Russian capitalism binds “Putin’s People”

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Russia’s President Vladimir Putin waves as he leaves after the Victory Day Parade in Red Square in Moscow, Russia June 24, 2020.

Shortly after Vladimir Putin became president of Russia in 2000, he quipped in a speech to his former colleagues in the security services that the mission to take back power had been accomplished. Like all good jokes, the statement contained a large grain of truth. Behind the chaotic facade of the Soviet Union’s collapse, the KGB had been planning its revival. “Putin’s People: How the KGB took back Russia and then took on the West”, by Catherine Belton, describes how the president’s rise was part of the calculated return of the organisation where he had cut his teeth. Together with other murky networks, the former secret police force built a political and economic system which keeps its participants hostage, she writes. Half of Russian workers suffer a similar fate.

The story of Putin and his cronies is well known. Belton, an experienced journalist who is now a special correspondent for Reuters, reinvents that narrative by exploring how the president’s economic power-grab interacted with the Western world. The insightful and thought-provoking book outlines major deals where western advisors and authorities enabled cronyism and lent legitimacy to the emerging Russian regime. For example, bankers facilitated what was effectively a private placement of shares in oil giant Rosneft under the guise of an initial public offering, pocketing large fees in the process. Belton dubs it “an investor referendum on the Kremlin’s takeover of the energy sector” because the assets included those of Yukos, which had been recently expropriated by the state. Britain’s markets regulator ignored calls from Yukos executives to halt a deal they claimed was tantamount to selling stolen goods.

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The book burrows into Putin’s past, unearthing some controversial theories about his activities as a KGB operative in Dresden during the final years of the Cold War. Belton argues he was instrumental in supporting the militant left-wing Baader-Meinhof group, contradicting other accounts which suggest his role in Dresden was marginal. The KGB also provided early support to Mikhail Khodorkovsky, who built the Yukos oil giant during the privatisation free-for-all following the Soviet Union’s demise. The oligarch later fell out with Putin and served a decade in prison.

One of the tragedies of post-Soviet Russia is that rich and powerful people like Khodorkovsky only speak up for democracy and free market values when their personal interests are under threat. One such ex-insider is former Kremlin banker Sergei Pugachev. He is one of the book’s key sources, despite Belton’s observation that he is prone to overstating his role. The most vocal critics of Putin’s system are exiles who were ejected from it and now pose little threat to Putin. The winners have nothing to complain about.

Yet “Putin’s People” is less about individual personalities than their collective mentality and the system they created. After many years in the country, Belton’s depiction of the Russian concept “obschak”, a term used to describe a communal pot used by a criminal gang, is on point. The barriers between statecraft, private business and criminality are blurred. Everything is agreed on an understanding, without contracts or lawyers. Mobsters from New York’s Brighton Beach can play a role; so can Russian Orthodox priests. Putin’s friends have become wealthy by associating with him. As shareholders in large enterprises, they bankroll state initiatives, such as hiring mercenaries in foreign conflicts, or helping to finance efforts to fight the coronavirus.

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Most ordinary Russians forgive the corruption and like Putin’s macho attitude to internal and foreign politics. His opinion poll ratings, though in decline, remain high. Any frustration with falling living standards is suppressed by dependency on the state capitalist system: Half of Russian workers are employed by the municipal and central governments or by large state-owned enterprises such as Sberbank, according to official statistics. During the Covid-19 lockdown, these people received salaries, while small and medium-sized enterprises struggled with virtually no public sector support. While politicians in most countries tend to praise small entrepreneurs as the engines of growth, Putin labelled them crooks in an interview in March.

For many Russians the deal is that the state pays their wages, so they don’t question the government, show up for rallies, and generally do as they’re told. This thinking will probably determine the outcome of next week’s referendum on changes to Russia’s constitution, which would allow Putin to stay in power until 2036.

Putin is something of a hostage himself. If Belton is right about the criminality which brought him the presidency and helped him retain it, the former KGB operative is the captive of a power structure he helped create but cannot afford to dismantle.

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