Some Distorted Parallels

[MJ]

The Wall Street Journal Europe March 2, 2001

 

East Of The Oder

The Gang That Couldn't Do Capitalism Straight

By Paul Klebnikov

 

03/02/2001

The Wall Street Journal Europe

(Copyright © 2001, Dow Jones & Company, Inc.)

 

Big Biznis, Russian-style, functions according to some strange rules. If you have a market

rival who threatens you, you can simply murder him. If you want to take over a big state-

owned company, you bribe the relevant official to give it to you. Then, instead of

investing in this company and growing it, you soak it of all the cash flow and park the

money in your personal offshore account.

 

Why did Russia go wrong? How did Russians get such a warped conception of capitalism?

Westerners pondering this mystery may find some answers by looking at the people who

taught Russian businessmen what it means to be a capitalist.

 

One of their first and most important modern role models was Marc Rich. The fugitive

American commodities trader -- most recently of Clinton pardon fame -- traded Soviet

oil and aluminum for years. But he really hit his stride after 1989, when the Soviet Union

began falling apart and corrupt Communist Party bosses and unscrupulous young traders

from the Communist Youth League began staking their claims to Russia's most valuable

assets.

 

Russian officials, including former trade minister Oleg Davydov, have asserted to me that

Mr. Rich's companies set a bad example of how to set up shell companies in obscure

offshore tax havens, how to open Swiss bank accounts, how to buy Russian commodities

at the domestic price (5% or 10% of the world market price) and resell them abroad at a

huge profit. Mr. Rich's commodity business boomed: In the early 1990s, he sold billions of

dollars of Russian oil, and thanks to his purchase of Russian aluminum, he came to

control a third of the world spot market of this metal.

 

The corruption of Russia's new business class stems from much more than one person's

influence, of course. The deeper problem is that the Russians have long had a completely

perverted understanding of capitalism and the West. Indeed, news of the Marc Rich pardon

was received with little surprise in Russia. I suspect that the tycoons see this is as just

a routine example of the corruption rampant in America.

 

Over the past decade, whenever I asked Russian tycoons why their market was so

penetrated by organized crime, they always argued that capitalism in the United States

had been violent and lawless initially too. Many Russian businessmen related to some

fantasy image of modern America, too. In 1993, having heard that a dozen bank presidents

had been assassinated in the mob war raging in Moscow, I asked the head of Aeroflot Bank

if he was nervous being a banker. "Why should I be?" he replied. "There is nothing unusual

in this. Bank managers get killed in the West all the time."

 

Such references can come from the most sophisticated people; even Anatoly Chubais, the

architect of Russian privatization. "During the formation of capitalism in the United

States, there was a phenomenal amount of killing, bloodshed and lawlessness," Mr.

Chubais pontificated to me.

 

The difference, obviously, is that in the U.S., gangsters and criminals operated on the

fringes of society and usually ended up in jail. In the new Russia, they came to dominate

the nation's business and politics.

 

Why was the democratic government of Boris Yeltsin so deeply corrupt? In 1996, I posed

the question to Boris Berezovsky, a car dealer who had acquired Russia's premier

television, airline and oil companies and become the country's most influential

businessman. He also offered a familiar excuse for the triumph of organized crime in

Russia: "I, for one, know that a mass of people in the West are corrupted," he said. "There

are incessant denunciations of high-ranking functionaries in the United States, in France .

. . Mayors of major cities are being thrown in jail."

 

Where did the Russian oligarchs get such twisted ideas? All of Russia's big businessmen

were members of the communist establishment and received the best Marxist-Leninist

education the Soviet Union had to offer. This upbringing left an indelible imprint on them.

Mr. Berezovsky, for instance, loves to say that he and other oligarchs are engaged in the

"primary accumulation of capital." Marx used the term to describe the most primitive

stage of capitalism -- the way a medieval baron would loot and pillage his way to his

first fortune.

 

Often I tried to disabuse the biznismen of the notion America's early capitalists were

simply crooks or gangsters who had made good. Their success was due to innovation, hard

work and steady reinvestment in their businesses, I pointed out. They had earned their

money honestly, had paid their taxes and had succeeded in a market that gave all

participants an equal chance. I was met with disbelief, and smirks, by my Russian

acquaintances. Surely I was smart enough to understand that any successful human

endeavor was accompanied by intrigue and double-cross?

 

At any rate, the new Russian kapitalisty are a completely different species from the

pioneers of American capitalism. The Robber Barons of the 19th century presided over the

biggest economic boom the world had ever seen. Rockefeller created the world's largest

oil industry. Carnegie built the world's largest steel company. J.P. Morgan mobilized

American capital to fuel the country's industrial boom and made Wall Street a more

honest marketplace. They all created something out of nothing.

 

Russia's tycoons, by contrast, are almost without exception mediocre businessmen. They

have not created a single noteworthy business enterprise. The big state-owned companies

they have taken over with their inside deals have almost all languished under their

management. Not surprisingly, the Russian economy has been ravaged by the crony

capitalism of the Yeltsin years (GDP contracted by 41% between 1990 and 1999). Russia

has suffered the biggest catastrophe -- economically, socially and demographically --

since the Nazi invasion in 1941.

 

The tragic irony of Bill Clinton's pardon of Marc Rich is that it confirms Russians' worst

suspicions of how the president of the United States colludes with the schemes of big

businessmen. You can skip your high-minded principles, they say, we know that America

is just a slightly more polished version of, well, Boris Yeltsin's Russia.

 

---

 

Mr. Klebnikov, a senior editor at Forbes, is the author of "Godfather of the Kremlin: Boris

Berezovsky and the Looting of Russia," published by Harcourt.

 

http://www.klebnikov.org/Opinion.php?id=5

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