Receive the Bulldog Edition


Economic Blogosphere

Economic Journalists


economicprincipals.com banner

September 12, 2004
David Warsh, Proprietor


| contents |

Meet the Siloviki

Half a world away from Moscow and the dreadful sorrows of the North Ossetian city of Beslan, U.S. District Court Judge Douglas P. Woodlock said last Thursday that he wanted a short, tightly-focused trial on the failure of Harvard University’s mission to Moscow in the 1990s — perhaps a few testimonials by experts for a jury to evaluate, but not “an extended seminar on the role of Russian-American relations in the past century.”

A trial on the contract damages that Harvard owes the U.S. State Department ought not to take more than three weeks, he said; it might begin as early as December 6. (Woodlock found in July that the university had breached its promise to furnish disinterested advice.) He told the government’s lawyers to prepare a more explicit case for the harm done than the per se, speaks-for-itself approach which they had proposed to take. He instructed them to continue explore the possibilities of settlement.

A dozen years after a Harvard team undertook to Boris Yeltsin’s government introduce economic liberalism and democracy to the former Soviet Union — and in 1996 got fired in the middle of an epic national looting spree, when its team leaders and their wives were discovered to be among those investing on their own behalf — how have things worked out for the Russians?

A particularly good starting point is a survey by Peter Reddaway in the January 2004 issue of Post-Soviet Affairs, which just happens to be free. Reddaway, 64, is one of a group of older scholars, generally known as “Sovietologists,” who in the 1990s were ridden off the case by young economists enthusiastic about massive and rapid privatization. No critic of the latter’s “market Bolshevism” has been more acute.

A political science professor emeritus at George Washington University, Reddaway describes a country in which two great factions are now battling for control, with President Vladimir Putin apparently as chief mediator and balancer in between.

On the one hand are the oligarchs, a handful of clever and daring individuals who, during the improbable gold-rush of the Ô90s, gained ownership of most of the productive assets of the Russian economy — factories, utilities, natural resources, mass media — thanks to head starts given them by Yeltsin and his chief economic adviser, Anatoly Chubais.

On the other are the siloviki, a loose, politically-motivated faction of former politicians, bureaucrats and military leaders whose power has been quietly but dramatically enhanced in the last few years by Putin. The chekisty is a near-synonym, says Reddaway, since so many siloviks are former KGB (the Soviet secret police was originally called the Cheka). Some 25 percent of the Russian elite are now men and women whose careers were made in the old government ministries, according to one authoritative estimate, up from 11 percent under Yeltsin.

By now, Reddaway adds, both factions have created the well-developed financial, commercial, journalistic and lobbying networks that are characteristic of major political parties. Their interests regularly collide. Institutions are weak. A high degree of corruption is a given. Dealings among the Russian elite remain hyper-personal, promiscuous and unpredictable.

And the liberal market reformers? Their parties received too few votes to have even a single seat in the parliament, Reddaway says. Four parties dominate instead (Unified Russia, the Communist Party, the Liberal-Democratic Party and the Motherland bloc), each of them reflecting in some degree the great-power longing that he describes as the prevalent ideology in Russia today. Meanwhile, ostensibly above party himself, Putin is pressing for reforms that would produce two U.S.-style national parties offering even less real choice.

It was the oligarchs who threw their weight behind Putin and assured his election to the presidency in 2000, after he had been catapulted into power as premier the year before by Boris Yeltsin, says Reddaway. A career KGB officer, Putin had served for several years as assistant to Anatoly Subchak, the first democratically-elected mayor of St. Petersburg, before becoming head of the Federal Security Service.

Yeltsin’s own oligarchic “family” hoped to control Putin through the use of kompromat, politically or legally compromising material, says Reddaway, and so they have, at least to the extent of maintaining their own wealth and freedom.  But the tycoons didn’t reckon on the extent to which Putin would use his political skills to enhance the power of their natural antagonists, the bureaucrats.

Russians of all sorts were tired of confrontation and change. The oligarchs wanted to consolidate their hold on power; ordinary people wanted their wages and pensions to be paid on time. The oligarchs could continue to modernize the Russian economy: to plow money into new opportunities, to intimidate or co-opt labor unions, to shut down loss-making operations, to move freely between Russia and Western Europe. But, says Reddaway, “An infusion of siloviki was required.”

That was the situation when maneuvering began last year for the 2004 presidential campaign. The richest oligarch, Mikhail Khodorkovsky, founder and chief owner of the Yukos oil conglomerate, raised a critical challenge. He announced plans to merge Yukos with a fellow oligarch’s company to create the fourth largest oil company in the world — and offered to sell a major piece of it to Exxon-Mobil. He urged the development of a system of parliamentary parties that would weaken Putin’s power. He indicated that he planned to retire from business to run for president in 2008. After several months of behind the scenes intrigue, he was arrested on various charges in October and remains in jail awaiting trial today. Putin was re-elected by a wide margin in March.

For their part, the siloviki are pressing Putin for an explicit program of “de-Yeltsinization,” Reddaway says, loosely modeled on the de-Stalinization of the 1950s.  He sees the Soviet president as quietly helping to his fellow former bureaucrats when he can, but not to the point of all-out warfare with the oligarchs.  “He is not the strong leader they would prefer, boldly committed to their cause, and unimpeded by kompromat or oligarchic constraints,” writes Reddaway. “But what other leader do they have?”

What to expect? Reddaway cites three possibilities, none of them very pleasing to those who had hoped that liberal democracy and economic decentralization might take root and flourish in easternmost Europe. A gradual increase in authoritarianism is one possibility, with only small readjustments of ownership. A more pronounced shift towards more government control is the greater likelihood, with Putin retaining power and more oligarchs leaving or facing trial.

The least likely (but not implausible) possibility would find Putin ousted by an alliance of siloviki and hard-line nationalists. What could trigger such a seismic shift? A Cernobyl-like ecological disaster or a major epidemic. A military mutiny. A major terrorist attack in Moscow.  Or perhaps most dangerous, a decline in the price of oil, with subsequent widespread economic hardship. Only the most optimistic can continue to hope that Putin will successfully play off oligarchs against communists in order to permit genuine market and democratic principles to develop.

Hence the widespread interest in Russia’s experience with privatization in the 1990s. It is not just Harvard University that is on trial in Judge Woodlock’s courtroom. It is the collective judgment of the economics profession itself.

| contents |


Skim past columns here.


Support Economic Principals by subscribing to its bulldog edition—receive the weekly via email a day before it is posted on the Web, and, as well, a quarterly Report to Subscribers.

To reach the proprietor, ask a question about the website or report a problem email warsh@economicprincipals.com.