BOOK REVIEW: 'The Oligarchs': Period of 'Crazy Capitalism' Led to Reinstated Repression in Russia

Reviewed by David M. Kinchen
BOOK REVIEW: 'The Oligarchs': Period of  'Crazy Capitalism' Led to Reinstated Repression in Russia
Oligarch: A person who belongs to a small group of people who govern or control a country, business, etc.
  -- Merriam-Webster Dictionary

New Year's Eve 1999 marked a major turning point in Russia's recent history as  David E. Hoffman's "The Oligarchs: Wealth and Power In the New Russia" (PublicAffairs, 592 pages, $21.95, index, notes, photos) recounts. This new edition, required reading for anybody who wants to understand today's Russia, features a new introduction on recent events in Russia and a revised epilogue covering the last ten years under Putin and Mededev

On Dec. 31, 1999, the ailing Boris Yeltsin, president of Russia and surrogate father to an unruly band of newly minted billionaires who latched onto the state owned basic industries and services of the former Soviet Union, announced his resignation and named prime minister Vladimir Putin as the acting president. Putin won his full four-year term in March 2000 and is still the power behind whoever is president of Russia. (Technically, the president of Russia outranks the prime minister, but with Putin as prime minister, a post he assumed in 2008, all bets are off).
David E. Hoffman
David E. Hoffman

Hoffman, in this revised and updated edition of a 2002 hardback book and a 2003 paperback, writes how one of the oligarchs, Boris Berezovsky, was the primary promoter of Putin, a former KGB spy in East Germany and a relative unknown. As is typical of dictators, as soon as a supporter serves his or her usefulness, he or she is cast aside. On July 18, 2001, after more than a year in office, Hoffman relates that Putin held a news  conference. "A reporter asked him about Berezovsky. He sighed and responded, 'Boris Berezovsky -- who's that?'"

Several of the oligarchs joined Berezovsky in exile in a newly repressive Russia that resembled Soviet Union 'Lite.'  You kept your head down and made no political noises and the state left you alone, Hoffman says.

 Berezovsky received political asylum in Britain, where he remains a critic of Putin. Vladimir Gusinsky, forced to sell his media empire that included the TV network NTV (HTB in the Cyrillic alphabet) lived in the U.S. His former media empire is now state run. Another once powerful and wealthy oligarch, Alexander Smolensky,  has slipped from view, while the powerful former mayor of Moscow, Yuri Luzhkov, the Robert Moses of Moscow, some have called him, referring to the master builder of New York City in the 1930s and 1940s, was ousted as mayor on Sept. 28,  2010 by Russian President Dimitri Medvedev, who is considered a puppet of Putin. 

Anatoly Chubais fared better than his fellow oligarchs: he led the breakup and further privatization of the Russian electricity monopoly.

The oligarch who suffered the most was Mikhail Khodorkovsky, who acquired the bulk of the former Soviet oil industry, including the giant company Yukos. On  Dec. 30, 2010 he was sentenced to a prison term lasting to 2017, after serving more than seven years in prison. The proceedings were widely regarded throughout the world as rigged by the Kremlin (Putin) as politically motivated to punish Khodorkovsky.

Hoffman, the former Moscow bureau chief for the Washington Post, tells the stories of these men -- there were no female oligarchs, although Yeltsin's daughter Tatyana Dyachenko  was a powerful friend and supporter to the oligarchs before they broke up in what Hoffman calls "The Bankers' War."
 Hoffman notes that one of the earliest and most prescient of the observers of what was taking place in the former Soviet Union was sociologist Olga Kryshtanovskaya   (this review is beginning to sound like a roster of tennis players!). In a 1996 article in Izvestia headlined "The Financial Oligarchy in Russia" she gave the new tycoons the name that has stuck. In the article, Hoffman tells us, she said that the tycoons were an oligarchy, a small group of men who possessed both wealth and power. Of course, once Putin took over in 2000, everything changed.

In a surprisingly lively and entertaining book (you were expecting, perhaps, dry as dust statistics?) Hoffman writes that beginning around 1992 -- with the encouragement and support of Yeltsin -- the era of "crazy capitalism" began when a diverse band of would-be oligarchs, who had been students, truck drivers and hustlers, found gaps in the Russian economy and acquired their first fortunes. When the state auctioned off the assets, the oligarchs-to-be were Johnnies on the Spot, grabbing the biggest auto and truck manufacturers, mines, and factories of all kinds. They organized their own banks and went on borrowing sprees, taking billions of dollars from gullible Western investors. When the ruble collapsed, the oligarchs saved themselves by hiding their assets and finding safe offshore hidey-holes like the Cayman Islands, the Isle of Man and the Channel Islands.

An American investor in Khodorkovsky's oil empire, foam cup magnate Kenneth Dart,  was known as a wily investor who saved on taxes by renouncing his U.S. citizenship and becoming a citizen of Belize, in the 1990s a flight capital haven.  Dart watched angrily as Khodorkovsky reduced the value of Dart's investment; his representative, E. Michael Hunter, said that Yukos (Khodorkovsky's main oil company) was "illegally looting its partially owned subsidiaries" in which Dart had substantial investments.

Here's a telling sidelight on tax dodger Dart from Bill Clinton's daily diary entry for Saturday, Feb. 12, 2005 -- I didn't know that the former president had an online diary!

"Howard [Dean] called me up late last night to invite me to his party. That was very nice of him. I was going to accept the invitation till he told me the party would be held in the house of the wife of financier Kenneth Dart in Florida. Mrs. Dart is a big Democratic donor, but I can’t go anywhere near her or her husband.

"His family owns the largest plastic cup factory in the US. He himself renounced his citizenship during my presidency and went offshore to avoid taxes. I mean hundreds of millions in taxes. I remember this episode very well. A few weeks after he renounced his citizenship, we received a letter from the government of Belize asking us permission to open a new consulate in Florida for their new consul Kenneth Dart. 

"Obviously I said no. It was just another of Dart’s tax dodging schemes. When you renounce your citizenship you are only allowed to be in the US for a limited amount of time. Otherwise the IRS can tax you as a resident. Being a foreign diplomat allows you to stay here as long as you like and what’s more, foreign diplomats can not be taxed.

"Apart from that Kenneth Dart is one of the most hated businessmen in South America, because of his what some might call vulture fund as opposed to venture fund activities. He buys large amounts of government debts of third world countries at 20 cents a dollar and forces the governments to pay up dollar for dollar. He almost bankrupted the Brazilian economy in the late eighties with these kinds of activities. He made hundreds of millions of dollars in that transaction. That’s the reason he wanted to renounce his citizenship. 

"His latest venture is to force the government of Argentina to pay the debt it defaulted on. Again he paid dimes on the dollar for the debt and wants the Argentineans to pay him the face value of the debts he holds. Argentina is bankrupt at the moment. Half its population is living below the poverty line. 

"I don’t know what he is up to now by donating money to our party, but I don’t want to go anywhere near this guy. 

"I remember his brother telling a journalist that Dart hated paying taxes so much, after he dies, he wants to keep his brain alive artificially, so his daughters don't have to pay any estate taxes."

 * * *
Hoffman: "In the excitement of the easy money years, a profound fact was often overlooked: from the tsars to the Soviet Communist Part, Russia simply never had a tradition of the rule of law. Russians have spent centuries appealing to  individuals  -- a concrete person with whims, a tsar, a party boss -- rather than to an abstract law that has no personality, that exists above individual discretion."

That explains Putin's response to the reporter asking about his former supporter, Boris Berezovsky. In "The Dictator's Handbook," a new book from PublicAffairs that I'm reviewing later this month, the authors note that "to come to power a challenger need only do three things…he must remove the incumbent…he needs to seize the apparatus of government…he needs to form a coalition of supporters sufficient to sustain him as the new incumbent." Also he needs to know when to throw former supporters under the proverbial bus.

In Putin's case, much of the work was done for him by the ailing Yeltsin and by Berezovsky and the other oligarchs who severely misjudged the pliability of the steely-eyed former spy. They suffered the consequences and Russia suffers too. i repeat what I said at the beginning of this review: read "The Oligarchs" if you want to understand what's going on in a country that occupies land area equivalent to Canada and the United States combined and abounds in natural resources of all kinds.

About the Author

David E. Hoffman is a contributing editor at the Washington Post. He covered the White House during the presidencies of Ronald Reagan and George H. W. Bush, and was subsequently diplomatic correspondent and Jerusalem correspondent. From 1995 to 2001, he served as Moscow bureau chief, and later as foreign editor and assistant managing editor for foreign news. He is the author of The Dead Hand, for which he won the Pulitzer Prize for general nonfiction.
Publisher's website:
Comments powered by Disqus