State is Greatest Enemy to Russian Economy

For Veckans Affärer: In 2010, business paper Euromoney Magazine awarded Russia's Alexei Kudrin finance minister of the year in the world. Less than a year later, he was sacked by president Medvedev and joined a fragmented Russian opposition. This is just one example of how state and politics become Russian economy's greatest enemies. Growing political unrest in the runup to Sunday's presidential elections emanates from middle class discontent with failing governance, corruption, and political parasitism. "Stability, stagnation, and then what?" is what an increasing number of Russians ask themselves. Uncertainty about the future has suddenly increased the political risks with Russian economy.

Russian economy is in good shape. With a budget in balance, one of the lowest state debts among major countries, just over 4% growth and 5% inflation in 2011, the country's prospects seem bright. Threats are the usual: Falling oil prices and turbulence in the financial markets. Despite positive signs, we now see a lapse in recent years' dynamic developments. A temporary "wait and see" in the runup to Sunday's elections may lead to a more permanent economic slow-down because of political inability to cater for long-term economic needs.

January witnessed the greatest financial outflow from Russia since the 2008-2009 financial crisis. Growth was at zero and inflation is expected to rise during 2012. Where political analysts are silent, the market speaks out clearly. Trust in state and politics plummets, as the failed December parliamentary elections have dislodged the power and interest balance within United Russia - the country's ruling politico-economic cartel.

Even if fears prove exaggerated, it will take much time before the system reaches equilibrium again. The effects of prominent politicians' resignations become increasingly clear. Above all, Kudrin's sound financial policy has been replaced by overbid policies and pork-barrelling. Increased state expenditures is like throwing money into a black hole, believing it is a wishing-well. The flow of money instead runs from the oil wells, where energy constitutes a third of state income. Outside the energy sector, only middle class consumption drives the economy.

Putinism's political strategy - to promote the middle class in exchange for power - has failed. Instead, they have to bear the burden of a bureaucracy, which has grown by 40% since 2000. State efficiency has constantly fallen since 2003, with a corruption that affects everyday life of an increasing number of Russians. Only during 2011, the level of bribes tripled, accordning to the Interior Ministry. Bureaucracy and corruption are poisoning the flexible and dynamic business climate, where everything was forbidden, but everything also possible. Opportunities have decreased and hopes for the future changed to skepticism and discontent. Recent popular protests have thus greater depth than ordinary political opposition, as the state obstructs basic preconditions to earn money and make a decent living.

Except for the country's dependence on oil prices, Russian society is confronting fundamental structural challenges, which demand an increase in economic diversity. Declining demography reduces the number of Russians of productive age. Mounting flaws in infrastructure, health, environment, and education threaten to shrink productivity. Politics has not only failed to address these flaws. It has also reduced the economic incentives of the middle classes to contribute to diversification. 

What worries most, is the increase in political polarization that Putin now propels. The protesting middle class, with reasonable demands on those in power, is portrayed as traitors. This is a dangerous message and illustrates a contempt for those, who until recently were seen as Russia's future. As derision turns into threats against protesters, Putin alienates and provokes the very groups that have greatest potential to contribute to the country's further development and shows that material more than human resources are seen as the source of Russian growth. The economy may be sound, but as long as political malaise is spreading in the social body, risks will grow for Russian economy as people now have had enough of Putin.

Lights out Luzhkov

Driving past the Moscow mayor's office at night in the early 1990s, lights were always on in Mayor Popov's office. During the turbulent times back in 1991-92, this was meant as a sign to Muscovites that at least someone struggled to get things back on course. As usual, the paradox of doing the impossible merely resulted in a plethora of Popov anecdotes. Now, lights have gone out for his successor, Yuri Luzhkov, and as a conflict unveils before the eyes of an amazed public, interpretations of it as part of a general Russian power struggle for the 2012 presidential elections risk becoming anecdotical. To avoid this, my advice is simple: Follow the money!

That Luzhkov's position was precarious has been evident since this summer's wild fires covering the Russian capital in smoke for weeks. Still, one should not forget that his dismissal has been longer in the making than most would care to remember. The struggle between Russia's two capitals, Muscovites and Pitertsy, is a major theme in Russian politics, that also Putin's road to power is part of. As a protegé of erstwhile St. Petersburg mayor, Anatoly Sobchak, Putin is likely never to forget how instrumental Muscovite interests were for defeating Sobchak back in 1996, and the dire consequences this had for himself. Ever since, the Pitertsy have been longing to get back at Luzhkov, barely succeeding to keep him at bay in the 2000 presidential elections that brought Putin to the Kremlin. Of course, this is common knowledge for anyone following Russia. What is interesting is how little this has been the focus of attention recently. Instead, Luzhkov's dismissal is predominantly interpreted as part of a struggle between Medvedev and Putin for the 2012 presidential elections.

Of course, as Gazprom-owned TV-channel NTV led the campaign against Luzhkov, it is easy to draw the conclusion that Medvedev, still retaining power over Gazprom, pushed the button, which is likely also the case. Does this mean that Putin was against ousting Luzhkov, as part of some ongoing duel between himself and Medvedev? Well, there is reason for skepticism to such arguments, even though they currently seem at sway. As much as there are contrasting interests between Putin and Medvedev - as in any dual power system - one should be careful when it comes to explaining everything in such terms. Still, the temptation is great for any Kremlinologist to jump at too far-reaching conclusions when centres of power engage into open battle. Simply following the political trail may however prove a sidetrack.

Instead of zooming in on who will succeed Luzhkov as Moscow mayor - a relevant question in itself - now any Russia watcher may - in real time - be able to cover a greater field in charting power relations in the country than might be deduced merely from the political game. Those who remember the Khodorkovsky case and the Yukos scandal back in 2003 are likely to recognize a recurrent pattern. As back then, Putin stands aside, some mediator - this time Sechin - carries on deceptive negotiations on how to settle a conflict of interests, while the possy prepares to move in for the kill. So, as was the case with Yukos, the interesting issue is who will divide the spoils after Luzhkov - or rather what will happen to his wife's business empire. As illustrated by the NTV-documentary, it is not only Luzhkov one is going after, but also his financial basis.

Needless to point out, there is a reason why Luzhkov's wife, Yelena Baturina, ranks eight in Russian riches. The politico-financial symbiosis between the mayor and his wife in the capital's building and construction business is a racket that has sky-rocketed Moscow real estate prices to some of the highest in the world. With all adjoining businesses under the former mayor's influence, living costs have reached ridiculous levels for most Muscovites. Still, this is the sort of daily corruption that no one cares to bother with, regarding it merely as a way of life. The question now is if Luzhkov has reached a settlement e.g. with Sechin, giving him some sort of immunity in an ordered exchange for his wife's business empire, or if we will witness something similar to what happened to Yukos.

The point is that regardless of struggle or settlement over the Luzhkov spoils, following the money may shed much more light on how forces arrange themselves for the future than merely regarding it as a traditional Kremlinologist game. So, it may be worthwile to pay attention to who goes in for the kill on Luzhkov's legacy - whether in person or by proxy. As lights go out for Luzhkov, lights on his legacy should be kept on for anyone wanting to decipher the machinations of Russian politics.

Creditors of conscience

What makes it all so hard to understand? That is the question that arises with authoritarian regimes and comprehension of basic political dynamics. On the surface, it seems they are rather daft, but perhaps it is the corrupt system, the brutality out of which they are born and bred, and the sense of no tomorrow that make them turn a blind eye to realities? So, does it take a child to point out that the emperor is naked or is he well aware of the fact and simply pretends being dressed?

For over a year now, Azeri bloggers and youth activists Adnan Hajizade and Emin Milli have been jailed on fabricated charges in a travesty of justice that would rock most legal systems – but Azerbaijan’s.

On the eve of 8 July 2009, Hajizade and Milli were assaulted and beaten by two strange men in a Baku restaurant. Reporting the incident to the police, they were – instead of their assailants – detained on charges of hooliganism. After a prolonged legal process, Hajizade and Milli were sentenced to two and two and a half years’ prison respectively – severe convictions for such petty crime. That allegations were unreasonable must have dawned on the officers of the court. The two plaintiffs were former professional athletes trained in martial arts, and the accused two slender bloggers. What is the likelihood of Hajizade and Milli provoking a pub brawl with karate clones, except possibly for a severe death wish? No, their true crime is saying “The emperor is naked!”

Making a mockery out of a regime with no sense of humor may prove dangerous, which Hajizade and Milli experienced first-hand. As youth activists, they used comedy as means of opposition, and this was obviously regarded dangerous by the regime. In this respect, their destinies differ little from most similar cases worldwide. While peculiarities of each individual miscarriage of justice can never be underestimated, there is no need to go into further detail here. Suffice to say, for once, international reactions have been stern, by e.g. the UN, the EU, and the US. Amnesty International has declared Hajizade and Milli prisoners of conscience.

So, is that all there is to it? Perhaps not, for there is an aspect often overlooked in cases like these. Despite international pressure, most regimes do not budge to demands of releasing political prisoners with relatively short prison sentences. Getting amnesty for prisoners of conscience is a long-term commitment, and most regimes simply do not care if they get another smudge on an already smeared international image. Instead, an economic analogy may be in place to get the message through, in currencies and denominations comprehensible for a regime where power is a pyramid-scheme for personal enrichment. In such a system, the persecuted are creditors of conscience.

We have all seen this before – an authoritarian regime ruling a strategically situated country with natural resources in international demand. The result is most often a system where corruption is endemic al, government office distributed as fiefdoms for a limited élite, and a small degree of wealth distribution. The only things that trickle down to ordinary people are oppression and the sense of no future. Politics is economics and economics is politics.

Lessons learnt should be evident, but still the same mistakes are made repeatedly. For the outside world, Azerbaijan carries strategic importance, but there is little strategic about the country’s politico-economic system. Certainly, the going may be good in the short run, but in the long run, all stand to become losers. For states and companies alike, strategic investment in an unsustainable system is putting one’s capital at stake – whether a capital of confidence or of hard cash. In Azerbaijan, there is as little transparency to actual governance as there is to real oil reserves. Basically, you invest in junk bonds both politically and financially, and the only reason you stay on is because there is a line of people behind you willing to fill your place for short term gain. The hard question is when to opt out, but then quitting is not an option, although you know deep down that sooner or later the bubble will burst. Somewhere down the line, investors will have had enough and start asking hard questions needing good answers.

So where do two jailed bloggers fit into this scheme? What makes them creditors of conscience? Basically, people like these are like inconvenient auditors of a Lehman Brothers, a Freddie Mac or a Fannie Mae, threatening to shake the foundations of the system by posing fundamental questions. That the system is unsustainable is for all to see, but most people choose to turn a blind eye to realities. It is just the way it should be, as it always has been, and always will be. For the whistleblowers, there is a high price to pay, pointing to greater or minor absurdities, and in the process challenging the system and its persistence. Repression of critique and opposition only serves to demonstrate mounting regime deficiencies. This is the political equivalent of economic indicators. The greater need for repression the more the curves turn downward in terms of political – and indirectly economic – stability and development.

In essence, it is all like a great poker game with a cheating gambling addict trying to persuade you to be let in on the game: “Hey, Hilary! Tell them I’m good for it… I’ll even bring my own stack of marked cards.” And when reminded of old unpaid debts, there is always some rationalization like: “Just look at what happened in Iran last year! Is that what you want also here in Azerbaijan – the spread of Islamic fundamentalism?” That there is no reason or rationality in such flawed and faulty arguments seems irrelevant, as the main message is: “Don’t rock a sinking boat!” The Azeri government asks the world to bankroll it in terms of non-existent politico-economic legitimacy, with the empty threat of turning to another casino where moral debts are considered null and void. Perhaps it is time to call this bluff as gambling at “Casino Moskva” holds too great stakes with debts collected as “pounds of political flesh.” There simply is no fresh start with a regime burdened by moral debt and even if there were, old habits die hard – resulting in the same situation as before – in one form or another.

Eventually, the flow from the cornucopia of unchallenged credibility must end. The question is who will make the call – spectators of a naked emperor or players of a greater gamble. They all know that authoritarian Azerbaijan lives on borrowed time. The difference is pointing this out to the world, which obviously needs to be reminded that – as with any debt collection – it is often the small creditors, perceivably standing the least to lose – that are the first to call for bankruptcy making the fraud collapse like a house of cards. That is why creditors of conscience – whether a Hajizade, a Milli, or a Sakharov – provoke such fears with repressive regimes.

Anniversary of Anguish over Bronze Battle

This weekend past saw the first anniversary of the Estonian Bronze Soldier crisis - over the removal of a soviet WW II monument from central Tallinn. As the crisis evolved it ignited a bilateral quarrel between Tallinn and Moscow, in the end setting Russia and the European Union at loggerheads. As the first anniversary of the Bronze battle drew close, a certain extent of anguish and apprehension arose among Estonian authorities. What was to happen this time over? The simple answer was - next to nothing.

On Saturday, some 100 demonstrators gathered in a park in central Tallinn to commemorate last year's events, and to call for the resignation of the Estonian government led by Andrus Ansip. The event was peaceful and heavily monitored by police and the Estonian secret service (KAPO).

That the demonstration actually rallied less of a crowd than the number of people merely injured last year must be considered a fundamental failure for Russian "minority" interests in Estonia. Not least so as, just a few weeks ago, an organization to unite Russians in Estonia held its first congress. That Saturday's demonstration had such a poor showing may thus point to a waning significance of the Russian issue in Estonia. Or should perhaps alternative explanations be sought?

What evolved over a few weeks last spring was that the same methods used during the coloured revolutions in Serbia, Georgia, and the Ukraine, were now applied by Russians themselves. As the protest was reaching its crescendo, actions and debate were coordinated by sms, e-mail, and blogs targeting largely unprepared Estonian political leaders and authorities. The subsequent cyber attacks on Estonian web-servers proved the peak in efforts to paralyze society. Someone had obviously done his homework.

In terms of the Russian-speaking population of the Baltic States, Russia has long propagated that these "minorities" are consistently discriminated against, and has even ventured so far as to compare the situation with Apartheid. Last year's events also gave Moscow an opportunity to highlight the issue on the international scene. Although much of recent bravado has mysteriously evaporated, Russia has e.g. demanded an addendum on the Russian minorities in Estonia and Latvia in ongoing negotiations on a new Partnership and Cooperation Agreement with the European Union.

Still, much indicates that Moscow came out of the 2007 conflict with the EU on the wrong end of the stick - besides the PR-fiasco for Moscow's international image - why such demands are most likely to be ignored. Also, Russian policy towards the Baltic States since 1991 has largely proven a failure. Already in 1997, Russia's Council for Foreign and Defence Policy - an influential think-tank - in a report characterised Moscow's policy as counterproductive, if it intended to safeguard the interests of Russian "minorities".

It is far too seldom argued that what is not said and done may be as interesting as what actually is. So may be the case also here, although reporting on something that did not happen - as the Bronze battle anniversary - would hardly qualify as breaking news or of interest to a larger audience.

Turning to the case in point, the Bronze Soldier crisis has fundamentally been interpreted as an ethnic conflict. In fact, few issues are as politically sensitive as ethnic tension. Recent history has witnessed oppression and even genocide on minorities to an extent that has shocked world opinion. However, this also has made us prone to see far too many societal conflicts with ethnic lenses.

So, why did the anniversary of the Bronze Soldier crisis pass by next to unnoticed? May it be that there are alternative or complementary explanations to last year's turmoil than the ethnic angle? Before trying some hypotheses, it should be clearly stated that the removal of the Bronze Soldier from central Tallinn unequivocally was the igniting factor of the 2007 crisis. It is quite obvious that the Estonian government acted in haste and with poor judgement. Thus, they partly brought the crisis upon themselves.

Still, that does not explain the absence of protests a year after the so far largest protests by ehtnic Russians in post-soviet Estonia. The situation has not altered and the reasons for, arguably, Russian discontent with conditions in the country has not changed for the better - rather the opposite as a fact. Political forces traditionally safeguarding interests of Russians have partly been rendered obsolete. In socioeconomic terms, nothing has really happened, as illustrated in a report by Marju Lauristin last autumn.

So, except for Estonia's monumental mistake and obvious Russia-related explanations of lacking protests this year - the upcoming presidential installation on 7 May and last year's domestic need in Russia to rally around a cause - what might serve as alternative or complementary hypotheses for the difference between last year and now?

One reason largely unexplored is the transit of Russian goods and products through Estonia. Russia has long wanted to divert this trade to Russian harbours instead of having to pay the costs of transit. Furthermore, Kremlin-sponsored Russian companies had long been eager to out-compete those companies that controlled and profited from the Estonian transit trade. The same applied for control over export-harbours in Estonia. For most observers, it serves as no surprise to state that the transit trade involves enormous sums of money. One can only imagine how much by pointing to the fact that Estonia lost some 6,3 billion Estonian Kroonas in transit revenues due to a few weeks of Russian blockade.

Consequently, just a week or so before the April 2007 events, Russian vice Premier, Sergei Ivanov, held a speech in Murmansk, in which he propagated curbing transit trade and diverting Russian exports to ports in the Petersburg region and Gulf of Finland.

Negotiations for transit quotas and pricing on Russian goods by Estonian railway were to be held in May 2007. In 2006, the Estonian state re-nationalized Estonian Railway (Eesti Raudtee), why preconditions for influencing the outcome of negotiations had been altered to the detriment of Moscow's interests.

As for harbour facilities, the ports of Tallinn and Muuga represented around one-quarter of Russia's total refined-product exports, thus by far outweighing any Russian harbour. Control over harbours in Tallinn, Muuga and Sillamäe had long been coveted by Russian business interests. As previously reported, last year's crisis also saw a transfer of trade between these ports to the benefit of Russian interests.

Then, there is also the question of shipping. The crisis and the subsequent Russian trade blockade is said to have favoured shipping operations, controlled by Swiss-based Gunvor Group. Gunvor is owned by Swedish oil trader Torbjörn Törnqvist, with interests in e.g. Surgutneftegaz. In November last year, Russian political scientist Stanislav Belkovsky made allegations in the German newspaper die Welt that Putin had amassed a personal fortune of some 40 billion USD, and that part of this was held by a 50% share of the Gunvor Group.

Although these rumours and allegations cannot be corroborated, and in fact have been denied by most concerned parties - among others Törnqvist himself - one cannot but stop to wonder what role business with a Russian stake had in the 2007 Russian-Estonian crisis. The example of controlling the transportation system - railways, harbours, and shipping - of Russian exports by way of Estonian transit might thus arguably be one alternative or complementary explanation to why last year's Russian-Estonian crisis was allowed to escalate to the level it did.

Russia's imposition of a trade blockade on Estonia for a few weeks last year was a hard hit on the transit trade. The transport of Russian goods by rail, road, and boat was halted. The companies involved in this line of trade, were among the all too evident losers, and many of them were more or less put out of business - both Russian companies and Estonian with often large Russian ownership interests. These companies were not sponsored by the Kremlin. Instead, it appears that the blockade wiped out annoying competition, and that mightier Russian business interests moved in to take over the transit trade, once the blockade was lifted. Such methods would not be a novelty in Russian business practices and thus serve to surprise nobody. Big business in Russia regularly gets Kremlin's blessing to move in and wipe out competition in order to monopolise a market. The difference in what would arguably be the Estonian case, is that these practices were now applied on another state not in the CIS, but on a member of the European Union.

So, apart from speculations and conspiracy-theories that normally surround events such as the Bronze Soldier crisis, it would seem worthwhile to test such alternative or complementary hypotheses as accounted for above. Who stood to gain from a blockade halting transit trade, and who has actually done so? However, if proven right, such an argument would not only expose that the Kremlin serves its own interests, but also a blatant disregard by Russia for the interests of the Russian "minorities" in the Baltic States, because the greatest losers of the conflict would turn out to be the very same Russian minorities that Moscow claims to defend.

Consequently, it may actually have been the Russians in Estonia who lost most out of the Russian-Estonian conflict over the removal of the Bronze Soldier. Russians were hit by losing the revenues from transit trade, both in terms of profits and employment. Furhtermore, Russians were the ones who were most exposed by raising the issue of disloyalty to Estonian society as a whole. For any minority in any country, such cross-pressure may prove highly detrimental to their future prospects of finding a place in society in social, economic and political terms, and still Moscow decided it was worth to run this risk.

Perhaps, in the end it is safest not to test such hypotheses as forwarded above, because - if validated - they would bring the perceived cynicism of Russian leaders to new and even higher levels. Moscow's indignation and heavy hand towards Estonia was officially motivated by the public outcry among Russians over the removal of the Bronze soldier. General opinion held that Moscow now finally had to step in to protect the Russian "minority" in Estonia. In stark contrast to this official policy, a proven transit trade hypothesis would - to the opposite - paint a picture of Russians abandoned by Russia and their cause sacrificed for the sake of petty business interests. One cannot help but wonder what the Russians who took to the streets in both Tallinn and Moscow in protest against "fascist Estonia" would think if confronted by proof to that effect. In the meantime, such hypotheses are, of course, just a fidget of one's imagination - or are they?

Putin World's Richest Man

An increasing number of surveys rate Russian president Vladimir Putin the richest man in Europe. Putin is allegedly to have amassed enormous wealth during his presidential reign and all the way back to the Petersburg days. At his annual press conference on 14 February, Putin for the first time commented on these rumours:

It is true. I am the richest man not only in Europe, but in the world: I amass emotions and am rich in the sense that the Russian people twice put the trust in me to rule such a great country as Russia. I count this as my biggest wealth.

What concerns various rumours concerning my financial situation, I have seen some documents on this issue. This is simply gossip, which there is no reason to discuss - mere nonsense.

In Russia, there is a tradition of denial whenever such accusations arise. Instead, Putin chose to make fun of the issue - or rather make himself out as honoured by the trust and responsibility the Russian people has put in him. Judging from his body language, the Russian president appeared somewhat ill at ease with the question. Not that it was unexpected, and the answer was certainly rehearsed. Still, one did not need more than a glance at Putin's reaction to gather that he would not have passed a polygraph test.

The question of rising wealth and power in Russia is destined to determine the future development and stability of the country. As long as the elites may share the dividends of growing wealth and power, they will remain loyal to the system. The day this situation will change - e.g. by falling international oil prices - there is nothing to hold the system together except mere repression. The question is but for how long the elites will accept such a system, if they no longer have anything to gain from it. The risk is that a lack of growth will eventually lead Russia into crisis and turmoil with little to keep the system together.

Nashi is not ours anymore

The pro-Putin youth movement Nashi is to be dissolved as a national organisation, Russian daily newspaper Kommersant reports. The decision comes after prolonged Kremlin dissatisfaction with Nashi's increasing radicalisation and extremist tendencies as a mass movement.

As previously reported, sentiments have been rising in Moscow that Nashi has outlived its purpose after the December 2007 parliamentary elections. With increasing concern that the radicalisation of the organisation has given it a life of its own - beyond blind allegiance to the Kremlin - fear of what a loss of control over the movement might mean has probably resulted in the decision to disband the movement. In what appears almost as a Russian equivalent to the night of the long knives, the national organisation is dissolved along with all but five of its regional units.

What is interesting is also what the Kremlin chooses to keep on to in Nashi's organisation. Except the five loyal regional units, the rest of the movement's members are referred to participate in the national projects of the organisation. This is in line with how the Putin plan is devised to change and develop Russia. The step from mass movements to mass projects is logical, as mobilisation now has to turn from populism to product. Thus, Nashi's emphasis on demonstrations and picketeering is yesterday's story in Russia. Now all energy must be used to modernise the country in line with the next step of Putinism.

What is surprising with this move is not per se that Nashi is disbanded. Instead, it is the evident confidence and security that the Putinist regime obviously feels even before the March presidential elections. There is no longer any need for a mass movement to take to the streets in defence of power - no need to root out the "extremists" of the non-system opposition of Another Russia. The national projects lie ahead in the guise of "sovereign democracy" to fulfill Putin's legacy. In the eyes of the Kremlin, Nashi is not ours anymore.

This signifies both arrogance and ignorance to the severe problems that may be facing Russia in years to come. With inflation rising and facing an international economic downturn, it is a fight against time to diversify Russian economy and turn it away from its dependence on energy exports, before the momentum of change is lost. We have seen the consequences of falling oil prices before in 1986 and 1998. As global macroeconomic indicators are now turning downwards, Russia can no longer rely on a constant high demand for oil. This would go beyond arrogance and ignorance. It would be outright foolish. Still, Moscow treads on along the pre-determined road to realising the expansionist economic policies of the Putin plan, despite facts pointing to the soundness of the opposite.

To rid oneself of such an instrument of political stability as Nashi in face of future potential middle-class discontent might prove unwise in the long run. One should remember that it is the middle-class that has something to lose from the consequences of irresponsible policies. It is they that might take to the streets in disappointment of gross government failure to deliver on its promises. Then neither laws or brute force will be enough, and without Nashi to defend the regime, it might well meet with an unexpected destiny. Such a scenario is not as far-fetched as might be considered, as the price Russia has had to pay for Putin's political stability is stagnation in most walks of life and society. This, however, the Kremlin fails to see, as it is too busy maintainting the status quo of Russian politics and economy.

Russia's Nationalisation Trap

Which are the common assets of a nation and who should be allowed to utilise them? This is a question of heated debate for current Russia, as the vital energy sector is gradually being nationalised. It is privatisation in reverse - for everyone to see - no matter what the Kremlin might claim. The question is: Is it good for Russia?

In terms of economics, monopolisation - in this case nationalisation - may be motivated if the sector in question constitutes a natural monopoly. This may mean one out of two things: Either the social costs of monopoly production are lower than under competitive circumstances, or if the fixed costs of entry into a sector are so high as to be predatory, it allows but one viable and effective producer. Areas associated with natural monopolies are e.g. water services, postal services, telecommunications, and so on. However, as examples in global economy show, natural monopolies are not a sine qua non. Private companies may offer such production and services, as are associated with natural monopolies, more efficiently and at a lower price, than a state monopolist may. This is not always the case, and monopoly may in some instances be preferrable to competition. However, one should not automatically rule out competition only on the basis of existing economies of scale appearing to naturally favour a monopoly situation.

So, in view of current nationalisation of the Russian energy sector, could it be argued that it constitutes a natural monopoly? Most probably not. Instead nationalisation may threaten the industry as a whole.

What an industry such as the energy sector needs is long-term engagement and development. It needs large-scale investments over a long period of time in construction and maintenance. It also needs technical skills and know-how along the entire scale from prospecting to sales. Finally, it needs means of development - the capacity to expand and extract new resources and deliver them to costumers under efficient and competitive circumstances. These are qualities that a state actor does not necessarily posses.

So, does the Russian state have the financial resources and the commitment to maintain and develop the energy sector? For obvious reasons, it is a question still to be determined. However, judging from the current situation and the way the Russian state acts, perspectives are bleak for efficient state-owned energy production in Russia. First, Russian state-owned energy companies do not fit the profile depicted above. The situation clearly needs the dynamics only attainable under competive conditions. Secondly, Russian state interests tend to come in conflict with the rational needs of the energy sector.

The 2003 Yukos scandal and its aftermath clearly indicates a conflict of interests between the state and private enterprise in the energy sector. It is often argued that Yukos founder, Mikhail Khodorkovsky, had become too mighty and did not know his place, by meddling into politics. He was considered a political threat to power. However, reviewing the case from an economic perspective is even more disastrous. What really was at stake, were the large investments into energy infrastructure that Yukos planned to make - the various pipelines the company wanted to build. If these plans had been realised, they would have made Khodorkovsky more or less politically independent from Russian state leverage. Still, economically, such investments would potentially have brought profits and prosperity to Russia's economy and, indirectly, to its people. Furthermore, they were exactly the kind of investments that were economically sound and would have developed the energy sector in a positive direction. Thus, by victimising Yukos for political reasons, Russia was rendered an economic loss that the state was unable to compensate for. Consequently, as Khodorkovsky's 2005 nine-year jail sentence serves to show, the interests of the state and private business are far from always compatible.

Since then, the tendency arising from the Yukos scandal has strengthened. Private companies in the energy sector meet with state or pseudo-state opposition. Deals once made are put into question. Pressure is brought to bear on outside actors, such as when Gazprom recently seized control over the Sakhalin offshore project, ousting a foreign consortium led by Shell. Environmental motives are given for action against foreign investors, whereas Russian companies would never meet with such demands. Also, as the Yukos case shows, expropriation has become a new method for the state to forward its own and associate interests.

The perspective becomes even more horrendous when reviewing the issue from a security point of view. In Putin's opinion, it seems that not having full control over Russia's energy resources would pose a threat to the country. Accordingly, Russia cannot depend on private, and often foreign, companies for its energy production. Furthermore, the country cannot depend on transit of oil and gas by pipelines running through foreign states. Consequently, new state-controlled pipelines are built bypassing intermediate countries, such as the Nordstream pipeline projected to run through the Baltic Sea. From an economic point of view, it is highly questionable whether this and similar pipeline projects are financially viable, especially as the costs for developing and expanding already existing pipelines over foreign territory would be much lower, as would even be the case of building new ones. Therefore, it is obvious that Putin's obsession with control is detrimental to almost any economic rationale.

So, who stands to gain from nationalisation of the Russian energy sector? Who is allowed to utilise the common assets and to what end? The obvious answer would, of course, be the Russian state. However, with lacking long-term commitment to maintenance and development, the overall GDP stands to lose from state ownership. The state will be forced to either carry the burden of investments or see energy incomes dwindle due to neglect and inefficiency. Consequential interruptions of delivery to costumers would not vouch for Russia's role as a reliable producer. So, why should Russia voluntarily assume these great costs, when private companies could freely do it with greater professionalism than the state would ever be able to do?

The other obvious answer would be that the Russian people would gain from nationalisation. However, to what extent are the energy incomes redistributed to the people, and if so, would it be in the true interest of the people? First, the Russians receive little of the energy profits. It is true, there have been some attempts at state social reform and economic support lately, but it is questionable whether this is motivated out of real concern for the people. An example is Russia's population decline, where Putin seems more worried about the decrease in the future number of conscripts for the military and similar issues, than the social malaise of the people itself. Also, if too great a proportion of the incomes would actually be distributed to the people, it might cause economic crisis due to consequential hyperinflation. Finally, a state-run energy sector would probably be less efficient than a private alternative, creating comparatively lower profits. The effect would be an overall lower GDP, negatively affecting the Russian people. Thus, it seems that the Russians have little to gain from nationalisation of the energy sector.

Then, does nationalisation of the state sector strenghten Russia in its foreign relations? Initially, it might seem that control of the energy - as a strategic resource - would strengthen Russia's international power. The threat of "turning the tap" would seem to be a constant leverage for Moscow towards foreign states, mainly the EU, dependent upon Russian energy. However, this is countered by an equal risk that foreign states would turn to other producers or seek alternative energy solutions, such as e.g. nuclear power. Still, as the example of the European Union shows, Russia is more dependent on the EU than the EU is of Russia. Also, the EU is becoming increasingly weary of Russian ambitions and the country's reliability as an energy deliverer. Moscow has declined to ratify the European Energy Charter Treaty. European initiatives to develop the energy contents in a renewed Partnership and Cooperation Agreement (PCA) have met with outright opposition from Russia. Thus, Moscow is sending an increasingly clear message to Bruxelles about its intentions: Russia is not to be trusted as a reliable partner to the European Union. Regretfully, these are exactly the sentiments beginning to grow in Bruxelles and European capitals.

Today, it is obvious that Putinist ideology is the foundation of the current nationalisation of the Russian energy sector. It is the sort of étatism that belongs to the 19th century. It is a statist view that emphasizes control over rationality. It is an antiquated geopolitical outlook that puts the map before the realities of modern society. It is a perspective where the power of a state is measured by the quantity of its population, not of its output. It is a perspective that sees foreign relations as a zero-sum game. That president Putin wants the state to assume control of Russia's energy resources is but another factor in this overall scheme. For him, that the state owns a country's resources is only the natural state of things - how it should be. Reviewing this perspective, the conclusion is apparent: Putinist ideology simply is a notion that lacks understanding of the modern world.

Still, what the modern world is about is cooperation to the common good of those who participate in it. Thus, what Putinist ideology disregards is a fact so obvious that it needs neither stating nor reiterating: Modern power derives from the relative gains of cooperation - not from conflict or absolute capabilities. Making it alone is simply not an option in the modern world, and still this is the absolutist approach that Putinist Russia is opting for. That it is no viable long-term option for any state, seems of no concern to the country's leadership. Sooner or later, Putin's path will, regretfully, come back with a vengeance to Russia and its people.

In the meantime, the common assets of Russia are utilised to the detriment of the country and its people. Nationalisation is not good for Russia, and thus the Russian people may gradually come to understand that Putinism is simply not good enough for them. Until then, Russia is caught in a nationalisation trap.

A Bursting Baltic Bubble?

Are the Baltic states facing an impending economic crisis? So seems to be the case, due to the current overheating of both Estonian and Latvian economies. Earlier this week, Standard & Poor's as well as Deutsche Bank warned that Latvia's economic imbalances might cause a currency devaluation. Estonia risks a similar fate in the runup to its 4 March parliamentary elections. Only Lithuania seems to be getting off scot free.

In January, Standard & Poor declared Latvia Europe's "most dynamic economy in 2007" with a GDP growth of 8.9%, and with neighbouring Estonia coming in second, with a 7.5% growth. Estonia and Latvia - along with Slovakia - are the fastest growing economies in Europe.

Growth, however, has a price. Both economies are facing an inflationary spiral with most economic indicators going wild. In the battle over customers, Latvian banks have lended money to consumers at an interest lower than the inflation rate, and Estonian banks have followed suit.

However, Latvia's problems are the most acute. Since January, economic growth has risen to 11%, by far exceeding the 6-7% that are long-term economically sustainable. High domestic demand and corporate investment rates add to the problems. The increase in imports - clearly over what the country exports - has also created a worryingly negative balance of trade.

As for the labour market, supply cannot meet demand as many Latvians work abroad. The annual wage-rises of an average 10% have so far been compensated by a corresponding growth in productivity, but this year the tendency is towards an impassable 20% rise.

What may really topple the economy, however, is the negative real interest rate combined with a high rate of public lending - largely in euro-loans. According to some sources, this has caused prices of real estate to double in recent years.

All in all, if Latvia were now to devalue its currency - the Lat - banks would be forced to compensate themselves by a drastic increase in interest rates. With loans largely in foreign currency, consumers would face acute solvency problems, potentially with a consequent crisis for the banking system. As it appears, recession seems to stand at the door.

So, what has the Latvian government done to curve inflation and battle economic overheating? Precious little, one must admit. Already last spring, Standard & Poor predicted several years' delay for Latvia's inclusion into the eurozone, postponing it for 2009-2010 at the earliest. Prognosis was based on sustained price growth, driven by demand and rising inflationary expectations. This, in itself, should have been a clear stop-sign for the Latvian government.

All the same, the Latvian economy is basically in good shape. The country's foreign debt is low and the state economy is under control. And, obviously, economy is booming. So, why waste a winning concept, seems to have been the reasoning of the government. Some measures have been made, but they have either failed or been dubious as for their effects.

Also, it is quite obvious that the government had had more reasons to be content. In October, the government coalition, led by conservative People's Party (Tautas Partija) leader Aigars Kalvītis, was the first to be re-elected since the country regained independence in 1991. No wonder the government had a laid back attitude to developments, wanting to enjoy its honeymoon with the voters as long as possible.

However, now the government has come to a rude awakening, as the situation has quickly gotten out of hand. The question is if it will dare to challenge the banking and financial sector, which - as in Estonia - belongs to its key support groups. It is questionable if the Kalvītis cabinet can rise to the challenge. In the meantime, the fear that the Baltic bubble bursts will linger on.

Getting too hot?

"Russia is a northern country and if temperatures get warmer by two or three degrees Celsius it's not that bad - we could spend less on warm coats and agricultural experts say that grain harvests would increase further." Thus, Russian president Vladimir Putin jokingly put it in 2003, opening a major international conference on climate change in Moscow. For long, Russia was hesitant to signing the Kyoto protocol on global climate change, before Moscow eventually subdued to international pressure in 2004.

Let's face it: Environmentalism is simply not something one would expect from Putin and his crowd of siloviki and oil barons. As Russia signed the Kyoto protocol in November 2004, it was against the strong advice of both the Ministry for Industry and Energy and the Russian Academy of Sciences. In exchange, Moscow received EU support for Russia's admission to the WTO, why the Kremlin probably considered the deal a fair trade. Warm feelings for preventing the greenhouse effect had little to do with Putin's position on Kyoto.

Russia's traditionally energy intensive industries would normally vouch for a negative stance on limiting the country's greenhouse gas emissions. However, this has posed no great problem for Russia, as the Kyoto protocol is calculated on the 1990 emission levels. Given the economic and industrial collapse of the early 1990s, Russia still has a long way to go before reaching such levels again. Instead, it has been argued that the country might actually benefit from the Kyoto protocol by selling emissions credits to other countries. With the current economic boom in Russia, though, the deal is increasingly questioned for concerns that it might hamper industrial growth. Not surprisingly, the mighty energy sector is one of the greatest critics of the Kyoto protocol. However, this might paradoxically become the opposite in a few years' time.

Yesterday, Russian gas monopoly Gazprom declared that its export of natural gas to Europe had decreased by 16%, as compared to the same period last year. The reason for Gazprom's drop in output was evidently warmer weather in Europe, leading to decreased consumer demand. Also, exports to the FSU dropped by 15%, and the supply to Russian consumers by 11% during the same period.

While it is still too early to say whether this winter's mild weather is due to global warming, it is quite clear that if this tendency would become permanent in years to come, it would have a grossly negative impact on international gas demand and prizes. One obvious loser of such a development would be Russia's energy sector, which constitutes the engine for the country's economic growth. Thus, if global heating would put a check on energy prizes, Russia's energy-dependent economy is a candidate for severe crisis.

So, should we expect Gazprom executives to turn into ardent environmentalists? Will Ivanov and Medvedev campaign to stop global warming for next year's presidential elections? Most probably not! Still, one never knows. When it comes to realities, Russian politicians are usually swift to change opinions if money is at stake. If plunging energy prizes would hit Russian pockets, we might witness an eventual shift in Kremlin views on global warming. As we have still to see the true consequences of the greenhouse effect, it remains uncertain how fast an impact it will have on global temperature levels. The forms of and extent to which global warming will affect Russia is thus for the future to decide.

Estonia: Battle by Bronze Proxy

Why is it that a WW II-monument repeatedly sparks bilateral crises between Estonia and Russia? This question has, in recent days, gained new relevance after strong Russian reactions against the Estonian parliament's decision to remove the so called Bronze Soldier (Pronkssõdur) soviet war monument from central Tallinn. The reason is simple: The Bronze Soldier has become a proxy for the conflict between Estonian and Russian interests in Estonia before the 4 March parliamentary elections. The Estonians thus vage a battle by bronze proxy.

It is becoming increasingly clear that Edgar Savisaar's Centre Party (Keskerakond), will stand as victors on election day, ousting the coalition government led by Prime Minister Andrus Ansip's Reform Party (Reformierakond). Such a result risks toppling the delicate balance between western financial interests, dominating the Estonian banking system, and Russian interests controlling the lucrative transit trade, with far-reaching consequences for domestic and foreign policy.

Economic interest has been one of the main driving-forces in Estonian politics since the country regained its independence in 1991. A division of labour was developed roughly between two opposing groupings - the Russians controlling transit trade and backed by Moscow, and the Estonians controlling the financial and banking sector and backed by western - mainly Scandinavian - interests. This is reflected also in politics. Thus, Savisaars Centre Party has gradually become Moscow's agent, with heavy economic backing from Russia, to the point that the party actually has entered into union with Russian power party United Russia (Единая Россия). Savisaar's main opponent, the Reform Party, is to the contrary linked to finance and banking dominated by western business interests. A final peculiar twist to the matter is that these two main contenders for political power in Estonia, in fact form the current coalition government, together with the People's Union (Rahvaliit).

It is obvious that the the Bronze Soldier crisis this time is a desperate attempt by the Reform Party, facing potential defeat, to gain votes by shedding light over the close relations between the Centre Party and Russia. So, who are the major players in Moscow's relations with Estonia? On the Russian side, two names stand out as safeguarding these interests, namely Gleb Pavlovsky, one of Russia's foremost "political technologists," and Igor Levitin, Russia's Minister of Transportation. Pavlovsky gained wider international attention in 2005, due to allegations of involvement in the dioxin poisoning of Ukrainian president-to-be Victor Yushchenko. As for Levitin, Savisaar the other year unsuccesfully tried to grant him Estonian citizenship due to his great services to the country.

Then, what is actually at stake for the upcoming elections? Estonia is currently struggling with an overinflated rate of public lending - a financial bubble that could easily burst in face of any radical change of power in Tallinn. If Savisaar's Centre Party would win on 4 March, this might well be the spark to set off a major financial crisis in Estonian economy. As the Reform Party relies on the finance and banking sectors that constitute the lenders, such development would be catastrophic to the party, and potentially topple the fragile balance of power within Estonian politics and society. Moreover, it would hit hard on the western investors, forming Estonia's link to European economy. Therefore, the Reformists now are desperate to undermine the Russian interests forming the power base for Savisaar's Centrists. Thus, the Bronze Soldier crisis must be seen as an attempt to provoke sanctions from Russia, which would hit the very transit trade that forms the basis of Savisaar's Russian backing.

As the Estonian parliament (Riigikogu) this morning decided to move the Bronze Soldier monument, the country's president, Toomas Hendrik Ilves, was quick to declare that he would not sign such legislation, claiming it to be in breach of the constitution. In this context, one must ask whether it really was necessary for the parliament to pass a law on the removal of the Bronze Soldier. If this really was the intention of the Reform Party, could it not have been easier accomplished by a simple government decision? From this perspective, it is quite obvious that the Reformist ulterior motive was to provoke a crisis with Russia that would benefit the party for the upcoming elections.

So, what have been the reactions in Moscow? Russian Foreign Minister, Sergey Lavrov, was quick to characterise the decision as a "grave mistake" and as a "blasphemous act." Also, the chairman of the Russian Duma's foreign relations committee said that the decision would have catastrophic consequences for Russian-Estonian relations, especially trade and economy, thus hinting at exactly the effect the Reformist Party wanted to achieve. However, Estonia's ambassador to Moscow, Marina Kaljurand, was quick to point out that Russia would be unlikely to impose bilateral sanctions on Estonia, not wanting to risk a "trade war" with the European Union. What will actually come out of this is yet to be seen, but it seems that Russian politicians would be shrewd enough to call the bluff. Still, Russian-Estonian relations have been shaky for long, as previously reported, so it is difficult to say what will come out of Moscow this time.

Here one should instead direct more attention to an overseen foreign policy factor in the context of Russian-Estonian relations, namely the projected Russian gas pipeline through the Baltic Sea. This crucial project for Russia is meeting increasing opposition among Baltic Sea states, and currently public opinion also in Sweden is turning against letting the pipeline run through its territorial waters. Would Sweden and other Baltic states turn down the project, with a Centrist government ruling Estonia, one scenario is that Russia might turn its frustration towards Tallinn, possibly giving massive support to Savisaar in order to gain a permanent influence over EU-member Estonia. This would create a very difficult terrain for the EU and Estonia's neighbours to manouevre, not to speak of what challenges it would pose to president Ilves and the Estonian political system.

Finally, is there any solution in sight for the issue of the Bronze Soldier monument? As for its removal, Estonia probably lost its chance back in 1991. However, doing so spurred an idea of expanding the monument to hold also statues of Estonian, German, as well as allied soldiers of WW II, along with various paraphernalia. This idea was never realised, paradoxically due to lack of metal for the statues. In the early 1990s, Estonia was a major exporter of metal, despite its evident lack of this type of natural resources. Mainly Russian business interests made fortunes by exporting whatever metal scrap they could lay their hands on, thus forming the mighty Russian economic interests that now dominate the transit trade. So, what then made Russian fortunes - the metal that might have expanded the Bronze Soldier monument into a unifying symbol for Russians and Estonians alike - now comes back to haunt the transit profiteers by a constant threat of sanctions to their trade. Had there been metal then, this explosive matter might have been defused at an early stage. Then, of course, Estonians and Russians would probably have found some other symbol to quarrel over.

Comment: On Baltic economy, especially Latvia, cf. "A Bursting Baltic Bubble." For an overview of Russian-Estonian relations see also "Estonia: Stalemate in Russian Relations."

Death of a Russian Hero?

Yesterday, deputy head of the Russian Central Bank, Andrei Kozlov, died from gunhot wounds protracted when shot down by armed assailants in central Moscow Wednesday evening. Kozlov is the highest ranking official murdered during president Putin's reign and his assassination now sparks indignation and raises doubts about Russia's fight against organised crime.

Kozlov was responsible for cleaning up the Russian banking sector and closed down several banks involved in money laundering schemes and violations of Central Bank regulations. In 2004, Kozlov closed down Sodbiznesbank and this year Neftyanoi bank in high-profile cases against organised crime in Russia. In 2006, the Central Bank has stepped up efforts in the fight against the financial activities of the Russian mafia and banking licenses have been revoked almost on a weekly basis. Therefore, Kozlov was an obvious target for retaliation from criminal elements. That Kozlov refused having bodyguards regretfully facilitated his murder.

Kozlov's death is a tragic blow against Russia's efforts to clean up criminality within the financial sector. The importance of his work cannot be overestimated, while it targeted the core interests of Russian organised crime, restoring a sound Russian economy by legal means. Such efforts by grey bureaucrats are exactly what hit hardest at the mafia as has been demonstrated by both US and Italian efforts to fight organised crime. However dull Kozlov's work might have appeared, his efforts were of great importance in restoring the legality and transparency so much needed in contemporary Russia. His eulogy might therefore read "death of a Russian hero."

Russia Between Oligarchs & Tycoons

Who were the oligarchs? The question may seem premature, while Russia's economic élite still exerts disproportionate influence over Russian society. Moscow actually has more dollar billionaires than New York. However, a drastic change has occurred during the Putin presidency. Whereas Boris Yeltsin's second presidential term was dominated by the oligarchs, Putin has largely succeeded in breaking away from their influence. Thus, the heydays of Russian business oligarchy seem to have passed, turning oligarchs into mere tycoons.

As Vladimir Putin seized power in Russia in 1999-2000, it was much thanks to the support of a few influential Russian businessmen. Their relations to the Kremlin, and above all president Yeltsin, were so close that Russians referred to them as the "family" - signifying a merger between the Yeltsin clan and the major Russian business tycoons of the 1990s. At the time, the tycoons wielded such influence and power over Russia that the country stood on the verge of oligarchy.

In contrast to Yeltsin, Putin at an early stage signalled that things were about to change. Such signals were initially incomprehensible for most oligarchs, as they were used to easy access to the president. However, access was soon denied with Putin in power - much to the fault of the oligarchs themselves. People like Berezovsky and Gusinsky had major fallouts with Putin already in early 1999, much because they treated him as a puppet on a chain. Hopes that they could control the new and inexperienced president were soon lost.

Instead, Putin formalised relations with major business by channeling contacts through the Russian Union of Industrialists and Entrepreneurs and by regular and more official meetings with leading businessmen. The message that gradually evolved during Putin's first presidency was becoming increasingly clear: Hands off politics! As long as business did not meddle into politics, the oligarchs were to be left alone in generating profits. However, if business ventured into threatening state interests, there would be hell to pay. So, who were the winners and losers of this transition?

The losers
The first victim of Putin's new policy was Russia's "capo di tutti capi" - Boris Berezovsky. His influence over Russia was so great by the end of the 1990s, that he was often called the "Grey Cardinal" of the Kremlin. With six major bank owners, Berezovsky in 1996 formed the "Big Seven" who were instrumental for the reelection of Boris Yeltsin. Seeing himself as a "kingmaker" Berezovsky was rewarded by Yeltsin in becoming first deputy secretary of the National Security Council, then secretary of the Commonwealth of Independent States (CIS). Winning a parliamentary seat in 1999, Berezovsky's luck started to turn. Having first brought Putin to power and then severely aggravated him, the methods of Berezovsky's business conquests - Aeroflot, Sibneft, aluminium industry, the ORT TV-channel etc - were turned against him. Only six months after the 1999 parliamentary elections, Berezovsky was forced to go into exile, on charges of fraud, money laundering and other financial crimes. After several demands for his extradition to Russia, Berezovsky was finally given political asylum in Great Britain.

Putin's second victim was media tycoon Vladimir Gusinsky - Russia's equivalent to Rupert Murdoch. Through his holding company Media Most, Gusinsky had great influence over Russian media, not least through the TV-channel NTV and the newspaper Segodnya. NTV and Segodnya were long regarded the nucleus of new independent media in Russia, even though it is obvious that Gusinsky at times used his media power for political purposes. The most flagrant example was the massive endorsement for Yeltin's reelection campaign in 1996. However, with Putin in power, Gusinsky's overinflated ego, a flamboyant lifestyle, and a propensity for unsound investment were factors that soon put him at loggerheads with the new master of the Kremlin. This all led to his eventual downfall. After a series of police raids and legal actions against himself and his companies, Gusinsky went into exile in Israel in 2001. In his absence, Gazprom and other companies seized the remainder of his business empire, and it its unlikely that the media tycoon will return to Russia, not least because legal authorities have long sought his extradition on fraud and embezzlement charges from several European countries.

The case that has perhaps been given most attention internationally is that of Mikhail Khodorkovsky. Regarded as a banking genius, Khodorkovsky in 2003 was Russia's wealthiest man. Back in 1990, he formed the Menatep bank, which provided credit to state enterprises, and participated in dealing with privatisation vouchers, thus gaining control of several large companies. He entered into chemical and textile industries, construction, mining and oil enterprises. In 1995, Khodorkovsky gained a controlling share of the oil giant Yukos, which soon became the jewel in the crown of his business empire. In the early 1990s, Khodorkovsky was known for his murky business deals in the privatisation of Russian economy. However, at the turn of the millenium he had transformed his public image to that of a protagonist of economic transparency, publicly crusading for stockholder and investor rights. Thus, Yukos was the first major Russian company to publish reliable quarterly reports. Still, economic influence was not enough for Khodorkovsky. He wanted political power as well. In supporting parties opposing Putin and the Kremlin, Khodorkovsky soon became the target of Kremlin's anti-oligarch crackdown. He not only posed a political threat. He also planned the construction of several strategic pipelines, which - if realised - would have given him a disproportionate influence over Russian business making him independent of political pressure. In addition to a political threat, Khodorkovsky thus also posed an economic threat to major interest groups within business and politics. It should therefore have come as little of a surprise when Khodorkovsky was arrested in October 2003. After a lengthy trial, displaying the Russian legal system as a travesty of justice, Khodorkovsky was sentenced to nine years imprisonment and his financial assets were gradually dismembered by his enemies within state and private business. At the time of his arrest, he was considered the most powerful of the Russian oligarchs. Now he has been passed to the sidelines serving his sentence in a Siberian prison camp.

The winners
Among the winners of Russia's business oligarchs, Roman Abramovich must be counted as the one who got away scots free. A disciple of Boris Berezovsky, Abramovich benefitted from his patronage in making his way to the top of Russian business. As the Kremlin moved in on Berezovsky in 1999, Abramovich took over Sibneft - one of Russia's largest oil companies - from his patron along with Russia's largest television network. He then went on to expand his nascent business empire by going into aluminium production by forming Russian Aluminium - the world's second largest aluminium producer. He also went into politics, representing the impoverished Chukotka region of the Russian far east, first as Duma deputy and then as governor, making development of the region his pet project. In 2005, Abramovich sold off 72% of his shares in Sibneft to Gazprom - the Russian state energy company. He has also apparently been able to remain good relations with the Kremlin - both the Yeltsin and Putin administrations. Abramovich has, however, increasingly transferred his assets abroad, buying and investing in western business, most notably the purchase of the English soccer team Chelsea. Today, he spends most of his time in Britain, only occasionally visiting Chukotka, where he remains governor. In March this year, Abramovich was listed by Forbes Magazine as Russia's richest man and the 11th richest in the world.

Vladimir Potanin is the golden boy of the post-soviet establishment. The son of a Ministry of Foreign Trade official, Potanin attended the prestigious Foreign Ministry institute, the MGIMO, before going into business. He started out with trading in nonferrous metals with his Interros company in 1991, to be followed by two banks - Oneximbank and MFK. Being an architect of the loans for shares program, he benefitted greatly from being able to buy Russian companies much beneath market value. In 1996, Potanin was one the "Big Seven" who assured Yeltsin's reelection. As a token of appreciation, he was then appointed first deputy prime minister by Yeltsin. The August 1998 economic crisis took a heavy toll on Potanin's business empire, but he succeeded in securing crucial assets. His financial conglomerate holds major assets in Russian business such as Norilsk Nickel - the world's largest platinum and paladium producer - as well as media holdings such as Izvestiya and Komsomolskaya Pravda.

As many other successful Russian businessmen, Mikhail Fridman has kept a low profile throughout his career. Starting out with a plethora of various businesses in the late 1980s, he subsequently managed to finance the establishment of AlfaBank - now one of Russia's biggest banks. He then went into the lucrative oil business and acquired Tyumen Oil. Cooperating with British Petroleum, Tyumen Oil was transformed into TNK-BP, today the world's tenth largest private oil and gas company. Also Fridman belonged to the "Big Seven" endorsing Yeltsin in 1996. The pinnacle of his business empire is the AlfaGroup holding company.

Oleg Deripaska is one of Russia's youngest billionaires (only Abramovich is younger). As so many others, he started out with trading in metals. Together with Abramovich, he formed the Russian Aluminium (RusAl) - the world's second largest aluminium producer - in 2000, and now owns 75% of company shares. He has also major interests in power and car industries and he also owns Russia's largest insurance company. Although Deripaska has been careful to keep off the political arena, he is considered one of president Putin's major business allies. Along with his business partner - Abramovich - Deripaska is by some currently considered Russia's richest man.

Born in Baku, Vagit Alekperov was fostered into the oil business, landing his first job in the sector at 18 years' age. By his growing expertise, Alekperov in 1991 became first deputy minister of fuel and energy and then acting minister. His main political accomplishment was bringing Russia's three biggest oil companies together to form LukOil. Not surprisingly, Deripaska then became president of Lukoil, a position he has retained ever since. Today, Lukoil is one of the world's mightiest oil companies with energy reserves only equalled by Exxon. He is considered Russia's tenth richest and the 38th worldwide.

From managed democracy to managed oligarchy?
Russia during the 1990s has often been compared to the United States during the early 20th century, when Rockefeller, J.P. Morgan and other business tycoons succeeded in forming next to total monopolies in various areas of business. Thus, the Wild West of this era should be equalled to the Wild East of Russia during its first post-soviet decade. Those who seek similarities may today also compare US President Woodrow Wilson's measures to bring down Standard Oil and other monopolistic companies. Thus, today Putin would allegedly be trying to regulate the market after the necessary turmoil of the liberalisation of the 1990s. The Russian state would consequently be trying to regain its position as a macroecnomic arbitrator in order to regulate the market and set the rules of the game.

However, this argument falls flat as the Putin administration displays such a blatant disregard of basic property rights - the very nucleus of a working market economy. That the oligarchs may have done the same in the early 1990s is no excuse for a state to follow such conduct. Moreover, one may argue that one oligarchy today is replaced by another, while the spoils of state action against the oligarchs partly end up in the hands of Putin's entourage, thus effectively redistributing assets from private to private hands instead of to government control. Consequently, Putin's people enrich themselves by forcing parts of Russian business into their own hands. Of course, such behaviour is but a parallel to Putin's political agenda, gaining control over all relevant areas of society. Seeing similarities between Russia of the 1990s and the US of the 1910s becomes laughable if turning to president Wilson's credo of "making the world safe for democracy." It is quite apparent that Putin neither makes Russia safe for democracy nor makes Russia safe for market economy.