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Johnson's Russia List


March 21, 1999    
This Date's Issues: 3101   

Johnson's Russia List
21 March 1999

[Note from David Johnson:
1. Reuters: Yeltsin faces barrage of criticism over sacking.
2. Alex Goldfarb: Re #3098 Soros and TB.
3. Moscow Times: Igor Zakarov, BOOKWORM: Primakov Biography Shirks 
Big Questions.

4. St. Petersburg Times: Fyodor Gavrilov, NOTES OF AN IDLER.
Bigger NATO: More Reason To Drink Beer.

5. MSNBC: Brokaw interviews Primakov.
6. Amcham News: Scott Blacklin, Sailing into the Wind.
7. The Russia Journal: Gregory Feifer, Privatisation and Elite

Why Reformers cannot be blamed for Russia's Economic Crisis.
8. Moskovskiy Komsomolets: Aleksandr Budberg, Primakov's Symptom. 
The President's 101st Warning. (Primakov Warned 'To Look Not Only Left')] 


Yeltsin faces barrage of criticism over sacking
By Peter Henderson

MOSCOW, March 20 (Reuters) - Boris Yeltsin sacked his chief of staff because
of the botching of an attempt to remove Russia's scandal-hit chief crime
fighter and for making the president look out of touch, Russian media said on

Politicians from the Communist Party to powerful Moscow Mayor Yuri Luzhkov
criticised the move by the ailing Yeltsin, who abruptly dismissed chief of
staff Nikolai Bordyuzha late on Friday and replaced him with a little known
staff deputy and economist. 

Prime Minister Yevgeny Primakov's spokeswoman said he met new chief of staff
Alexander Voloshin on Saturday morning but could not give details. 

``The conveyor belt has started up again and the dismissal of Bordyuzha is yet
more proof of the weakness in the upper echelon of power,'' Mayor Luzhkov

Sevodnya newspaper said Yeltsin was responding to a series of mistakes by the
staff. He was left looking uninformed regarding a proposed political
compromise with parliament and powerless after the botched dismissal of
Prosecutor General Yuri Skuratov. 

The chief crime fighter was unexpectedly reconfirmed to his post this week by
the Federation Council, the upper chamber of parliament, against the Kremlin's

The decision was a slap in the face to Yeltsin, and some media have accused
Yeltsin supporters of ``dirty tricks,'' with the appearance after the vote of
a videotape shown on national television of a man resembling Skuratov in bed
with two women. 

``Yeltsin decided to find who was to blame for Yuri Skuratov remaining in his
job,'' Kommersant Daily newspaper said. ``That happened quickly enough.'' 

Several leading politicians criticised the manner of Bordyuzha's dismissal but
did not defend the man himself. Gennady Seleznyov, speaker of the lower house
of parliament, was one of a few who voiced approval for the former chief of

Most politicians instead criticised the quick turnover of staff in the
Kremlin, a hallmark of Yeltsin's rule. 

The appointment of Voloshin left many eyebrows raised. 

``The fact that they are now bringing out such totally unknown and faceless
people means they have nobody else left on the subsitute bench,'' Interfax
news agency quoted Seleznyov as saying. 

Kommersant said that Voloshin had previously been a business partner of
businessman Boris Berezovsky, a Yeltsin adviser whom the president recently
recommended be dismissed from his job as executive secretary of the
Commonwealth of Independent States. 


Date: Sat, 20 Mar 1999 
From: Alex Goldfarb <>
Subject: #3098 Soros and TB

The AFP story "Soros Ready To Give 60M To Battle Russia's TB" [3098] leaves
an erroneous impression that Mr. Soros is prepared to unconditionally
increase funding of the Russian TB program. The actual status of the
program is this. 

The Soros Foundation, a.k.a Open Society Institute, has sposored a $12
million project of the New York Public Health Research Institute, the
largest western TB control program in Russia. Approhimatley half of this
money has been spent to date towards the establishment of modern TB control
measures in five regional prison networks: Ivanovo, Tomsk, Nizhniy
Novgorod, Vladimir and Mariy-El.

In addition, OSI is working to build an international public/private
coalition that would be able to fund the expansion of the current pilot
projects to the whole of Russia. The minimum amount of money needed to
address the prison TB issue on the national level is $120 million. Mr.
Soros believes that the graveness and potential global impact of the
Russian TB epidemic warrants international attention. It cannot and should
not be solved through the efforts of a single private donor, however big.

It should also be noted, that the single most efficient way to reduce the
epidemic, which would cost very little money, is for Russia to reform its
legal system so that less people are put behind bars and get exposed to the

An accurate synopsis of the problem can be found in the three press
publications that appeared today (see below). [DJ: Not reproduced here]

Alex Goldfarb, Ph. D.
Soros/PHRI Russian TB Project
Public Health Research Institute
455 First Avenue
New York, NY 10016


Moscow Times
March 20, 1999 
BOOKWORM: Primakov Biography Shirks Big Questions 
By Igor Zakharov 

After complaining twice in the space of three weeks in this column about the
dearth of books on leading Russian businessmen and politicians, I recently
acquired two new publications on the subject. 

The first is a 654-page book about "civilized nationalist" Sergei Baburin,
deputy speaker of the State Duma and a candidate for the next presidential
elections. Compiled by one of his aficionados, Nadezhda Garifullina, "Sergei
Baburin: 'Nynye ili nikogda,'" or "Sergei Baburin: 'Now or Never,'" is a
passionate and openly biased collection of pro-Baburin newspaper clippings,
interviews with the hero and his colleagues, and photos from the family album.

The second, Leonid Mlechin's new biography of Prime Minister Yevgeny Primakov,
is of a superior professional standard. "Yevgeny Primakov. Istoriya odnoy
kariery," or "Yevgeny Primakov. History of a Career," is widely available and
is targeted at the general public, unlike Garifullina's biography, aimed at a
select band of Baburin supporters. Mlechin's 426-page illustrated book has an
initial printrun of 20,000 copies and sells for a ruble equivalent of $1. 

Since coming to the fore after the August 1998 financial crisis, Primakov has
remained an enigmatic figure both as a politician and as a private person.
Veteran Soviet journalist Mlechin presents himself as "Primakov's colleague,"
whatever this might mean. He interviewed dozens of Primakov's friends and
colleagues and collected vast material "about people and events that
influenced Primakov's career." 

Mlechin covers virtually every aspect of Primakov's multifaceted life, as an
orientalist, a correspondent, an academician, a foreign service chief and a
politician. At least four pages of the volume are devoted to the question of
Primakov's Jewishness, with Mlechin citing a claim that his "real family name"
is "Kirshenbladt." 

But the author seems pathologically wary of giving his own opinion. The book
begins: "It is not clear whether [Primakov] has an elaborate plan of action or
just drifts along. He still remains the most incomprehensible and
misunderstood [neponyatny i neponyaty] figure in modern politics. Is he left-
or right-wing? A covert liberal or a communist protÎgÎ? A strong figure or
just an experienced bureaucrat?" 

Four hundred-odd pages later, Mlechin ends the book on a similarly ambiguous
note: "In the present conditions he [Primakov] undoubtedly will not stand for
president. But the conditions may change. ... Any prediction is valid only for
a given situation. If a man chooses another path, the forecast will not be

It seems that author and hero are linked by one and the same syndrome: Both
talk a lot without saying anything. 


St. Petersburg Times
March 19, 1999 
Bigger NATO: More Reason To Drink Beer 
By Fyodor Gavrilov

THIS week three new flags were raised outside NATO headquarters in
Brussels. Meaning two things: The North-Atlantic union has finally expanded
to the East, and the clientele of numerous St. Petersburg beer halls have a
new topic for discussion. 

As I see it, two official viewpoints on Russia's attitude towards NATO
currently enjoy a peaceful coexistence here. The first is the more
threatening: Post-Soviet Russians, like Soviet Russians, think of NATO as
an "evil republic" and are prepared to back "symmetric" measures taken by
their government (which, for lack of any other options, is moving towards a
close military union with destitute Belarus). This position is constantly
sounded by aged Defense Ministry generals and intrepid Duma deputies from
among Gennady Zyuganov's Communists and Vladimir Zhirinovsky's Liberal

The second viewpoint, a well-meaning and pragmatic one, has at its heart
the idea that Russians love America, aspire to create an open civic society
and Western-style free market, and are in no way afraid of NATO. The
proponents of this position were liberal politicians, now for the most part
retired, who in their day were often the recipients of western loans and
humanitarian aid. 

Built on the convergence of these two "official" viewpoints is a third,
real, one, with its own complex history. It begins with the Russians who
went through a powerful ideological indoctrination during the Cold War
years. In spite of the disgusting and/or laughable dishonesty of the Soviet
"battle for peace" concept, this older generation believed the propaganda,
fearful that the horrible privations of the Second World War might someday
be repeated. The "military" generation, therefore, willingly built up the
empire's defenses. 

Next, in defiance of the efforts of the propaganda machine, came what was
already in the early 1970s a strong population of consumers, who didn't
want to defend anyone or anything, but who selflessly fought for the basic
human right to objective information, Levi's, Marlboros and the Beatles,
and who naturally despised conversations about the American threat. It was
this consumer generation, free from any sort of ideology, who in the
mid-1980s destroyed the Soviet empire. 

Last is the new generation, who fear neither God nor the devil, who don't
remember Communism and for whom political pluralism and Levi's have become
nothing more than an everyday fact of life. The new political and economic
system has given teenagers such a wide breadth of possibilities that they
have even allowed themselves to play at political nostalgia, including
nostalgia for a ubiquitous American enemy. 

In one way or another, it is these three generations who now form the
social landscape of contemporary Russia. The '70s generation runs the
country and makes money, the '90s generation listens to drum'n'bass and
makes money, and the hard-luck older generation shows up punctually at the
voting booth. This zeal is their strength, their social capital, and the
gloomy speeches of generals and communists are addressed specifically to

Thus run the three Russian viewpoints, official and otherwise, on NATO. A
fourth view is brewing, so to speak, in the beer halls. The drinking
Russian's opinion: What's all the fuss? 


Brokaw interviews Primakov 
Text of NBC chief anchor’s interview with Russian prime minister Yevgeny
Mar. 19 

Brokaw: “There is a lot of curiosity in the West about the worsening
health of your president, the man who made you prime minister. Every time we
have seen him recently in public, he looked frail, to put it politely. That
does not instill confidence in the West in terms of Russia’s future. Have you
shared that with him?”
Primakov: “I don’t believe he is getting more and more frail. Only as
early as this morning I saw him and I found him in combat form. And I saw him
yesterday, so I’ve been seeing him for two days running and he’s in pretty
good shape, but talking about a person’s age while we’re all getting old, I am
not a youngster either so I personally don’t see an issue there at all. Next
year there’s going to be new elections in Russia, there’s going to be a new
president, and then we will see how and in which way things will develop.”

Brokaw: “I read recently, my friend, that you decided — I read recently
that you said that you would not run for president yourself. But you’re
getting very high marks for how you have conducted this office. You have
always been in the power in this country. Why wouldn’t you run yourself?”
Primakov: “Well, first of all, I’m not praised by everybody across the
boards. It seems to me that what is going on in the press today seems too much
like a well-coordinated critical play. Not that I care too much about it, but
still, I believe that at the end of this year I will turn 70. I think I’ve had
my time in the government, with the administration. It’s time to relax, lay
back, reflect on my achievements and maybe write something about it. But now
I’m still working hard and I am of the opinion that as long as the president
wants it, I will stay in office and until the new presidential elections.”
Brokaw: “Is there anybody in Russia who can save the country from the
difficulties that it’s going through right now?”
Primakov: “I think Russia will never destroy itself or cease its
existence. It’s completely ruled out. I think there’s more than enough people
who can devote everything they have for the sake of service to their homeland.
A lot of such people, truly, so experienced with substantial baggage of
knowledge, a lot of such people.” 
Brokaw: “There was a recent poll in this country that showed that 75
percent of the Russian people thought that the United States was trying
deliberately to reduce Russia to a second-rate power. Do you share that
Primakov: “No, I don’t share this viewpoint at all. I don’t think the
United States is deliberately taking things to chaos in Russia. It shouldn’t
be to the advantage of the U.S., by no means. Even if we give up some kind of
psychological set phrase and speak pragmatism and pure pragmatism, this is to
no advantage of the United States. I don’t believe this would be in their
interest at all. Chaos in Russia, in the country that has so many nuclear
warheads still there, it’s to nobody’s advantage. Yet on the other hand, a
strong Russia, a democratic Russia, the state where the government plays a
substantial role in the way the country is run, by contrast to the situation
where the regions are left to their own devices, I think that this is the kind
of Russia that the United States would like to see. As far as the CIS
countries are concerned, I might say that according to our estimates the
United States does not want Russia to continue be in the center to which the
other former Soviet republics would tend to get to. And it’s not about
reinstitution of the Soviet Union, it’s impossible. The sovereignty that the
former Soviet republics have received, is as revocable — irrevocable. But we
clearly sense that in the U.S. — and when I say the United States, I don’t
mean the administration at large, or the establishments. But there are
interests and parties which would like to see Russia’s role weakened inside
the Commonwealth of Independent States. This is something I’m confident
Brokaw: “And are you absolutely confident as we sit here today that all
of Russia’s nuclear missiles and nuclear technology are absolutely secure?”
Primakov: “Absolutely convinced without a slightest shade of doubt.
Should that have been otherwise, I would not be sitting here now in front of
you giving you an interview but would be running my race around all of the
Russian military bases to personally check out what state and condition all
the warheads are in, because this is the question of questions.” 
Brokaw: “You have been a keen student of the West, and often a critic
of the West in your long and distinguished career. Now that you have sat in
this job, as the prime minister of Russia, trying to manage a free market
economy, have you changed your attitudes about the West at all?”
Primakov: “You know what, I feel very unpleasant about people in the
West believing that I’m an anti-Western person or ideologist, because this is
definitely not so. I simply believe that my number one priority is the
safeguarding of the Russian interests. At the same time, I believe that there
is an enormous number of issues where our interests coincide. If you’re
talking about the Western world in particular, let me mention just a few:
Combating drug trafficking, combating international terrorism, and prevention
of proliferation of nuclear arms, liquidation of conflict situations, and this
is where our interests obviously match. Other fields include trade and
commerce, science and technology and so on and so forth. There where there are
differences, I believe that we need to look for some peaceful solutions which
could help us identify a compromise and ultimately bring closer to the
identification of the solution. At the same time, I attribute a lot attention
to the development of Russian-American relations. I believe this is a priority
trend in the Russian foreign policy. And the reason I’m saying this is not
because I am going to go to the United States shortly and I’m trying to create
a nice background. This is my inner conviction. I understand the role of the
United States in the modern world, but at the same time I would not like the
U.S. to believe that we need to be led into where we ought to be. This is what
I would not like to see. So this is the only way in which you could find proof
to your earlier statements and description of my attitude to the West,
negative attitude for the other fact. Nothing more than that.”
Brokaw: “But if the West and the IMF do not give you the money that you
need for the short term, what happens?”
Primakov: “Well, you see, then we will decide for ourselves what to
Brokaw: “Do you think there will be political insurrection?”
Primakov: “This would certainly weaken the government. It would weaken
the government. I cannot speak with full authority that this would necessarily
lead to the change in the political regime. This is the last thing I would
like to dwell upon. But this government now in place would definitely be
weakened. At the same time, we will need to think hard. You know that we’re
facing debts with respect to the IMF and the World Bank. This debt is not
subject to restructuring. This debt needs to be paid, so we’ll be faced with a
dilemma: To pay or not to pay. If we choose not to pay, this would mean
consequences of an imaginable impact. But if we were to pay, then the amount
payable is so enormous — incidentally worth seventeen and a half billion
dollars. This is unbearable. This is almost the size of the asset part of the
budget. So, should that happen, we would need to go out of our mind to find
this money somewhere else. We will live through a very difficult time should
that happen.”
Brokaw: “None of the scenarios or alternatives is very attractive.”
Primakov: “You mean the counter scenario? Yes, I agree it is definitely
going to be unpleasant. But let’s not end our interview on such a pessimist
note. Ask me a question so that I could answer ‘yes.’”
Brokaw: “Give me your most optimistic assessment of what can happen
with the Russian economy in the foreseeable future — before the elections in
the year 2000 and immediately afterward — that will reassure the West that
this country finally has righted itself, that it’s no longer in the hands of
the individual families and the outsiders who came in here and plundered
Russia for a short time.”
Primakov: “It is a good question. I will try to be very specific and
give you the answer in bullet form. What is there ahead for Russia is the
resurrection of the economy, but on one condition, and this condition being
what I will describe as a reforming of the reform. Because the reforms that
have been pushed before, they need to be reformed themselves. We are going
forward with privatization, but not along the same tracks as this
privatization was developing in the past, not to the advantage of families as
you described them. Bankruptcies yes, but not the kinds of bankruptcies that
end up to be a false bankruptcy. The sanitation of the banking system for
sure, but at the same time the banking system turns towards the internal needs
of the real economy. In other words, a reforming of the reform is the key
message, and at the same time creation of the real infrastructure to develop
the real economy. This is my optimistic scenario.”


Subject: Sailing into the Wind
From: "Scott Blacklin" <SBlacklin@AmCham.RU>
Date: Sat, 20 Mar 1999 

Dear David -

I really enjoy the J-List.

I am appending for your consideration for the J-List my submission which
appears in the March-April 1999 issue of the Amcham News.

Thanks, and keep up the good work.

Scott Blacklin
American Chamber of Commerce in Russia

Sailing into the Wind

It's almost no fun to kick around conventional wisdom anymore after the
events of last August. Many cherished notions about the nature and
direction of Russia's development died in the country's lurching political
and economic spasms. The pain of adjusting beliefs to new harsh realities
is still very much with us.

But one tenet of conventional wisdom has passed without mourning (or even
general notice). That tenet held that 1998 was the last window of
opportunity to realize progress in improving Russia's business environment
and that 1999 would be characterized by systemic torpor and drift as
Russian elections approached. True, the sprouts of progress are still
sparse, but Russia is showing signs of becoming fertile ground for
political change. 

The Pax Primakova is entering into its sixth month. For those of us who
remember the ominous spin of early September's events, this has already
proven to be a considerable achievement. Many have dismissed this as a
false stability, nothing more than carving out an eye in the storm. These
criticisms may be true, but I for one would much prefer to maneuver in the
eye of a storm than in the storm itself.

During this time Mr. Primakov engineered the passage of the Production
Sharing legislation, and has entered seriously into complex multilateral
negotiations over the structure of Russia's debt (and by extension its
entire financial structure). He has also passed a budget, moved to rein in
Russia's regions, and begun an attack on corruption. To be sure, each of
the above achievements is imperfect and most are far from complete, but at
least a positive policy direction is beginning to emerge as his breathing
spell draws to a close. In sum, Mr. Primakov has probably achieved about
as much as possible given Russian political conditions and the very real
limitations of his present power.

This is but one of the reasons that the Pax Primakova is ending (at least
in its present form). The fact that the above achievements are incomplete
and reversible underscores the weakness of the present Russian political
structure to effect its will. The completion of these and other positive
steps requires a measure of political will and political power which has
not yet been evidenced by any of President Yeltsin's prime ministers. It
leaves Mr. Primakov no choice other than to act to enhance his power. 

This is undeniably a high risk situation. Until now, Mr. Primakov has been
able to achieve a remarkable amount without yet seriously tangling with the
other contenders for power in Russia - i.e. the Duma, the remaining
fortresses of the oligarchs, regional chieftains, and the ubiquitous forces
of corruption within his own government structures. Mr. Primakov has held
out as a basic goal a Russia which continues the reform process, deepens
its integration with the advanced pluralistic world and welcomes foreign
investment. He has also pledged that Russian law and the will of the
Russian Government will be enforced.

His competitors for power have no such broad agenda. They are content to
pursue much narrower and more parochial aims. They simply wish to cling to
their present position and prerogatives, without any sensible reference to
what is good for Russia as a whole. Paralysis suits them just fine. The
extension and fulfillment of state power is not what they want to see. 

For all his skillful maneuverings Mr. Primakov is at best halfway across
the river. Staying there will only marginalize and ultimately weaken his
government. Thus Mr. Primakov must act. Even now we are beginning to
discern the signs of his movements. The moves against Mr. Berezovsky and
the investigations into the legality of certain privatizations can be
interpreted as the first feints of a broader assault on the power bases
presently outside the reach of Russian law. 

The foreign business community has much at stake in this unfolding drama.
At the heart of the issue is whether the Executive branch of the Russian
Federal Government can fulfill its promises to the foreign business
community, to the international lending institutions, and ultimately to the
future of Russia itself. 

Until the advent of the August crisis, one of the tenets of the
then-conventional wisdom was that "most of the laws and regulations are in
place, there are just problems of implementation". This "implementation"
was general seen to be a exercise of refining or polishing the good
achievement brought forward the RFG legislature and/or Executive Branch. 

The breadth of Russia's systemic failure laid bare this myth. Adherence to
and enforcement of Russian law is now more clearly seen to be a major
problem for the foreign business community. It is a particularly
pernicious phenomenon because of: 1) its universality; 2) the comparative
difficulty in focusing proper attention to this issue (compared to the
actual drafting and adoption of laws); and 3) the serious psychological
effect this has on any business contemplating setting up a major investment
or operation here in Russia. 

Non-implementation of RFG laws and other commitments amounts to a public
lie, which continues to have a corrosive effect on business growth here.
Russia needs credibility, and living up to its own commitments will go a
long way to convincing investors that they can measure and manage their
risk. When laws do not come close to reflecting reality, the sense of
unpredictability provides a serious disincentive to any investor.

An empowered Prime Minister can and should act in many areas to bolster
Russia's credibility. From our point of view, many aspects of the business
environment can be strengthened by a stronger RFG. A partial list of
corrective steps addressable by the Prime Minister would include:

1) Dissemination and adoption of international accounting standards
2) Enforcement of international arbitration decisions
3) Transparency and equity in bankruptcy cases (particularly of Russian banks)
4) Eliminating rapacious Standards and Certification practices (especially
in the telecoms sector)
5) Implementation of the normative acts of the PSA
6) Strengthening intellectual property rights enforcement 

Most of these promises are already enshrined in Russian law. However,
there is still a large gap between Russian law and Russian reality, and
that gap can only be bridged by the political will and power which should
reside in the executive and judiciary of the RFG. But given that these
branches of government are still weak, untested by precedent, lacking in
institutional accord and coordination, and subject to numerous attempts to
corrupt and subvert, the mantle of opportunity and responsibility leads
back to the Prime Minister. 

The irony of the situation is that Mr. Primakov must enhance his power in
order to make serious concessions. These are concessions not to the West,
but to Rule of Law and Russia's future.


From: "ajg" <>
Subject: Why Reformers cannot be blamed for Russia's Economic Crisis
Date: Sat, 20 Mar 1999 

Privatisation and Elite Prerogatives: Why Reformers cannot be blamed for
Russia's Economic Crisis
By Gregory Feifer
Political Editor
The Russia Journal
Published in Issue 2-8, of The Russia Journal

Russians and westerners alike usually blame last August's economic crisis
largely on the failure of the country's young reformers. But can they really
be faulted for failing to change a system that would have suffered massively
with or without reform? Can it not be said that the attempt to carry out
"shock therapy" as quickly as possible really was the only thing to do in a
culture that has essentially remained unchanged for many years? Perhaps a
look at some of the justifications for mass privatisation earlier this
decade and an even quicker glance at three Russian automobile enterprises
can shed light on the matter.

But first, a few words about Russian political culture. In the 20th century,
important changes to the dominant political culture were brought about by
the Bolshevik Revolution, which was in part a reaction to the large social
and economic changes of the preceding decades. Those changes began to
transform the very traditional ruling elite's ideas but could not be
transcribed to society quickly enough to stop socio-political instability.
By the end of the 1930s, a state that had been in turmoil for many years had
finally stabilised and re-introduced many of the traits that were once part
of the pre-Revolutionary regime.

Elites in the Soviet Union were sector-related. The new political elite,
like its predecessors, was very conservative and quickly became stratified.
Institutions under the military, state bureaucracy, and the Party apparatus
were essentially stripped of their political autonomy. Channels of informal
power began operating within the Party system as informal relations once
again formed the basis of the real political system. This system prospered,
displaying the traditional habits of the Russian ruling elites, including
risk avoidance.

By the 1970s, changes in the political culture informed by social and
economic transformation brought about by the stabilisation of the Stalinist
system again failed to be transcribed to society because of the political
repression of free speech. It became clear that the stagnation, which was in
part a result of this phenomenon, threatened the very existence of the
system. As part of an effort to rectify economic decline, traditional means
of controlling the Soviet enterprise system through administrative and
political coercion were cut under Gorbachev's perestroika.

In order to make enterprises more efficient by allowing managers to make
their own decisions rather than function almost completely through the
central apparatus, Gorbachev diminished the power of ministries over their
sectors, in effect allowing managers to begin to enact what later became
known as "spontaneous" and "nomenklatura" privatisation.

Directly before and after the 1991 Soviet coup attempt--roughly from about
1989 to 1993--a new Russian elite formed. It combined elements of the old
elite, and was a product of the traditional Russian political culture. It
has transcribed that culture to new socio-economic and political systems.
One of the changes in the structure of the new Russian elite is that it
essentially became cross sectoral.

According to the most influential neo-liberal views of Russian
privatisation--that of former Privatisation Minister Maxim Boycko and
U.S.-based professors Andrei Shleifer and Robert Vishny--the main goal of
property ownership reform after 1991 was de-politicisation. The authors

Perhaps the one view that the Russian privatizers shared most strongly was
that the Russian people, like the rest of the people in the world, were
"economic men" who rationally responded to incentives. The privatizers
rejected the widely held view that Russians were lacking in entrepreneurial
ability, unusually suspicious of wealth and uninterested in working hard to
become rich. (Maxim Boycko, Andrei Shleifer, and Robert Vishny, Privatizing
Russia. (1995) Cambridge: MIT Press.)

Boycko, Shleifer, and Vishny state that workers, managers, and the public in
general would, given the opportunity, strive to gain ownership of property,
and use their time and energy in accumulating wealth. The country's citizens
were capable of immediately responding to economic incentives pointed to
establishing markets; therefore, creating such incentives was the best way
to organise economic activity.

Ownership rights, according to Boycko, are divided into control
rights and cash-flow rights. When control of these rights is split between
different individuals or groups, the result tends toward inefficient
ownership. Such was the case in the Soviet Union (which also suffered from
inadequate institutions protecting property and enforcing contracts).

To rectify the situation, corporatisation, the reallocation of control from
politicians to managers, and privatisation, the transfer of cash-flow
rights, would create efficiency out of such a situation by joining ownership
rights. Having consolidated ownership rights managers would no longer need
to cater to interest groups and it would be in their self-interest to
maximise profits.

In support of large-scale mass-privatisation, reformers in Russia argued
that the Russian government did not really own the assets that needed to be
privatised. De facto "stakeholders" already existed such as workers,
managers, and local government officials who exercised direct control over
production. These stakeholders had the power to stop privatisation if they
wanted. The success of any privatisation scheme would therefore have to
address their claims and give them incentives for co-operating. At the same
time, local politicians and the populace in general would most likely not
tolerate a simple give-away of enterprises to their managers. In order to
remove control rights from politicians, a privatisation programme would have
to build a political coalition including managers, workers, regional
governments, and the public. The general view was that such a programme
would have to be capable of self-correction so that the incentives it was to
create would not lead to stagnation but allow for change in the direction of
greater openness.

This was a guiding principle behind the government's first option in the
1992 Mass Privatisation Programme (MPP), which gave employees 25 percent of
enterprises' shares free. Under the plan, workers could, in addition, buy
another ten percent at a 30 percent discount; and managers could buy five
percent of the shares at their face value.

Lobbying by managers and workers resulted in a second option that gave
managers and employees 51 percent of shares at 1.7 the amount of the face
value. Industrialists pushed for a third option, extended to medium-sized
companies with more than 200 employees and fixed assets of more than 1
billion roubles but less than 50 billion roubles. This option gave the right
to a group of managers to buy 20 percent of the voting shares at face value
if two-thirds of the employees agreed to it. Later, management could buy
another 20 percent of the shares at a discount of 30 percent. Seventy-three
percent of privatised companies opted for the second option.

In contrast to Boycko, Shleifer, and Vishny, Simon Clarke and Veronika
Kabalina (1995) write that privatisation in the former Soviet bloc was, more
than anything else, a formal process that included the legal definition of
an enterprises' assets, corporatisation, and the issue of shares. (Simon
Clarke and Veronika Kabalina, "Privatisation and the Struggle for Control of
the Enterprise." (1995) In Russia in Transition. David Lane, ed. London:
Longman.) The authors state that Russian privatisation was a culmination of
the overarching principle of Gorbachev's perestroika, that is, the
replacement of administrative methods of regulation by economic ones.

Giving juridical recognition to the rights of enterprise ownership was a
forced attempt to impose responsibilities, in order to exercise control of
the market through fiscal, monetary and financial regulation as opposed to
central administrative methods. Such a policy ran counter to the
prescriptions of neo-liberal economists who maintained the importance of
anti-monopoly legislation and the subjection of enterprises to market
competition, saying that privatisation was a means of freeing enterprises
from state control. In fact, the Gaidar government did want privatisation to
include the sale of enterprises to create revenue for the state and create a
new group of owners. But as Clarke and Kabalina write, the failure to find
buyers, the perceived need to secure public support for reforms as well as
the need to recognise the power of the industrial nomenklatura made the
reformers change their minds.

The re-implementation of control from the centre is one of the factors that
has affected the dominant Russian political culture. Although traditional
centralisation continues, it is carried out for the first time along
economic lines, introducing new constraints that work toward changing the
culture itself. But the change is shaped by the system it affects. David
Stark writes that actors who seek to depart from routines are faced with
choices that are constrained by existing institutions. (David Stark, "Path
Dependence and Privatization Strategies in East-Central Europe." (1994) In
Changing Political Economies, Privatization in Post-Communist and Reforming
Communist States. Vedat Milor, ed. Boulder: Lynne Reiner Publishers.)

Therefore, those existing institutions become part of the transformation
process and inform its development. Arguing directly against positions such
as that of Boycko,, Stark says that transferring ownership from state
to private hands is unlikely to create a dynamic private market economy.
Indeed it has not. Clarke and Kabalina write that managers used
"authoritarian paternalism" as a strategy to secure their positions through
establishing themselves as representatives of labour collectives while
espousing rhetoric of social partnership in which workers would be protected
in return for their support. Once control had been established, managers
followed other strategies toward securing, most important of all, the
survival of their enterprises and hence their own positions. These
strategies include the survival of the labour collective, rent-seeking
activities, and market-oriented profit-seeking. In general, however,
managers tended to look for short-term opportunities using skills that had
served well in fulfilling Gosplan norms.

But this type of activity could not sustain enterprises. New constraints
included the collapse of the market and shortage of working capital and
investment funds. In this situation, connections to political, commercial,
and financial structures played a decisive role in defining opportunities
for enterprises. Financial-industrial groups arose that now link
enterprises, financial and commercial organisations, and regional and branch
state bodies in monopolistic structures that Clark and Kabalina say make up
what they dub the emerging "state monopoly capitalist economy." Such
monopolistic networks add a greater dimension to the nature of insider
corporate governance in Russian firms.

Drawing much from the conclusions of Boycko,, studies such as Blasi
and Shleifer (1996) discuss outsider ownership as if it necessarily affects
corporate governance and leads toward efficiency. (Joseph Blasi and Andrei
Shleifer, "Corporate Governance in Russia: An Initial Look." (1996)
Manuscript for Corporate Governance in Central Europe and Russia: Volume 2.
Insiders and the State. Roman Frydman, Cheryl Gray, and Andrzej Rapaczynski,
eds. Budapest: Central European University Press.) But this is clearly not
the case with many Russian enterprises. One example is Moscow auto
manufacturer ZiL's first majority outsider owner, Mikrodin, which engaged in
asset stripping techniques and milked the enterprise with high-interest
loans given through subsidiaries.

Indeed, the Russian automobile industry has symbolic significance in the
debate over the fate of post-privatisation development. Not only are cars
themselves status symbols, but the fate of some automobile factories has a
role, albeit small, in larger political wrangling. Accusing Anatolii
Chubais, former head of the Committee for the Management of State Property,
Goskomimushchestvo--GKI--of carrying out a ruinous mass privatisation
programme, Yuri Luzhkov has vowed to resurrect ZiL as well as Moscow-based
auto-maker Moskvich. Considered a strong contender for the Russian
presidency, the Moscow mayor has made ZiL and Moskvich conspicuous test
cases for his form of management.

Former First Deputy Prime Minister Boris Nemtsov, Chubais's political ally
and Luzhkov's opponent to some extent, played a large part in the
reorganisation of GAZ, forcing out its old general director and replacing
him with a reform-minded ally, Nikolai Pugin. Nemtsov is against government
subsidies and ownership, and favours joint ventures. Nevertheless, he still
supports high tariffs, as does Pugin, who makes frequent pronouncements in
favour of market competition.

When Nemtsov became a deputy premier, Luzhkov accused him of favouring GAZ
by pushing the GAZelle--the successful GAZ light truck--and mandating that
federal officials ride not in foreign makes, but the traditional Soviet
bureaucrat's car, the Volga, also manufactured by GAZ. Meanwhile, Valerii
Shantsev, Moscow vice-mayor, began similar pronouncements of his own, saying
that federal officials should be ordered to ride in ZiLs.

Luzhkov, who micromanages a prospering Moscow almost as a private fiefdom,
says that a benevolent government must guide the privatisation and
reformation of Russian industry. Such a path opposes enforcing hard budget
constraints and bankruptcy laws during post-privatisation reform. It raises
the larger question of what to do with Russia's vast industries with large
numbers of workers who either crank out shoddy products or face

Very tough restrictions on foreign cars have so far kept the Russian market
alive. But the old Soviet production lines must be overhauled for Russian
automobile factories to become viable in an unrestricted domestic market,
not to mention the global market. Equipment is decades old, and although
they are beginning to get rid of them, factories still have social assets
such as apartment buildings, sanatoriums, and kindergartens from the time
when socialist factories provided many of their workers' benefits.
So far, most Russian reform has consisted more of a transcription of old
behaviour into new definitions. And although Russia's reformers' chief
mistake lay in the fact that they believed they could plot a different
course for Russia, they cannot alone be blamed for creating the country's
current economic plight in trying to do so.


Primakov Warned 'To Look Not Only Left' 

Moskovskiy Komsomolets
16 March 1999
[translation for personal use only]
Report by Aleksandr Budberg: "Primakov's Symptom. The President's 101st

It was immediately obvious that during Premier 
Primakov's vacation President Yeltsin would invite one of the possible 
replacements for Yevgeniy Maksimovich to come and visit him in the 
Central Clinical Hospital. But it was not completely clear whom Yeltsin 
and his team could launch as a counterbalance to the head of government. 
Clearly, the candidate must have a number of qualities: be acceptable to 
public opinion, rely less on the Communists than Primakov does, and 
hopefully know something about economics. In principle there are few 
figures like this: Luzhkov for some reason continues not to suit the 
president, while Yavlinskiy has a faction in the State Duma in addition 
to everything else. 

Of course, Yavlinskiy's visit to the Central Clinical Hospital does not 
in any way mean that he has obtained all the guarantees and will move 
from Okhotnyy Ryad to Krasnopresnenskaya Naberezhnaya any day now. It is 
more that this visit makes it clear to the left wingers, who have driven 
the president into a corner and who are supporting the present 
government, that Yeltsin still has room to maneuver and that it would be 
pretty hard to throw him off the local political scene just like that. To 
be fair, it should be noted that it is not just the left wing that has 
left Yeltsin with no chance of inactivity. By relying too much on the 
Duma, essentially striving for the cabinet's complete independence of the 
Kremlin (that is what Primakov's proposals on accord boil down to), and 
squeezing the president practically out of the entire political arena by 
the beginning of March, Ye.M. Primakov himself could not but arouse 
Yeltsin's opposition. And, in Yeltsin's case, he who has sown the wind 
can well expect to reap the whirlwind. 

As your Moskovskiy Komsomolets correspondent has found out, the 
president's inner circle really has seriously examined the possibility of 
replacing Primakov with Yavlinskiy. But no definitive decision has yet 
been made. The problem is that the Duma will not ratify any premier who 
replaces Yevgeniy Maksimovich. Yabloko will not change anything here. The 
Communists are interested in an early dissolution, so that amid a barrage 
of scandal and under the banner of a fight against the regime they can 
start a victorious election campaign. Therefore, if the premier is to be 
replaced, this should be done sometime in August-September, when even in 
the event of the dissolution of the State Duma, the new elections will 
take place in the timeframe determined by the Constitution. And making 
sure that the chosen timeframe is adhered to is one of the most important 
tasks facing the president. 

At the same time, if Primakov takes the path which he has marked out, 
and his alliance with the Communists becomes closer and closer, then it 
would be lethal for the president to retain his cabinet until the start 
of the Duma elections. Even now the Communist Party of the Russian 
Federation [CPRF] might use the State Duma as an election staff, and 
essentially spend money that has been allocated from the budget for the 
parliament's upkeep on an election campaign. If the government also finds 
itself in its hands, (and it can easily be called Communist now) then, 
having a second staff like this behind it and the possibility of 
mobilizing the entire budget, the Communists will definitely win. And 
although only 20 percent of the voters support them, if they have the 
support of the parliament, the Council of Ministers, and half of the 
governors, they will obtain at least 40 percent of the seats in the Duma. 
And then an intelligible politics of any sort will simply be impossible. 

The Communists will easily achieve the set majority. And, given that the 
presidential election will be six months later, we can say with certainty 
that it will be conducted by a 150-percent Red government. 

Consequently, the task of the president, who doubtless dreams of going down in
history as the conqueror of Communism in Russia, amounts to this: If 
Primakov does not suddenly change course, to replace him at the right 
time. Not earlier, not later -- but precisely at the right time. 
August-September seems even more preferable inasmuch as by then 
(irrespective of whether the IMF will agree to finance Russia or not) 
inflation will undoubtedly have increased and it will be perfectly clear 
to many people, even those who are completely untrained, that the economy 
has reached the latest crisis in only a year under the leadership of 
Maslyukov and Kulik. And if there is anything this government can quite 
justly be accused of, it is doing nothing to prevent it. 

Thus, according to Moskovskiy Komsomolets's information, the decision on a 
global replacement of the government has been postponed until the end of 
the summer. Yavlinskiy's visit for its part is a kind of last warning to 
Primakov to look not only left but also right. Otherwise he will not be 
able to cross the electoral road. 



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