Rise of Russian Business Elite Essay Example

Rise of Russian Business Elite Essay Communist and Post-Communist Studies 38 (2005) 293e307 www. elsevier. com/locate/postcomstud The rise of the Russian business elite Olga Kryshtanovskaya a, Stephen White b,* a Institute of Sociology, Russian Academy of Sciences, Moscow, Russia b Department of Politics, University of Glasgow, Glasgow, UK Available online 24 August 2005 Abstract The early 1990s saw the formation of a new group of Russian property owners, often derivative of the late Soviet nomenklatura. The richest and most in? uential were known as oligarchs, and they established a dominant position in the later years of the Yeltsin presidency. Only 15% of the 1993 business elite still retained their position by 2001, after the 1998 devaluation of the currency. Those who took their place were younger, less metropolitan, better educated and more likely to have a background in government, including many who had enjoyed ministerial status. The new business elite is less personally ambitious, but its political in? uence is no less considerable and its representation in decision-making bodies has more than doubled over the post-communist period. The logic of development is towards a concentration of economic power in the hands of 20e25 large conglomerates in a politically subordinate association with government, along South Korean lines. O 2005 Published by Elsevier Ltd on behalf of The Regents of the University of California. Keywords: Business; Elite; Oligarchy; Russia Introduction The Soviet system allowed di? erences of income and private accumulations of wealth. But it did not permit the private ownership of factories and farms, or even of * Corresponding author. Tel. : C44 141 330 5352; fax: C44 141 330 5071. E-mail address: s. [emailprotected] gla. ac. uk (S. White). 967-067X/$ see front matter O 2005 Published by Elsevier Ltd on behalf of The Regents of the University of California. doi:10. 1016/j. postcomstud. 2005. 06. 002 294 O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 small businesses; living o? the labour of others was ‘exploitation’, and a criminal o? ence . These restrictions were being relaxed even before the end of communist rule, and a central feature of the policies that were followed under Boris Yeltsin after his election as Russia’s ? rst president in the summer of 1991 was the shift of productive resources from the state to private individuals. We must’, Yeltsin insisted, ‘provide economic freedom, lift all barriers to the freedom of enterprises and of entrepreneurship and give people the opportunity to work and to receive as much as they can, casting o? all bureaucratic constraints’ (Yeltsin, 1992: p. 6). In line with these policies, successive programmes of privatisation transferred state property into private hands; income di? erentials widened rapidly; and at the top, a new group of super-rich emerged, whose assets commanded respect not just within Russia itself but internationally. We will write a custom essay sample on Rise of Russian Business Elite specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Rise of Russian Business Elite specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Rise of Russian Business Elite specifically for you FOR ONLY $16.38 $13.9/page Hire Writer They became known as the ‘oligarchs’, with resources that typically combined banking, sections of industry and the mass media. 1 There were 15 of these wealthy magnates, and every Russian knew their names: Rem Vyakhirev, Boris Berezovsky, Vladimir Gusinsky, Vagit Alekperov, Vladimir Potanin, Mikhail Fridman, Mikhail Khodorkovsky and others. For 3 years, from 1995 to 1998, their power and their ratings rose steadily. Within government itself they had their ‘own’ ministers, o? cials and deputies. Berezovsky claimed personally to have secured the re-election of Boris Yeltsin in 1996 through the media campaign he had sponsored (Financial Times 1 November 1996: p. 17). He was known to be a member of the ‘Family’, the inner group around Yeltsin’s younger daughter who appeared to exercise decisive in? uence in the presidential court. Indeed it began to appear as if the state itself had been ‘privatised’, and that all important decisions were being taken by a small group of ? nancial magnates. It was certainly true that many of the country’s key positions were occupied by creatures of the major corporations, and that Duma parties were ? ling their foreign accounts by pushing through the kind of agreements the oil barons found most advantageous; some even did well out of the Chechen war. Who, asked analysts, really ruled the countrydpoliticians or businessmen? The crisis of August 1998, when Russia defaulted on its international debts and the rouble was in e? ect devalued, had profound e? ects throughout Russian public life, and no less upon its social structure. Some of the oligarchs were ruined (including Vladimir Vinogradov of Inkombank and Alexander Smolensky of SBSAgro); a few withdrew from public life, and others sought refuge abroad. Equally, There is already a considerable literature. In English, see for instance Khlebnikov (2000), Silverman and Yanowitch (2000), Rutland (2001), Ho? man (2002), and de Vries et al. (2004). In Russian, see Kukolev (1995a, b, 1996), Kryshtanovskaya (1996, 2002a, b) (on which we have drawn), Pappe (2000), and Mukhin (2001, 2004). The research that is reported in this paper was assisted by the Economic and Social Research Council under grant R000220127 in association with the Ministry of Defence under grant JGC902. Research on Russian business leaders has been conducted in the Elites Department of the Institute of Sociology of the Russian Academy of Sciences on the basis of a consistent methodology since 1993. In each case, an expert survey is used to identify a number of named members of the business elite (in 1993 there were 115 such names, and in 2001 there were 119); in a second stage, the biographies of these entrepreneurs are subjected to a more detailed analysis on the basis of interview as well as published data. 1 O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 295 here were changes in the relationship between government and the business elite, particularly after the election of Vladimir Putin as president in March 2000, as the regime began to pursue a policy of ‘equal distancing’ towards them. Putin, indeed, had promised that any ‘power-hungry’ oligarchs would ‘cease to exist as a class’ (Segodnya 20 March 20 00: p. 1). But what did this mean? The beginning of a struggle by the state with the oligarchy as a whole, or just with individual oligarchs? And did this mean that private business was beginning to play a smaller role in Russian politics, or, on the contrary, that its power had increased? In what follows we look ? rst at the emergence of the business elite, and then at the structural changes that have followed the collapse of the currency. We argue that over the whole period there has been a renegotiation, but not a dissolution, of the interpenetration of business and government that de? nes an oligarchy. Identifying the business elite We de? ne the business elite as the top echelon of entrepreneurs, who thanks to their ? nancial and economic resources have a signi? cant in? uence on the taking of decisions of national importance. The business elite, for our purposes, are a much more restricted group than the country’s major businessmen, including the largest shareholders (and sometimes top managers) of the leading enterprises and banks. The owners of some Russian corporations prefer to keep their distance from politics, although the scale of their business may be very substantial. And there are others for whom politics may be their main activity. Corporations of the ? rst kind can have considerable in? uence on the national economy; corporations of the second type have more in? uence on political decision-makers, and their role in the economy itself may not be signi? ant. In other words, the possession of substantial capital is a necessary but not su? cient criterion for membership of the business elite. 2 At a certain stage in the Russian reforms the business elite could have been regarded as a part of the ruling group of the society, a result not just of the resources they controlled and their degree of in? uence, but also of their origins. The ‘Komsomol economy’ in which the current business elite originated was a creation of the Soviet nomenklatura, which became the basis for the formation of a Russian property-owning class (Mawdsley and White, 2000: pp. 95e299; Martynova, 2001: ch. 4). The relative youth of individual members of the business elite in these early Our de? nition is close to that of other scholars. For the Russian Sociological Dictionary, for instance, the ‘economic elite’ should be understood as the ‘people who control the main ? nancial-economic structures of a country independent of judicial forms of ownership’; they may be divided into the directors of state enterprises, and the ‘business elite’ proper (Osipov, 1998 p. 638). For Ashin and colleagues, the business elite is the ‘top stratum of the entrepreneurial-? ancial group of the society’ (Ashin et al. , 1999: p. 294). Zaslavskaya de? nes à ¢â‚¬Ëœoligarchs’ as ‘not only owners, but also authorised executives and those who hold signi? cant numbers of shares of the major national and international corporations, holdings and industrial-? nancial groups’ (Zaslavskaya, 2004: p. 370). There has been considerable controversy in Russian sociology about de? nitions of this kind: see for instance Toshchenko (1999). 2 296 O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 eform years should not mislead us: the nomenklatura exchanged power for property, without necessarily engaging themselves in commercial activities. For the conduct of business of this kind they recruited younger associates, who were able to make use of government revenues to support their commercial initiatives. These younger associates were recruited from the party’s ‘reserve’, the Komsomol, who represented the lower level of the party-state bureaucracy in the Soviet period. Both before and after the crisis of 1998 there was a fairly substantial group of people who had a noticeable in? ence on public policy, thanks to their ? nancial resources. Their money gave them control of mass communications, the ability to fund election campaigns, assist parties and ‘purchase’ deputies, and to lobby government directly. Russia was not unusual in these respects: in the early twentieth century Michels had already formulated his ‘iron law of oligarchy’ according to which a democracy, in order to preserve itself and achieve a degree of stability, is obliged to separate out a more active minority element, or elite. For this reason, according to Michels (1959: p. 7), democracy inevitably turned into oligarchy. Writing subsequently, Miriam Beard claimed that the opportunity to achieve power was at the same time an opportunity to acquire wealth, since there were no obstacles with society that prevent the rich acquiring power for instance, through their ability to spend at election time (Beard, 1938: p. 166). Oligarchy may be de? ned as a state formation in which the major owners have not only economic power, but also enormous political in? uence. They take part in the formation of government and at the same time receive privileges from government, on which their wellbeing is dependent. An oligarchy is based on the interaction of two elite groups: the political ‘establishment’, which is ? nanced by big business and provide it with access to the most pro? table forms of entrepreneurship, and businessmen themselves. The interpenetration of power and property is expressed in the constant bargaining that takes place between both sets of actors, including the ? ? ? lling of key positions. Businessmen bring their proteges into government, and politicians after their resignation ? nd refuge in private corporations, bringing with them as a form of capital their wide network of contacts. In an oligarchic state the distance between state power and big business is minimal: it is a narrow circle in which everyone knows everyone else (Kryshtanovskaya, 1996). A de? nition of oligarchy of this kind is close but not quite identical to the one that was most widely employed in the Russian press during the 1990s, in which 10e15 businessmen were regularly named in this capacity. Unlike journalists, for whom a situational and individual analysis is important, the social scienti? c approach is a di? erent one: the oligarchy is considered as a social group whose personal composition has no particular signi? ance other than as a basis for constructing the sample to be examined. For these purposes the oligarchy is faceless, and not dependent on the replacement of one name by anotherda Gusinsky, for instance, by an Abramovich. What is at issue is not a list of the individually important, but the social relationship between the two groups who continue to constitute the Russian elite: politicians and businessmen. Accordingly, the downfall of individual oligarchs may represent not the weakening, but the strengthening of the oligarchy as a larger entity. O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 297 The origins of the business elite Russia’s developing bourgeoisie has been the object of close attention over the entire post-communist period (for the use of this term see Gill, 1998). But interest was at its highest point immediately before the August 1998 crisis when it seemed that the country was being run, not by a disorganised elite under the guidance of a decrepit president, but by a small group of nouveau-riche tycoons. These were the ‘real government of Russia’, in the view of the Financial Times (K’eza, 1997: p. 98). The sociologist Tat’yana Zaslavskaya (1997: p. 54) described them as a ‘renewed oligarchy’ made up of the ‘most competent or fortunate members of the nomenklatura’, with no less power and a good deal more wealth than their Soviet predecessors. Just seven of them, according to Berezovsky himself, controlled half of the entire Russian eco nomy (Financial Times 1 November 1996: p. 17). The in? uence of this small group of Moscow businessmen steadily increased at the same time as the state itself began to disintegrate, and the country’s economic position deteriorated further. Russia’s oligarchy received an important stimulus in 1995 when the government decided to give private business the shares of major enterprises in exchange for their ? nancial support (Freeland, 2000). The debt auctions were a Rubicon separating two stages in the formation of the business elite. Up to this point the business elite consisted of ? nanciers who had enormous in? uence in the political world, but their role in the Russian economy was not particularly signi? cant. There was not much incentive to invest in industries that needed extensive modernisation before they could start to yield a pro? . After the Russian government had approved the principle of debt auctions major ? nanciers were able to invest their money more advantageously, strengthening their position in politics and in the economy. In this way, the owners of the banks that were allowed to engage in these activities in the mid-1990s became a group with genuine, rather than virtual economic power. Now their political authority was determined not by their connections in the corridors of power, but also by their real economic weight. The process by which the role of the major businessmen in society increased was clearly re? cted in the ratings of the country’s most in? uential public ? gures that appear regularly in the newspaper Nezavisimaya gazeta, based on expert surveys. The ? rst businessmen appeared in the list in 1996 (see Table 1). By 1997 they had achieved their maximum in? uence, and the leader of the groupdBoris Berezovskydwas regularly identi? ed as one of the country’s half-dozen most powerful individuals. One of the oligarchs, the head of Al’fa Bank Mikhail Fridman, spoke in this sense in an interview in 1997, soon after President Yeltsin had received him and his colleagues in the Kremlin. Imagine’, as he put it, ‘if President Gorbachev had met a businessman or two, it would have been meaningless, because their social status was so di? eren t. Just the fact that the meeting with Yeltsin took place shows how complete is the change in place and role of the business community in our social hierarchy. Now we occupy a very prestigious place’ (interview, 1997). In the ? rst years of their existence the oligarchs were a fairly small and united group, who represented not so much the entrepreneurial class as a whole as their own 298 O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 Table 1 Oligarchs and their in? uence, 1996e2000 1996 1. Berezovsky B. A. 2. Potanin V. O. 3. Vyakhirev R. I. 4. Gusinsky V. A. 5. Khodorkovsky M. B. 6. Alekperov V. Yu. 7. Fridman M. M. 8. Aven P. I. 9. Abramovich R. A. 10. Mamut M. A. 11. Smolensky A. P. 12. Vinogradov V. V. 13. Nevzlin L. B. 14. Yevtushenkov V. No. of oligarchs included Average rating 98 84 e e e e e e e e e e e e 2 91 1997 6 20 13 15 28 25 e e e e 26 55 e e 8 24 1998 4 19 8 15 25 23 59 e e e 31 51 90 e 10 33 1999 5 53 12 19 72 26 94 98 29 e e e e 36 10 44 2000 4 47 7 15 60 26 54 39 5 21 e e e e 10 28 Source: Adapted from data supplied by the Vox Populi agency, as published regularly in Nezavisimaya gazeta; the list shows the place of Russian businessmen within the country’s 100 most in? uential individuals, in descending order of magnitude. narrowly corporate interests. Even their lobbying was directed not so much towards the adoption of laws in which Russian capital as a whole had a signi? cant stake, but towards the receipt of speci? c privileges for their own ? rms. The best known of the ? rst-wave oligarchs attempted not so much to de? ne the political direction of the country as to monitor personnel changes in the government. The idea of the allpowerful nature of the oligarchs in 1995e1996, indeed, was a myth that had been blown up by the media, and their real in? uence on politics was much more limited. The television executive Igor Malashenko, who had joined Yeltsin’s re-election campaign sta? in 1996, insisted later that stories about the ‘incredible power of the oligarchs’ were ‘pure nonsense’, and often encouraged by the oligarchs themselves to exaggerate the in? uence they could command (Nezavisimaya gazeta 3 June 1998: p. 8; Schroder, 1999). But behind the empty newspaper phrases a real process was ? oing on, marking the advance of an entire entrepreneurial class. The oligarchs of 1995e1997 were ambitious and naive. They enriched themselves so quickly that they began to su? er from what Stalin had called the ‘dizziness with success’; in particular, they engaged in open political adventures. They became deputies without any di? culty (which had the welco me advantage that it gave them immunity from prosecution). A few even stood for the presidency in 1991 (manager and banker Martin Shakkum), and again in 1996 (pharmaceuticals magnate Viktor Bryntsalov). But it soon became clear that politics was an expensive game for a business elite that had not yet established its own position, and the frontal attacks of the new Russians were succeeded by attempts to in? uence politics in a more systematic but indirect way. The business elite began to use the media for its purposes, as well as the opposition, trade unions and state o? cials. They started to O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 299 buy insider information so as to use it in their business activities, and to in? ence the taking of particular economic decisions. The ? rst multimillionaires emerged at a time of considerable instability in the country’s power structures, and rose quickly to the very top. They understood all the advantages of their position as businessmen-politicians and played a dangerous game, ? nancing political organisations and the mass media. Their rise coincided with the privatisation of state property and w as accelerated by the re-election of Boris Yeltsin in 1996; afterwards, some of the most prominent oligarchs formed a part of the Kremlin ‘Family’ itself. Pappe, one of the ? rst to study this process, has argued that ‘Up to 1998 all the most powerful economic groupings increased their resources as compared with those available to the power structures’. But from the end of the year and particularly after the August ? nancial crisis the whole process ‘went into reverse’, and soon there was not a single industrial group (with the possible exception of the massive gas corporation Gazprom) that was in a position to in? uence government or even deal with it on equal terms (Pappe, 2000: p. 46). The August crisis and the fall of the oligarchs The August crisis of 1998 and the sudden devaluation of the rouble that accompanied it led to an upheaval in the entire society, including the business elite. Indeed, on our evidence, only 15% of the 1993 business elite had retained their position by 2001. There are several reasons for this far-reaching turnover. In the ? rst place, there had been structural changes in the volatile Russian market. If before 1998 it had been dominated by ? nancial structures (banks, exchanges and investment corporations), after the crisis their role signi? cantly contracted. The speculative sector of the economy was almost destroyed by the August crisis, and did not recover. Goods exchanges, which at one time had ? ourished, disappeared almost entirely, and the number of banks fell sharply. But in the post-crisis period industrial enterprises emerged much more prominently, and they have continued to do so. These changes were re? ected in the composition of the business elite, which came increasingly to consist of entrepreneurs (by 2001 they accounted for as much as 64% of the total). What happened to the 85% of the 1993 business elite who had not retained their position in 2001? According to our evidence, most entrepreneurs who had been members of the 1993 business elite retained their positions in business (52%), but in many cases their scale of activity no longer allowed them to be included in the list of the country’s leading businessmen. Of the remainder, 6% became professional politicians and by 2001 were working full-time in parliament or in government. Nine percent had retired on a pension; these were mostly bankers who had headed commercial, formerly state banks in the early years of economic reform. A further 10% of the 1993 business elite had moved abroad, for the most part in order to protect their personal security, and two had been killed: the head of the Russian Business Round Table Ivan Kivelidi, and the head of the ‘21st Century Association’ Otari Kvantrishvili. 300 O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 There were related changes in the kinds of individuals that composed the business elite. A comparison of the data for 1993 and 2001 makes clear that it has become somewhat younger; its average age fell to 48. years as compared with 51. 8 years in 1993, shortly after the end of communist rule. As before, it is an overwhelminglydindeed exclusivelydmale group. A quarter of the business elite of 2001, fewer than before, came from Moscow or St Petersburg, rather more are from other cities (33%), and even more came from small towns or villages (42%). The reason for the greater provincialism of the business elite is the structural changes that have taken place in its composition; Moscow ? nanciers have to a large extent been replaced by regional industrialists. The occupational and educational background of the business elite has also been changing. In 1993 it was typical to enter business from science as well as industry itself, but by 2001 it was more common to migrate from the state service as well as industry (see Table 2). The entrepreneurs of 2001 were also more educated than their predecessors: just 3% had two degrees in 1993 but now 13% have a second quali? cation, often in law. The social and professional background of the new business elite leaves little doubt that it is still closely connected with the political elite of the Soviet period. Some 29% of the current business elite, for instance, belonged to the Soviet nomenklatura, a ? gure that was actually somewhat higher than it had been 8 years earlier in the immediate aftermath of communist rule. Similar processes have been identi? ed on the basis of survey evidence (Chernysh, 1994; Eyal et al. , 1998). But while the business elite of 1993 were typically of Komsomol origin, now the main source of recruitment of the business elite is government ministries (Table 3). Immediately before they entered the business elite, its members were enterprise directors (25%), state o? ials (20%), employees of private ? rms (27%), sta? from state banks (6%), and others. This was a career progression that was characteristic of the post-communist period. Formerly, the usual retirement destination of a senior public ? gure was the diplomatic service. Now, more often than not, former state o? cials after their retirement become top managers in major corporations. This tendency ? rst made itself apparent in 1992e1993, when a series of members of the government moved to work in commercial structures. They included Petr Aven, who moved from the Ministry of Foreign Economic Relations to the Table 2 Origins of the Russian business elite, 1993e2001 Sphere of activity Industry Science Culture and education Study [ ] State banks State service Other (N ) 1993 35 26 15 0 17 0 39 (115) 2001 50 14 4 13 7 16 30 (131) Source: Authors’ data. The totals include all the spheres in which the respective business elite were active; ‘study’ indicates direct entry into the business elite on completion of higher education. O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 Table 3 Nomenklatura origins of the Russian business elite, 1993e2001 (percentages) 1993 No nomenklatura background Nomenklatura background Of which: Komsomol apparatus CPSU apparatus Soviet executives Senior ministerial positions 76 24 11 4 5 10 301 2001 71 29 7 4 5 12 Source: As Table 2. Those with a nomenklatura background in 1993 exceed the total shown as many members of the business elite worked in more than one position of this kind. residency of Al’fa Bank; Maksim Boiko, who left the State Property Commission to become general director of the advertising group Video International; and Viktor Ilyushin, the former head of Yeltsin’s presidential sta? and then a ? rst deputy prime minister, who moved into the state gas monopoly Gazprom. In other movements, Andrei Kozyrev went from the Foreign Ministry to the American company ICN Pharmaceuticals; Petr Mostovoi moved from the Federal Ban kruptcy Service to become ? rst vice-president of the diamond company Alrosa; Alfred Kokh, who had been ? st deputy chairman of the State Property Commission and deputy premier, became head of the Montes Auri company; and Oleg Sysuev, who had been deputy prime minister and before that mayor of Samara, became vice-president of Al’fa Bank. Subsequently the process became a much more general one. Over the entire post-communist period there have been substantial changes in the way in which the country’s leading entrepreneurs have entered business. In 1993e 1995 the most common way of establishing a successful commercial company was the creation by a state o? cial of a ? rm into which he could move directly. We call this process ‘moving chairs’; it was one of the ways in which the former ruling group exchanged their power for property. Instead of the ‘diplomatic exile’ of the Soviet period, a new means of retirement developeddmoving into business. Firms that were set up on this basis soon ? lled up with highly placed retirees. As we were frequently told in our interviews with former party o? cials and the senior sta? of government ministries, only ‘our own people’ were given appointments in ? rms of this kind, which had typically evolved from ministries and government bodies of the Soviet period. The next most common means of exchanging power for property was when a state body delegated the right to conduct commercial activity to its authorised representatives. The leading positions in these companies were then ? lled with young people who were not directly related to the Soviet nomenklatura, or who held only junior positions within it. And ? nally, the third common means of establishing a successful business was the privatisation of former state enterprises. In most cases 3 We rely in this instance on the interviews conducted for our ‘Transformation of the Russian elite’ project between 2000 and 2004 (450 interviews). 02 O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 the enterprise that had become a joint stock company did not change its managers (or did not do so immediately) and the director remained at his post, no longer simply the manager but now the owner of the enterprise over which he presided. In 1993 the most characteristic route into business was through the creation of a ? rm of one’s own by the use of o? cial position (57% of the business elite); by 2001 it was more common for members of the business elite to create their own ? ms through the privatisation of state enterprises (39%). Business and politics After the crisis, not only the business elite had changed: its in? uence upon the political process had also changed. The ‘old’ oligarchs of the Yeltsin period retired into the shadows, yielding their place to a new generation of entrepreneurs. These ‘new Russians’ were more provincial, more closely associated with domestic industry, and not so naively ambitious. The insecurity of the ? rst-wave oligarchs, who had su? ered because of their proximity to the regime, taught them to be cautious. The new oligarchs avoided public life and boasting about their wealth, but sought to establish ? rmer, less conspicuous relations with the authorities at all levels, acting more often than not through intermediaries. The destruction of the media empires of Berezovsky and Gusinsky, both of whom had been forced into exile, made it clear that the post-Yeltsin regime would not allow itself to be blackmailed, and that only groups that cooperated with government would be allowed to acquire important media holdings. The new motto was loyalty. But these changes in the political context did not mean that entrepreneurs withdrew into obscurity. Their in? uence changed in form, but all the same remained signi? cant. It was no longer individual mavericksdthe Borovois, Bryntsalovs and Berezovskysdwho stood out on the political arena, but a series of more shadowy ? gures representing the most powerful corporationsdGazprom, Lukoil, Yukos, Al’fa and so forth. Of the ‘old’ oligarchy, only the Al’fa group were still well represented on the political scene in the early years of the new century; two of its senior managers, for instance, took positions as deputy heads of the presidential administration in 1999 (Vyacheslav Surkov and Sergei Abramov). Al’fa people accounted at this time for an entire contingent of the presidential administration on Old Square in Moscow, where they occupied key positions as high-level consultants or department heads. However, notwithstanding the fact that the personal in? uence of the ? rst-wave oligarchs declined considerably, the role of major businessmen in society tended to increase still further. In Table 4 we set out our evidence for the Yeltsin (1993) and Putin (2001, 2003) leaderships, examining the proportion of key decision-making positions that are held by individuals from the world of big business in each of these periods. In almost every category the proportion of business representatives has increased and across all categories the representation of business more than trebled, reaching a remarkable 20% of government ministers. The minister of fuel and energy, for instance, was a representative of Yukos in 1998e1999 (Sergei Generalov), and was O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 Table 4 Business representation in elite groups (percentages) Top leadership Yeltsin cohort (1993) Putin cohort (2001) Putin cohort (2003) Source: As Table 2. 2. 3 15. 7 9. 1 Duma deputies 12. 8 17. 3 17. Government 0. 0 4. 2 20. 0 Regional elite 2. 6 8. 1 12. 5 303 Overall 4. 4 9. 3 14. 7 a representative of Lukoil in 2000 (Alexander Gavrin). Another ? gure from the Al’fa group, Andrei Popov, was head of the territorial department of the presidential administration, where he served side by side with his Al’fa colleagues Surkov and Abramov. Business in the Russian regions The oligarchy strengthened its position even more considerably in the Russian regions than in the federal centre. The crisis that followed the collapse of the currency in August 1998 a? ected Moscow oligarchs more than their provincial counterparts. The Yeltsin oligarchy collapsed, but in the regions the merger of business and politics continued. The August crisis, in fact, accelerated the process. Ruined Moscow businessmen closed their regional o? ces; in turn, they were taken over by local administrations or by the companies they controlled. There was, in e? ect, a new redistribution of property in 1998e2000. Property was removed from its former owners in exchange for the cancellation of debts, in either of two forms: the return of ownership to the state itself (nationalisation), or the replacement of one private owner by another (reprivatisation). Both of these methods were actively employed by local leaderships throughout the federation. The velvet nationalisation of the post-crisis period took place under the guidance of local authorities. The ? rst experiment of this kind was carried out by Evgenii Mikhailov, governor of Pskov region who introduced a monopoly in the production and wholesale trade of alcohol (Slider, 1999). The ? rst state unitary enterprise ‘Pskovalko’ was established for these purposes. The model proved extremely e? ctive, and over the following year eight more such enterprises were established, including ‘Pskovobllesprom’, ‘Pskovtorf’, ‘Pskovvtorma’ and others. To assist the newly established state enterprises local enterprises were deprived of their productive assets in return for the cancellation of tax arrears. Regional tax inspectors were encouraged to identify as many of these indebted enterprises as possible, and defaulters were forced into bankrup tcy so that their property could be taken over by local state enterprisesdin e? ect, by local administrations. Mikhailov’s actions were so much to the advantage of local elites that his approach was immediately adopted throughout the country, leading to the establishment of large numbers of local monopolies modelled on the national gas and energy monopolies. It was not only local political leaderships that forced Moscow oligarchs out of the regions. Local entrepreneurs who were friendly with or even related to local 304 O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 leaderships were also involved in the process. In Kursk, for instance, overnor Alexander Rutskoi handed the region’s network of chemists’ shops to his elder son Dmitrii, making him the general director of ‘Kurskpharmacy’. The governor’s younger son became a manager of the oil concern ‘Kurskneftekhim’, 49% of which was owned by a Moscow ? rm whose director was the same younger son. The governor’s brothers were also fortunate: the eld er became head of a state-joint stock company ‘Faktor’, and the younger became deputy head of the regional department of public security. The governor’s mother became the cofounder of a local ? m, and his father in law took over responsibility for the region’s cultural a? airs (these details are drawn from the National News Service at http://www. nns. ru). Reprivatisation and the strengthening of the local oligarchy have been taking place in all the Russian regions. It has acquired especially large dimensions in the national republics, where forms of authoritarian rule have become increasingly prominent. In Bashkortostan, to take another example, an entire clan of presidential relatives has come into existence. The president’s son, Ural Rakhimov, was vicepresident of the oil and gas company ‘Bashneftekhim’ in the early years of the new century; a relative of the president’s wife, Azat Kurmanaev, was president of ‘Bashkreditbank’; and the president’s wife, Luisa Rakhimov, held a senior position in the republic’s ministry of foreign relations and trade. The nationalisation of the Bashkir economy was also advancing rapidly, with the establishment of state monopolies in key spheres such as ‘Bashlesprom’ (timber), ‘Bashkirskaya toplivnaya kompaniya’ (fuel) and ‘Bashavtotrans’ (transportation) (http://www. ns. ru). By 2000 the power of regional oligarchs had strengthened to such an extent that they began to expand economically in neighbouring regions. Regional oligarchs began to appear, with interests that spanned several of the subjects of the federation. In this process, new ? nancial and industrial gro ups came into existence that had no connection with the ? rst-wave Moscow oligarchy. A striking example of this type was Aleksei Mordashov, general director of the ‘Severstal’’ joint stock company (based in Cherepovets in the Vologda region), who entered the list of the country’s most in? ential businessmen at the end of the 1990s. The same kind of interregional expansion was being carried out by entrepreneurs from Sverdlovsk and Samara regions, and Bashkortostan. New holding companies on a transregional scale that have emerged in recent years include the Urals mining and metallurgical company, Novolipets metallurgical combine, and the St Petersburg concern ‘New Programmes and Conceptions’. The increasing economic power of regional entrepreneurs was re? ected in their political in? uence. In local elections throughout the country it became apparent that electors preferred to vote for major businessmen, and for the directors of joint stock companies and of the region’s biggest factories. In the elections that took place in the late 1990s representatives of the industrial and ? nancial elite took 80% of seats in the Perm’ region, about 70% in Smolensk region, about 60% in Penza, Tambov and Tomsk regions, and more than half in Belgorod, Leningrad, Nizhnii Novgorod, Omsk, Rostov and Stavropol’ regions, and in Primorskii territory. The average, across all the regions that held their elections between 1995 and 1997, was 43% (calculated from Vybory, 1998). An increase in the political role of local oligarchs led O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 305 at the same time to a fall in the electoral role of civil society. The more oligarchs and o? cials in local legislatures, the fewer teachers, doctors and farmers. The election of representatives of the ? ancial-industrial elite to representative institutions of this kind demonstrates that the tendency for regional capital and government to merge has become increasingly powerful. The increase in the in? uence of ? nancial-industrial circles in Russian towns and cities is paralleled by the increasing in? uence of state-farm directors in the countryside. As a result, in all regional legislatures the directors of joint stock companies, and of unitary enterprises, banks and other commercial structures, have become the dom inant force. New entrepreneurs, within this general tendency, have themselves become more numerous, squeezing out longer-established factory managers throughout the regions and especially where relatively large numbers of local enterprises are in ? nancial di? culty. Owners and managers, according to local legislation, are allowed to combine their entrepreneurial activities provided their representative duties are carried out on a part-time basis. In this way, they have obtained a series of legislative and supervisory prerogatives but at the same time been relieved of the burdens of full-time legislative duties. The increasing in? uence of business on regional politics is also apparent in the formation of local administrations. With every year, for instance, the number of businessmen-governors increases. The ‘? rst swallow’ was Kalmykia, where the wellknown entrepreneur Kirsan Ilyumzhinov was elected president as early as 1993. In 1996 three local oligarchs became governors: Yuri Evdokimov in Murmansk (where he had represented the interests of the Moscow mayor’s group ‘Sistema’), Leonid Gorbenko in Kaliningrad, and Vladimir Butov in the Nenets autonomous region. The elections of 2000e2001 added several more, including heads of the most important local enterprises: in Chukotka the head of Sibneft’ and owner of Chelsea Football Club, Roman Abramovich (in 2000); in Taimyr the head of Noril’sk Nickel, Alexander Khloponin (elected in 2001 and then a year later as governor of Krasnoyarsk territory); and in Evenki Boris Zolotarev, head of development at the oil giant ‘Yukos’ (in 2001). In Krasnodar territory, the Koryak autonomous district and Primor’e local oligarchs had further successes: Alexander Tkachev, Vladimir Loginov (December 2000) and Sergei Dar’kin (in 2001). In early 2002 there were two further successes of this kind, Vyacheslav Shtyrov won in Sakha (Yakutia), and Hazret Sovmen in Adygeya. As a result of these changes, 12 Russian regions (or nearly 14% of the total) are today headed by major businessmen. Conclusions Several new tendencies in the development of the Russian business elite had become apparent by the early years of the new century. 1. Powerful ? nancial-industrial groups have begun to appear that are based not in Moscow but in the Russian provinces, and which are furthering the process of inter-regional integration. At the same time the transfer of the business and 306 O. Kryshtanovskaya, S. White / Communist and Post-Communist Studies 38 (2005) 293e307 2. 3. 4. 5. 6. 7. political activities of the business elite from the capital to the regions has been accompanied by an increase in the role of the state, which has taken steps to restore its control over political and economic life. The strengthening of the state has placed tighter limits on the business elite and restricted its freedom of activity, which has led to a reduction in its direct in? ence on the political process. This relates particularly to personnel matters, where the state has taken back the role of principal decision-maker, and to the mass media. By the early years of the new century the business elite were making fewer attempts to impose their own preferences upon government ‘from outside’, but were engaged in a process of interaction with all levels of government in which they could introduce their own priorities as issues were formulated and decisions were taken. From 1998 onwards there has been a further exclusion of Moscow capital from the regions and an increase in the concentration of power at the regional level. At the same time in a series of the republics the fusion of business and government has advanced even further, as has the formation of local oligarchies. Sometimes this process has assumed autocratic forms in which big business in a region has come under the absolute control not of the state, but of its leading o? cials, who have formed ? ancial-industrial clans enjoying an e? ective monopoly of political power. The interests of big business have changed. If before they were simply connected with privileges for their companies, now with the increase in the scale of their operation they have begun to press their views in relation to the regulation of the economy as a whole. This has led to an increase in the economic in? uence of private business, which has to some extent compensated for their loss of political in? uence. With the coming to power of Vladimir Putin in 2000 private entrepreneurs have begun to be excluded from the main electronic media. The destruction of the media holdings of Gusinsky and Berezovsky, and the arrest of Mikhail Khodorkovsky in late 2003, were intended to show ‘who’s boss’. The new regime made it clear it would not be blackmailed, as Boris Yeltsin had been; and formerly oppositional media were entrusted to groups that had shown their loyalty. In the period after the August 1998 crisis big business became a refuge for many retired politicians, with a substantial out? w of senior o? cials, ministers and civil servants into the managerial ranks of the major companies. Putin’s declared policy of ‘equal distancing’ for the oligarchs means a choice: either to support the regime in all its undertakings, or retire to the sidelines. No longer can Russia’s business elite establish their own parties and engage in open criticism of the go vernment. The new regime is engaged in restoring state power, after a period in which it had been privatised by o? cials and businessmen. 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