Russia's Business Elite
T.H. Rigby
Australian National University
In earlier issues of this Bulletin David Lockwood has examined the emergence of Russia's post-communist 'business class', while Stephen Fortescue has focussed on the new owners (mostly owner-managers) of Russian industry. This article looks more closely at the apex of the business elite, at the few dozen top capitalists and industrialists who are major players not only within their branch or region, but on the national stage. What kinds of backgrounds do they come from, and what were their paths to the top? But first we must place them in context by recalling some major facts about the emergence and character of the new business class generally.
The market-oriented society of post-communist Russia is being built not entirely from scratch. Under the old system of mono-organisational socialism, consumer goods and services were in part market-distributed, while effective engagement with informal personalistic structures of mutual favour (clientelism, blat, etc.) was an essential condition for relative well-being. A form of legitimate private trade, namely the collective farm markets, had been functioning since the 1930's. Under the live-and-and-let live regime of Leonid Brezhnev (1964-1982), disparate elements of a shadow market society spread and deepened. Alongside the flowering of an informal culture (including 'freedom of speech in one kitchen'), with its illegal fringe of dissident groups and samizdat publications, came the spread of shadow businesses parasitical upon state enterprises, and of illegal trading in foreign currency and clothing. No less important, in the view of some scholars, was the loosening of Communist Party control over administrative bodies at various levels, as well as over plant managements, allowing them more freedom to negotiate mutually advantageous exchanges. Georgii Shakhnazarov sees these developments as amounting to the emergence of a 'civil shadow society'. Thus even before Gorbachev's reforms, many Russians had acquired some experience of entrepreneurship of one kind or another. Such enterpreneurship, however, even where it was not illegal, was for the most part parasitical upon the operation of bureaucratic-administrative structures.
Gorbachev's initial measures to revive the Soviet economy focussed primarily on combating corruption, slacking and inefficiency within the centralised command system. A 1986 Law on Individual Economic Activity made little impact. In mid 1987 state enterprises were granted considerable commercial autonomy, though this was partly negated by a system of 'state orders'. In the same year, however, the Komsomol (Communist Youth League) formed a coordinating Council of Centres of Scientific and Technical Creativity of Youth, the centres attached to the district committees in Moscow soon becoming, in the view of Olga Kryshtanovskaya and Stephen White, 'in effect, the first commercial structures of any kind in the former USSR, and it was through these centres that many in the first wave of new Russian entrepreneurs became established'. There followed the May 1988 Law on Cooperatives, within a year of which over 100,000 cooperatives were in business, employing two million members, and it soon became an open secret that the cooperative form was often a cloak for individual entrepreneurship. As we shall see, this also gave a head start to several young men who were later to become prominent in Russia's post-Soviet business elite.
The years 1989-91 saw a process of corporatisation of finance, trading and manufacturing enterprises which provided a convenient cover for widespread sub-rosa 'privatisation before privatisation', laying the foundations for many later business empires and fortunes. The chief agents and beneficiaries of this process were incumbent top officials and executives, some of whom were to become prominent members of the post-Soviet business elite. In general, on the eve of the collapse of the old order, there was a scramble within the topmost structures and circles to position oneself to make good in the emergent capitalist society. Emblematic of this was the closure of the Communist Party Central Committee journal Party Life (Partiinaya zhizn'') in the wake of the failed August 1991 conservative Putsch, and its prompt reappearance as Business Life (Delovaya zhizn' ), with an editorial promising to re-educate subscribers to become brokers and other key figures in the emergent capitalist economy.
The first year of post-Soviet Russia, 1992, with its shift from government-to-market fixed prices on most goods and services, the four-figure inflation that followed it, and the privatisation of a substantial part of industry, was the annus mirabilis of the emergent business class, whose main contours were revealed by two large-scale research projects launched in the following year. The first of these, part of a comparative project on elite change in Eastern Europe headed by Ivan Szelenyi, was undertaken by a group of scholars in the All-Russian Central Institute on Public Opinion (VTsIOM) in 1993-94. Altogether 1812 individuals, identified as the political, economic and cultural elite in 1988 and in 1993, were interviewed. Some significant findings emerged on the new business elite, which was defined as 'owners and managers of large enterprises which were private from scratch'. To start with, their fathers' standing and education were a good deal higher on average than those of all other new elite categories except the scientific and cultural elite, fully 49 per cent of them (the fathers) having been tertiary-educated and 40 per cent members of the old party nomenklatura. They themselves, however, were somewhat less likely than other elite categories to have acquired a tertiary education ( 91.9 per cent compared with the 95.5 per cent of state enterprise executives), far less likely to have been Communist Party members (50.7 per cent - other elite categories ranging from 77.7 to 84.9 per cent), and on average far younger (41.9 per cent aged under 40, other elite categories ranging from 4.3 to 19.6 per cent. )
The second major analysis of elite change up to 1993-94 stemmed from a project directed by Olga Kryshtanovskaya of the Institute of Sociology of the Russian Academy of Sciences. Of particular interest are its findings on the lines of movement from the old elite to the new. Although 61 per cent of the new business elite were identified as coming from some branch or other of 'the Soviet nomenklatura' this was far less than all other elite categories except the leaders of political parties. As to which sections of the old nomenklatura they had served in, there are striking contrasts with other new elite categories. Over a third (37 per cent) had been komsomol officials at the end of the 1980s, compared with 5 percent of new party leaders, 2 percent of the regional elite, and not a single member either of the Government or the President's entourage. Further, another 37 per cent had been in high managerial positions (khozyaistvennaya elita) , exceeded only by members of the new government elite (42 percent), and compared with nine per cent of the President's entourage, five per cent of party leaders, and none of the new regional elite.
Shortly I will be moving to the middle and later 1990s and focussing on what might be termed the 'top business elite' of a few dozen individuals, rather than the few hundred of the studies outlined above. It may be useful at this point, however, to note some findings of a comparable analysis made in 1993. This revealed remarkably high education levels : only 6.6 per cent of the sixty leading businessmen studied lacked tertiary education, and fully 38.3 per cent of them had higher (research) degrees. Only 15 per cent of these top businessmen were aged under thirty, compared with 30 per cent of the fifty smaller-scale entrepreneurs studied. All but four of the 110 leading and other entrepreneurs were men and the fathers of 71 per cent of them were tertiary graduates. Only fifteen per cent had grown up in worker or peasant families.
Another, slightly later, collection of biographical data on business leaders is unusually informative about family background. Vozrozhdennaya elita rossiikogo biznesa contains 86 potted biographies and cites the occupation of 71 of the fathers and, an extreme rarity in such studies, of 66 of the mothers. It reveals an emergent business elite drawn overwhelmingly from urban middle-class families. The proportion born into working class or peasant households was risible (even granted that such may have been more common among those failing to state their parents' occupations). On the other hand, none came out of the Soviet 'top drawer' (the nearest was Stas Namin, a grandson of longtime Politburo member Anastas Mikoyan). Their fathers were mostly government officials, army officers, industrial executives, technologists or professionals, while their mothers were educational or medical professionals, office staff, technicians, or housewives. Fully 25 of the 86 business leaders were born in Moscow, 23 in republic capitals, and the rest mainly in medium-sized towns. Under ten per cent started life in rural areas (compared with almost a third of the Russian political elite in 1996.)
By mid 1994 the first phase of privatisation, in which enterprises were auctioned for transferable vouchers distributed to the workforce, was complete, in most cases to the benefit of the incumbent managers or administrators. But this still left a substantial minority of mostly larger undertakings in public hands. The second phase was marked by the dominance of 'finance-industrial groups', facilitated by legal changes made in the wake of Yeltsin's victory in the violent showdown with the parliamentary leadership in late 1993. Vast fortunes were made in the process, and there were major changes in the composition of the top business elite, the majority now consisting of men whose wealth and power rested primarily, or substantially, on their controlling interest in banks or other financial institutions. This is illustrated by the fact that over half of the individuals included in Anvar Amirov's authoritative biographical handbook of 'Russia's most influential entrepreneurs' (1996), also figured in his 'Who's who in Russia's banking system' compiled in the same year. The analysis that follows draws preponderantly on the former work, which was based on a survey of experts' judgements carried out by the Economic News Agency, Vox Populi sociological surveys and the weeklies Interfaks AiF and Ekonomika i zhizn'.
By 1996 the composition of the business elite had substantially stabilised, and there were only minor changes till the economic crisis of late 1998. It would be premature to judge the subsequent shake-out as completed, and although indications are against major changes in the general profile of the elite, a follow-up study will be needed in due course. In my analysis of the 1996 data I make a primary distinction between those 39 business leaders who have a major (though not necessarily predominant) interest in financial institutions from the 20 who do not. This distinction turns out to be significant with respect to several variables examined.
Post-communist business in Russia is a man's world. All but one of our business leaders are men, the exception being Nataliya Raevskaya, chairman of the board of Avtobank. Direct data on ethnicity are lacking, but judging from surname, forename and birthplace evidence the great majority are ethnic Russians, with a scattering of Ukrainians, Belorussians, Jews and Transcaucasians. Of the forty-six whose birthplace is stated, fully fourteen were born in Moscow ( and a fifteenth was domiciled in Moscow but born in Colombo where his father was then stationed). Sixteen were born in other major cities, and only nine born in small towns or villages. There are major differences in birthplace patterns between our two elite categories : the 'finance' group includes twelve of the fourteen born in Moscow and less than half of those born in small towns or villages.
The mean age of our business leaders in 1996 was 45.4. The 'finance' group averaged 43.4 and the 'non-finance' 49.3. The contrast between the age profiles of the two groups is further evidenced in Table One. Seventy-seven per cent of the 'finance' group were aged under fifty, compared with fifty-four per cent of the 'non-finance' group.
| AGE | 'FINANCE' | 'NON-FINANCE' | TOTAL |
|---|---|---|---|
| In twenties | 1 | 1 | |
| In thirties | 12 | 3 | 15 |
| In forties | 16 | 7 | 23 |
| In fifties | 8 | 7 | 15 |
| In sixties | 2 | 3 | 5 |
| Total | 39 | 20 | 59 |
Perhaps the most significant feature of Russia's new business elite is its educational profile. Two-thirds of them received their tertiary education in Moscow. Forty were full-time students in Moscow's technical, natural science, social science, or humanities institutes, one took his Moscow degree by correspondence, and another, although first graduating from the Far East Polytechnical Institute, later attended the Academy of Social Sciences of the CPSU Central Committee, obviously the crucial educational experience for him. The Moscow Finance Institute, with eleven graduates, is easily the most strongly represented, all eleven unsurprisingly in the 'finance' elite, which also includes five of the seven graduates of Moscow State University, and, less predictably, ten of the eighteen graduates of various Moscow technical institutes. Altogether seventy-four per cent of the 'finance elite' and fifty per cent of the 'non-finance elite' received their professional training in Moscow. Many of them were still studying, or just beginning their careers, in the early perestroika years, and were ideally placed to take their first steps in proto-businesses under the Komsomol umbrella or exploiting other connections. Members of today's 'non-finance elite' are far more likely than the 'finance elite' to be graduates of technical or earth-science institutes and to have studied in the Russian provinces or non-Russian republics.
| MOSCOW | OTHER RUSSIA | OTHER REPS | TOTAL | |
|---|---|---|---|---|
| 'Finance' | 30 | 5 | 4 | 39 |
| 'Non Finance' | 10 | 8 | 2 | 20 |
| TOTAL | 40 | 13 | 6 | 59 |
Although the majority of Russia's top business elite acquired that status as recently as the second phase of privatisation (mid 1990's), all of them were already well launched on their business careers in the course of what might be called the prehistory of mass privatisation, between 1987 and 1991. Where they differed among themselves, and differed strikingly, was in the structures and positional and personal assets they exploited to break into business, which I shall call their 'launching pads'(see Table Three).
| 'Finance' | 'Non-Finance' | Total | |
|---|---|---|---|
| Soviet bank chiefs | 15 | 15 | |
| Chief execs.extractive inds. | 2 | 5 | 7 |
| Chief execs.manufacturing | 3 | 3 | |
| Dep.Minister Soviet Govt.. | 2 | 2 | |
| Cooperatives etc. | 14 | 4 | 18 |
| Other entrepreneurial moves | 4 | 6 | 10 |
| Post-Soviet politics | 2 | 2 | 4 |
| Total | 39 | 20 | 59 |
For nearly half of them these pads were primarily positional : they were the heads of specialist banks or of key manufacturing or extractive industry branches or undertakings which were first corporatised and then converted into joint-stock companies, and they contrived to retain these positions and exploit them to rapidly accumulate vast personal wealth, while often diversifying into other areas of business. An equal number, however, held no position of importance under the old order, and many of these were too young to have done so. They got started in business by taking advantage of the new entrepreneurial opportunities that now presented themselves, largely, though by no means solely, through the cooperatives and like officially-sanctioned arrangements. Others moved directly into profitable entrepreneurial activities by exploiting their assets as researchers, TV or music personalities, as middle-level international banking officers, and one as an eye surgeon, while another, an administrative -science researcher, made use of his personal connections to start up a highly profitable car-dealership. And finally, there were four who made it through exploiting political assets in early post-Soviet Russia, two of them as collaborators with Deputy Premier Gaidar.
Nearly all the businessmen examined here have been involved in some formal capacity (or capacities) in the political life of post-Soviet Russia, by serving on advisory bodies or ad hoc committees attached to the Government or Legislature, on bodies representing business interests generally or those pursuing specific sectional interests, or as open or behind-the-scenes- supporters (if not patrons) of candidates for parliamentary, gubernatorial or presidential office. Business success in contemporary Russia, moreover, is unthinkable without building informal or formal relationships of mutual advantage with the appropriate politicians and administrators. This is not the place to pursue this theme in detail, but it is necessary to keep this broader picture in mind as we consider that inner group of particularly powerful businessmen, who are widely credited with exerting enormous, if not dominant, influence over Russian political life, and are therefore commonly dubbed the 'oligarchs'.
This term is not without its problems, most obviously as to its definitional accuracy. If oligarchy means 'the rule of the few', then the few who rule Russia today are hardly limited to the business tycoons, unless one takes the simplistic view that such political figures as Yeltsin, Primakov, Stepashin, Luzhkov etc, have now been reduced to the tycoons' puppets . Granted, even in ancient Greece the prime examples of oligarchy (Corinth, Megara etc.) were marked by the dominance precisely of a few rich families, and 'oligarch' seems a natural term to reach for when confronted with the inordinate power of a handful of the super-rich. There remains, however, the problem of identifying the 'oligarchs', of drawing a line between 'oligarchs' and 'non-oligarchs'. The term first surfaced in the mid-1990s, when a handful of top businessmen emerged as a major force, albeit not necessarily a cohesive one, in Russian political life. Hans-Henning Schröder has drawn up a table of relevant listings between 1995 and 1998. They vary in number from six to sixteen, and twenty-eight names appear at least once. It is true that they become more consistent with time, but even in 1997-98 no two listings are fully identical. In other words, rather than see Russia's top businessmen as clearly divided into 'oligarchs' and 'non-oligarchs', we should think in terms of degrees of political influence and political access which vary with circumstnces, and depend in no small measure on the political leaders themselves. That said, it would be good to know in what ways, if any,those businessmen who enjoy the greatest political influence and access differ significantly from the rest of our fifty-nine in terms of the variables discussed above. For this purpose I use the Nezavisimaya Gazeta experts' rating for March 1998, which lists ten business leaders, of whom all but one (omitted here) figure in other listings of this period, albeit not in precisely the same combination.
To start with, despite their seniority of status, they are on average slightly younger than the top business elite as a whole - 42.8 years in 1996 compared with 45.4. Three were aged in their thirties, four in their forties, one in his fifties, and one in his sixties. All had sufficient involvement in financial institutions to be included in our 'financial' category, compared with two-thirds of the wider group. Of the eight who gave their place of birth, five were born in Moscow, one each in a provincial Russian city and a Russian village, and one in the Azerbaijan capital of Baku. The five-eigths known to be born in Moscow substantially exceed the one third of the wider group. The proportion who acquired their tertiary education in Moscow was exactly the same (two-thirds) as that of the wider group. However, the pattern of specialisation was markedly different. Not one of them attended either the Moscow Finance Institute, which trained over a quarter of the Moscow graduates in the wider group, or Moscow State University, the second most common among the latter. All but one (Potanin, who studied economics in the Moscow State Institute of International Relations) attended technical institutes of one kind or another, three of them specialising in the petroleum and gas industry. However, Berezovsky, who claims that his Jewish origins kept him out of more prestigious non-technical institutions, contrived to specialise in computer technology at the Moscow Timber Technology Institute, while Smolensky studied economics at the Jambul Geological Technology Institute.
Finally, what were their 'launching pads'? Two (Alekperov and Vyakhirev) were chief executives in the petroleum and gas industry, while Potanin was a senior Soviet official in the finance area. Only one (Vinogradov) was the chief of a Soviet bank, compared to fully a quarter of the wider group. Cooperative enterprises served as the launching pads for four of our 'oligarchs' (Fridman, Gusinsky, Smolensky and Khodorkovsky), a significantly higher proportion than for the wider group. Finally, there was Berezovsky, who (as alluded to above) became involved, while working in the Institute of Problems of Administration, in a car dealership enterprise which formed the basis of his business empire.
The fact that the 'oligarchs' as a group display a somewhat different balance of factors relevant to their success than do the top business elite as a whole is of considerable practical interest, although it would be rash to draw large theoretical conclusions from it, given the small numbers involved and the role of less measurable factors like personality and opportunities.
The economic turmoil since late 1998 has severely shaken the 'oligarchs', along with the Russian business elite generally, but failed to bring their wholesale collapse, as some experts anticipated. Further turbulence in their ranks is threatened by the upcoming elections to the State Duma (December 1999) and to the Presidency (mid-2000), in which not all will back winners. However, we are unlikely to see early changes in the major characteristics of Russia's top business elite which have emerged from the analysis presented here.
For information about this page, contact: Tony Phillips
Contact email address: cerc@cerc.unimelb.edu.au
Contemporary Europe Research Centre homepage: www.cerc.unimelb.edu.au
Page last modified:
This page, its contents and style, are the responsibility of the author and do not represent the views, policies or opinions of The University of Melbourne.