May 6, 2019
Vladimir Putin’s regime is much easier to understand
than it might first appear. In October 1939, Winston Churchill famously stated
that Russia “is a riddle wrapped in a mystery inside an enigma; but perhaps
there is a key. That key is Russian national interest.” That was a long time
ago. Today, the key is crony capitalism. Putin is about two things—power and
wealth.
At the World Economic Forum in Davos in January 2000,
the American journalist Trudy Rubin famously asked a panel of Russians: “Who is
Mr. Putin?” Wisely, none of them answered. During his first term as president,
2000-2004, Putin consolidated power by being everything to everybody, and the
Russian market economy worked better than ever. An obvious parallel is to the
first term of Turkish strongman Recep Tayyip Erdogan from 2003-2007. Both have
degenerated as they have consolidated power.
Putin’s second presidential term was premeditated by
the arrest of Mikhail Khodorkovsky, the main owner and CEO of the Yukos Oil
Company, and Russia’s richest man when he was arrested on October 25, 2003. The
ensuing confiscation of Yukos amounted to a war on the oligarchs, but the other
big businessmen kept quiet. The essence of Putin’s second term was state
capitalism. Putin did not care about the efficiency, social values, or
profitability of state companies. He wanted control through loyalists in charge
who transferred the surplus of the companies toward him and his friends.
Accordingly, the market value of Gazprom has sunk from a peak of $369 billion
in May 2008 to currently barely $60 billion. CEO Alexei Miller who has cost the
company $310 billion remains in place, showing that Putin does not mind.
During Putin’s third informal term, Dmitri Medvedev
was formally president. Then Putin went all out, opting for real crony
capitalism. His friends indulged in massive asset stripping from state
companies, chiefly from Gazprom. The four primary cronies are long-time friends
of Putin from St. Petersburg. The brothers Arkady and Boris Rotenberg make
money on building pipelines for Gazprom and roads for the Russian state in
no-bid contracts. Gennady Timchenko also builds gas pipelines but he also
produces gas benefiting from favorable licenses. Yuri Kovalchuk, CEO of Bank
Rossiya, is in charge of financial and media asset stripping from Gazprom and
controls twenty television channels. In March 2014, the US sanctioned all four
and their companies, while the European Union did not sanction Boris Rotenberg
and Timchenko, because they had acquired Finnish citizenship in the 1990s.
After Putin resumed the presidency in 2012, his rule
is best described as “manual management” as the Russians like to put it. Putin
does whatever he wants, with little consideration to the consequences with one
important caveat. During the Russian financial crash of August 1998, Putin
learned that financial crises are politically destabilizing and must be avoided
at all costs. Therefore, he cares about financial stability. Russia maintains
huge currency and gold reserves, balanced budgets, minimal public debt, low
inflation, and tiny unemployment.
In contrast, Putin could care less about the standard
of living or economic growth. Officially, Russia’s disposable incomes declined
by 13 percent from 2014-2018, but before the statistics were revised it was
even 17 percent, and the decline continues. After a decade of 7 percent growth
a year, Russia has had an average economic growth of 1 percent a year since 2009.
A key question is how much wealth Putin has
accumulated. The irony is that having undermined all property rights in Russia,
Putin and his cronies are compelled to launder their loot in offshore havens.
If they were to lose power in Russia, they would also lose all their assets
there.
Total Russian private wealth held abroad is assessed
at $800 billion. My assessment is that since Putin’s circle got its looting
fully organized around 2006, they have extracted $15-25 billion a year,
reaching a total of $195-325 billion, a large share of the Russian private
offshore wealth. Presuming that half of this wealth belongs to Putin, his net
wealth would amount to $100-160 billion. Naturally, Putin and his cronies
cannot enjoy their wealth. It is all about power. If they are not the
wealthiest, they fear they will lose power.
Putin’s crony capitalism condemns Russia to near
stagnation for as long as he stays in power. No political or economic reform is
on his agenda, since reform would undermine his political power. Instead, Putin
needs foreign adventures, such as the wars in Georgia, Ukraine, and Syria to
rally his people around the flag.
The best defense of the West against Putin’s
authoritarian and kleptocratic regime is transparency, shining light on this anonymous
wealth, which is probably held predominantly in the United States and the
United Kingdom, the two countries with good rule of law that allow anonymous
companies on a large scale and have deep financial markets.
Anders Åslund
Anders Åslund is a senior fellow at the Atlantic
Council and author of the new book “Russia’s Crony Capitalism: The Path from
Market Economy to Kleptocracy” (Yale UP).
