BOOK REVIEW

“Russia’s Crony Capitalism: The Path From Market Economy to Kleptocracy”
By Anders Aslund
Yale University Press, May 2019

How does Russia’s political-economic system work? Anders Aslund examines this question in his insightful new book “Russia’s Crony Capitalism.” His answer: Russia is an “authoritarian kleptocracy”—a country ruled by a narrow, centralized elite that sees self-enrichment as a primary goal. The notion that Russia’s rulers are both venal and anti-democratic will not surprise followers of Russian politics. Aslund, a senior fellow at the Atlantic Council, argues that corruption is a feature, not a bug, of the Russian political system. Self-enrichment, he argues, is crucial to understanding why Russia’s leaders make the decisions that they do.

Understanding the forces that drive Russian government decision making is no easy task, and Aslund focuses on one of them, rather than undertaking to explain how the system works as a whole or to present a theoretical framework. The book, with its emphasis on corruption, looks primarily at Russian domestic politics, with little to say about national interests or foreign policy (though money is often laundered, Aslund notes, across borders). Within these parameters, Aslund makes a strong case about the centrality of self-dealing in Russia’s internal affairs.

“Russia’s Crony Capitalism” makes four main points about the role of corruption in Russian politics. First, it is now more centralized than it was in the 1990s, with the state much stronger than 20-30 years ago. Under President Vladimir Putin’s predecessor, Boris Yeltsin, businesses pressured the government to rig privatization auctions, to let them avoid paying taxes and to shape regulation to their advantage. Today, Russia’s government pressures business to obey its whims. In the 1990s, one could speak of an oligarchy that was separate from the state, though benefitting from its ability to influence state decisions; even in the early 2000s, the richest Russian was a Putin rival, Mikhail Khodorkovsky. Now all the so-called oligarchs have pledged political allegiance to the Kremlin, and many of Russia’s richest men are longtime acquaintances of Putin’s from his St. Petersburg days. There is less balance today, Aslund argues, and more centralization of authority around Putin, the oligarch-in-chief. (Though “oligarchy,” Aslund argues, is no longer an accurate description of Russian politics, because that term “implies some balance between different forces based on wealth.”)

Aslund’s second main argument is that many of the largest corruption schemes involve these longtime Putin acquaintances, who were not major public figures before his rise to power. Aslund focuses in particular on “three prime cronies”: Gennady Timchenko, Arkady Rotenberg and Yuri Kovalchuk. Aslund notes that these individuals have made their billions in no small part via companies that sell to state-owned firms, in what Aslund describes as “preferential state orders” and “unique access to gas field licenses and access to pipelines.” Many tsars have their court favorites, of course, but the largest oligarchs in the 1990s were already owners of vast assets when they came to Yeltsin and tried to convert their fortunes into political power. Aslund argues that Timchenko, Rotenberg and Kovalchuk have operated differently: They succeeded in converting friendship with Putin into billion-dollar fortunes.

Aslund’s third main argument is that the centralization of corruption schemes has been deeply intertwined with the reversal, over the past 15 years or so, of the Yeltsin-era effort to reduce the state’s role in the corporate sector, especially in banking and energy. “The Russian state has regained control of the ‘commanding heights’ of the economy, as Vladimir Lenin’s phrase ran,” Aslund writes; the government “has recovered control of the main sources of rents and is gobbling up ever more good private enterprises. Yet the state’s control of these big enterprises is illusory because a small group of men loyal to Putin personally exercises this control.”

Two prime examples can be found in the gas and oil sector. Take Gazprom, Russia’s gas monopoly, which Aslund argues has underwritten the fortunes of many of Putin’s longtime friends. Theft from Gazprom is nothing new, of course. After coming to power, Putin appointed his associate Alexei Miller as Gazprom’s CEO, and Miller promptly ousted the groups that had formerly controlled the company, publicizing their corruption schemes. The ability of Putin’s appointees to so quickly dislodge the old mangers of Gazprom suggests that they had the power to organize the company along sensible lines. Instead, Aslund shows, Gazprom was repurposed to funnel funds to individuals close to Putin, including his former judo sparring partners. Another example is the rise of Rosneft, which expanded rapidly in the 2000s thanks in part to the purchase of assets stolen from Yukos, an oil firm formerly run by Khodorkovsky. The state’s role in the energy sector expanded as longtime Putin associates sought to grab a larger share for themselves.

Aslund’s conclusion is that corruption imposes a substantial economic cost—not only due to the funds pilfered but via the reorganization of the economy in a way that benefits state-owned enterprises at the expense of efficiency. He notes, for example, that Rostec, a government-owned military-industrial conglomerate, has departments for the “fulfillment of state programs,” “defense of state secrets” and “regional policy”—divisions that would not have been out of place in a Soviet-era ministry. “These are not corporate but state functions,” Aslund notes. Absent transparency about their cost or function, it is unlikely that they are making Russia wealthier.

Other than self-enrichment, is there an alternate explanation for the persistence and centralization of corruption over the past two decades? One could perhaps argue that corruption serves a political goal in providing a glue with which to stick together different elite groups. But this cannot explain why so many of Putin’s friends have become billionaires. They have no independent political base, and aren’t likely to cross Putin. The wealth they have accumulated undercuts Putin’s claims to be governing in all Russians’ interest. A system of theft that both makes Russians poorer and serves the interest of only the narrowest sliver of the elite, Aslund argues, cannot persist forever.

Photo from Kremlin.ru.

The opinions expressed in this commentary are solely those of the author.