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Sunday Business: Yeltsin dismantled the Soviet Union but Putin is building a new empire

Published: Apr 28, 2007

A free, democratic and prosperous Russia closely associated with the West n that was the vision the country’s former president, Boris Yeltsin, who died this week, so splendidly incarnated when he defiantly stood on that tank in Moscow in August 1991. But Yeltsin’s dream of a liberal Russia died long before him. While he deserves eternal gratitude for ending the Soviet Union with minimal bloodshed and for all his unstinting work in the earlier defeat of communism, Yeltsin’s great tragedy was that he also laid the seeds for the return of authoritarianism. In 1996, in one of the worst political errors committed in any country in recent history, he effectively handed over state assets to a select few businessmen, the so-called oligarchs, in exchange for them funding his re-election campaign. This was the original sin of Russian democracy, the consequences of which the world will have to live with for years to come. The decision tainted both private enterprise and the electoral process.

It destroyed the credibility of privatisation, persuaded ordinary Russians that profits were inherently corrupt, that economics was a zero-sum game (you could only benefit at somebody else’s expense) and that democracy was as much of a conspiracy against the people as communism had been. Yeltsin should have ensured that privatisation was about the creation of a shareholder democracy and the dispersing of economic power; instead, by botching it, he set back the cause of economic and political liberalism in Russia by many decades.

The consequences have been terrible: Vladimir Putin, the current Russian president, can have a kangaroo court sentence Mikhail Khodorkovsky, the former head of Yukos, to nine years in prison and have his company swallowed up by state-run firms as a warning to those who would fund any opposition to him, because there is no public sympathy for the oligarchs. He can clamp down on freedom of speech because the people feel that they never gained anything from democracy anyway. Mr Putin, for whom Yeltsin resigned, is repressive at home, aggressive abroad and a roadblock to effective action against rogue nations. The recent arrest of Garry Kasparov, the chess champion turned political activist, confirms that the regime will now brook no dissent. That a leader with an 80%-plus approval rating feels the need to go to such lengths shows how far Russia has slipped from the democratic ideals Yeltsin once fought for.

No alternative power centre to the Kremlin is permitted in Mr Putin’s Russia. His authority is enforced by fellow security service alumni (ie KGB) who account for around three-quarters of the country’s top officials, the so-called siloviki. Anything or anybody that could be a threat to the Kremlin’s control has been systematically silenced. Freedom House n the widely respected arbiter of human rights around the world n recently concluded that Russia is not a free country and is fast sliding to the level of a Belarus or a Burma. Since 2003 all national television channels have been either under direct government control or run by state-owned companies. Indeed, such is the measure of control that the airtime given to senior figures is a more reliable guide for Kremlinologists than those grainy photos of the May Day parade ever were. Non-governmental organisations can be banned on a whim with the result that they now self-censor. Those that receive money from abroad, which include all major human rights organisations, are constantly harassed. Even the independence of the Russian Academy of Sciences has been curtailed. Pro-Kremlin youth groups intimidate those, including British diplomats, who question Mr Putin’s policies and 13 journalists have been assassinated during his presidency: no one has been convicted for any of these murders.

As always, domestic authoritarianism is mirrored in foreign policy. Mr Putin is determined to restore the Russian empire as evidenced by his intimidation of those countries in its “near abroad” such as Georgia and Ukraine that broke with Moscow. The Kremlin also wants to make Russia a superpower again. Key to both of these ambitions is energy: Russia produces 12% of the world’s oil supplies, second only to Saudi Arabia, and has 27% of the world’s proven gas reserves, more than any other country. To ensure the state is control of the commanding heights of the economy, Mr Putin has taken Russia’s energy production back under government control, hoping to profit from rising prices and use it as a strategic weapon by cutting off supplies to countries that refuse to kowtow to Moscow. By May, about 55% of Russian crude oil will be produced by the state, either directly or indirectly, up from 28% in December 2004. This has been achieved by the expropriation of Yukos and by pressuring western firms to hand over assets. A consortium led by Royal-Dutch-Shell ceded half of the $21.4bn (GBP10.7bn, e15.7bn) Sakhalin-2 oil and gas project to Gazprom earlier this month, following months of bullying by the state on spurious environmental grounds. BP and TNK may have to do the same in their joint venture at the Siberian gas field Kovykta. No project without Gazprom involvement is allowed to export gas from Russia. What is most depressing is that the situation will get worse after Mr Putin steps down in 2008. In February this year, he promoted the hardline defence hawk, Sergei Ivanov, from defence minister to first deputy prime minister n marking out him or his fellow first deputy prime minister, Dmitry Medvedev (also the chairman of Gazprom), as his likely successor. Since then, however, coverage of Mr Ivanov on state TV has almost doubled while Mr Medvedevis has remained constant, suggesting that Ivanov has the advantage. Mr Ivanov, like Mr Putin, is a graduate of the elite School 101 run by the KGB and is the favoured candidate of the security elite. He shares his boss’s views on the need for strategic sectors to be brought under state control, democracy to be managed and Russian influence expanded. Mr Ivanov is a fierce opponent of Nato’s eastward expansion, the promotion of democracy in Russia’s near-abroad and America’s desire for a missile defence shield to protect against attack from rogue states. He will be an explicit opponent of the West as president. His influence can be seen in the recent Russian dismissal of American offers to cooperate on missile defence. In his last address as president, Yeltsin apologised for having failed to jump in one leap from the grey, stagnant, totalitarian past to the clear, rich and civilized future. But today such a future seems even further away than it did eight years ago. Such is the tragedy of Yeltsin and of Russia and the reality that global investors and western politicians must now confront. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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