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Simon & Schuster | 2014 | Karen Dawisha; [2] Audio [01:25:08]
Dawisha2014PutinKleptocracy.pdf
Putin’s Kleptocracy: Who Owns Russia
by Karen Dawisha
[W.Z.
As explained in the 03Apr2014 issue of the Economist A book too far
, Cambridge University Press declined to publish this book in Britain
for fear of a defamation suit by Vladimir Putin under Britain's
infamous defamation laws. Presumably, America's defamation laws are
more reasonable. For easier access, we have converted the
Introduction into an html file, although the rest of the book remains
in pdf format.]
INTRODUCTION
IN REACTING to Russia’s annexation of Crimea and support for
pro-Russian separatists in Ukraine in early 2014, the U.S. government
announced an unprecedented response: not the Russian state but
individual Russian citizens would be subjected to asset seizures and
visa bans. The Sixth Fleet was not called into action; exports to
Russia as a whole were not banned; cultural and educational exchanges
were not stopped. Rather, individual elites close to “a senior Russian
Government official” -- Vladimir Putin -- were targeted.
Probably the most serious international crisis since the end of the
Cold War, and the White House targets individuals. Why this response?
Because at last, after fourteen years of dealing with President
Vladimir Putin as a legitimate head of state, the U.S. government has
finally acknowledged publicly what successive administrations have
known privately -- that he has built a system based on massive
predation on a level not seen in Russia since the tsars.
Transparency International estimates the annual cost of bribery to
Russia at $300 billion, roughly equal to the entire gross domestic
product of Denmark, or thirty-seven times higher than the $8 billion
Russia expended in 2007 on “national priority projects” in health,
education, and agriculture.1 Capital flight, which officially has
totaled approximately $335 billion since 2005,2 or about 5 percent of
GDP, reaching over $50 billion in the first quarter of 2014 alone, has
swollen Western bank coffers but made Russia the most unequal of all
developed and emerging economies (BRIC: Brazil, Russia, India, China),
in which 110 billionaires control 35 percent of the country’s wealth.3
And these billionaires, far from being titans of industry motoring the
modernization of the Russian economy, have secured and increased their
wealth by relying on and bolstering the centralized power of the state.
The wealth of the oligarchs and political elites who came to power with
Putin in 2000 has been more stable than in any other G7 country; they
have made millions, though some have also lost as much. Political
leaders close to Putin have become multimillionaires, and the oligarchs
around them, according to Forbes Russia, have become billionaires. They
are able to maintain that power and wealth as long as they don’t
challenge Putin politically. Under this system, the state absorbs the
risk, provides state funds for investment, and gives those close to the
Kremlin massive monetary rewards. With the return under Putin to state
capitalism, the state nationalizes the risk but continues to privatize
the rewards to those closest to the president in return for their
loyalty.
Within weeks of Putin’s coming to power, the Kremlin began to erode the
basic individual freedoms guaranteed under the 1993 Russian
Constitution. This pattern of gradually closing the public space and
denying citizens the rights of free press, assembly, and speech was
present and planned from the very beginning, as will be shown in my
discussion of a document, never before published outside Russia,
detailing the plans made in late 1999 and early 2000 to reshape the
entire Presidential Administration to achieve these ends. In Russia,
the Presidential Administration is the true locus of power,
particularly under Putin’s “vertical of power.” Its offices and
departments shadow and supervise the work of the government ministries,
the two houses of the legislature, the courts, regional government, the
media, and societal movements like youth groups and trade unions. It is
from here that policy is made in all sectors of domestic and foreign
policy, to be implemented by the government or passed into law by the
Duma and the Federation Council. Putin was enormously assisted by very
favorable global economic conditions in which the price of oil shot up
to over $140 per barrel, allowing the Kremlin to provide an increased
standard of living for ordinary Russians and the emerging middle class
while also creating greater social stability.
But Putin also benefited from the existence of a tight-knit circle that
came with him from St. Petersburg and with whom he had worked for over
a decade. In this book I lay out the case for the existence of a cabal
to establish a regime that would control privatization, restrict
democracy, and return Russia to Great Power (if not superpower) status.
I also detail the Putin circle’s use of public positions for personal
gain even before Putin became president in 2000. The trail leads to the
establishment of Bank Rossiya, now sanctioned by the United States; the
rise of the Ozero Dacha Consumer Cooperative, founded by Putin and
other members now subject to visa bans and asset seizures; the links
between Putin and Petromed, the medical supply company that diverted
millions in state funds to build “Putin’s Palace” near Sochi; and the
role of security officials from Putin’s KGB days in Leningrad and
Dresden, many of whom have maintained their contacts with Russian
organized crime.
[ . . . ]
=
Elections in all new democracies suffer from certain problems of weak
party stability; poor, loose, and fluid electoral laws; and voter
manipulation and fraud. However, these problems should decrease over
time, leading to the consolidation of democratic institutions. In
Russia, however, they have only increased, until in the 2011–12
electoral cycle the fraud and abuse were so widespread that popular
demonstrations broke out. By the end of 2011, having come through a
thoroughly fraudulent and publicly documented sham election for the
Duma (the lower house of the Federal Assembly, Russia’s Parliament), it
became crystal clear that the ability of activists in Moscow and St.
Petersburg to seek democratic change was significantly inferior to the
regime’s ability to suppress change.
After Putin publicly wept, possibly from relief, when he was declared
the winner of the 2012 presidential elections, increased targeted
repressions began again, reminiscent of the early 1930s or the late
1960s in the USSR. Nonviolent demonstrators were once again sentenced
to either prison or indefinite psychiatric treatment. With the economy
suffering a downturn -- mainly because of elite plundering -- the crony
regime’s inner logic seemed clear: Putin was willing to use force to
maintain his potentially indefinite hold on power so that his group
could continue to loot the country without limit. In response, Russian
websites held endless discussions of the reign of bespredel -- the
limitless and total lack of accountability of the elites -- under the
façade of “restoring Russian greatness.”
It is this kleptocratic tribute system underlying Russia’s
authoritarian regime that the U.S. government sought to expose and
punish beginning in April 2014. The names on the sanctions list read
like a Who’s Who of Team Putin. For the first time the White House
explicitly talked about Putin’s circle as his “cronies” and targeted
their money abroad, exposing the fact that Western governments have
known for some time the broad details of where this group’s money is,
what their private rules are, and what high crimes and misdemeanors
they have committed to establish and maintain their sistema -- and that
Western governments are no longer willing to keep silent.
How was this group formed? What were its origins? And why did it take
Western policy and academic communities so long to embrace this view of
the Russian political system as a steel hand in an initially velvet
glove? We may never know precisely when the current regime decided to
do what they have clearly done, any more than we know on which day
Stalin stopped being a pencil pusher and decided to imprison millions
in the gulag, or even when Hitler hit on the idea of exterminating the
Jewish population of Europe. Horrifying details such as these are not
something one reads about in dictators’ memoirs after they start
receiving their pension. It is a pity (purely from a historian’s point
of view) that there is usually so little time between the collapse of
dictators’ regimes and their own ultimate demise.
Because we can see that there is a complex and clever system in Russia,
quite opaque and full of interesting details and inner rules, we should
conclude that the system came about by intelligent design. But how? The
evidence strongly suggests that it did not come about by chance. This
book firmly rejects the ideas often promulgated in Western academic
circles that Putin is an “accidental autocrat” or a “good tsar
surrounded by bad boyars.” Of course, the boyars -- now called
oligarchs -- are indeed mainly bad. And of course, not every detail of
their ascent could have been worked out in advance. Not everything went
as planned; certainly they met with deep resistance from other rivals,
in both St. Petersburg and Moscow. But I believe that Putin’s group
could never have predicted how successful they would be and how little
their acquisition of power would be resisted by Russians and the West.
The contention of this book is that the group around Putin today is the
same as the one that brought him to power from St. Petersburg in the
1990s and that the purpose of that project was never to embed
Western-style democratic institutions and values. The group did not get
lost on the path to democracy. They never took that path.
=====
Why did the West not firmly resist “Putin’s project” until now? In the
process of interviewing for this book, it became clear that many
Western officials stationed in Russia certainly knew from the early
1990s what kind of operative Putin was and whom he depended upon to get
things done. But he was regarded as a relatively low-level person in
one city in one very turbulent country. And so the eyes of Western
intelligence were wide shut until, in the course of less than two
years, Putin rose from being an out-of-work deputy mayor, whose boss
had just lost his bid for reelection, to the head of the Federal
Security Service (Federal’naya Sluzhba Bezopasnosti, FSB), the
modern-day KGB. One year later Putin was prime minister; six months
after that he was president. Jobless to president in three and a half
years. Only then did Western journalists and policymakers focus closely
on his background and his circle, but by then it was too late.
According to government leaks to Newsweek, U.S. government analysis of
Putin’s personal involvement in a money-laundering scheme through a
German-based company, SPAG, led in 2000 to Russia’s being placed on an
international money-laundering blacklist: “A key reason, said a former
top U.S. official, was a sheaf of intelligence reports linking Putin to
SPAG,” including documents showing he “signed important St. Petersburg
city documents for the company’s benefit.”4 The pattern of helping his
friends to the detriment of his people was set early.
Then, at the Slovenia summit in June 2001, President George W. Bush
looked into Putin’s eyes and saw his soul, and when Putin quickly
joined with the United States in the “war on terror,” analysts report
that the primary focus of Western intelligence gathering shifted away
from Russia and toward the Muslim world. Putin was regarded as a
reliable partner in helping the West target Islamic extremists,
especially in Afghanistan, since there were Chechen fighters in al
Qaeda camps too. Only slowly did Putin’s malevolence dawn on Western
governments, especially in light of the Kremlin’s transparently
predatory actions in taking apart Russia’s largest private oil company,
Yukos, and imprisoning its independently minded owner, Mikhayl
Khodorkovskiy, in 2005. The following year, at the G8 meeting in St.
Petersburg, President Bush called for “strengthened international
efforts to deny kleptocrats access to our financial system,” but he
still did not mention Russia by name.5 Western newspapers now report
that in 2007 a CIA assessment of Putin’s personal wealth “largely
tracked” with assertions made by the Russian political analyst
Stanislav Belkovskiy, who claimed that Putin had holdings totaling
about $40 billion in the commodity-trading company Gunvor, the publicly
traded state majority-owned gas giant Gazprom, and the oil and gas
company Surgutneftegaz.6, I At last, one thought, the West might start
to stand up against this vast scheme, with its potential to undermine
not only Russia’s development but Western financial institutions, the
banks, equity markets, real estate markets, and insurance companies
that were showing signs of being undermined internally by employees
eager to receive their commissions from these illicit transactions.
But then President Barack Obama, as have all new U.S. presidents,
announced he was going to “reset” relations with Russia. As a result,
Putin spent only minutes in the penalty box for the 2008 invasion of
Georgia before being embraced at the 2009 G8 meeting of the world’s
leading industrial nations. The meeting was hosted in Italy by Putin’s
personal friend, Prime Minister Silvio Berlusconi, even as U.S.
government cables reported allegations circling in Rome that he was
“profiting personally and handsomely” from secret deals with Putin that
included the “exchange of lavish gifts.”7 From 2008 to 2014 six more
years were lost while low-level government officials gathered materials
on Putin’s wealth and high-level political appointees ignored them.
In the academic world, there was a similar trend in writing about
Russia. Books continued to frame Russia as a democracy, albeit one that
was failing or in crisis. Like other scholars of Russia, I have spent a
significant portion of my career thinking and writing about how the
post-Communist states might make a transition toward democracy.II
Initially Western government and academic circlesIII believed that
institutions could be established in practically any country that would
guide it along a democratic path. Most of the new central European
countries had early elections, established non-Communist governments,
and never looked back. Our uncurbed enthusiasm even extended to Russia.
But then the quality of democracy in Putin’s Russia just kept getting
worse.
Still there was little shift in academic direction, as much of the
literature approached the Putin era as a democracy in the process of
failing rather than as an authoritarian project in the process of
succeeding.IV Clearly in the 1990s democracy was in fact both being
built and failing, but when the success or failure of democracy
building is the central telos of the narrative, one loses track of the
counternarrative, which is that there were elites (centered on Putin
and his security cabal, the so-called siloviki) who sought from the
beginning to establish an authoritarian regime in Russia, not perhaps
for its own sake but because controlling the political and economic
development of the country was for them a greater ambition than
building any democracy that would inevitably force them to surrender
power at some point. When they came to see themselves as the personal
guardians and guarantors of Russia’s future, this only increased the
possibility that they would not only resist the rotation of elites,
critical to a democracy, but actively seek to stymie it. And they used
many methods to achieve this, including engaging in criminal behavior,
controlling the legal system and the media, and, above all, maintaining
group cohesion through combinations of threats and rewards.
Instead of seeing Russian politics as an inchoate democratic system
being pulled down by history, accidental autocrats, popular inertia,
bureaucratic incompetence, or poor Western advice, I conclude that from
the beginning Putin and his circle sought to create an authoritarian
regime ruled by a close-knit cabal with embedded interests, plans, and
capabilities, who used democracy for decoration rather than direction.
In other words, Russia is both a democratic failure and a resounding
success -- that is, a success for Putin and his cronies and a success
on their terms.
Of course, in this system, there is robust political contestation,
there is great uncertainty and instability, and there are still
democrats and democratic aspirations. There is also popular support for
Putin beyond Russia’s intellectual classes -- support bolstered by high
oil prices and state control over almost the entire media space. The
internal logic of this system has strengthened the power of Putin over
the rest; of “manual control” over institutions; of instructions and
“understandings” (ponyatiya) over law; and of money over everything.
Putin and his circle could have passed and upheld laws to protect,
promote, cement, and sustain democratic institutions, but they chose
not to. On the contrary, they have established what they themselves
internally call a sistema that undermines, mocks, and mimics democracy
but that actually serves the purpose of creating a unified and stable
authoritarian state that allows individuals close to Putin and his
associates to benefit personally from the unparalleled despoliation of
Russia’s vast natural resources. The evidence I present suggests that,
from the moment Putin took power in 2000, Russia ceased to be a place
where democratic dreamers could flourish. To be sure, Putin has built a
legalistic system, but this system serves to control, channel, and
coerce the middle class and the broader elite while at the same time
allowing the inner core to act with impunity along what has been called
Putin’s “vertical of power,” according to the adage “For my friends,
anything. For my enemies, the law!”11
This is not to say that the Russian ruling elite does not see the
benefits of a robust rule-of-law system. On the contrary, their
behavior in parking their money in Western banks suggests they are very
interested in it -- just not in their own country. The American
economist Mancur Olson was right to posit that in the transition from
dictatorship to democracy, “roving bandits” will over time gain an
interest in laws to vouchsafe their gains and will settle down, and
from this interest in the stability and predictability of gains,
democracy will emerge. Under Putin, as the regime made the transition
from what Olson called “roving” to “stationary” bandits, interelite
violence did decrease, and the streets became safer, as Olson
predicted.12 But Olson failed to foresee the extent to which
globalization would allow Russian elites to continue to maximize their
gains by keeping domestic markets open for their predation while
minimizing their own personal risk by depositing profits in secure
offshore accounts.
This book does not look in detail at what is happening in Russia today;
instead I seek to ascertain the authoritarian moment in Russia. The
story starts with the collapse of the USSR, when, as the archives of
the Communist Party of the Soviet Union (CPSU) reveal, the KGB moved
the CPSU’s vast financial reserves offshore, out from under President
Mikhayl Gorbachev’s control, thus further crippling his regime. The
August 1991 coup by Communist and KGB hardliners failed, but
aspirations for revanche remained. One of the chief PR strategists of
Putin’s 2000 victory, Gleb Pavlovskiy, subsequently put it like this,
after he had been sacked by the Kremlin: “Putin belongs to a very
extensive but politically invisible layer of people who after the end
of the 1980s were looking for a ‘revanche’ in connection with the fall
of the Soviet Union.”13 The 1990s was spent preparing for that moment.
Vladimir Putin spent his entire early life yearning to join and was
finally accepted into the KGB. By his own account, his favorite songs
are Soviet standards, not Western rock. He has been deeply conservative
his whole life. Yet he has also been a keen collector of every possible
trapping of material wealth. When he was stationed in East Germany, he
had the leaders of the German Red Army Faction (also known as the
Baader-Meinhof Group) steal speaker systems for him when they had a
moment free from their terror campaigns. Back in Russia in the early
1990s, Putin acquired a substantial country house, or dacha, and an
apartment in the most prestigious section of St. Petersburg within his
first years of working in the city; neither of these could have been
purchased with his meager official salary.
This pattern of uncontrollable greed, of wanting what rightfully
belongs to others, which Masha Gessen calls pleonexia,14 has resulted
in over twenty official residences, fifty-eight planes, and four
yachts. Sadly for Russians, Putin does not “own” any of these, except
his St. Petersburg properties and perhaps his first yacht, the Olympia,
which was presented to him as a gift by a group of oligarchs headed by
Roman Abramovich just prior to Putin’s becoming president in 2000 and
delivered in 2002. Without the presidency Putin theoretically would not
be allowed to keep any of these accoutrements of power, except perhaps
for the $700,000 in watches that he routinely sports -- six times his
declared annual income, a subject of constant Russian journalistic
interest.15 Thus his motivation to leave power is reduced to zero.
Those who say politicians can’t be called corrupt unless the police
find $20,000 in small bills in their freezer, or who say “But the U.S.
presidents have Camp David,” should contemplate how much has been spent
from public funds on the construction, maintenance, furnishing, and
round-the-clock staffing of these twenty residences, most of which did
not exist, or at least not in their current gilded state, prior to
Putin’s rule.
The demands of this tribute system have meant that the cost of doing
business in Russia has escalated to such an extent that Russian and
foreign businesses alike wonder whether they can even turn a profit.
The global Swedish furniture chain Ikea threatened to call it quits
after years of trying to run a clean business in Russia. When the head
of Ikea Russia, Lennart Dahlgren, left the company in 2006, he revealed
that they had been subjected to years of legal traps that they sought
to solve by meeting personally with Putin. But a high-ranking official
told them that a meeting with Putin would cost $5 million to $10
million. Stating that he didn’t know whether they were speaking
seriously or joking, Dahlgren told reporters: “I sensed that it would
be better not to get into that discussion any deeper.”16
==
A democracy is easier to research than a dictatorship. Even so,
nondemocratic actions in a democracy, like corruption, are less easy to
research than candidates’ public speeches, for example. When the
subject of study is how, when, and why Russian elites decided to take
the country away from democracy, obviously no one from this group is
giving public interviews, and if they do, as happened with Aleksandr
Litvinenko, they suffer a cruel death.
More difficult to research are Russian elites’ private financial
motivations for taking certain actions and the clan conflicts within
the elite that produce sometimes contradictory public results. I spent
almost eight years studying archival sources, the accounts of Russian
insiders, the results of investigative journalism in the United States,
Britain, Germany, Finland, France, and Italy, and all of this was
backed by extensive interviews with Western officials who served in
Moscow and St. Petersburg and were consulted on background. Based on
all this, I believe it is possible to construct a credible picture of
Putin’s rise. I also consulted with and used many accounts by
opposition figures, Russian analysts, and exiled figures who used to be
part of the Kremlin elite. These have become an increasingly credible
source of information, particularly as the number of émigrés increases.
Above all I have relied on the work of Russian journalists who wrote
this story when the Russian media was still free. Many of them died for
this story, and their work has largely been scrubbed from the Internet,
or (as I discovered several times) infected with viruses attached to
online documents, leading to computer crashes. Whole runs of critical
newspapers have disappeared from Russian libraries. But “they” always
forget to remove them all, and many Russians still keep clippings,
reminiscent of a previous era when the state similarly ended press
freedoms.
Finally, the dump of nonredacted cables from Wikileaks is very
regrettable but also a completely fascinating source of information.
For example, a 2010 cable from America’s ambassador in Moscow John
Beyrle to the U.S. secretary of state provided the following
description of how money, elections, criminal activity, and the Kremlin
interact:
XXX [name redacted by
author] stated that everything depends on the Kremlin and he thought
that . . . many mayors and governors pay off key insiders in the
Kremlin. XXX argued that the vertical works because people are paying
bribes all the way to the top. He told us that people often witness
officials going into the Kremlin with large suitcases and bodyguards
full of money. The governors also collect money based on bribes, almost
resembling a tax system, throughout their regions. He described how
there are parallel structures in the regions in which people are able
to pay their leaders. For instance, the FSB, MVD [Ministry of Internal
Affairs], and militia all have distinct money collection systems.
Further, XXX told us that deputies generally have to buy their seats in
the government. They need money to get to the top, but once they are
there, their positions become quite lucrative money making
opportunities.17
Vladimir Putin is both a product and a producer of this pervasive
system of corruption. Of course, he is not the only Eurasian or Western
leader to have collected gifts and tributes. But to have created with
this clique an entire system that spans eleven time zones is by any
account an impressive achievement. I argue that the outlines of the
authoritarian and kleptocratic system were clear by the end of Putin’s
first one hundred days in 2000. It is a story that begins even before
the collapse of the USSR.
-----------------------------------
I. U.S. government anonymous leaks in 2014 claimed that Putin had spent
illicit funds since the early 2000s on the unrivaled acquisition of
luxury items, including his twenty presidential residences; that he had
siphoned off cash from Gazprom to the tune of 70 percent of its capital
expenditures; and that he controlled an estimated 4.5 percent of
Gazprom, 37 percent of shares in Surgutneftegaz, and 50 percent of
Gunvor. See Bill Gertz. “Putin Corruption Network Revealed,” Washington
(DC) Free Beacon, April 7, 2014, http://freebeacon.com/national-security/putincorruption-network-revealed/.
II. This redirection in my research was particularly reflected in
several earlier works, including Eastern Europe, Gorbachev and Reform
(1990); Russia and the New States of Eurasia: The Politics of Upheaval
(1994), coauthored with Bruce Parrott; and two series coedited with
Bruce Parrott, the four-volume Democratization and Authoritarianism in
Postcommunist Societies (1997) and the ten-volume The International
Politics of Eurasia (1994–97).8
III. Most books in this genre were influenced by the writings of Samuel
Huntington, The Third Wave: Democratization in the Late Twentieth
Century (1991). But in addition to these institutional perspectives,
theories derived from economics and public choice also were used to
bolster the claim that over time, democracy would emerge in Russia, as
in Mancur Olson’s Power and Prosperity (2000).9
IV. The field has a rich collection of books on democracy in Russia
(e.g., McFaul 2001; Fish 2005; Sakwa 2011), and all of them are full of
foreboding about democracy’s limits and failings. But there are no
Western academic accounts of the origins and development of
authoritarianism as an elite project in Russia. Henry Hale’s early
discussion of stalled party development, Why Not Parties in Russia
(2007), Regina Smyth’s (2006) book on the impact on democracy’s “grand
strategy” of rational actor microchoices made by candidates in Russia’s
mixed electoral system, Brian Taylor’s study of the power ministries,
State Building in Putin’s Russia (2011), the books by Gulnaz
Sharafutdinova (2011) and Thomas Remington (2011) on the political
economy of Russia’s regions, and Michael Urban’s book on elite
discourse, Cultures of Power (2010), are notable exceptions, although
they each deal with only one aspect of the building of authoritarianism
in Russia. The serious contributions by Russian analysts on this
subject are too numerous to mention and are discussed in depth
throughout this book. Wider works on competitive authoritarianism
certainly exist, including excellent contributions by Levitsky and Way
(2010), Gandhi (2008), and Brownlee (2007).10.
Continued at
Dawisha2014PutinKleptocracy.pdf
[2]
Columbia University |
15Oct2014 | Karen Dawisha
http://www.brama.com/~deckard/Columbia-KarenDawisha-PutinsKleptocracy-20141016.mp3
[01:25:08]
Presentation on Putin's Kleptocracy
M.P.:
Length
of talk ~ 45
minutes; additional 40 minutes of Q&A
Some notes on the talk:
Discussion on Ukraine around 50 minute mark
Bohdan Vitvitsky asks a more directed question re: Ukraine beginning
just
before the 53 minute mark
paraphrase "Russian public can't do anything, because ruling elites
cannot
be rotated via elections."
paraphrase: "Frozen conflicts are to the advantage of the Putin regime;
(my interpretation - a form of settler colonialism); there is no
oversight
taking place there: no embassies there, no human rights NGOs. =>
facilitates
illicit transit, money-laundering, etc."
Supporting material for Putin's Kleptocracy available from the Miami
University
Havinghurst Center on Russian and Post-Soviet Studies Website
http://miamioh.edu/cas/academics/centers/havighurst/cultural-academic-resources/putins-russia/index.html