Change in Putin's Russia: Power, Money and People

Gregory Schwartz (School of Management, University of Bath, Bath, UK)

Critical Perspectives on International Business

ISSN: 1742-2043

Article publication date: 4 May 2012

290

Keywords

Citation

Schwartz, G. (2012), "Change in Putin's Russia: Power, Money and People", Critical Perspectives on International Business, Vol. 8 No. 2, pp. 194-196. https://doi.org/10.1108/17422041211230749

Publisher

:

Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited


It was a bitter cold January 2009, and the people of Romania were especially badly affected. This time, however, the severing of their gas supply was not caused by the breakdown in the ageing Soviet‐era infrastructure, nor was it a sign of the post‐credit crunch crisis of energy supplier indebtedness. Rather, the standoff between Russia and Ukraine over the transfer of Russian gas to Europe, which ended with a temporary stoppage of supplies, exposed the vulnerability of countries relying on Russian gas, and was a clear message to the rest of Europe of Russia's growing geopolitical power. Capturing the imagination of journalists was Russia resurgent, flexing its muscles on the international arena, using gas as a strategic weapon. The real story was, however, at once more mundane and more revealing: Ukraine was accused, and was most likely guilty, of siphoning gas for domestic consumption, while continuing to buy Russian gas at subsidised prices. Far from being an international bully, Russia's state‐controlled Gazprom was keeping to long‐term contracts with Europe, and it was the leading European energy companies, E.On and Enel, with stakes in Russia's key gas production and transit assets, that were the most vocal proponents that Ukraine pay world prices for gas. But the message was clear: leave Russia to its political sphere of influence, and Western companies can continue quietly to reap the fantastic rewards they had seen in the last decade.

Pirani's superb book offers scholars of international business a similar “behind the headlines” look at the social and political forces shaping Russia and its integration into the world market. Pirani looks at the decade under Vladimir Putin, and the focus is on the intersection of three elements: Power, Money and People. Written in an accessible style, Pirani manages to purvey a narrative that combines an attentive drawing together of historical detail and analytical reasoning with an astute, time‐honed journalistic knack for linking events, places and people.

Readers will find the first six chapters of the book especially valuable. The first of these starts with a story that precedes the period highlighted in the book's title – the end of the Soviet system, the transfer of political power from Gorbachev to Yeltsin, and the reforms associated with transition to capitalism. We learn how the growing problems of the Soviet system of production mobilised ideas and sentiments among the elite about ways forward, and how these were shaped to a considerable degree by the ascendant neoliberalism in Western Europe and the US. While the dissolution of the Soviet system and embrace of capitalism lay with the Soviet elite itself, it was the international financial institutions, Western governments, and private companies that lined up behind Yeltsin to make Russia's vast economy readily available to Western investors. With the rouble artificially inflated, Western goods flooded into Russia, while the Monetarist policies meant the Russian industry was starved of investment funds necessary to realise the early dreams of the market solving the Soviet problem of low productivity and technological lag.

While opportunities for Western capital in the 1990s were limited to speculation and imports (a topic covered in chapter two), the more lucrative parts of the Russian economy (i.e. oil, gas, metallurgy, precious metals, and petrochemicals) lay beyond their reach. The new Russian business elite, realising that (despite recent fantastic growth of their wealth) they lacked the capital needed to win in any independent privatisation auction vis‐à‐vis capital rich Western MNCs, struck a deal with Yeltsin to obtain them in a cash‐for‐shares settlement. With the Yeltsin's popularity catastrophically low, the government bankrupt, and the people disillusioned with transition, financial support in return for prized assets at knock down prices in rigged auctions was an offer he could not refuse. The “oligarchs” came into being and Western investors and the media cried foul. The crisis that struck Russia in 1998, as it continued to heed Washington's fiscal policy advice, borrowing and issuing bonds that greatly benefited Wall Street, brought to the Kremlin a group within the elite hell‐bent on preventing a similar fiasco in the future.

Putin, hand‐picked by Yeltsin, brought a gear change in Russia's exposure to international business. Chapters 3‐6 detail how Putin and his allies presided over an oil bonanza. There was the initial subordination of all branches of government to the executive (by staffing them with Putin loyalists from the secret services and the military). There was also a new demarcation between the state and capital: the oligarchs were reigned in and told to become as rich as they wished, but to abandon any political ambitions. Anyone who disobeyed found themselves in hot waters (e.g. the imprisonment of Mikhail Khodorkovsky, the boss of Yukos, Russia's most profitable and Western‐oriented company). While Western media presented such moves as a battle between the “defenders of democracy” and the authoritarian government, there was no threat of a return to Soviet socialism, even as the Kremlin emplaced itself into many oil companies or became their majority share owner. The reality is that under Putin there was a massive influx of foreign investors into Russia, and primarily into the very oil and gas sectors over which the state strengthened its control. This was followed by another wave of privatisations in the industry and public services, the likes of which Yeltsin‐era neoliberal reformers could only dream of. The devalued rouble (and falling imports), the new low corporate tax regime, and the political stability under Putin enticed many European and American manufacturers, service, consumer finance and construction companies to set up shop in Russia, just as Russian manufacturers and investment companies increased their stakes in Western companies and floated much of their stock on the London, New York and Frankfurt exchanges. While capital flight continued, it was more than offset by the colossal capital inflow into Russia.

While the political stability under Putin brought rewards for international capital and the oil boom helped increase people's standard of living, the balance was maintained by the suppression of political dissent, state control of the media, and the harassment, marginalization and impoverishment of vast sections of the population. This is the story told in the remaining chapters of the book. While not central to international business considerations, the reader should pay heed to Pirani's analysis of these problems being directly or indirectly attributable to the benefits accrued to MNCs in Russia. The paradox is that these developments threaten the longer‐term political stability of the country that MNCs so badly crave – the great wealth and the opportunities for business are overshadowed by the haemorrhaging demographic and social crisis, people's frustration and anger, and increasing protests on the streets of Russia. The sad fact facing Russian politics as much as the MNCs that wish to continue doing business in Russia is the diminishing number of political options, making Putin's close circle ever more unpredictable and the Liberal opposition ever more irrelevant. The complacency of Western MNCs in Putin's Russia has been as blameworthy as the regime itself in making present‐day popular anger and the politics of protest a reality. It remains to be seen whether MNCs can make the ethical choice to support the Russian people in their own efforts to build more just institutions and more democratic forms of governance, or to chase the chimera of stability under Putin or his Liberal critics. Pirani's excellent primer on business, politics and society in Russia invites us to consider these problems with a sober view of the uneven and combined development of capitalism today.

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