Why Russia's Oligarchs Are an Unlikely Force for Change
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The Atlas That has Not Shrugged: Why Russia’s Oligarchs are an Unlikely Force for Change Stanislav Markus Downloaded from http://direct.mit.edu/daed/article-pdf/146/2/101/1830925/daed_a_00438.pdf by guest on 25 September 2021 Abstract: There is demand among Russia’s oligarchs for systemic change, but not for the rule of law proper. Instead, it is the de facto accountability of political elites and improved relations with the West that the Rus- sian oligarchs want from the Kremlin. However, the oligarchs currently lack the capacity to effect change. Their insufficient leverage vis-à-vis Putin is rooted in their competition for rents, which prevents them from confronting the Kremlin as a united force. In addition to analyzing the lack of systemic pressure for change from the oligarchs, this essay considers the prospects of individual oligarchs who have nevertheless pushed openly for liberalization or tried to effect incremental change. It also draws on comparisons with other countries to chart the political behavior of Russia’s business elites in the future. Will Russia’s super rich change the political status quo? To start, we must recognize the diversity of the Russian business elites, also referred to here as the oligarchs. In terms of their proximity to power in to- day’s Russia, three groups stand out: Putin’s friends, silovarchs, and outsiders. Putin’s personal friends are connected to him through the Ozero dacha cooperative, his hobbies, STANISLAV MARKUS is Associate and his career; this is the most exclusive network. Professor of International Business at the Moore School of Business at The so-called silovarchs (a portmanteau of siloviki and the University of South Carolina. oligarchs) are business elites who have leveraged His book Property, Predation, and Pro- their networks in the fsb (Russian Federal Securi- tection: Piranha Capitalism in Russia ty Service) or the military to amass extreme person- and Ukraine (2015) was awarded the al wealth.1 While the circles of Putin’s friends and the 2016 Stein Rokkan Prize for Com- silovarchs partly overlap, the silovarchs make up a larger parative Social Science Research. group, most of whom are not Putin’s friends. An even He has published articles in such journals as World Politics, Compar- larger number of the super rich in Russia are outsiders ative Political Studies, Socio-Economic who are not personally connected to Putin, the mil- Review, Studies in Comparative Interna- itary, or the fsb. Despite their lack of direct connec- tional Development, and Polity. tion to Putin, however, they are still deeply embedded © 2017 by Stanislav Markus doi:10.1162/DAED_ a_00438 101 Why Russia’s in the Russian state; their outsider status is the oligarchs possess sufficient leverage to Oligarchs are only in reference to the two other groups. shift Russia’s trajectory? an Unlikely Force for While none of these three groups is The lack of oligarchic demand for sys- Change monolithic, these categories are useful to temic change toward the rule of law highlight the distinct power resources at seems a foregone conclusion; “overde- the oligarchs’ disposal. Putin’s friends pos- termined” in social scientists’ parlance. sess the highly prized “access to the body” Let us analyze it in terms of economist (dostup k telu): the privilege to be heard by– Albert Hirschman’s conceptualizations and possibly to sway–the most powerful of responses to adversity: exit (opting out individual in Russia via informal conversa- of future transactions), voice (communi- tions. Quantitative analysis suggests that cating a complaint, grievance, or propos- Downloaded from http://direct.mit.edu/daed/article-pdf/146/2/101/1830925/daed_a_00438.pdf by guest on 25 September 2021 being Putin’s friend increases an oligarch’s al for change), and loyalty.5 wealth significantly, and that this increase Consider exit. Unlike trapped constitu- is particularly pronounced in times of high encies, such as the uneducated labor force, oil prices.2 Meanwhile, the silovarchs have Russia’s business elites have ample possi- direct access to coercion, either through bilities to retire not only their capital, but their current appointments in the power also themselves, abroad.6 Would they risk agencies (the police, fsb, military, and oth- demanding institutional change at home er security services), or through their close when they can so easily change their in- personal contacts there. More than other dividual circumstances? The data on in- groups, the silovarchs possess the power of vestor visas show that Russian business (c)omission: they can implement Putin’s elites are increasingly purchasing foreign orders–or refuse to do so. Since 2003, Pu- residence permits.7 The top issuers of in- tin’s friends and the silovarchs have steadily vestor visas for Russian big capital are, in risen to control crony sectors of the econ- descending order, the United Kingdom, omy and to hold important positions in Portugal, the United States, and Austria. the executive branch. These groups are In these countries, investor visas lead to disproportionately represented on corpo- permanent residence or citizenship and rate boards of the so-called state corpora- involve a minimum $1–3 million invest- tions, and they often own large stakes in ment and, in some cases, proof of job cre- firms from sectors in which profitability ation. The United States and the United depends on government favor (including Kingdom, in particular, have experienced oil, utilities, telecommunications, defense, a sharp rise in the number of investor vi- and construction).3 However, compared sas issued to Russian nationals since 2010. with Putin’s friends and the silovarchs, the In terms of loyalty, it pays to support influence of outsiders is much more medi- a system that allows one to prosper. For ated. Some outsiders have held seats in the the oligarchs, it may be precisely the lack Duma, while others have lobbied via the of rule of law that facilitates the expan- Russian Union of Industrialists and Entre- sion of riches,8 such as through a variety reneurs (ruie), a business association rep- of corrupt schemes commonly referred to resenting large capital.4 as “raiding.”9 To be sure, the environment of constant danger is not for the faint of Our main issue–the pressure for change heart. According to Russian entrepreneur –generates two questions. Is there any Mikhail Gutseriyev, who left Russia in 2007 demand for change on the part of the oli- after being pressured to sell his company garchs (and if so, in which direction)? Russneft, “only in London did I realize And to the extent such demand exists, do that . back in Russia I had spent 20 per- 102 Dædalus, the Journal of the American Academy of Arts & Sciences cent [of my time] on business, and 80 per- petitive and honest elections, plus legis- Stanislav cent on confrontation [protivostoyanie].”10 lative and judiciary independence). But Markus And yet, when given a chance in 2010, Gut- there is likely to be demand for de facto seriyev returned to Russia, suggesting that elite accountability. From the oligarchs’ the risks of “confrontation” may be well perspective, the latter could theoretically worth the rewards. In a 2007 survey of the be achieved in several ways, including 1) executives at 396 Russian manufacturing a relatively impartial elite arbiter, such as enterprises, 24 percent of the respondents Soviet-era Brezhnev or Ukraine’s Kuchma agreed with the statement: “the poor pro- before the Orange Revolution; 2) an em- tection of property rights presents not only powered oligarch-controlled parliament, a threat but also an opportunity for busi- such as the Ukrainian Rada after the Or- Downloaded from http://direct.mit.edu/daed/article-pdf/146/2/101/1830925/daed_a_00438.pdf by guest on 25 September 2021 ness growth.”11 ange Revolution; 3) Singapore-style author- Finally, even when business elites voice itarian legality guaranteeing property rights their disagreement with the system, they without competitive politics; or 4) power- may press the state for de facto account- ful associations of large businesses that can ability at the firm level via stakeholder al- check the state, as in Porfirian Mexico. liances with labor, the community, or for- The demand for such de facto elite ac- eign investors.12 Such alliances serve as er- countability, in whatever form, is rising. satz institutions, allowing business owners The conditional nature of oligarchic own- to protect their specific firms while avoid- ership in Russia has long been acknowl- ing the need for country-level rule of law. edged, the local joke being that there are no Taken together, the above factors imply billionaires in Russia, only people working that business elites are partly complicit in as billionaires. Yet the conditionality im- the persistence of Putinism, their complic- posed on the oligarchs by Putin early in his ity being not only self-fulfilling, but also first tenure (“stay out of politics, keep your self-serving. Trends among the Russian property”) is becoming unreliable. The billionaires suggest as much.13 According contrast between the 2003 case of Mikhail to The Economist’s crony capitalism index Khodorkovsky and the 2014 case of Vladi- for 2016, billionaire wealth from the cro- mir Yevtushenkov, both business oligarch ny sectors in Russia is the highest in the targets of Putin’s Kremlin, is telling. One world as a percentage of gdp (18 percent), could easily argue that Khodorkovsky flout- followed by Malaysia (13 percent) and the ed Putin’s “rules” by financing opposition Philippines (11 percent); it has also risen parties and threatening to interfere with since 2014 (from 16 percent).14 Meanwhile, Russia’s foreign policy (via plans for Yu- most of the unfortunate Russian billion- kos’s pipelines and asset sales to U.S.