Oligarchs and Their Power During Yeltsin’s Russia

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Table of Contents

The Key Figures of the Russian Oligarchy
The New Oligarchs
The Era of Yeltsin
Conclusion
Reference List

The word “oligarch” perfectly describes the history of Russia during the last two decades. On a bigger scale, this term can be used to describe almost everything when it comes to businesspersons. The notion of oligarch was synonymous with authority and power during the 1990s, but nowadays, it is refuted by all the rich people coming from Russia (Gill & Young 2015). Mostly, this happens for the reason that it is associated with the worst times of the era of Yeltsin. It is safe to say, though, that oligarchy underwent a series of important transformations during these years (Shinar 2011). Some of the oligarchs turned out to be forgotten, some of them outran to other countries, and some ended up in jail. The ones that applied more of a pragmatic approach to this issue were able to adjust to the Russian environment (Gill & Young 2015). They got rid of all the political allegations and requirements, and this made it impossible to call them oligarchs. Boris Berezovsky, the power behind Yeltsin’s throne, was the first to use the term “oligarch” when he was interviewed by Financial Times in 1996.

Berezovsky stated that seven major bankers joined their efforts and resources to help Yeltsin to be re-elected to the presidency (Gill & Young 2015). The second term seemed to be a bad dream for Russia due to the anarchy and poverty that flooded the country during Yeltsin’s rule. These seven bankers claimed that they controlled approximately half of Russian economics. They were also called the seven-bankers or “semibankirshchina.” The latter became an adaptation of the notion “seven-boyars” (semiboyarshchina in Russian) which referenced the event in which seven boyars betrayed the king and let the Polish infiltrators overcome Moscow in 1610 (Shinar 2011). In 1996, those seven bankers were responsible for saving the industrial assets that were unlawfully obtained during the first years of Yeltsin’s rule. They were also interested in protecting the government from the return of the communists.

Through stealing the public funds and the complicity of high-ranking politicians those businesspersons, the oligarchs conquered the majority of the Russian industrial assets. Mostly, they were interested in natural resources. They also joined the mafia, which flourished all over Russia at that time (Braguinsky 2010). In those troubled times, it was necessary to ensure the physical safety of the results of their predation. This mafia also included business entities that experienced significant liquidity at the times when it was not common for businesses, and when everything was for sale (Gill & Young 2015). Anatoly Bykov is one the most notorious members of the mafia (he also took part in the aluminium wars).

The Key Figures of the Russian Oligarchy

Boris Abramovich Berezovsky, a businessman of Russian-Israeli descent, is the most famed of the Russian oligarchs. The fraudulent sale made the most of his fortune of cars produced by the state-owned company AutoVAZ, better known in Europe under the trademark LADA. Then he managed to get closer to the “family” of Yeltsin (Ross 2010). After that, he captured the oil and industrial assets and the company Aeroflot (which he eventually led to the brink of bankruptcy). The editor of the Russian version of Forbes magazine, an American of Russian descent, Paul Khlebnikov, wrote the book “The Godfather of the Kremlin” in which he addressed the life of Berezovsky in detail (Ross 2010). The freedom of speech turned out to be lethal because Berezovsky was killed in Moscow in 2004.

Vladimir Alexandrovich Gusinsky is also a businessman of Russian-Israeli origin. His fortune comes from the bank he founded in 1989 and the union with the Mayor of Moscow, Yuri Luzhkov (Ross 2010). He founded the first private media group and consolidated his activities in Media-Most. He declared war on Boris Berezovsky, then in 1996, he reconciled with him to support Yeltsin’s candidacy. He is a prominent member of the World Jewish Congress and was one of the founders of a Russian-Jewish Congress assembled by Mikhail Fridman (Ross 2010). The crisis of 1998 significantly weakened his position.

Vladimir Olegovich Potanin is also a well-known oligarch whose position in the Ministry of Foreign Trade allowed him to significantly enrich himself and create a financial group “Interros” and ONEXIM bank (Ross 2010). In 1995, he became the inventor of the system “loans in return for shares”, which allowed bankers to obtain whole branches of the Russian industry for a laughable sum of money. For several hundred million dollars, loaned by a Russian state on the verge of bankruptcy, the oligarchs seized assets that cost many billions (Ross 2010). Using this system, Vladimir Potanin became the owner of “Norilsk Nickel.”

Mikhail Borisovich Khodorkovsky began his career as an influential member of the Moscow Komsomol (an organisation of Soviet youth, from which the future leaders of the Communist Party were recruited) (Ross 2010). Mostly, Khodorkovsky was able to come up because of the resources of this organisation and its connections with the Communist Party. The first step to his oligarchic future was the founding of his bank “Menatep.” Then he obtained the assets of the company YUKOS using the above-mentioned system of “loans in return for shares.” The privatisation of Yukos was accompanied by numerous murders and absolute contempt for the rights of minority shareholders (including foreigners) (Ross 2010). The largest asset of YUKOS was located in Nefteyugansk (with Khodorkovsky being the Mayor of this city). Mikhail Khodorkovsky was killed in 1998, on his birthday. The head of the security service of YUKOS, Alexey Pichugin, is still in prison for this crime (Ross 2010). Khodorkovsky communicates with the business circles of America and spends money to create a positive image for himself while abusing the indulgence of the Western media.

Another oligarch – Mikhail Maratovich Fridman – remains one of the most powerful Russian businesspersons. With his business partner Peter Aven, Minister of Foreign Trade in the early 1990s, he founded the consortium “Alpha.” Currently, the most valuable assets of this consortium are Alfa Bank and TNK Oil Company (Ross 2010). Vladimir Viktorovich Vinogradov privatised the state bank named Inkombank in 1993. He disappeared from the political and economic scene after the bankruptcy of his bank during the 1998 crisis. Alexander Pavlovich Smolensky, who was convicted in Soviet times for numerous scams, created the bank “Stolichny.” The privatisation of the state-owned Agroprom bank allowed him to found SBS Agro – the first private bank and the second bank in Russia (Ross 2010). In 1998, the bank was destroyed by the crisis and ruined millions of small investors. Smolensky lost political influence but was able to preserve his fortune.

The New Oligarchs

These seven bankers were not the only rich and influential people of the Yeltsinian era. Still, they allowed Yeltsin to be the master of the situation while owning half of the governmental assets (Rutland 2012). They built their fortunes on the combination of three aspects – a politician, a mafioso, and a businessperson. There are very influential oligarchs in the Russian province who built their power and came upon the same basis (Rutland 2012). As it has been mentioned, the 1998 crisis led to the disappearance of two of the seven bankers – Vinogradov and Smolensky. A new generation of oligarchs appeared on the ruins of Russia after the crisis. They made their fortunes in the 1990s and were at the peak of their power at that time (Osipian 2015). They were related to those seven bankers but were much younger. The most famous of them are Mikhail Prokhorov (Vladimir Potanin’s partner in Norilsk Nickel), Roman Abramovich (connected with Boris Berezovsky), and Oleg Deripaska (the retainer of Russian Aluminium which belonged to Chernykh brothers) (Rutland 2012). Also, at that time, businessmen began to distance themselves from the mafia that protected them.

The Era of Yeltsin

The era of Yeltsin’s rule started to decline over time and his second term as the President of Russia was rather questionable (Shinar 2011). He even put significant efforts into trying to postpone the elections. Majorly, it was due to his lifestyle and other critical factors (including the neglect of his original principles and consumption of alcohol). This led to a heart attack. Ultimately, Yeltsin was able to win the elections, but this victory was very unnatural and rather unbelievable (Braguinsky 2010). This victory resembled a fraud, and it looked as if Yeltsin simply took control of all the country’s mass media and election executives (this also happened a bit later in Italy, when Berlusconi won the elections in a similar style).

It has repeatedly been stated that Yeltsin’s second term as the President of Russia was essentially based on the acts of privatisation performed by a group of wealthy and powerful businessmen (Osipian 2015). Even though numerous press secretaries and other executives were available to Yeltsin, he banked on his “family.” Before his resignation, Yeltsin managed to sack five prime ministers during a single season. The first President of Russia was characterised as a jealous individual who did not want anyone to throw shade on him. The “creation” of oligarchs became the most damaging action performed by Yeltsin since he (and the future oligarchs) chose to rely on the power of private possessions regardless of who was the owner of the property and how those assets were attained (Osipian 2015). Occasionally, there was a small percentage of economists and social scientists who claimed that the era of Yeltsin turned out to be profitable and reliant.

Despite the capitalistic outlooks, the majority of the experts in political and economic fields claimed that the situation went out of control. They also provided numerous arguments concerning the level of corruption and inertia experienced by the Russians. What is even more interesting, those rates were much higher than those from the Soviet Union days (Braguinsky 2010). This uncontrollable bureaucracy and injustice were ultimately displayed because there was no political party to restrain and penalise unlawful behaviour and activities. By the year 1997, the situations in Russia and Italy looked almost identical because more than half of the property belonged to private owners. The act of privatisation had a significant effect on the Russian conglomerates that consisted of the structures that were previously owned by the state (Treisman 2011).

The economy that was artificially created as a detour efficiently functioned alongside the real government’s economy that required every business to pay immensely high taxes. Nowadays, it is a well-known fact that the mafia controlled Yeltsin’s Russia and its economy. The problem with the era of Yeltsin was that Russian society lost their faith in the future of the country and did not believe that the government would do anything to help them. During Yeltsin’s rule, the private sector generated approximately 65% of the country’s GDP. Boris Berezovsky even bragged that the owners of the private banks (just six of them and one of those banks belonged to Berezovsky himself) controlled more than half of the Russian economy and could even influence the elections of the country’s premier (Treisman 2011).

Yeltsin reassured the Russians of the fact that the things will not get any worse. But the repercussions of the Asian crisis hit the Russian economy right in the heart. The consequence was a debt crisis. In 1998, this led to a situation in which Yeltsin involuntarily devaluated the rouble and defaulted the Russian international credit reimbursements (Melander 2010). During approximately 20 days, the rouble lost one-third of its initial value. The government could not pay salaries, and some of the workers did not receive their wages for three months straight or even more. The country’s monetary resources depreciated, but the governmental taxes remained the same (Treisman 2011). Ultimately, this led to constant riots and conflicts on a national level.

Economic Implications and the Power of Oligarchs During the Era of Yeltsin

The actions of the oligarchs and the inefficiency of Yeltsin led to anarchy and one of the biggest economic collapses in the world’s history. During one year, Russia lost half of its output. Numerous economists even compared this situation to what happened back in 1941 when Hitler invaded the Soviet Union (Operation Barbarossa) (Treisman 2011). The worst thing about the crisis was that it had an even more devastating effect on smaller countries such as Armenia, Moldova, and Ukraine. The echo of the oligarchic regime did not allow these countries to recover from the major economic flop and get back to their Soviet Union-type output. Other former members of the Soviet Union ultimately recovered from the crisis and increased their output.

Nonetheless, even by Yeltsin’s death in 2007, Russia could not get out of the economic slump and topped at the level of 85% from 1989 output (Melander 2010). The powerful impact of the amalgamation of Yeltsin and the oligarchs directly influenced the current levels of education in the country and life expectancy among its citizens. At least 20% of the Russian hospitals do not have access to hot water and sewerage accommodations. The influence of the oligarchy and their connection to the mafia led to higher murder rates (Braguinsky 2010). Currently, Russia does not possess the potential it had almost three decades ago. The country cannot invest at the same level, and the GDP is still inferior to the times of the Soviet Union. After Yeltsin’s resignation, the ordinary people were finally able to display the dissatisfaction (Shinar 2011). They were in full right to do so because the reforms that were employed by the oligarchs and Yeltsin made them lose their possessions.

Conclusion

The administration of Vladimir Putin, the next President of Russia, did not put much effort into redistributing the remaining oil wealth reserves to the individuals who claimed that the reforms impacted them. Instead, the new government concentrated on the principles of sovereign democracy and resource-based independence. The key objective of the current government is to liberate from the Western expansionism and regulate the principles of democracy and to which extents they should be applied. The impact of oligarchs on the 1990s Russia is visible, and the country has to deal with serious insinuations concerning the democratic side of the government and the consequences of Yeltsin’s regime.

The key conclusion that can be made within the framework of reviewing Yeltsin’s rule and his connection to the oligarchs is that democracy was not an option. More importantly, the former President’s ruthlessness was carefully protected by the authoritative and powerful Russian businessmen. The country still suffers from the monopolistic approach chosen by the 1990s oligarchs. On a bigger scale, the outcomes of Yeltsin’s regime turned out to be distressing not only for Russia but the neighbouring countries as well. The tactic employed by Yeltsin was rather questionable (it seemed to work at first, though) and his individual eagerness to win the elections for the second time put Russia through hard times.

Reference List

Braguinsky, S 2010, ‘Postcommunist oligarchs in Russia: Quantitative analysis’, The Journal of Law and Economics, vol. 52, no. 2, pp. 307-349.

Gill, G & Young, J 2015, Russian politics and society, Routledge, New York, NY.

Melander, F 2010, ‘Transition and oligarchy: The role of the Russian oligarchs during the Yeltsin era’, Journal of Political Science, vol. 3, no. 11, pp. 2-27.

Osipian, A 2015, ‘Popular support for an undemocratic regime: The changing views of Russians’, East European Politics, vol. 31, no. 2, pp. 248-249.

Ross, C 2010, ‘Federalism and inter-governmental relations in Russia’, Journal of Communist Studies and Transition Politics, vol. 26, no. 2, pp. 165-187.

Rutland, P 2012, The business sector in post-Soviet Russia, Routledge, New York, NY.

Shinar, H 2011, ‘The oligarchs and democratization in Russia during Yeltsin’s presidency (1991-2000)’, SSRN Electronic Journal, vol. 3, no. 11, pp. 42-102.

Treisman, D 2011, ‘Presidential popularity in a hybrid regime: Russia under Yeltsin and Putin’, American Journal of Political Science, vol. 55, no. 3, pp. 590-609.

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