What were the economic problems in Russia


Sarcastic jokes about the mocking figure of upheaval, the "New Russian", have been silent for some time. They came from a time in which, undifferentiated, any private-sector initiative was equated with mafiotic activities. However, voucherization and kiosk capitalism were only the brief prelude to the great monetary privatization of the state's productive assets and the country's natural resources. The subsequent era, which only ended with the great crash in August 1998, created a new term, this time associated with gloomy aspects of power and domination: "the oligarchy".

While the generally blurred terms Mafia or "New Russians" still typify the individual pursuit of profit and the proximity of the newly rich profiteers of the upheaval to organized violent crime, the term "oligarchy" seeks to describe the emergence of a politically uncontrolled and socially not legitimized ruling structure In the course of the economic transformation and the entanglement of private economic interest groups with organs of the state, or, as it is so vividly called in Russian, with the "organs of power", sprouted.

The phenomenon of interweaving economic and state interests is not new and is hardly surprising against the background of both the planned economy traditions of the collapsed Soviet Union and the genesis of the new economic elite after 1991. Because where else but from the old nomenclature - with the exception of a few lateral entrants - should the new business leaders and the political elite of the emerging Russian Federation come from?

Just the extent and the speed at which such a power structure has developed in a very short time and has been able to penetrate all important sectors of the Russian economy, only this process is remarkable and seems to have no parallel to the course of the transformation in the other Central and Eastern European countries .

The development of the power structure took several stages and in some cases began in the final phase of perestroika. The following factors were constitutive for the rise of the new power elite:

For the new business elite, connection, support and patronage from government agencies were prerequisites for its rise. In the founding phase until the mid-1990s, state, political connections and regulated conflicts between the capital groups dominated. Privileged contacts with the highest political positions in the government or in the vicinity of the president marked the first phase in the genesis of new Russian capital. The state granted export and import privileges to special groups (Orthodox Church, sports clubs, Chernobyl invalids, Afghanistan veterans, trading houses, private-sector and cultural associations, etc.), granted tax privileges for selected organizations, regulated profit and foreign exchange-generating businesses in the sale of raw materials and energy through licensed banks or authorized ministries, but also city and regional governments, to have their budgets handled by private financiers.

It was not only the Duma that has hindered the establishment of an efficient state so far. Sure, the communist and patriotic opposition thwarted such essential reform projects as the privatization of land or legal guarantees for foreign investments. It also made it difficult for potential foreign investors to access the energy sector by long-term legislation governing it production sharing agreements (PSAs) blocked. On the part of the oligarchy it can be recorded that they prevented all laws and their implementation that counteracted the consolidation of their economic power. It thwarted the introduction of an efficient tax system and prevented the establishment of a constitutional framework, for example for the financial sector. Because the prerequisite for the country's rapid economic and political transformation was the temporary existence of an area free from the law and the state. Such a massive redistribution of state assets and the concentration of capital in the hands of a few financial groups was only possible in such a short time under conditions of legal uncertainty and the lack of state regulatory, regulatory and implementation bodies. In this process, normative notions of the common good fell by the wayside, just as it was ruthlessly accepted that the majority of Russian citizens were deprived of their social rights.

The old left in the Duma and the new rulers worked together in a fatal way through the entanglement of state and economic power and each damaged the project of democracy and market economy in its own way.

“Shares for credits”, “sweetheart deals” and “insider deals” were the magic formula for privatization. Because the state's property was squandered and the state coffers remained empty, and because it was also not possible to settle the tax question, the state budget could only be balanced through loans, either domestic debt securities, such as the GKOs, or through loans on the international capital markets. As long as foreign capital continued to flow for short-term national debts and the IMF backed the Russian Federation's creditworthiness with its own loans, the cycle of loans and higher national debt almost nourished itself. Business in the finance, trade and service sectors boomed. The ruble was artificially kept high at the instigation of Russian finance and trade capital and the Russian market was flooded with imports. Within a few years, the boom in the financial markets and in trade brought an enormous amount of capital into the control of a few big banks and private financiers who set about buying up the fallow Russian industry.

With the start of the monetary phase of privatization in the summer of 1994, banks acquired control of large parts of the raw material and energy sectors in auctions and by buying up private vouchers. The process accelerated in the years that followed. Until the end of 1998 only a few large companies from the oil, energy, precious metals and armaments sectors remained in state hands. The deficit in state finances, pressing problems with backward wages and pensions on the one hand and the reluctance of the State Duma in adopting a modern tax code on the other hand, as well as the fact that the legislation on the privatization of the land made hardly any progress, forced the government to relax from 1997 onwards remaining sales restrictions.

Ultimately, it should not go unmentioned that the organizational and programmatic weaknesses of the parties and the powerlessness of the Duma vis-à-vis the executive, deliberately wanted by the constitution, have favored the emergence of corporatist principles. Conversely, this constitutional construction has contributed to the fact that parties and other political groups have not been able to assert themselves and anchor themselves in society as mediators of social interests and concerns.

With the beginning of the monetary or second development stage of privatization from 1994/95, as well as accelerated by the victory of President Yeltsin in 1996, the dynamism of the economic power groups unfolded unchecked and led them High phase of corporatist power a.

In the course of the restructuring of the Russian economy emerged in the period from 1993 to 1997 financial-industrial conglomerates, called FIGs for short. However, the majority of the financial industrial groups registered as FIG at the Ministry of Justice, more than 30 in total, are not among the powerful oligarchic structures that want to influence the destiny of the country. Rather, they try to realize their interests through appropriate channels in the municipalities or at the regional level and pursue interregional goals at best. As in the USA or in the corporatistically structured societies of the Pacific region, switching from politics to business or assuming state offices by business leaders is effortlessly possible.

Both the then Prime Minister Viktor Tschernomyrdin (1992 to March 1998) and the former First Vice Prime Minister Anatolij Tschubais were considered to be representatives of the economy and seemed to look after the interests of parts of the “old” and the “new” capital in equal measure. In particular, the ministries responsible for energy, raw materials and crude oil such as natural gas have been closely interwoven with the relevant economic sectors since the establishment of the Russian Federation. The appointment of managers from Gazprom or Lukoil to government posts and the transfer of members of the government to these economic sectors is widespread.

But not only the energy industry has its confidants in the government or in the state committees that are responsible for property and asset issues as well as for privatization. The exchange of executives between various large banks and the government was just as active. In contrast, the once so powerful military-industrial complex hardly seems to have a strong lobby for the implementation of armaments programs. Russian arms exports have plummeted in world markets, and due to the state's financial straits, there is a lack of domestic demand for new weapon systems.

The connections of what is probably the most important bank, the Oneximbank, with the government were massively intertwined. Interrelationships go back to the early days of the bank in the early 1990s. Members of the government such as the former Deputy Prime Minister Oleg Soskowetz, but also the then and current head of the Russian central bank, Viktor Gerashenko, supported the bank's emergence. The bank also seems to have good contacts with the mayor of Moscow, Yuriy Luzhkov. The Oneximbank reached the zenith of private and state links of power and interests when its chairman, Vladimir Potanin, held the post of First Deputy Prime Minister from August 1996 to March 1997. It can be assumed that the former First Deputy Prime Minister Anatoly Chubais carried out the appointment of Potanin. Anatolij Tschubais himself switched to business in 1998 and was appointed head of the state energy supply monopoly UES.

But the opposite direction, namely the transfer of members from government to business, is also widespread. The said W. Potanin switched back to the post of chairman of Oneximbank after his short term in office. Former members of the Duma or the government, such as former deputy finance minister A. Wawilow or A. Kalin, a former deputy economics minister, hold senior positions at the bank.

At least two former government representatives worked on the management board of the Menatep bank and industrial group, K. Kagalowski (from the J. Gaidar government) and Yevgeny Saburov. Other former members of the government found a new field of activity in the corporations belonging to the financial group, such as the Yukos oil company.

Gazprom's ties to the state were arguably even closer than those of other financial and industrial groups. For example, the long-time head of the Russian Central Bank, Dubinin, came from this group. A former adviser to President Yeltsin, V. Ilyushin, joined Gazprom's board of directors. And the former Minister of Fuel and Energy P. Rodionov was appointed Deputy Chairman of Gazprom.

The successful synthesis between “old” and “new” capital is characteristic of the new business elite. The old capital includes the large concerns from the Soviet era such as Gazprom, Lukoil, Uralmash, but also banks such as Imperial, Bank Nationalnij Reserv, etc. The group of new capital includes the large trading houses, the banks established since 1990, and investment and finance companies.

When the oligarchic structure of power that is emerging, the synthesis between the old and the new capital, is spoken of, it is not those registered financial industrial groups that are meant, but economic conglomerates that have given themselves their own corporate form. To be mentioned are Gazprom, Lukoil, Interros-Unexim-MFK Renaissance, SBS-Agro-Logovaz-Sibneft (the economic empire of Berezovsky-Smolenskij), Menatep-Rosprom-Yukos (under the leadership of the magnate Khodorkovsky), the Inkombank group, the Rossiskij Credit Bank, the Alfa Consortium and the Most Bank and Media Group under the leadership of Gusinsky.

The relationship in the corporatist formula of rule between politics and the economy gradually changed: the state authority became weaker and more dependent on the economic groups. The state lost its dominant position and the large economic conglomerates and their leaders advanced to become the shadow power in the state. This resulted in three things: First, the loss of authority on the part of the president and government restricted the state's ability to regulate conflicts between capital groups. Second, this in turn meant that any attempt to institutionalize the corporatist relationship was abandoned. Thirdly, this ultimately resulted in the state becoming an instrument and an object in the distribution struggles between the economic groups.

Public opinion quickly reflected this change. The demonized power of the “oligarchs” took the place of the early ridiculous figure of the “New Russian”.

Even before the financial crisis of August 1998, for example in the "War of the Banks" in the summer of 1997, when it came to the distribution of the remaining fillets of state property in mineral resources, as well as the privatization of remaining state monopolies (Gazprom, telecommunications, UES, etc.) ), it became clear that the politically enforced unity had given way to a bitter feud between the capital groups.

The third phase, initiated with the financial crisis and the unresolved question of political leadership, does not signal the dissolution of the corporatist structure of rule. However, it implies renewed restructuring and, at the same time, the broadening of its social base to include regional power groups. The state has been able to break away from compromising relationships with economic groups. The following factors illustrate the situation that has arisen:

The powerful Russian oligarchy fell victim to the crisis. But the crisis hit parts of the oligarchy differently.

Paradoxically, the financial crisis and the bankruptcy of the big banks hit the majority of Russian industrial groups less hard than might be generally assumed. This is because they operate in a de-monetarized area anyway and conduct their business, including the payment of local or regional taxes, predominantly on a barter basis. It is estimated that up to 75% of Russian industry operates on a barter basis. What applies to these businesses is that they are decoupled from financial flows. Undoubtedly, however, the fall in the price of oil, gas and raw materials on international markets weakened the power groups in the energy and raw material complex. But ultimately these groups emerge politically stronger from the crisis because they can now push through their economic demands more easily without having to fear competition from the financial oligarchy.

The crisis hit the financial sector quite differently. In fact, all major private banks went into a tailspin. So far, they have only saved their old political connections, like SBS-Agro, from bankruptcy. Because the Russian central bank is overwhelmed by the problem of propping up or restructuring a system of commercial banks, there is some sort of breathing space for some. Of the roughly 1,600 Russian banks, however, only a handful of large restructured banks, either with strong state involvement or under stricter state supervision, will survive.

The political assertiveness of the financial-industrial groups has shrunk. Apart from the energy and raw materials sectors, which are benefiting from the current recovery in energy prices, they are struggling to survive economically.

Although the state was able to regain greater freedom of action vis-à-vis the economy and regained the people's trust under the Primakov government, the actual basis of the political power groups, the presidency, remains shaken.

© Friedrich Ebert Foundation | technical support | net edition fes-library | September 2000