Bye Oligarchs, Hello Feudal Capitalism

By Yulia Latynina


When thugs shake down a shop ow-ner, they're not trying to get hold of the shop for themselves. They just want the owner to pay them tribute. If the owner proves uncooperative, of course, they sometimes have to take over the shop anyway.

The formation of criminal protection rackets, which thrived in the late 1980s and early 1990s, turned the owners of private property into vassals. Every piece of property was owned by two people: the businessman who owned the property, and the criminal who owned the businessman.

Toward the end of Boris Yeltsin's second term, this process came to an end. The slaveowners were replaced by proprietors - the oligarchs, who assessed their wealth not in terms of guns and the number of businessmen under their thumbs, but by stock portfolios and profit margins.

Now the process is moving in reverse: Private ownership is once more giving way to feudal ownership.

When an oligarch resists this process, his property is taken away and handed over to the bureaucrats, as in the case of Yukos. If he does not resist, he keeps hold of his property but effectively becomes a vassal. He retains his freedom in the sense that no one throws him in prison. But he forfeits his freedom just as Russian serfs once did.

Vladimir Potanin and Vladimir Bogdanov aren't in jail, but I doubt that Mikhail Khodorkovsky would willingly trade places with them.

Nearly all of the influential officials in Putin's inner circle became chairmen on the boards of major state companies: Gazprom, Rosneft, shipbuilder Sovkomflot and air defense concern Almaz-Antei. They received these companies as fiefdoms just as dukes and counts in the Middle Ages were granted lands in exchange for loyal service to the lord.

This unique system of fiefdom-based capitalism has produced an equally distinctive system of political clans. Bureaucrats in this system belong to the person higher up the chain of command to whom they pay tribute. Now major clashes and shakeups in the Kremlin administration occur because of commercial, not political, disputes. Maybe, just maybe Dmitry Kozak was exiled to the Caucasus and removed as board chairman at Sovkomflot not because he was brighter than the rest of Putin's inner circle, but because he got caught pocketing the tribute.

The advantage of fiefdom-based capitalism over oligarchic ownership of property immediately became evident. Kozak was stripped of Sovkomflot with a stroke of a pen, and without resorting to all the tedious procedures that have been used against Khodorkovsky.

Feudalization does not spell an end to private ownership of property. On the contrary, the people who control the flow of revenue into state companies value capitalism very highly where consumption is concerned - villas in Nice, expensive restaurants, private planes and pretty girls. Power in its bare, Soviet form - run-down Volgas and slapdash apartment buildings for the select few, complete with real Yugoslavian toilets - doesn't quite cut it.

But they don't have a clue about investment. From the feudal lord's perspective, investing money in new technology and oil wells that could be spent on villas and girls makes no sense whatsoever. This sort of investment only makes your fiefdom more attractive to the next guy, who then proceeds to buy your position and destroy you.

Yulia Latynina hosts a political talk show on Ekho Moskvy radio.

(The St. Petersburg Times, 12.10.2004