Vladimir Putin, with the support of President Yeltsin and the Russian economic oligarchs, arrived on the Russian political scene as appointed Prime Minister in August 1999 and jumped immediately onto the international stage when appointed Acting President on 31 December 1999. As far as the West was concerned, his work was acceptable for the first two years or so. Putin maintained and even developed the market economy. At home, the power of the oligarchs, such as Berezovsky who had backed him, went unchallenged and Yeltsin was given immunity from prosecution.
Angus Roxburgh tells the story well of how this changed. Putin was confronted with challenges on all sides: by the expansion of NATO into Hungary, Poland and the Czech Republic; by NATO strikes against Serbia; by a growing Islamist secessionist threat in Chechnya and Dagestan; by the withholding of taxes by major companies and regional governments. Putin’s position as President was undermined by business interest groups who bribed deputies to defeat his tax proposals.
The oligarchs, particularly Khodorkovsky, believed that the private sector could utilise Russia’s massive energy resources, from which they profited, better than the state. Putin and his government believed otherwise. Consequently, Putin adopted a more confrontational policy against oligarchs who opposed him – ‘if it’s business you have chosen, stick to business’. His statist policies had implications for foreign investment in the energy industry and he sought to change the terms of investment with the large foreign investors who had benefited disproportionately by contracts made under the Yeltsin regime. In international relations, Putin, while trying to placate the West, correctly saw the USA as a hegemonic threat not only to Russia but also to world peace in general.
Putin became a target of anger from the leaders of the West. The British media have depicted him as a trilbyed gunman; a master puppeteer controlling the strings not only in Russia but of the supply of energy to the West. The Observer newspaper posed the question: ‘Is he the westward leaning ally of President Bush and Tony Blair, or someone whose real affection is for the bad old days of the Soviet Union?’ [Observer, 2 November 2003]. Putin reversed Yeltsin’s pro-Western policy and sought to give Russia the respect it deserved abroad as well as to instil a feeling of confidence domestically. Internally, he curbed the worst consequences of privatisation by transfers of Russia’s material wealth to the population aided of course by the exponential rise in world energy prices. Putin’s popularity rose at home, though he was criticised abroad. He renationalised many of the energy companies: in 2003 state-owned companies accounted for only 12 per cent of oil production, a figure which rose to nearly 40 per cent by 2007, whilst in the gas sector state companies controlled 85 per cent of production.
Angus Roxburgh’s book is very much a ‘view from the top’ coloured by the author’s experiences as both Sunday Times and BBC correspondent in Moscow. He attempts an even-handed approach – though conditioned by his philosophy of free market electoral democracy. He continually contrasts Putin’s statist policies with the more liberally inclined and Western orientated ‘opposition’. Despite the Communist Party of the Russian Federation being the largest opposition party, its policies are ignored in the book. Nevertheless, much can be learned about the conduct of Western and Russian international relations from the valuable interviews the author conducted with Colin Powell, Condoleeza Rice, Gerhard Shroder, Mikhail Kasyanov, German Gref as well as David Miliband, George Robinson and Ukraine’s Viktor Yushchenko.
These accounts are informative at the personal level and Roxburgh’s work raises the question of ‘what type of capitalism’ has been built in Russia. My view is that Putin has pushed the economy in the direction of market state Capitalism. This is an economic system legitimating private property and the market with significant state control. It is not the same as ‘State Socialism’. The state has two major forms of control: first, considerable ownership of property which gives the government significant revenue independent of taxes. Some economic surplus (profit) accrues directly to the state, in the case of Russia through state companies, such as Gazprom. Secondly, power is secured through administrative control. The government is sufficiently powerful to direct privately owned national companies to fulfil state objectives. This could give problems to private companies and their shareholders when the state intervenes to direct their resources to politically inspired (though legitimate) goals.
Roxburgh illustrates a major political difference from Western market societies when he describes Putin’s handling of the closure of a factory in Pikalyovo which laid off thousands of workers who subsequently could not pay bills to their local utility companies, leaving the population with no hot water and heating. Putin ordered the owners to immediately pay arrears of salaries amounting to 41 million rubles, ‘You made thousands of people hostages to your ambition, incompetence and greed. It’s absolutely unacceptable!’ The Russian state can enforce what is euphemistically called in the West the ‘social responsibility of business’. Putin, however, is no Socialist. At the beginning of his Presidency he legalised the purchase of land. During the period of economic crisis, he could have extended the renationalisation of enterprises and further reduced the power of the oligarchs. But he preferred to keep within a private property market system, and he successfully applied for membership of the World Trade Organisation in December 2011 – exposing Russia to external constraints of the world economic system.
But Putin, at least to some degree, reversed the relationship under Capitalism between business and the state. Under Western and Russian Capitalism, there are two frameworks of power – the political and the economic. In the West, business has captured the state; in Russia, under a commanding President, it can be the other way around. This does not undermine Capitalism – it may strengthen it through state support, contracts and subsidies.
Returning to Putin’s Russia, Roxburgh, like many other commentators, complains about the lack of modernisation, the mafia-like nature of society and state infringement of individual rights. The reason underpinning the political and economic malaise, they contend, is the ubiquitous presence of corruption of the state and, of course, its leader. State officials no doubt have benefitted from corrupt practices and these are emphasised by Roxburgh – though he points out that ‘there are no verifiable facts about corruption at the very top, only a wealth of speculation, gossip, accusations and circumstantial evidence.’ The message is that if you can cure corruption, then modernisation and progress can be achieved. My own view is that the causality is the other way around. Corruption is a consequence of the rapid, haphazard and spontaneous privatisation carried out in the Yeltsin period which influenced the mores of society. I would claim that corruption is much wider than state officials using public property for private interest; privatisation involved the seizure and fraudulent procurement of state property with no proper accountability and consequently led to the formation of a capitalist rentier class. This weakened the economy through the export of capital on a massive scale.
More attention might be given to the wealth and power of the new capitalist class. Consider Roman Abramovich. In 2012, he had a ‘net-worth’ of $13.4 billion dollars. He made his money initially through oil-export and then bought into the oil, and later the metals industry. He was appointed by Putin as governor of Chukotka autonomous okrug (in Siberia). His expenditure is lavish; he has the largest sea-going yacht in the world; the accumulated losses (2003-2011) for Chelsea football club which he owns come to some $1000 million; just two players (Shevchenko and Torres) cost $120 million. His constituents in Chukotka, in 2006, had an average income per person of $976 (25,703 rubles) per annum, and 13 per cent of the population were struggling to survive below the official Russian minimum living income. The wealth of the business tycoons has increased during Putin’s Presidency and the extent to which he is backed by ‘friendly oligarchs’ is unknown and not covered in this book.
But it is clear that Russia has not created a vibrant form of modern Capitalism and the state therefore comes to perform a developmental role. Unlike Angus Roxburgh, many people in Russia look not to the USA as a model to be copied, but back at the (qualified) success of State Socialism.
Angus Roxburgh, The Strongman: Vladimir Putin and the Struggle for Russia. London and New York: I.B.Taurus 2012; Hardback edition has 288 pages, £20.00 and can be purchased at http://www.ibtauris.com/Tags: Review
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This post was written by David Lane