For those who expressed interest in events in Russia, here is an article
by Aleksandr Buzgalin I recenly received.
In solidarity,
G. Schwartz
-----
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
Department 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
