had paid close to a half-billion dollars, this past June BP signed a deal to pay $6.15 billion — the largest foreign investment in post-Communist Russia's history — for half of Fridman's TNK, which controls the same oil fields. Between these two bookends is a rough-and-tumble saga about “learning to do business in Russia — the hard way,” says Robert Dudley, the BP vice president who has been named chief executive officer of the joint venture, TNK-BP.
Speech before the Los Angeles World Affairs Council on March 12, 1999:
Dimitri K. Simes
President, The Nixon Center
Author, After the Collapse: Russia Seeks Its Place as a Great Power
Russian robber barons were not builders. Russian robber barons were manipulators who knew how to build connections which would allow them to privatize on the cheap without paying almost anything, and then they would immediately open bank accounts in Switzerland. Thus, they were taking money from the country, and because of that they were very afraid to have any one as Russian president who was not one of them. From that standpoint, Yeltsin was a deal. He had presided over the privatization; he could be counted upon to protect their interests. These same people who were Yeltsin’s official advisors were in charge of major networks. You’d have the money going from Russian central bank, to private banks, and the private banks would immediately give the money to Yeltsin’s campaign. There was really no difference between the Russian state treasury and Yeltsin’s personal campaign chest. That’s how those elections were conducted. Soviet intellectuals studied both their economy and that of the West closely and made a conscious decision for change. Once the decision to change to a market economy was made, these same intellectuals had little to say about the actual restructuring:
When I [Fred Weir] came here seven years ago at the outset of perestroika, there was very little belief in socialism among the generation dubbed the golden children. These sons and daughters of the Communist party elite had received excellent educations, had the best that the society could give them, and only aspired to live like their Western counterparts. Many had high positions in the Communist Party, but were absolutely exuberant Westernizes, pro-capitalists, and from very early in the perestroika period, this was their agenda.... People who thought they were going to be the governing strata in a new society are [now] losing their jobs, being impoverished and becoming bitter. The intellectuals, for instance—whose themes during the Cold War were intellectual freedom, human rights, and so on—had a very idealized view of Western capitalism. They have been among the groups to suffer the most from the early stages of marketization as their huge network of institutes and universities are defunded.53
Those golden children of the communist elite are undoubtedly quite silent as they gaze at their once proud country lying prostrate at the feet of imperial capital. The population of Russia has been falling at the astounding rate of 800,000 a year, birth rates have plummeted to the lowest in the world, and only 1-in-4 children are born healthy. There are dramatic increases in the number of children born with physical and mental impairment, disease is rampant, and the average lifespan of Russian men has fallen from 65 years to 58, below that of Ghana.54
Sale of the Century by Chrystia Freeland is a highly recommended masterly study on the collapse of Russia after the breakup of the Soviet Union.55 However, as a correspondent for the Financial Times when doing her research, the author focuses only on finance and politics and ignores other crucial factors. Ignored were: basic economics, Russia’s highly motivated labor ready to make the transition to capitalism as addressed above by Fred Weir, the National Endowment for Democracy’s funding and management of Yeltsin’s election, the American election specialists orchestrating of that election,r the Harvard Institute for International Development’s advising Russia’s “young reformers” throughout that collapse, and how the massive imports of consumer products both collapsed the economic multiplier and sucked the wealth out of Russia.
Without the economic multiplier as money from wages circulates, a country essentially has no economy. Yet, while intending to document the full history of the attempt to restructure the Russian economy, the author fails to notice that the “young reformers” paid no attention to primary production in Russia. These neophytes were so immersed in classical Western philosophy that they thought all there was to establishing capitalism was to create rich capitalists by giving title of valuable resource industries and banks to a few “oligarchs,” who, without a doubt, pulled off one of the greatest thefts of social wealth in history.
In the West, preventing the rise to political power of labor is a primary consideration. Thus the highly motivated “golden children” (the latest generation of leaders) who were ready to restructure Russia’s economy were never given the opportunity. Instead, the neophyte agents of capitalism (the “Young Reformers”) were intent on the obviously impossible job of telescoping the 70 years of the age of American robber barons into less than 10 years. The “golden children” running Russia’s economy wanted to restructure to capitalism and would have understood how to do so. But labor in charge of any part of an economy is anathema to theorists of Western philosophy. So the only people offered a serious opportunity to buy Russia’s productive industries for a fraction of its true value were the new “oligarchs” with no experience in running any part of the Russian economy. Without any background on running industries or much of anything else, these oligarchs were expected to become the leading capitalists of Russia.
No country has ever developed under the principles imposed upon post Soviet Russia. In fact, economic protections for the developed world are all in place and functioning and no wealthy nation would consider subjecting their economies to such harsh economic medicine as was imposed on Russia. To double, triple, and quadruple prices while shutting down industry right and left and destroying consumer savings would be taught as a recipe for disaster in any economics class.
The easiest way to understand the failure of the restructuring of the Russian economy is by outlining a sensible restructuring plan:
(1) The massive savings of Russian citizens should have been protected;
(2) Industry and media shares should have been distributed to all citizens;s
(3) modern consumer product industries should have been built, the bonds to be repaid from profits (the workers being owners would help insure those profits);
(4) until those industries were established and the economy competitive, import restrictions should have stayed in force;
(5) as fast as those modern industries came on stream, Russia’s obsolete huge factories would have reduced production and shut down in stages;
(6) an inescapable society monthly collection of landrent, as per Chapter 24, should have been placed into law, including royalties on natural resources such as oil, minerals, timber, and communications spectrums;
(7) citizens should have received title to their homes through paying landrent taxes in monthly payments (they had massive savings with which to do that);
(8) farmers, businesses and industry should also have been given title to their land with the legal responsibility of paying landrent to society;
(9) locally owned banks (better yet credit unions) should have been put in place to fund consumers, farmers, and producers;
(10) and, with those massive consumer savings and financing available, retailers would spring up automatically and this would be the ideal moment to establish an efficient distribution system as per Chapters 27 and 28.
There are many other factors to consider but the above would have been the foundation of a workable restructure plan. Subtle monopolization of technology is the biggest barrier. Virtually any successful restructure plan must provide access to technology, resources and markets and Russia’s massive resources could have been bartered for that technology as opposed to its current hemorrhaging to the West. Patent licensing could have been imposed by law. This is accepted as legal in international law, was being tested in court with AIDS drugs in South Africa, and the major drug companies capitulated rather than go to trial.
The reason these suggestions were not followed is obvious, labor would have ended up with enormous wealth and political power. If they had been given the chance, those egalitarian trained and idealistic “golden children” could have established democratic-cooperative-(superefficient)-capitalism as opposed to today’s dependency on the periphery of imperial-centers-of-capital. If that had happened, the secret that no power-structure in the imperial centers had yet given their citizens full rights would have been exposed.
