Russia's post-reform economy has at different times been portrayed as a nightmare of state intervention, ruled by a government apparatus which outnumbers that of its Soviet predecessor, or as cutthroat capitalism run by hugely rich private corporations.
Increasingly, both are true.
1996 was a year in which the distinction between the state and big business grew blurred, as the economic weight and political ambitions of a handful of well-connected private financial-industrial groups came out in the open.
Two high-profile cases prove the point. Vladimir Potanin and Boris Berezovsky are both top financiers who joined the government in the second half of the year, cementing interests they have carved from former state property.
Berezovsky spelled it out in the fall when he proclaimed the existence of a "magnificent seven" of leading businessmen who control half the Russian economy.
"Most likely, the majority of those businessmen will exercise considerable influence on the economic policy of the state in 1997 as well," said the Interfax-Argumenty i Fakty weekly in its Jan. 1 edition, predicting a further influx of new business figures into government next year.
But the tightening relationship between business and government hardly means that the state and industry form one monolithic bloc. Indeed, if Russia's economic policy appears schizophrenic at times, this is hardly surprising: The government is itself an unstable coalition of two powerful groups.
"The long-standing struggle between liberalists and protectionists in the government is continuing," said Sergei Markov, a senior analyst with the Moscow Carnegie Center.
"The liberals gained the upper hand after the presidential elections," but protectionists, with a power base in Russian industry, are now regaining their momentum, he said.
Enterprises, for their part, have lined up in different "c after Yeltsin's victory in July -- although few reforms were adopted during the period of the presidential heart illness.
Chubais stands out as the standard-bearer for this group. Although his day-to-day economic management in his current role as presidential chief of staff is less than when he was a deputy prime minister, he nevertheless has a dominant position in setting government priorities and sits on the powerful temporary emergency tax commission.
The other major figure in the liberal group, former Uneximbank chairman Potanin, "has mostly been involved in various lobbying activities," rather than in formulating strategic economic policy concepts, Markov said.
The figure of Potanin -- the discreet banker-politician lobbying both his own and sectoral interests -- has come to symbolize the osmosis between the government sector and the large financial-industrial conglomerates dominating Russia's economy.
"We financiers are all one pretty closely knit circle," said Alexander Livshits addressing a meeting of public and private sector officials this month. "I would like that cooperative spirit to remain."
Indeed the dominant economic groups -- or "clans," as some observers describe them -- tend to transcend the boundaries of any one organization or company, as well as the public/private divide.
They can be based on a shared regional or educational background or political affiliations of the past -- typically the nomenklatura networks of former Communist Party or Komsomol members.
"There is no better expression for who runs the economy than this heterogenous but homogeneous grouping of groups," said one Western observer, who asked not to be identified. "Ultimately the determination of who controls Russia will be based on these cliques."
In many cases the groups hark directly back to Soviet-era structures, the economists said.
"The financial-industrial groups are to some extent a revival of the old [Soviet] branch ministries," said Anders Aslund, a senior associate with the Carnegie Endowment.
One example of this is Gazprom, established on the basis of the old Ministry for the Gas Industry. Another example is Uneximbank, whose main shareholders are foreign trade associations set up in the Soviet period.
But the failure to curtail the monopolies has cost the Russian economy dearly, said Andrei Kolganov, an economics professor at Moscow State University.
Because of the continued power of the monopolies "the economy is less dynamic [than Western economies], capital flows are restricted and it is more difficult to fight inflation," he said.
The financial-industrial groups gained much of their leverage through the loans-for-shares scheme at the end of 1995, initiated by Potanin when he was at Uneximbank. The program allowed strategic investors, mostly banks, to hold government stakes of major blue-chip enterprises in trust in return for loans to the government. The stakes devolved to the investors last September when, as expected, the government did not repay the money.
An extension of this scheme next year could further strengthen the economic influence of such groups. The first round has led to the consolidation of the Yukos oil company under the control of Bank Menatep; metals giant Norilsk Nickel and Sidanko oil company under Uneximbank; and Sibneft oil under Berezovsky, among other tie-ups.
While the financial-industrial groups have typically been operating behind the scenes, some of the major players came directly onto the political stage in the run-up to the summer's presidential elections, when 13 leading financiers signed a letter calling for political reconciliation.
The backbone of that group was Boris Berezovsky's LogoVAZ conglomerate, Potanin's Uneximbank as well as the heads of the Menatep, Stolichny and Most banks.
Last month Berezovsky told the Financial Times that these structures, together with the group centered on Alfa Bank, control 50 percent of the Russian economy.
But economists said that although these six are indeed among the ringleaders of Russia's new economy, there is also an element of wishful thinking to Berezovsky's estimate.
"I think he was exaggerating ... dozens of these groupings are around," said the Western observer.
A number of hugely powerful financial-industrial groups, such as the Gazprom-National Reserve Bank, LUKoil-Imperial, Avtobank-Ingosstrakh-GAZ, Inkombank-Magnitogorsk Metal-Sameko axes, exist alongside, and in competition with, the ones Berezovsky mentioned. Last month National Reserve Bank and utility Unified Energy Systems announced their intent to form a superconsortium for investment involving many of the above companies, but the shape of any such grouping remains unclear.Moreover, the six groups Berezovsky mentioned compete with each other in a number of markets: Most and Stolichny in retail banking, Menatep and Uneximbank in the chemical industry, Most and Uneximbank in the credit and debit card markets, and nearly all against all in the oil sector -- to name just a few examples.
Arguably, what sets the financial groups mentioned by Berezovsky apart is their legendary ability to wring favors out of the government, analysts said.
"It's the bankers rather than the big industrial enterprises that are exploiting the state to their benefit," Aslund said. "Some of these bankers are really using the government as a self-service shop," he added. "The most disturbing case is Potanin, who seems to take $1 billion at a time."
An August bouquet of tax breaks to the Uneximbank-controlled Norilsk Nickel to the tune of as much as $1 billion, and the decision to endow Most and Alfa Bank with carrying out the tender for a 25 percent stake in the telecommunications monopoly Svyazinvest, are but two recent examples of the groups' political clout.
Another is the influence Berezovsky gained when he was named deputy secretary of the Security Council last fall.
Analysts have said the appointment enabled him to lobby in foreign capitals not just for Russia's oil interests, but also his own.
Although Berezovsky's position disqualified him from inclusion on the Interfax-AiF list of the most influential businessmen, the paper said: "It seems that governmental service is just an episode in his business career and that he can go back to it very soon indeed -- if he has ever interrupted it anyway."
In 1996 big business also expanded its hold over the "fourth estate," grabbing up stakes in Russia's leading media companies.
Among those were the NTV broadcaster and the Komsomolskaya Pravda daily (Gazprom), the Izvestia daily (LUKoil), the Literaturnaya Gazeta weekly and the Independent Media group (Menatep), the Expert weekly (Uneximbank) and the ORT broadcaster (Stolichny and Berezovsky consolidating their hold).
Behind each of the leading business figures, Interfax-AiF wrote, "are money, relatives, friendship with top government officials, mass media and many other things."
The influence of the main financial-industrial clans is in the final analysis rooted in the concentration of the Russian economy and therefore unlikely to diminish any time soon, the economists said.
"The monopolies ... have a strong and increasing influence over the government," Kolganov said. "Because they are the main contributors to the budget and account for the bulk of foreign trade. ... That influence is for the long term," he said. lans" that are linked to various patrons inside the government.
Still, in spite of the creation of a new "super-ministry" for industry in August and the appointment of industrial heavyweight Alexei Bolshakov, as first deputy prime minister, the past year was hardly a good one for the industrialists in the Russian cabinet.
True, AvtoVAZ boss Vladimir Kadannikov was named to replace
50 MOST INFLUENTIAL RUSSIAN BUSINESSMEN
Rating Name Company June '96 Dec '95
1 R. Vyakhirev Gazprom 1 1
2 A. Smolensky Stolichny Bank 5 6
3 V. Gusinsky Most Group 3 4
4 M. Khodorkovsky Rosprom 8 2
5 V. Alekperov LUKoil 4 5
6 A. Kazmin Sberbank 7 n/a
7 M. Prokhorov Uneximbank n/a n/a
8 V. Vinogradov Inkombank 10 7
9 A. Dyakov RAO UES 16 19
10 S. Rodionov Bank Imperial 18 8
11 D. Tulin Vneshtorgbank n/a n/a
12-13 Y. Dubenetsky Promstroibank 12 10
12-13 A. Kostin Vneshekonombank n/a n/a
14 S. Monakhov Bank Menatep 24 n/a
15 M. Friedman Alfa Group 25 n/a
16 A. Pugin Gaz Auto Plant 15 15
17 S. Muravlenko Yukos 19 22
18 V. Kadannikov AvtoVAZ n/a 11
19-20 V. Bogdanov Surgutneftegaz 17 28
19-20 V. Khokhlov Tokobank 27 23
21-22 P. Aven Alfa-Bank 26 20
21-22 N. Bekh KamAZ 11 14
23 A. Putilov Rosneft n/a n/a
24 Y. Shaposhnikov Aeroflot n/a n/a
25 N. Rayevskaya Avtobank 32 36
26 V. Shtyrov Almazy Rossii-Sakha 35 29
27 A. Lebedev National Reserve Bank 72 n/a
28-29 N. Galanicheva Unikombank n/a n/a
28-29 Y. Shafranik Tyumen Oil Co. n/a n/a
30 S. Lissovsky ORT Reklama 9 41
31 A. Khloponin Norilsk Nikel n/a 87
32 V. Gerashenko Int. Moscow Bank 21 n/a
33 V. Bukato Mosbusinessbank 22 24
34 A. Sivak Sidanko n/a n/a
35 K. Bendukidze NIPEK 29 35
36 A. Zakharov MICEX 31 38
37 S. Osinyagov MFK 67 n/a
38 Y. Yakovlev Interros n/a n/a
39 V. Yakovlev Kommersant 28 n/a
40 O. Belov Rostelecom n/a n/a
41 V. Gorodilov Sibneft 52 81
42-43 I. Kobzon Moskovit 33 30
42-43 V. Paly N.Vartovskneftegaz 44 60
44 G. Tosunyan Tekhnobank 43 34
45 S. Derezhov Gazexport 46 57
46 A. Nechayev Russian Finance Corp. 41 42
47 Y. Bychkov Diamond Cutters Ass. n/a n/a
48 L. Rafikov Neftegaz n/a n/a
49 D. Orlov Vozrozhdeniye Bank n/a n/a
50 O. Soskovets Ass. of Russian FIGs n/a n/a
Rankings are based on the opinions of 50 specialists surveyed by the Vox Populi sociological research organization. N/A indicates unranked or in government at time of last listing, or unavailable.
Source: Vox Populi/Interfax.
Increasingly, both are true.
1996 was a year in which the distinction between the state and big business grew blurred, as the economic weight and political ambitions of a handful of well-connected private financial-industrial groups came out in the open.
Two high-profile cases prove the point. Vladimir Potanin and Boris Berezovsky are both top financiers who joined the government in the second half of the year, cementing interests they have carved from former state property.
Berezovsky spelled it out in the fall when he proclaimed the existence of a "magnificent seven" of leading businessmen who control half the Russian economy.
"Most likely, the majority of those businessmen will exercise considerable influence on the economic policy of the state in 1997 as well," said the Interfax-Argumenty i Fakty weekly in its Jan. 1 edition, predicting a further influx of new business figures into government next year.
But the tightening relationship between business and government hardly means that the state and industry form one monolithic bloc. Indeed, if Russia's economic policy appears schizophrenic at times, this is hardly surprising: The government is itself an unstable coalition of two powerful groups.
"The long-standing struggle between liberalists and protectionists in the government is continuing," said Sergei Markov, a senior analyst with the Moscow Carnegie Center.
"The liberals gained the upper hand after the presidential elections," but protectionists, with a power base in Russian industry, are now regaining their momentum, he said.
Enterprises, for their part, have lined up in different "c after Yeltsin's victory in July -- although few reforms were adopted during the period of the presidential heart illness.
Chubais stands out as the standard-bearer for this group. Although his day-to-day economic management in his current role as presidential chief of staff is less than when he was a deputy prime minister, he nevertheless has a dominant position in setting government priorities and sits on the powerful temporary emergency tax commission.
The other major figure in the liberal group, former Uneximbank chairman Potanin, "has mostly been involved in various lobbying activities," rather than in formulating strategic economic policy concepts, Markov said.
The figure of Potanin -- the discreet banker-politician lobbying both his own and sectoral interests -- has come to symbolize the osmosis between the government sector and the large financial-industrial conglomerates dominating Russia's economy.
"We financiers are all one pretty closely knit circle," said Alexander Livshits addressing a meeting of public and private sector officials this month. "I would like that cooperative spirit to remain."
Indeed the dominant economic groups -- or "clans," as some observers describe them -- tend to transcend the boundaries of any one organization or company, as well as the public/private divide.
They can be based on a shared regional or educational background or political affiliations of the past -- typically the nomenklatura networks of former Communist Party or Komsomol members.
"There is no better expression for who runs the economy than this heterogenous but homogeneous grouping of groups," said one Western observer, who asked not to be identified. "Ultimately the determination of who controls Russia will be based on these cliques."
In many cases the groups hark directly back to Soviet-era structures, the economists said.
"The financial-industrial groups are to some extent a revival of the old [Soviet] branch ministries," said Anders Aslund, a senior associate with the Carnegie Endowment.
One example of this is Gazprom, established on the basis of the old Ministry for the Gas Industry. Another example is Uneximbank, whose main shareholders are foreign trade associations set up in the Soviet period.
But the failure to curtail the monopolies has cost the Russian economy dearly, said Andrei Kolganov, an economics professor at Moscow State University.
Because of the continued power of the monopolies "the economy is less dynamic [than Western economies], capital flows are restricted and it is more difficult to fight inflation," he said.
The financial-industrial groups gained much of their leverage through the loans-for-shares scheme at the end of 1995, initiated by Potanin when he was at Uneximbank. The program allowed strategic investors, mostly banks, to hold government stakes of major blue-chip enterprises in trust in return for loans to the government. The stakes devolved to the investors last September when, as expected, the government did not repay the money.
An extension of this scheme next year could further strengthen the economic influence of such groups. The first round has led to the consolidation of the Yukos oil company under the control of Bank Menatep; metals giant Norilsk Nickel and Sidanko oil company under Uneximbank; and Sibneft oil under Berezovsky, among other tie-ups.
While the financial-industrial groups have typically been operating behind the scenes, some of the major players came directly onto the political stage in the run-up to the summer's presidential elections, when 13 leading financiers signed a letter calling for political reconciliation.
The backbone of that group was Boris Berezovsky's LogoVAZ conglomerate, Potanin's Uneximbank as well as the heads of the Menatep, Stolichny and Most banks.
Last month Berezovsky told the Financial Times that these structures, together with the group centered on Alfa Bank, control 50 percent of the Russian economy.
But economists said that although these six are indeed among the ringleaders of Russia's new economy, there is also an element of wishful thinking to Berezovsky's estimate.
"I think he was exaggerating ... dozens of these groupings are around," said the Western observer.
A number of hugely powerful financial-industrial groups, such as the Gazprom-National Reserve Bank, LUKoil-Imperial, Avtobank-Ingosstrakh-GAZ, Inkombank-Magnitogorsk Metal-Sameko axes, exist alongside, and in competition with, the ones Berezovsky mentioned. Last month National Reserve Bank and utility Unified Energy Systems announced their intent to form a superconsortium for investment involving many of the above companies, but the shape of any such grouping remains unclear.Moreover, the six groups Berezovsky mentioned compete with each other in a number of markets: Most and Stolichny in retail banking, Menatep and Uneximbank in the chemical industry, Most and Uneximbank in the credit and debit card markets, and nearly all against all in the oil sector -- to name just a few examples.
Arguably, what sets the financial groups mentioned by Berezovsky apart is their legendary ability to wring favors out of the government, analysts said.
"It's the bankers rather than the big industrial enterprises that are exploiting the state to their benefit," Aslund said. "Some of these bankers are really using the government as a self-service shop," he added. "The most disturbing case is Potanin, who seems to take $1 billion at a time."
An August bouquet of tax breaks to the Uneximbank-controlled Norilsk Nickel to the tune of as much as $1 billion, and the decision to endow Most and Alfa Bank with carrying out the tender for a 25 percent stake in the telecommunications monopoly Svyazinvest, are but two recent examples of the groups' political clout.
Another is the influence Berezovsky gained when he was named deputy secretary of the Security Council last fall.
Analysts have said the appointment enabled him to lobby in foreign capitals not just for Russia's oil interests, but also his own.
Although Berezovsky's position disqualified him from inclusion on the Interfax-AiF list of the most influential businessmen, the paper said: "It seems that governmental service is just an episode in his business career and that he can go back to it very soon indeed -- if he has ever interrupted it anyway."
In 1996 big business also expanded its hold over the "fourth estate," grabbing up stakes in Russia's leading media companies.
Among those were the NTV broadcaster and the Komsomolskaya Pravda daily (Gazprom), the Izvestia daily (LUKoil), the Literaturnaya Gazeta weekly and the Independent Media group (Menatep), the Expert weekly (Uneximbank) and the ORT broadcaster (Stolichny and Berezovsky consolidating their hold).
Behind each of the leading business figures, Interfax-AiF wrote, "are money, relatives, friendship with top government officials, mass media and many other things."
The influence of the main financial-industrial clans is in the final analysis rooted in the concentration of the Russian economy and therefore unlikely to diminish any time soon, the economists said.
"The monopolies ... have a strong and increasing influence over the government," Kolganov said. "Because they are the main contributors to the budget and account for the bulk of foreign trade. ... That influence is for the long term," he said. lans" that are linked to various patrons inside the government.
Still, in spite of the creation of a new "super-ministry" for industry in August and the appointment of industrial heavyweight Alexei Bolshakov, as first deputy prime minister, the past year was hardly a good one for the industrialists in the Russian cabinet.
True, AvtoVAZ boss Vladimir Kadannikov was named to replace
50 MOST INFLUENTIAL RUSSIAN BUSINESSMEN
Rating Name Company June '96 Dec '95
1 R. Vyakhirev Gazprom 1 1
2 A. Smolensky Stolichny Bank 5 6
3 V. Gusinsky Most Group 3 4
4 M. Khodorkovsky Rosprom 8 2
5 V. Alekperov LUKoil 4 5
6 A. Kazmin Sberbank 7 n/a
7 M. Prokhorov Uneximbank n/a n/a
8 V. Vinogradov Inkombank 10 7
9 A. Dyakov RAO UES 16 19
10 S. Rodionov Bank Imperial 18 8
11 D. Tulin Vneshtorgbank n/a n/a
12-13 Y. Dubenetsky Promstroibank 12 10
12-13 A. Kostin Vneshekonombank n/a n/a
14 S. Monakhov Bank Menatep 24 n/a
15 M. Friedman Alfa Group 25 n/a
16 A. Pugin Gaz Auto Plant 15 15
17 S. Muravlenko Yukos 19 22
18 V. Kadannikov AvtoVAZ n/a 11
19-20 V. Bogdanov Surgutneftegaz 17 28
19-20 V. Khokhlov Tokobank 27 23
21-22 P. Aven Alfa-Bank 26 20
21-22 N. Bekh KamAZ 11 14
23 A. Putilov Rosneft n/a n/a
24 Y. Shaposhnikov Aeroflot n/a n/a
25 N. Rayevskaya Avtobank 32 36
26 V. Shtyrov Almazy Rossii-Sakha 35 29
27 A. Lebedev National Reserve Bank 72 n/a
28-29 N. Galanicheva Unikombank n/a n/a
28-29 Y. Shafranik Tyumen Oil Co. n/a n/a
30 S. Lissovsky ORT Reklama 9 41
31 A. Khloponin Norilsk Nikel n/a 87
32 V. Gerashenko Int. Moscow Bank 21 n/a
33 V. Bukato Mosbusinessbank 22 24
34 A. Sivak Sidanko n/a n/a
35 K. Bendukidze NIPEK 29 35
36 A. Zakharov MICEX 31 38
37 S. Osinyagov MFK 67 n/a
38 Y. Yakovlev Interros n/a n/a
39 V. Yakovlev Kommersant 28 n/a
40 O. Belov Rostelecom n/a n/a
41 V. Gorodilov Sibneft 52 81
42-43 I. Kobzon Moskovit 33 30
42-43 V. Paly N.Vartovskneftegaz 44 60
44 G. Tosunyan Tekhnobank 43 34
45 S. Derezhov Gazexport 46 57
46 A. Nechayev Russian Finance Corp. 41 42
47 Y. Bychkov Diamond Cutters Ass. n/a n/a
48 L. Rafikov Neftegaz n/a n/a
49 D. Orlov Vozrozhdeniye Bank n/a n/a
50 O. Soskovets Ass. of Russian FIGs n/a n/a
Rankings are based on the opinions of 50 specialists surveyed by the Vox Populi sociological research organization. N/A indicates unranked or in government at time of last listing, or unavailable.
Source: Vox Populi/Interfax.
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