Publication: Eurasia Daily Monitor Volume: 3 Issue: 64

Two dozen top Russian businessmen gathered in the Kremlin last week for the ritual annual meeting with President Vladimir Putin. The key feature of the two-hour long exchange was the near complete absence of any content. The only point that made some headlines was Putin’s short but angry remark near the end of the meeting that the United States sought to sabotage Russia’s entry into the World Trade Organization (WTO) by re-opening questions that had been successfully resolved (, RosBusinessConsulting, March 29; Komsomolskaya pravda, March 30).

The macro-economic situation in the country is quite worrisome due to slowing growth and rising inflation, so the debates in the government on how to increase spending without triggering further jumps in consumer prices are hot and quarrelsome (Vedomosti, March 31). Putin, however, did not invite any discussion on the quality of growth or the appreciation of the ruble but focused on the rather unexpected topic of education. The businessmen expressed no surprise over this choice of agenda and assured the president of their readiness to contribute to the implementation of this “national project” (Izvestiya, March 30).

The context of this remarkable harmony in views and efforts is quite interesting: The businessmen know perfectly well that the long-stalled reform of education had not suddenly become a personal priority for the president. Nor did Putin doubt that the assembled “capitalists” would deliver a few symbolic grants to some prestigious universities. This game of “I pretend to give orders; you pretend to follow” might appear innocently senseless, but in fact it is deadly serious. Putin implicitly challenged the super-rich magnates to show a hint of defiance — and they showed only complete submission (, March 30).

At a similar meeting three years ago one businessman dared to demonstrate his self-confidence. Yukos head Mikhail Khodorkovsky brandished facts and figures that proved Putin’s courtiers were involved in quite vulgar corruption. Putin’s vengeance was swift and long, and now Khodorkovsky is denied any possibility of putting his thoughts on paper as he languishes in a labor camp in East Siberia. Putin wants the lesson to remain fresh, so Svetlana Bakhmina, the former head of the legal department of Yukos, is now awaiting a verdict that could be as heavy as nine years in prison (, March 23). None of Putin’s guests last week showed any inclination to follow that example; while sometimes still-called “oligarchs,” they hope to receive a state order as a reward for good behavior, like Roman Abramovich or Petr Aven (Novaya gazeta, March 27).

The taming of the “oligarchs” could have been considered a major achievement of Putin’s presidency, but in this process his regime has become as unscrupulous and greedy as the nouveau riche of the late-1990s while showing none of their drive and inventiveness. Public opinion may be not the best indicator of this transformation, but a recent poll shows that despite the massive propaganda, Russians now consider politicians to be more dishonest and incompetent than businessmen (Kommersant, March 31).

The massive expansion of state control over the economy has so far failed to reinvigorate it despite the huge inflow of “petro-rubles.” The lack of a consistent economic policy can be plausibly explained away by the absence of an authoritative planning organ resembling Gosplan, but the lack of order and minimal safety inside the overgrown bureaucratic structures is becoming increasingly difficult to ignore or deny.

Two murders occurred within a 24-hour span last week that could illustrate this growing violence in the business world. Petr Midler, director of a large power station in Orenburg oblast and a close associate of privatization chief Anatoly Chubais, was killed along with his driver and bodyguard as he was returning home from Moscow late on the evening of March 29 (, March 30). Viktor Dorkin, the mayor of Dzerzhinsk in Moscow oblast, was killed as he was walking home from a TV interview on March 30 (, March 31). Both murders were professionally organized and likely the consequence of men’s efforts to squeeze the interests of entrenched criminalized clans. Chances for an effective investigation are slim at best, since local law enforcement structures are indistinguishable from an organized racket and would ignore every bit of evidence for a “reasonable” bribe. At the Kremlin meeting, Sergei Borisov, who represented the association of small business, praised state prosecutors’ interest in the activities of every small enterprise; it was not intended as a joke but triggered a hearty laughter from the oligarchs intimately familiar with this kind of “attention” (Kommersant, March 30).

Police harassment, “tax terrorism,” bureaucratic corruption and criminal violence are not just isolated features of the Russian business climate. They blend together and shape a powerful political trend that appears to be state-centric but is in fact state-disruptive and self-destructive. Andrei Illarionov, Putin’s former economic adviser, argues that the multiple “ills” in the Russian economy — from the “Dutch disease” of stagnation in non-energy sectors to the “Venezuela virus” of nationalization and mismanagement — are fundamentally caused by efforts to curtail democratic freedoms (Ekho Moskvy, March 23; Kommersant, March 27). While public discussions on the urgent domestic problems are stifled or dismissed, every “technical” decision on stabilizing the ruble or directing investments has become a political matter, so the entrepreneurs have to wait for instructions from their Kremlin “minders” who tend to change their minds all too often.

Russia’s emergent “corporatist” state serves exclusively the interests of the vast bureaucratic class but it cannot prevent escalating squabbles and feuds between various interests groups inside it. The only survival strategy for businesses in this unfriendly environment is to stay low and throw bribes in every direction; the unlucky ones are caught in the crossfire and go down, the lucky ones are “nationalized” and run to London with a fistful of dollars. Small wonder that every businessman expressed “complete satisfaction” after the “stimulating” cup of tea in the Kremlin, but before the next meeting some of them would probably conclude, much like Illarionov did: “I have had enough of this nonsense.”