Dear pen-l'rs,
This article by Aleksandr Buzgalin was e-mailed to me a few weeks ago. I
believe it was published in the Jamestown Monitor, a Russia-oriented
list?. I think it offers some explanations to boddi's inquiry regarding
"who rules over Russia?"
In the following e-mail I shall post an article written by Aleksandr
Buzgalin and Andrei Kolganov on the role of the IMF in 'restructuring'
the Russian economy and on the internal contradictions of the
socio-economic system in Russia. It confirms to some extent what Simon
Clarke, Peter Fairbrother, Michael Burawoy and Hillel Ticktin have held
with respect to the post-Soviet situation.
In solidarity,
Greg.
*****
RUSSIA: CAPITALISM’S “JURASSIC PARK”
By Aleksandr Buzgalin
Aleksandr Buzgalin is a Doctor of Economics and a professor at Moscow
State University. In the perestroika period, he was a leading member of
the reform wing of the CPSU. He is now one of the leaders of the
Democratic Socialist Movement in Russia.
Today, it has become almost a cliche to say that the Russian
economy, and Russian society in general, are the place where the largest
financial-industrial groups collide. Their fusion with the state
apparatus, and the corruption of the latter have become just as much of
a cliche. Likewise, the oligarchic character of the country’s
government (the so-called “semiboyarshchina”) can hardly be in doubt.
But there has been little analysis of the nature and role of these
formations (from now on, I will use the term “clan-corporate groups”) in
society.
* * *
CAPITALISM’S “JURASSIC PARK”
In order to understand the nature of the power of these groups, one must
examine the socio-economic system in Russia today, understand who its
master is, (above all, in the economic sphere), who benefits from the
model of transition as it exists in practice, and how the mechanism of
their “competition” has been set up.
It is possible to understand this system, if one goes a step beyond the
traditional analysis of economists (plan or market? private or public
property?) and political scientists (right or left? pro-presidential,
regional and other elites). One needs, at a bare minimum, to analyze
what I have called “capitalism’s Jurassic Park.” I am referring to the
state-corporate model of capitalism which has taken shape in Russia,
full of the “relics” of Soviet society, with its authoritarian political
system, paternalist bureaucracy; its passive population, accustomed to
social dependence; a narrow stratum of entrepreneurs, concentrated in
the “shadow economy”; its “deficit economy” with limited resources,
dominated, not by the mythical central planning of 20,000,000 different
forms of production “down to the last nail,” but by “planning
deals,”—the semi-legal horse-trading between bureaucrats and enterprise
directors over prices, resources, etc., etc., etc...
The key social link of this economic system is the clan-corporate
group. The author calls these structures capitalism’s “dinosaurs.”
Today, two types of dinosaurs dominate the landscape. Some—the
“herbivores”—are gigantic, unwieldy structures: the former state
enterprises. Others—the “predators”—are much smaller, but much more
active: the mean and hungry private corporations, who actively “gnaw
away” at the former state structures.
A TYPICAL CLAN
To understand these “dinosaurs,” let’s look at the structure of a
typical clan-corporate group. At the bottom, there are several
enterprises (which, in most cases, have gone through nomenklatura
privatization), and together with them, one or two banks and several
private marketing (or simply “parasitic”) firms, and over them, a
“superstructure,” in the form of an organization which lobbies for them
in government structures. Real ownership rights in this system belong to
a narrow circle of persons, concentrated in the administration of former
state enterprises, the leadership of banks and lobbying structures and
the real owners of the private “daughter firms.”
Again, I stress: we are talking about real ownership rights, about
economic power, and not simply of percentages of shares (although this
is also important).
What are the sources of power for the real owners of such structures?
The most important one is the ownership of shares. To exert real control
over a clan, it is enough to own 10 to 15 percent of its shares, as long
as: 1) the rest of the shares are scattered among many small
shareholders, who are unable to coordinate their actions; 2) the owners
of the 10 to 15 percent, on the contrary, are united in their business
activity (i.e., they make up a “clan); and 3) these owners hold in their
hands the other threads of economic power and control.
Who, today, has such a consolidated packet of shares in most former
state enterprises in Russia? According to the estimates of experts, the
typical picture is as follows. The state owns 10 to 15 percent of the
shares. About 40 percent of the shares are in the hands of the workers,
and thus, are not consolidated. Moreover, most workers in Russian
enterprises continue to be passive, are not united in associations (the
labor unions are either fictional or refrain from addressing the issue
of property), and are incapable of acting together even as property
owners, much less as entrepreneurs. In the overwhelming majority of
cases, they place too much trust in the ownership rights of the
administration of the enterprises in which they work.
The enterprise’s administration, on the other hand, is a consolidated
structure, tied together by decades of working and living together as
members of the same “caste”: the low-level nomenklatura. By 1995, these
people had up to 15 percent of the shares in their enterprise and were
actively continuing to buy up more shares.
Moreover, a significant number of shares (up to 30 percent) belongs to
“external investors” (Russian and foreign private firms), who, as a
rule, have close personal ties to the enterprise’s administration. A
significant number of these shares could be controlled (through
intermediaries) by the bank (or banks) which have become part of the
informal clan. In total, the elite controls from 30 to 50 percent of the
shares, i.e., substantially more than the minimum necessary for control
over an enterprise if the aforementioned three conditions are present.
Administrative power is the elite’s second important channel of control
over the clan. In Russia, with its age-old tradition of submission to
the authorities, the administrative power of top management plays one of
the key roles in forming stable clan structures. This power is combined
with the administration’s control over housing, social infrastructure
and other areas, such as kindergartens and clinics.
THE CHAIN OF DEPENDENCE
Under these conditions, a chain of financial dependence has been
developed. At the very bottom of this chain is the worker, who can
either be paid or not paid (this depends on the administration).
Salaries are delayed from one to five months, and quitting doesn’t solve
the problem: over the reform years, unemployment has grown sevenfold.
Then there is the administration’s dependence on the banks. The bank may
or may not give the enterprise credits, and if it does, then on what
conditions? The administration can also use its services (usually,
through dummy firms) to divert, for two to three months, and sometimes,
for up to half a year, money intended for the payment of salaries and
contractors, often doubling the original amount through short-term
currency, commercial, and other transactions, most of them speculative.
Some of this additional money goes to the enterprise, but a large share
of it goes, through the bank, to the bosses of the clan.
Above that, there is the dependence on government—all the way from the
low-level bureaucrat in a regional administration to the president and
parliament. At all these levels, government resources are distributed
and redistributed. Add here the active influence of the State Property
Commission on the privatization process, that of the agencies concerned
with foreign trade on the conditions for export-import deals, that of
the presidential administration on tax loopholes, and that of the
parliament on the budget... and we get a complicated system of mutual
financial ties between enterprises, banks, and various federal,
republican and regional government bodies.
And we must not forget another channel of economic power—personal
connections. This crowns the whole pyramid of dependence, welding
together (like wolves joining together into a herd) the elite of
enterprises, banks, commercial structures and government agencies. These
personal ties are all the stronger, since the overwhelming majority of
clan elites originally came from the same groups of the former
nomenklatura.
UNDERWORLD CONNECTIONS
And finally—what gives these clans such solidity is their close ties to
underworld structures. One must keep in mind that the criminal economy
of the past (and until the end of the 1980s, almost every private
business in the USSR was illegal, and hence, closely tied with criminal
elements) was one of the main sources for the birth of private business.
Today, private firms are always attached to state or former state
enterprises, so that the corporation’s money may be conveniently be
diverted into the pockets of their real owners. In view of this, one
must realize that most corporate structures have at least some ties to
the criminal economy. Moreover, lobbying, in and of itself, in a country
with shaky legislation, constantly changing governments, and a high
degree of corruption at the top, has the character of a semi-legal, or
directly illegal, activity.
As a result, all structures are mutually drawn into activity which is
more or less dubious, from a legal point of view. This doesn’t have to
be racketeering, contract murders, blackmail, extortion, or bribe-taking
(although there is more than enough of that in Russia). It could “just”
be delaying the payment of salaries and “diverting” them through
commercial organizations, giving credits on favorable terms in exchange
for the company’s support in an election campaign, or other steps which
link the clan elites by making them share the responsibility for some
illegal action.
THE CLANS AND POLITICS
These clan-corporate structures form the basis, not just for economic
power, but for political power as well. Here, the link isn’t so simple.
Most clans support several blocs and parties simultaneously, and most
parties have the support of more than one clan. Thus, a complex
intersection of interests arises, which is relatively remote (but not
absolutely cut off) from the parties’ ideologies or programs.
FOUR TYPES OF CLANS
These clan-corporate structures may be divided into four types. (Here,
the author will be using information from the master’s thesis of P.
Demeshchik of the economics department of Moscow State University,
“Problems in the Redistribution of Rights of Ownership in Contemporary
Russia’s Transition Economy.”)
First, there are the clans which are based on a single sector of the
economy. Contrary to popular opinion, there are several such clans,
which compete fiercely against each other. As an example, let us look at
a gigantic structure such as Gazprom (which has a monopoly over 95
percent of natural gas extraction, 100 percent of natural gas
transportation, etc.). Although 40 percent of the shares in this
enterprise belong to the state, in reality, this gigantic corporation
has, as it were, “privatized itself,” since most of the shares
(distributed among the administration and the workers of its
enterprises, regional elites, etc.) are under the control of its bosses.
Several banks fall within this corporation’s orbit, including
Gazprombank, Natsionalny rezervny bank, Imperial, and others.
Gazprom plays a very significant role in political life, having become,
for example, in the last parliamentary elections, one of the biggest
(according to some figures—the biggest) sponsors of the “Russia is Our
Home” movement, which supported, and continues to support, President
Yeltsin. The regional governments of a number of northern territories
are virtually completely dependent on Gazprom.
There are other “sector-based” clan organizations—both in the raw
materials sectors and in the defense industry, the agro-industrial
complex and many other sectors of the economy.
The second type of clan is the regional clan. These clans are built, as
a rule, around a powerful regional leader (the governor of a region or
the mayor of a large city). One example of such a formation is the group
of firms surrounding the Moscow city government. Among the main regional
Moscow banking structures closely linked in strategic partnership and
mutual dependence are the Bank of Moscow, Mosbiznesbank, GUTA-Bank, and
others.
The third type of clan structure is a departmental-functional
organization. For example, Russian federal and local governments, over
the course of the last five years, have fulfilled, and continue to
fulfill, the function of redistributing state property on a massive
scale. This function was, and is, carried out by a single
agency—Russia’s State Property Committee and is personified by one of
Russia’s leading politicians—Anatoly Chubais, the adept of “shock
therapy.”
The fourth type of clan structure—arises on the basis of private
commercial enterprises, by means of the accelerated primary accumulation
of capital. In just seven or eight years, financial-commercial (in
Russia, private business is only rarely involved in production)
structures have been formed with very modest amounts of capital, in
comparison to the largest corporations in Japan or the U.S., although
still gigantic by Russian standards—on the order of US$100-300 million.
Most of these structures have made it down a long road, beginning with
legalized “shadow capital,” money from the defunct political and party
structures (the CPSU, the Komsomol, and many others), and only rarely—
from private persons (in this case, we are not looking at banks and
firms which arose on the basis of former state enterprises or
institutions). After that, there was a period of massive speculation in
currency, real estate, vouchers, imported gods, accompanied with the
large-scale use of non-economic methods (racketeering, corruption,
etc.), mergers, and, finally, the formation of more or less “clean”
structures, which have changed their image three to five times and, at
least formally, have no ties with organized crime or corrupt
officialdom.
* * *
So how do these groups interact?
It would be a gross oversimplification to see Russian socio-economic
life as strict market competition (within a carefully-defined framework
and rules) between these supercorporations. The Russian economy is
transitional, in the full sense of the word, and this means the
following.
First, the clan-corporate structures themselves are still evolving.
Their borders are amorphous and mobile. Firms, banks, bureaucrats, and
even entire agencies (and sometimes, even the top people in the
government) change their orientation, sympathies and antipathies, move
from one clan to another, or try to join a number of clan structures.
Moreover, most clans are unformed organizationally and
un-institutionalized. Gazprom is the exception here; as a rule, it is
almost impossible to come up with a definitive definition or a formal
description of a clan’s structure.
Second, the clan-corporate structures, in most cases, are characterized
by mutual diffusion and flow into one another; this is their distinctive
feature, which is specific to transitional societies.
Third, clan-corporate structures compete in various ways, non-economic
as well as economic. The most important form of struggle between them is
informal, non-economic interaction. Forms of the latter may include
personal connections, deals, agreements to divide markets and spheres of
influence, “rules” of competition, etc., as well as racketeering,
bribery, blackmail and the like.
Market competition has only just emerged. It is not simply imperfect (in
the sense of the word used in economics textbooks); it is deformed,
mutant from birth. It is not so much an interplay of elemental forces,
where the one who has lower costs, higher quality, etc., prevails, but a
battle between forces which are trying to regulate the market. Each clan
tries to regulate the market in its own favor. These clans clash, and
the strongest clan—not the most competitive product—prevails. It’s like
a sack race -- where it isn’t the fastest runner who wins, but the
person who can run best inside a sack.
Finally, the modified mechanism of “plan deals” (where the object is no
longer directives on planned output, but tax and credit privileges) also
plays a substantial role.
Fourth, in a transitional economy, the redistribution of the rights and
objects of ownership, and together with that, of economic power, takes
place very quickly and on a large scale. Hundreds of billions of dollars
have been redistributed in the privatization process, and this
redistribution makes up the most important form of interaction of
clan-corporate structures in Russia.
As a result of this interaction, an economy like the Russian economy is
formed, where price liberalization has led to inflation and a decline in
production, where this decline in production and institutional chaos
creates the most favorable environment for the accelerated concentration
of money and property, and therefore, economic power, into the hands of
a limited circle of clan-corporations, while most workers have lost
one-third of their incomes, and virtually all of their savings, social
protection, law and order, and stability.
* * *
This paper’s rather pessimistic conclusions should not be seen as
evidence that our economy has reached an absolute dead-end.
First of all, in a few years, as the redistribution of property and
power is completed, the largest clan-corporate structures will still
have to modernize production, and will find the money (quite limited by
Russian standards, barely US$10 billion) for it. But this money will go,
not to modernize the economy as a whole, but only to certain spheres,
for the most part (if one proceeds from the “clans’” present structure),
in the raw-materials sectors. As for such areas as science, education,
high technology, etc., hopes that the “clans” will pay for their
modernization will remain unrealized.
Second, one can hope that the power of the clan-corporate groups in
Russia will be overcome through a qualitative change in property
relations and the political system—a transition to a real democracy as a
new form of economic and political power—which could serve as the
prerequisite for implementing a strategy for recovery. But this is
already another subject.
Translated by Mark Eckert
--
Gregory Schwartz
Dept. of Political Science
York University
4700 Keele St.
Toronto, Ontario
M3J 1P3
Canada
Tel: (416) 736-5265
Fax: (416) 736-5686
Web: http://www.yorku.ca/dept/polisci
