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Last Updated: Thursday, 4 December, 2003, 00:24 GMT
Why Russian business votes with its wallet

Analysis
By James Arnold
BBC News Online business reporter

Kremlin
Oligarchs no longer welcome

An intriguing revelation following the recent arrest of Mikhail Khodorkovsky was the news that the billionaire tycoon gave money to nearly all political parties - including the communists.

It's odd that Russia's richest man felt the need to subsidise the organisation dedicated to destroying his privileges.

More interesting still is the question of just what Mr Khodorkovsky thought he was getting in return for his largesse.

In post-Soviet Russia, links between business and politics have always been both close and murky.

With elections due, and Mr Khodorkovsky languishing in a Moscow prison, it's worth asking whether this is something worth worrying about.

From prosperity to power

Business and politics first became entwined in the chaos of the early 1990s.

Precarious financial empires needed political bolstering; ambitious politicians needed the cash and media access that tycoons could provide.

Beggars near Red Square
Russia's economy, some say, has been stripped bare
This process became formalised in 1995, when the state effectively gave away prized state companies to favoured magnates for modest sums, in order to assure ensure that they - and their media empires - supported the Yeltsin government.

From then on, the merely very rich became "oligarchs", de facto rulers of Russia with their feet firmly under the Kremlin table.

President Boris Yeltsin's touch-and-go re-election in 1996 was openly backed by a cabal of oligarchs.

In return, they were allowed to build easy fortunes by exploiting loopholes carefully left ajar: Boris Berezovsky for example, the richest and most notorious of them all, became a billionaire by somehow gaining exclusive rights to deal in Lada cars.

While the industrial base of the Soviet economy withered away, oligarchs poured their money into the sectors most likely to yield quick profits and maximum influence - media, advertising, financial "services".

All together now

All of this was, of course, politically and economically deplorable.

The rise of the oligarchs, although stoutly defended by some economic theorists, constrained the development of Russia's media, deprived the state of the full value of privatised assets, froze out foreign investors and inculcated a culture of institutional corruption.

But at least, says one Moscow business veteran, "you knew where you stood.

"Under Yeltsin, everyone was pissing in the same direction."

Since Vladimir Putin was elected president in 2000, however, that direction has been much harder to read.

Bashing billionaires

On the face of it, Mr Putin has launched a firmly anti-business - or at least anti-oligarch - policy programme.

Boris Berezovsky
Mr Berezovsky ran away...
Mr Berezovsky is now a refugee in London; Vladimir Gusinsky, a media and banking magnate, is in hiding; and Mr Khodorkovsky is in jail on fraud and tax-evasion charges.

Many of the banks that underpinned the oligarch empires went belly-up in the financial crisis of 1998; their newspapers and TV stations have been closed down, taken over or gagged.

Mr Putin, it is thought, has no desire to share power with over-mighty subjects - nor, unlike the precarious Mr Yeltsin, does he need to.

With general elections this week and a presidential poll in 2004, oligarch-bashing also plays well among a resentful electorate.

The rich reborn

But that does not quite cover the facts.

For every oligarch in disgrace, another flourishes in Russia - even men associated with Boris Yeltsin's inner circle.

... while Mr Potanin is sitting pretty
Vladimir Potanin, whose Oneximbank was one of the main dealmakers of the 1990s, is now a prominent supporter of Mr Putin's United Russia party, and lauds the president's stern separation of business and politics.

Oleg Deripaska, a precocious metals tycoon who is married to Mr Yeltsin's grand-daughter, has been one of the busiest buyers of Russian assets this year.

Even now, 28 of Russia's wealthiest men still have the vertushka, the Soviet style phone that gives them direct access to Mr Putin's desk.

Power corrupts

More to the point, Mr Putin has done little to dismantle the less visible interface between politics and business - the relentless to-and-fro of threats and favours that makes investing in Russia so exhausting.

A politician's whim can have a dramatic effect on business: this week, the tax ministry has reportedly decided that Yukos, Mr Khodorkovsky's company, owes $5bn in unpaid tax; meanwhile, Roman Abramovich, a Kremlin-friendly tycoon, has been given a clean bill of fiscal health.

At a lower level, politicians, and especially regional governors, have considerable powers to make corporate life unpleasant - ordering emergency audits, switching off the water supply, sending the fire inspectors round every day for a month and so on.

Keeping the local administration sweet is a matter of survival for Russian businesses - and if that means paying communists, then so be it.

'Value for money'

All this is open to misapprehension - in particular the belief that the system works only to the disadvantage of business.

Siberian tundra
Out here, business needs all the friends it can buy
True, it makes life difficult for foreign investors, who take a while to learn how to work the levers of power.

And it is arguably - although not definitely - a drain on the economy to have commercial capital drained away into political patronage.

But privately, few Russian business people have serious complaints: Russia, whether Tsarist, Soviet or oligarchic, has always functioned on a system of patronage and personal relationships.

Political "donations", whether above board or below, are generally reckoned to offer pretty good value for money.

Everybody's at it

Nor, contrary to what you might read in the newspapers, is this something unique to Russia.

Telephone hotlines to the seat of power are a fact of life in London and Washington, not just Moscow.

And ambitious tycoons get themselves into trouble in far more decorous places than Russia.

Prague newspaper Tyden this week published a list of 20 top Czech businessmen who have run into trouble with the law - a list that included Viktor Kozeny and Vladimir Zelezny, two of the country's richest and most politically active tycoons.

Business and politics make uncomfortable - but undeniably frequent - bedfellows.


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