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. Last Updated: 07/27/2016

Putin Rebuilds Oligarchy

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President Vladimir Putin has been widely acclaimed in recent months for reducing the clout of the business oligarchs, that tiny circle of magnates whose ties to the government enabled them to dominate politics and enrich themselves during the Yeltsin era. Contrary to the prevailing opinion, however, Putin's approach to the oligarchs has been highly selective. While they now play a less visible role than in the past, most of the moguls Ч especially those who support Putin Ч have prospered. In fact, Putin and the oligarchs need each other and it is doubtful the president is strong enough to sever the link between money and power in Russian politics despite his claims to want to do so.

Putin has targeted Vladimir Gusinsky and Boris Berezovsky, the most independent, but economically vulnerable barons, whose media holdings are especially useful to him as he tries to consolidate his rule. Virtually untouched have been oligarchs Mikhail Khodorkovsky, Vladimir Potanin, Pyotr Aven and Mikhail Fridman. In fact, one reason for the relentlessness of Putin's attacks on Gusinsky and Berezovsky is that they are business competitors of oligarchs who back the Kremlin.

The key issue has never been whether Putin can hound isolated moguls such as Gusinsky or Berezovsky into exile or jail. It is whether the president can change the fundamental connection between business and politics that gave birth to the oligarchs, with its attendant corruption and economic distortion. There is little sign that he can.

Under Putin, new oligarchs such as aluminum king Oleg Deripaska and his ally Mikhail Chernoi have emerged. Especially prominent are leaders of business conglomerates based on profitable economic sectors such as telecommunications and natural resource extraction. Business interests based in Putin's hometown of St. Petersburg have been noticeably more influential. Also, several first-generation oligarchs Ч notably Potanin and Khodorkovsky Ч have reinvented themselves, refocusing their activities from financial services to industry.

Crosscutting oligarchic coalitions, including businessmen and politicians, have intensified their lobbying. Their reach extends into the presidential administration, the Security Council and the State Duma, where they seek access to lucrative pension and customs funds, favorable legislation, export licenses and exemption from tax collection or prosecution. Key targets in recent months have been the cash flows from government ministries such as the Nuclear Power Ministry, which engage in lucrative business activity.

Finally, ties between big business and law enforcement agencies Ч the Federal Security Service, Interior Ministry, tax police and prosecutors Ч have deepened. The media report that much of the Federal Security Service, or FSB, leadership promoted by Putin from St. Petersburg has links to that city's military-industrial complex. Although some FSB officers reportedly favor a crackdown on the oligarchs, others either work for those businessmen or take bribes from them. These factors prevent Putin from taking the oligarchs out of politics. Gazprom's size and ties to both the private sector and the federal bureaucracy enable it to resist government efforts to restructure it. Putin's grip on the Interior Ministry, which has long had a close relationship with business, is weak. The close ties between the oligarchs and law enforcement agencies make it impossible for the president to impartially administer justice.

Moreover, Putin needs the oligarchs. Gazprom, for instance, is a powerful foreign-policy tool. Domestically, the oligarchs attract foreign investment, provide political support and financial services for the Kremlin and promote social stability by employing thousands. In the absence of a functional state treasury, the government has turned over Russia's lucrative arms export agency to oligarch-controlled banks.

Thus, Putin has settled for a social contract with the moguls under which he allows them to do business so long as they back him politically and sometimes serve the state. At a Kremlin meeting with major businessmen on Jan. 26, Putin told the oligarchs that there would be no rollback of privatization and the government would not interfere with their activities as long as they obeyed the law. What is especially striking about this approach is how much it resembles the laissez-faire approach of Boris Yeltsin, rather than the tough line many expected from Putin when he took power.

Donald Jensen is associate director of broadcasting at Radio Free Europe/Radio Liberty. Yevgenia Albats will return next week.