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. Last Updated: 07/27/2016

Oligarchs Belie Free Market

Two eminent figures weighed in this week on the perennial question, "Whither Russia?"

Strobe Talbott, U.S. President Bill Clinton's top adviser on Russia, addressed the subject in Time magazine, where he once worked, while ex-dissident Alexander Solzhenitsyn advanced his view in the French paper Le Monde.

Not surprisingly, Talbott's take was relatively upbeat, while Solzhenitsyn's article was all but apocalyptic.

In Talbott's Russia, democracy is "taking root," the "rudiments" of a market economy are in place and the private sector is producing 70 percent of GDP.

According to Solzhenitsyn: "Nothing resembling democracy currently exists in Russia." The country is ruled with "impunity" by a "vertical axis leading from the president and the government," while its economy is controlled by "a stable and closed oligarchy" of 150 to 200 ex-Communist apparatchiks and New Russians, who "amassed instant fortunes through banditry."

Who is right? Solzhenitsyn -- with a few large caveats.

The Nobel Prize-winning author leaves himself open to the charge of exaggeration when he blames Russia's current rulers for plunging "millions of people into poverty." While it is true that many Russians saw their savings wiped out by hyper-inflation in 1992-93, at the start of the reforms, they were hardly affluent in 1991, when even bread had disappeared from the shops.

What is more, the fact that an estimated 40 percent of Russia's GDP is hidden from the authorities explains why there is no widespread hunger, even though large swathes of the population have not received salaries for months. The shadow economy means the economic pie is larger than the statistics would suggest. Solzhenitsyn should understand this, having himself argued that the Soviet black market was a rational economic response to the insanities of central planning.

But to call what is emerging in Russia a "market" system, as Talbott does, is a stretch. The essence of a market economy is free competition, which monopolies, by definition, restrain. Yet Russia's economy appears headed toward the monopolization Solzhenitsyn describes.

Boris Berezovsky, the financier turned Security Council official, recently named seven bankers and financiers with close ties to the state who, he said, represent 50 percent of Russia's economy. Two of them are already in the government: Berezovsky and Vladimir Potanin, the former head of Uneximbank, now a first deputy prime minister.

This week, word leaked out that two other banks represented in the group -- Alfa and MOST -- are poised to grab a chunk of Svyazinvest, the giant telecommunications holding company, through a privatization deal similar to last year's ethically-impaired loans-for-shares scheme. That blatantly rigged scheme allowed others in the Group of Seven to consolidate their powerful positions.

All of this points to the emergence of an oligopoly, made up of financial-industrial entities that exist in a grey zone between state and private ownership. That they are neither strictly private nor public allows them to avoid both genuine competition and the controls which the state -- a law-governed one, at any rate -- places on public companies.

Is this economic trend compatible with political democracy? Probably not. Just look at how members of the Group of Seven have bought up national television, for example. Additionally, while many in the West see the group's most powerful political ally, Anatoly Chubais, as the embodiment of Russia's democratic aspirations, he has been showing a different face lately.

When Solzhenitsyn says Russia is ruled from the top down by a "vertical axis," he is echoing the presidential chief of staff's stated goal. Chubais has even praised the achievements of the Soviet "party system," proclaiming, in truly Orwellian fashion, that to ensure a democracy in society, there must be a dictatorship within the government.

Yet if Russia seems headed toward Solzhenitsyn's authoritarian oligarchy rather than Talbott's market democracy, no single group has yet been able to impose an all-powerful "vertical." For now, it remains no more than a dream, or nightmare, depending on your point of view. The ambitions of regional leaders militate against this, as do those of the financial-political groups outside the Chubais-Berezovsky orbit. The recent spate of "kompromat" aimed at both men would suggest that influential forces oppose the Group of Seven's plans.

In the end, the single biggest obstacle to the Group of Seven's power play may be the return of Boris Yeltsin, the undisputed king of divide-and-rule strategy.