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Financial-Industrial Groups and Russia's Capitalism
Institute on East Central Europe
March, 1997
The birth of the first financial-industrial group (FIG) in Russia was officially documented and celebrated on July 19, 1996. 1 The FIG, Consortium `Russkii Textil' received certificate No. 001, awarded in the conference hall of the State Committee on Industrial Policy in the presence of numerous journalists and officials. The financial core of this first formally registered FIG, which includes several textile factories and a research institute, is a small bank (Doveritelnyi i investitsionnyi bank). But the enterprises of the Consortium `Russkii Textil' are managed by the holding company Rosprom whose firms are centered around the large bank Menatep ranked as Russia's tenth in assets. 2 The first FIG thus emerged as a segment of Menatep's financial empire.
The years 1995-1996 were marked by the design of the special governmental program intended to bolster the establishment of FIGs (approved on January 16, 1995), the enactment of the federal law "On Financial-Industrial Groups" (November 11, 1995), and the introduction of the presidential decree on promoting the integration of industry and banks (April 1, 1996). 3 The Association of FIGs was founded in January 1996; former First Deputy Prime Minister Oleg Soskovets was elected its president. 4
In November 1996 there were already 39 officially-licensed FIGs incorporating more than 500 industrial enterprises and 87 financial institutions (including 37 banks). In a time of overall economic decline, they demonstrated economic growth, an increase in sales, an increase in export and growth of investment, and they generated more than 10 percent of Russia's gross domestic product. 5
FIG No. 001 was, meanwhile, not the first but the 35th to be established in Russia. In addition to 39 legal FIGs, in November 1996 there were just as many non-official FIGs that were supposed to be re-registered by the state according to the law "On Financial-Industrial Groups." New state stipulations regarding FIGs did not initiate anything new. Rather, they formalized and legitimized the formation of closely-knit networks in the economy that was already taking place, further promoting this process. The question is how and why.
"Wild" Capitalism and the End of the "Gilded Age"
Russia today is widely perceived as a land of adventurism, as the "wild East," an analogy to the "wild West" and "Chicago of the 1920s." 6 The motto of a fin de siècle St. Petersburg newspaper Birzhyevyiye vedomosti (Stock Exchange Gazette) stated in the masthead: "Profit is above all, but honor is above profit." Nowadays, the apparent presence of "wheeler-dealers" in the Russian market suggests that honor is incompatible with quick profiteering. Scandals involving new Russian entrepreneurs commonly include fraud, illegal deals and tax evasion, bribery, and even contract killings, generating deep public distrust. 7 Conspicuous consumption of the "new Russians" (the new Russian bourgeoisie, the origin of whose fortunes is often dubious) also provokes public irritation and disdain of "adventurists."
Russian adventurism triggered by the "shock therapy" of 1992-1993 bears a certain resemblance to the American "Gilded Age," 8 the era of "Robber Barons," 9 and unscrup-ulous speculation of financial geniuses. Great American fortunes of the post-Civil War era were generated due to three major factors. First, anti-trust legislation was non-existent. This allowed, for example, the House of Morgan to create such a powerful "money trust" that it could fulfill the role of a central bank in the crisis of 1907. 10 Second, tax legislation and its enforcement were very weak. Morgan's aphorism, "If the government cannot collect its taxes, a man is a fool to pay them," 11 reflects the mechanism of fortune-building. Third, the state laws of incorporation did not exist. The private bankers and industrialists were exempt from governmental oversight; they could not be made to divulge their activities or finances, being private citizens. The only limit to their power lay in the limits of their own talents and imagination. 12 It is believed that Morgan, whose ruling idea was "an imperium in imperio of banking" under his supreme command, built his enormous financial structure through a campaign of secret alliances. 13
All three factors are apparent today in Russia. First, instead of introducing competition in relations within the extremely monopolized post-Soviet economy, there is a notable drive toward sustenance and even promotion of economic monopoly. Second, the rate of tax collection is low and further deteriorating. According to the report of the Main Control Department of the Presidential Administration (GKU), only 16 percent of Russia's taxpayers paid on time and in full in 1996, while 50 percent have tax arrears and 34 percent do not pay taxes. 14 Third, the laws are inconsistent and are hardly enforced. In this situation, making a fortune is a matter of personal imagination and the art of speculative schemes as well as of proper social connections.
However, Russia's "Gilded Age" which brought into being two groups of new Russian capitalists -- "self-made men" as well as "reborn" old apparatchiki (members of the old Soviet nomenklatura) 15 -- is coming to an end. Making "quick" money was feasible during the banking boom of 1988-94 which spawned 2,500 new banks, 16 a period marked by economic decline and high inflation, but is much less likely in the environment of low inflation that Russia has enjoyed since spring 1996. The August 1995 banking crisis revealed the insolvency of many banks, 17 and in the summer 1996 even some large commercial banks found themselves in jeopardy. The difficulties of these banks are believed to originate in their risky lending policies; the inability to switch from short-term lending appropriate in the high-inflation environment, to long-term investment projects that are imperative today; incorrect assessments of profitability of investment in real estate; and even, as suggested by the executives of the Central Bank, the embezzlement of funds. 18 Financial stabilization that involves requirements of greater transparency of financial transactions and closer supervision of commercial banks became the highest priority of the Russian state.
The end of the American "Gilded Age" was orchestrated by the Roosevelts. Both Theodore and Franklin 19 expressed the interests of "Main Street" (the middle class) against Wall Street and implemented these interests through the enforcement of the Sherman Anti-Trust Law and restrictions imposed on the powers of financial empires. In contrast, the end of Russia's "Gilded Age" is marked by the state's efforts at stimulating the creation of financial empires.
It is believed that FIGs will benefit banks which can no longer earn money through financial speculations because of low inflation, and will rescue industries suffering from the lack of investments. It is also believed that FIGs will allow the state to better monitor economic activity, to improve tax collection, and to reimpose social welfare responsibilities on economic units. Additionally, FIGs are perceived as instrumental for reintegrating the economies of the Commonwealth of Independent States by reestablishing the previous ties among industrial enterprises, broken during the period of "shock therapy." It is expected that FIGs linking banking with industrial business (under the guidance and surveillance of state functionaries) will introduce financial discipline, transparency of operations, and consistency in long-term decision-making, allowing the creation of more effective management structures and better regulation of financial flows. This would in turn contribute to the profitability of affiliated companies and/or to the value of their stock. The stimulation of the development of FIGs is, however, selective: the largest industrial enterprises and banks linked to the state obtain preferential treatment.
Finance Capitalism
Based on content analysis of Russian news reports in Kommersant (including both Kommersant-Daily and its weekly edition), and Finansovye izvestiya (a financial news supplement to the daily Izvestiya) performed since October 1995, I was able to identify links between major banks and other centers of power (industrial enterprises as well as government, political parties, and the media). 20 Research conducted thus far allows one to register the merging or coalescence of banking with industry in Russia, reflecting a drive toward finance capitalism. 21
There are at least two means of forming financial empires. Either the banks absorb industrial enterprises, or the industrial monopolies create their own banks and establish control over other banks and enterprises. The Financial House of Morgan 22 as well as the empires of ONEXIMbank and Incombank may illustrate the first route to finance capitalism while the link between the Standard Oil Corporation and the Chase Manhattan Bank 23 as well as the link between Gazprom and the Imperial bank exemplify the second route.
Two common mechanisms of financial empire-building are the acquisition of shares and the establishment of interlocking directorates. For example, ONEXIMbank acquired 38 percent of shares (51 percent of voting shares) of Norilsk Nickel, the company that controls 35 percent of the world's known nickel supplies. ONEXIMbank is also linked with the industrial monopoly through the board of directors. This, however, followed a long period of litigation regarding property rights and management, and still remains controversial due conflicts between the employees of Norilsk Nickel and ONEXIMbank, and to pressure exerted on ONEXIMbank by critics of large private ownership in the State Duma. 24
Imperial is a core bank affiliated with two major exporting companies -- the oil company Lukoil and the gas company Gazprom. This financial empire is tied together by asystem of affiliated financing centered around Imperial as well as by interlocking directorates. Both Lukoil and Gazprom each own 12 percent of the shares of the bank Imperial. The CEOs of both Lukoil and Gazprom (Vagit Alekperov and Rem Viakhirev) are seated on Imperial's board of trustees. 25
The inner structure of FIGs usually consists of three segments: the financial segment (investment, insurance, trust, and real estate companies; banks; pension funds; and computerized accounting and deposit centers); the industrial segment (enterprises-producers, suppliers, and construction business); and the trading segment (marketing, brokerage, consulting, law, advertisement, and transportation firms, as well as warehouses). The total capital of all of Russia's commercial banks (2,200 are currently in operation) and their 40,000 branches is estimated to be no more than $13 billion, which is two to four times less than the capital of any single bank among the 20 leading world banks. All Russian banks can mobilize no more than $300 billion -- a small amount for a country as large as Russia. 26 Lacking financial resources for investment, these banks endeavor to serve as brain trusts searching for effective forms of organization, development, and cooperation, and implementing their integrating and management schemes. In order to attract foreign investment to Russia, which remains the highest-risk area for investment, Russian banks provide financial guarantees against risk and stimulate the formation of international and transnational FIGs (the FIG Sibirskii Aluminii involving the British company Trans World Aluminium may serve as an example).
The Russian state, which has lost its capacity to control and regulate the economy as a result of the disintegration of ministries, conceives of FIGs as their more flexible substitutes. Counting on FIGs as locomotives of order and economic stability, the state abolished all previous limitations and requirements regarding the structure of capital, the quota of state property, interlocks in shareholding, and the number of participants and employees in FIGs. The core companies of FIGs have been granted additional rights in the concentration of capital and its distribution, and all firms affiliated within FIGs are accountable for the actions and liabilities of the core company. It is expected that the tax burden for FIGs will be alleviated through a system of consolidated tax payments, which, however, would improve tax collection and increase budget revenue. 27
The actual outcome of these regulatory changes still remains to be seen. It also remains unclear in whose interests the new legislation on FIGs will ultimately be implemented, and whether it will benefit the general public. But Russia's current drive toward finance capitalism may already be assessed as the "reinvention" 28 of some underpinnings of the Soviet past: FIGs are anticipated to provide some measure of centralized planning in today's Russia, and to introduce more order in the distribution of state property. Protecting major banks and enterprises from the swings of the market, FIGs are conceived of as a prerequisite for financial stability and for the advancement of the investment capacity of the economy. But the coming era of FIGs also means that the epoch of "self-made men" making their fortunes on the basis of inventive rational strategies or adventurous speculation is over. "Small fish" are eaten by "big fish" through mergers and consolidation, the economic giants are legally reinstituted and their potential is hailed, and the winners are "appointed" rather than decided upon in a competitive battle.
Reliance on Social Capital
The Soviet system was essentially a social system, not an economic system. Economic efficiency was sacrificed for socio-political considerations. Under this system, social relations, not money, served as a primary medium of exchange and a goal in itself. 29 Social relations were a means of making a career, obtaining an apartment, or obtaining goods and services. The capability to establish valuable social contacts was more critical for success in life than were professional skills. One's connections determined one's social status. Not technical competence, but the qualities of a "social antenna" (sensing needs of other people -- the boss, colleagues, friends, and acquaintances -- and responsiveness to those needs) were essential in getting ahead. The particular Soviet vocabulary in its key terms -- blat (the pervasive personal networks for obtaining access to public resources), 30 ruka (a "hand," a sponsor or mentor, often a relative, high in the system), nash chelovek ("our man," one connected with a certain circle), krugovaia poruka (circular support including mutual covering-up of illegal activities) -- reflected the core significance of the personal "chemistry" in Soviet society.
Officially called "socialist," the Soviet system was nonetheless "capitalist" in that social relations were used not only as an end in themselves but also as a means of obtaining economic and social advantages. If the motivating force in social relations is "the anticipation of utilities" rather than "value convictions," 31 then social relations are utilized as capital. Though not based on private property, the Soviet system promoted the instrumental approach to human exchanges. Non-cash factors emphasized by the Soviet concept of blat (the connections within the closed circle of relatives and acquaintances) and "telephone justice" (decision-making influenced by telephone contacts with "VIP's," or very important Soviet bosses) were instrumental in obtaining a job, an apartment, and goods and services during the Soviet period. Moreover, these non-cash factors were more effective than money when used for self-interested maximization of utility.
The dynamics of the Soviet economy substantially depended upon middlemen called tolkachi (go-getters) whose task was to search for a deal or a trade through personal relations, including pressure according to the principle "favor for favor, commodity for commodity." 32 Tolkachi, the agents of barter and social capital, were the predecessors of today's intermediaries. They were operating with non-monetary "credit slips," symbolizing their obligations for a favor provided in advance. 33 The failure to fulfill these obligations could threaten the future effectiveness of their purely instrumental activities. This example, contradicting Soviet anti-capitalist propaganda, supports the suggestion of the application of social relations as the resource facilitating action, or capital, 34 in the Soviet Union.
In an industrially-advanced economy based on private property, money connotes power, but this power can be strengthened or weakened depending on social connections, links, and alliances. Business relations are merged with social relations. The literature on interlocking directorates, on the role of financial institutions vis-à-vis industrial corporations, on the dual economy, and on the bonds among elites provides sufficient evidence of the importance of social relations for profit-making. 35 Like economic capital, social capital is productive, making the achievement of certain ends possible, for example, via extensive trustworthiness and trust.
Through relations with colleagues, friends, and clients (i.e., social capital) come the opportunities to transform financial and human capital into profit. 36 This observation universally refers to all capitalist societies. But there are variations in the importance attributed to social capital. Today's Russian realities are conducive to the prominent role of social capital, indicating the continuity of its significance in Soviet/Russian societies.
First, the present Russian economy is highly monopolized, significantly constraining competition. 37 Under such imperfect competition, social capital is used to narrow the pool down to the individual who gets the opportunity. 38
Second, there is a great deficit of economic capital, both in terms of money available for investment, and an ambiguity of property rights. Social capital then serves as a type of collateral; it is available to those who have no access to ordinary loans. Thus it expands available credit facilities and improves the efficiency with which markets operate. 39
Third, the Russian market is underdeveloped and characterized by inadequacy and scarcity of information, inefficiency of communication channels and the lack of transparency of business operations. This may fuel distrust among partners as well as between a patron and a client. 40 Intensive bargaining through asking a large number of diagnostic questions of a handful of people, and building close relations with the clients and partners, become imperative under these conditions of a "bazaar" economy. 41
Fourth, politics maintains its crucial influence over all facets of Russia's socio-economic life. 42 The serious impact of politics on society, civil service meritocracy, and the concentration of elites in a nation's capital can explain the reliance upon social capital, as demonstrated by French "political" rather than "economic" capitalism. 43
Fifth, a collectivistic culture with a long tradition of risk-avoidance, inertia, and emotionalism demonstrates its endurance. 44 This favors "social accomplishments" over "ego accomplishments," long-standing personal connections in the form of friendships, solidarity of colleagues, or family ties, and implies a core position of social capital that provides public rather than private goods.
Sergei Rodionov, chairman of Imperial, stated: "Our country is one big trust. Everything depends on whom you know." 45 In order to function, business requires not only trust among its participants 46 but also trustworthy intermediaries between economic and political spheres in Russia. The impact of politics over Russian business as well as the inadequacy of laws and of their enforcement explain the demand for an intermediary -- a friend or an acquaintance connected with the governmental circle who can push or finalize a deal: "Since no one can say with any certainty what is legal and what is illegal, any deal may require a bribe or at least a friendly official who `looks through his fingers.'" 47
"Nomenklatura privatization" 48 benefitting an inner circle of persons connected with the former Soviet centers of power, reveals that the old elite builds up capitalism for themselves, their families, and friends, relying upon their families, friends, and former social organizations. This illustrates Yoram Ben-Porah's 49 concept of the "F-connection" (families, friends and firms) affecting economic exchange, and further corroborates continuity in the manipulation of social capital in Russia.
The employment of social capital during the current capitalist-style reforms in Russia parallels the tendencies in late pre-revolutionary Russia. In contrast to an "advanced country," the scarcity of economic capital in a "backward country" is compensated by social capital. For example, close relations between banks and business enterprises in 19th-century Germany were influenced by diffuse economic capital, the public distrust of industrial activities, and the scarcity of entrepreneurial talent. State-business links in fin de siècle Russia were due to the same reasons, and low standards of honesty in business and its general distrust by the public 50 made for similar strong ties between big industry, finance capital, and state bureaucracy at this "earlier capitalist" stage of Russia's development.
Analogous to "political" French capitalism, 51 which hinges upon social connections and particularistic loyalties, early Russian capitalism at the beginning of the 20th century was promoted by reforms "from above" (from the upper echelons of the bureaucracy) and was also marked by the power of inner circles and by particularism (administrative arbitrariness). It is believed that a leader of Russia's fin de siècle Westernization, Sergei Witte, minister of finance from 1892 to 1903, an "agent of the stock market," 52 and a believer in the "virtues of capitalist speculation," 53 could not succeed because his bourgeois message and personal ethic 54 were incompatible with the spirit of civil servants and power elites in Tsarist Russia. He failed because he "marched way ahead of his economic army." 55 Similarly, the resignation or ousting of top "agents of the stock market" in contemporary Russia (Yegor Gaidar, the former prime minister, and Boris Fedorov, the former minister of finance) could be partly attributed to their insufficient social capital as well as their lack of proficiency in political maneuvering. 56
Paternalism and Patronage Capitalism
Social capital rests upon cultural roots; it is "created and transmitted through cultural mechanisms like religion, tradition, or historical habit." 57 The Russian/Soviet cultural tradition continuously endorsed the value of closely-knit social relations. Pre-revolutionary "agrarian communism," mostly favored by the Russian peasants, 58 facilitated the ultimate public acceptance of Stalin's collectivization. Russian "`populist' romanticism" was conducive to the acceptance of Marxism, 59 particularly in its Russian interpretation. 60 It was one step from Russian "communitarianism," 61 the appreciation of the "warmth of the collective" as a "mother's womb," 62 to Soviet collectivism, while Soviet bureaucratic paternalism merely continued pre-revolutionary "bureaucratic paternalism." 63
The statist and paternalistic orientations of Russians, rooted in hierarchical, organic community values which promoted rigid domination/subordination depending on one's place in the social hierarchy as well as a noblesse oblige principle, are antithetical to inde-pendent initiative and personal responsibility, but still persist today. 64 According to a 1990 survey, 60 percent of the respondents believed that the majority of the Soviet people "cannot live without constant care [and] guardianship on the part of the state." 65 A 1992 survey revealed that the greatest dissatisfaction with the Russian government was linked to its "insufficient care for people." 66 The public welfare agent still has the greatest authority in Russia, 67 and the collective is organized as a family around a paternalistic boss who is the public welfare agent. Shrinking public support for the movement toward a mar-ket economy with its characteristic atomization as well as growing nostalgia for the stability and egalitarianism of the past 68 suggest a return to the paternalistic functions of the state, involving social guarantees for the people and state subsidies and incentives for businesses.
The year 1995 was called "the year of drawing together banks and the state," 69 and became a landmark in the development of Russia's patronage capitalism. Certain banks were designated as state appointees in various state programs, and a special department was created by the Central Bank of Russia to monitor and assist the largest banks. 70 Negotiations on the state's acquisition of the shares of commercial banks, particularly those experiencing financial difficulties, were held. The Central Bank took steps to further increase the role of the state banks, incorporating them into the Russian Financial-Banking Union established in 1995. The largest Russian bank, Sberbank, the heir of the former Soviet state bank of the same name, remains state-controlled, and dominates the securities market and the private investment market. 71 While in 1995 Sberbank handled 50 percent of Russia's private bank accounts, in 1996 this share increased to 70 percent. 72 The insolvency of commercial banks began to be commonly handled through the establishment of a "provisional administration of the Central Bank." 73 The Central Bank created a special structure, OPERU-2, through which it intends to supervise 27 large Moscow-based banks. 74
The current state patronage of a designated group of powerful banks favors the merging of banks as well as mergers of banks with industry. The collusion of financiers (bankers who gain control over industries, and industrialists who create their own banks and establish control over other enterprises) with the state was evident during the implementation of the "loans-for-shares" scheme when state functionaries offered their patronage to the preliminarily identified banks even at the expense of sacrificing more advantageous deals. 75 "Nomenklatura privatization" and "nomenklatura entrepreneurship," admission to which depends upon one's social capital, are further enforced by the open "bureaucratic paternalism" of particular groups. Close ties among top bureaucrats and selected new entrepreneurs are whole-heartedly welcomed by those financiers who are the beneficiaries of these ties.
Potanin, the former president of ONEXIMbank, proudly characterized his bank as a "bank with a state mentality," 76 a matter timely rewarded by his appointment as the first deputy prime minister. 77 Another bank which actively financed Boris Yeltsin's presidential campaign, the Natsionalnyi Rezervnyi Bank, was rewarded by being given the right to manage the accounts of the giant gas monopoly Gazprom. 78 The bank Menatep is occasionally called "Our Bank," a reference to Prime Minister Chernomyrdin's party, "Our Home is Russia," characterized as the "party of power." This shift toward the state patronage of particular agents in the Russian economic arena signifies a "reinvention" 79 of the Russian/Soviet statist and paternalistic tradition, and therefore is likely to become a long-term tendency.
The failures or difficulties of certain banks are, meanwhile, linked to their disfavor by the political centers of power. For example, the problems of "Incombank" began with its revolt against the state policy of increasing banks' mandatory cash reserves, as well as its conflict with the government in regard to the implementation of the "loans-for-shares" scheme. 80 As in nineteenth-century Russia, the figure of the state "inspector-general," personified by the famous Russian novelist and playwright Nikolai Gogol in his still germane comedy, 81 remains a state proxy intended to either elevate or cause the failure of particular commercial structures. Thus, it is claimed that targeting Incombank for a large-scale audit, which triggered its crisis, was due to that bank's ambiguous political involvements disliked by those currently in power. 82 The bankruptcy of another bank, Tveruniversalbank, is also, in part, traced to its alleged support of the communist party, the major rival of the present "party of power." 83
The state promotion of FIGs advances the monopolization and centralization of the Russian economy, primarily benefiting Moscow banks. The concentration of banking capital in Moscow exceeded 70 percent in 1994-1995; 84 out of 2,200 commercial banks, at least 600 banks were located in Moscow. 85 The expansion of Moscow's banks includes the opening of their regional branches throughout Russia 86 as well as the establishment of their own administrations at the industrial enterprises located in various parts of the country.
The emerging structures of FIGs are reminiscent of the Japanese system of keiretu-yushi. 87 Hence, it is not surprising that Japanese academics and business consultants began to actively offer their expertise on the Russian market, advertising their system of capitalist organization not merely as economically efficient but also as "socially fair,"limiting inequality in society. 88 It was indicated above that the Russian public remains sensitive to inequality and still largely craves state-provided welfare. FIGs offer a response to this sentiment, advancing paternalistic "caring"by means of patronage capitalism.
Legitimacy of Russia's Capitalism
Social capital, as well as other forms of capital, becomes fully productive once it is accepted as legitimate in society or, in other words, converted into "symbolic profit." 89 Russia's incipient capitalism can hardly become irreversible unless it generates symbolic capital, "the form different types of capital take once they are perceived and recognized as legitimate." 90 The paternalism of FIGs can contribute to the elevation of symbolic capital but is not sufficient for this purpose. More aggressive deliberate actions in the realm of publicity are necessary if legitimation of Russia's version of capitalism is to be achieved.
The dominant Russian/Soviet historical tradition is anti-individualistic, anti-materialistic, and anti-capitalist. The monstrous negative image of capitalists and rentiers was persistently forged in the Russian consciousness. The Russian/Soviet intelligentsia, reiterating the sentiment of French intellectuals, 91 was repugnant of myeschanstvo (the petty bourgeoisie) and particularly of lenders labeled as speculators and exploiters. Public acceptance of Vladimir Lenin's 92 portrayal of "financial oligarchy" as profiteering parasites was prepared by the internalization of Honoré de Balzac's 93 negative images of financiers, while Soviet ideology enforced the early Christian characterization of the love of money as "the root of all evil." 94 These images still persist among the Russian public today. New Russian bankers are commonly perceived as egoistic, "filthy rich" speculators and short-term profiteers. 95 Note that during the demonstrations organized by the employees of Norilskii Nickel against ONEXIMbank, the protesters used an effigy of a member of the bourgeoise in a top hat with a dollar sign and with a vicious grimace on his face as a symbol of their new financial boss. 96
There exists an intense clash among various social layers in contemporary Russian society: a commercial bank is believed by the average person to be a "structure which robs;" bankers prefer to conceal where they work from their neighbors, trying to escape envy and hostility as well as to secure their personal safety. They are also occasionally physically assaulted and more than 30 bankers have been assassinated. The insolvency of many Russian banks and, as a result, the losses of their clientele further deteriorate the image of present financial institutions. Only 38 percent of existing Russian banks are considered to be financially reliable; 97 during 1996 the Central Bank liquidated more than 330 insolvent banks and revoked the licenses of an additional 510 banks. 98
The legitimation of the new Russian financiers as influential agents in society is linked to the legitimation of the capitalist system they represent, and both depend upon the artful manipulation of symbolic goods. The formation of FIGs can contribute to the improvement of the financiers' tarnished image in several respects. First, the merging of banking with industry offers an opportunity for substituting the image of a financier as a gambler, an unscrupulous manipulator, and a genius of financial speculation with the image of a productive creator and reliable investor intending to revive economic development. This is particularly important, considering the Soviet heritage of idolizing production 99 and of admonishing the financial speculator. Second, the financiers' involvement in the provision of social welfare may serve to substitute the image of a financier as an inhuman profiteer with that of a caring patron and benevolent sponsor. Third, charity and philanthropy on the part of the leaders of FIGs may replace the image of a financier as a vulgar, ignorant, immoral nouveau riche with the image of a culturally sophisticated intellectual, connoisseur, and patriot, concerned about Russia's interests rather than with self-interest. Fourth, a financiers' partnership with respectable Western institutions affiliated with transnational FIGs, and their acceptance of the world standards of banking and business, 100 could result in a substitution of the image of the provincial amateur with that of the civilized and cosmopolitan professional.
The generation of symbolic capital is currently pursued by incorporating media outlets into new financial empires. Bank Most is a major shareholder of the TV channels NTV (Independent TV) and NTV-Plus, the radio station Ekho Moskvy, the publishing house Sem Dnei, the newspaper Segodnia, and the weekly magazine Itogi. Other large banks -- ONEXIMbank, Ob'edinennyi Bank, Stolichnyi Bank Sberezhenii, and Menatep -- invest their resources in the TV channel ORT (Public Russian TV). The large auto enterprise LogoVAZ also finances directly or through its "pocket bank" -- Ob'edinennyi Bank -- the channel TV-6, magazine Ogonek, and the newspaper Nezavisimaya gazeta. 101
Two financial tycoons are the most visible in their control of the manipulation of symbolic goods in today's Russia. They are the former president of the Most bank, currently the general director of the new holding company Media-Most, Vladimir Gusinskii, and the former Chairman of the Board of Directors of the large auto enterprise LogoVAZ, presently (March 1997) a Deputy Security Council Secretary, Boris Berezovskii. The latter figure is particularly impressive 102 and may symbolize today's Russian capitalism. Considered to be a financial genius, not eschewing adventurism, Berezovskii made his fortune and built his financial empire through alliances and mergers. "A master of political intrigue," eager to cooperate with politicians of various ideological orientations, he benefited from bureaucratic paternalism and became a patron himself, having been elevated to a high position in Russia's state administration. Working on enhancing his own image, he contributes to the legitimation of Russia's capitalism through the media outlets that he owns. An important agent of the emerging capitalist structures, Berezovskii may thus serve as a test case for clarifying the nature of Russia's current socio-economic system. The dialectical relationship between the agent and the structures that he represents is also instructive for understanding what is prescribed by the new Russian elite as a treatment of the defects of Russia's capitalism, and what may change its faulty images.
Footnotes
Note 1: Kirill Vishnepolskii, "V Rossii poyavilas' pervaya finansovo-promyshlennaya gruppa," Kommersant-Daily 123, July 20, 1996, 9. Back.
Note 2: Betsy McKay, "Reinventing Russian Banks," Central European Economic Review 4, no. 8 (October 1996), 26-27. Back.
Note 3: Lev Makarevich, "Pravovaia baza zametno otstayet v razvitii," Finansovye izvestiya, November 12, 1996, VI. Back.
Note 4: "Zolotoi kluchik ot zolotoi kletki," Kommersant, January 30, 1996, 20-21. Back.
Note 5: Lev Makarevich, "Finansovo-promyshlennye gruppy operirouyut gigantskimi kapitalami," Finansovye Izvestiya, November 12, 1996, VI. Back.
Note 6: David Remnick, "The Tycoon and the Kremlin," The New Yorker, February 20-27, 1995, 118-39; also see Karen Spinner, "Banking in the Wild, Wild East," Bank Systems and Technology 32, no. 4 (1995), 52-54. Back.
Note 7: Elena Starostenkova, "Podryv doveriya k kreditnym institutam strany nanosit uscherb economicheskoi bezopasnosti strany," Finansovye izvestiya, July 18, 1996, 72; also see Ivan Zhagel, "Bankovskaya isteriya stanovitsya normalnym sostoyaniyem nashego obschestva," Finansovye izvestiya, July 16, 1996, 71. Back.
Note 8: Mark Twain and Charles Warner, The Gilded Age: A Tale of Today (Indianopolis: Bobbs-Merrill, [1901] 1972). Back.
Note 9: Matthew Josephson, The Robber Barons (New York: Harcourt, Brace & World, 1962). Back.
Note 10: Brandon Taylor, Art and Literature under the Bolsheviks (London: Pluto Press, 1991), Vol. I. Back.
Note 11: As quoted in Kenneth Lamott, The Moneymakers: The Great Big Rich in America (Boston: Little, Brown and Co., 1969). Back.
Note 14: Natalia Gurushina, "Tax Service Criticized," OMRI Daily Digest, February 6, 1997. Back.
Note 15: It is estimated that 61 percent of today's Russian business elite came from the old Soviet nomenklatura (communist party circle). Olga Kryshtanovskaya, "Post-Soviet Elites: Parlaying Power into Property," Current Digest of the Post-Soviet Press 68, no.4 (February 21, 1996), 1-5. Back.
Note 16: Mikhail Dmitriev and Dmitrii Travin, Rossiiskiye banki: na iskhode zolotogo veka (St. Petersburg: Norma, 1996). Back.
Note 18: Yaroslav Skvortsov, "Centrobank ne poterpel organizovannogo sabotazha," Kommersant-Daily, July 25, 1996, 5; also see Dmitrii Travin, "Vechnyi avgust rossiiskikh bankov," Nevskoye vremya, July 13, 1996, 3. Back.
Note 19: Josephson, 448; also see Victor Perlo, The Empire of High Finance (New York: International Publishers, 1957), 21; and Anna Rochester, Rulers of America: A Study of Finance Capital (New York: International Publishers, 1936), 128. Back.
Note 20: I would like to thank my research assistants, Lev Gordon and Yulia Ilyina of St. Petersburg State University, for their work on constructing matrices in Excel, composing text files in Word Perfect, and compiling systematized originals of the articles that served as sources of information. This research was made possible by a grant awarded by IREX to the Center for Russian and East-European Studies of the University of Pittsburgh. I am particularly grateful to Center Director Ron Linden and Assistant Director Martha Snodgrass for their help and encouragement. Back.
Note 21: Rudolf Hilferding, Finance Capital: A Study of the Latest Phase of Capitalist Development (London: Routledge & Kegan Paul, [1910] 1981), 225-26; also see Vladimir Lenin, Imperialism: The Highest Stage of Capitalism (New York: International Publishers, [1917] 1967); and Rochester, 13. Back.
Note 22: Josephson, 407-09. Back.
Note 23: Perlo, 46; and Taylor, 83. Back.
Note 24: Jonas Bernstein, "Nickel for Your Thoughts?," Russia Review, February 26, 1996, 22-24; also see Yaroslav Skvortsov and Leonid Brodsky, "Temnaya loshadka v sverkayuschei sbruye," Kommersant-Daily, August 17, 1996, 15. Back.
Note 25: Yulia Pelekhova and Mikhail Loginov, "Novyi predsedatel okazalsia khorosho zabytym starym," Kommersant-Daily, November 12, 1996, 5. Back.
Note 26: Makarevich, "Finansovo-Promyshlennye Grouppy...." Back.
Note 27: Victor Dementiev, "Stimulirovat razvitiye FPG mozhno cherez gibkiye nalogi," Finansovye izvestiya, November 12, 1996, VI. Back.
Note 28: Eric Hobsbawm and Terence Ranger, The Invention of Tradition (Cambridge: Cambridge University Press, 1983). Back.
Note 29: Jeffrey Klugman, The New Soviet Elite: How They Think and What They Want (Westport, CT: Praeger, 1989). Back.
Note 30: Alena Ledeneva, "Transformation of Blat Relations: The Legacy of the Past and Post-Soviet Prospects," presentation at the conference "Russian Banks Today: Financial, Social and Cultural Capital," June 27-28, 1996, St. Petersburg, Russia. Conference sponsored by the Center for Russian and East European Studies of the University of Pittsburgh and the School of Management of St. Petersburg State University. Back.
Note 31: Alejandro Portes and Julia Sensenbrenner, "Embeddedness and Immigration: Notes on the Social Determinates of Economic Action," American Journal of Sociology 98 (1993), 1325. Back.
Note 32: Daniel Yergin and Thane Gustafson, Russia 2010: And What It Means for the World (New York: Vintage Books, 1995), 105. Back.
Note 33: James Coleman, "Social Capital in the Creation of Human Capital," American Journal of Sociology 94 Supplement (1988), S102. Back.
Note 34: Coleman, Foundations of Social Theory (Cambridge, MA: Harvard University Press, 1990). Back.
Note 35: William Domhoff, The Power Elite and the State: How Policy Is Made in America (New York: Aldine de Gruyter, 1990); also see Michael Useem, The Inner Circle: Large Corporations and Business Politics in the U.S. and U.K. (New York: Oxford University Press, 1984). Back.
Note 36: Ronald Burt, Structural Holes: The Social Structure of Competition (Cambridge, MA: Harvard University Press, 1992), 8-9. Back.
Note 37: Jim Leitzel, Russian Economic Reform (New York: Routledge, 1995), 100-108. Back.
Note 39: George Putnam, Russian Alternatives to Marxism: Christian Socialism and Idealistic Liberalism in Twentieth-Century Russia (Knoxville, TN: University of Tennessee Press, 1977), 167-69, 185. Back.
Note 40: Leitzel, 27-39; also see Avner Grief and Eugene Kandel, "Contract Enforcement Institutions: Historical Perspective and Current Status in Russia," in E. Lazear, ed., Economic Transition in Eastern Europe and Russia: Realities of Reform (Stanford, CA: Hoover Institution Press, 1995), 291-321. Back.
Note 41: Clifford Geertz, "The Bazaar Economy: Information and Search in Peasant Marketing," in M. Granovetter and R. Swedberg, eds., The Sociology of Economic Life (Boulder, CO: Westview Press, 1992), 225-32. Back.
Note 42: Marshall Goldman, Lost Opportunity: Why Economic Reforms in Russia Have Not Worked (New York: W.W. Norton & Co., 1994). Back.
Note 43: Charles Kadushin, "Friendship among the French Financial Elite," American Sociological Review 60 (1995), 202-21; also see Leslie Mitchell de Quillacq, The Power Brokers: An Insider's Guide to the French Financial Elite (Dublin: Lafferty Publications, 1992); and also David Swartz, "French Interlocking Directorships: Financial and Industrial Groups," in F.N. Stokman, R. Ziegler, and J. Scott, eds., Networks of Corporate Power: A Comparative Analysis of Ten Countries (Oxford: Polity Press, 1985), 184-98. Back.
Note 44: Vitalii Borovoi, "The Religious and Spiritual Factor in the Making of a New Russia," in H. Isham, ed., Remaking Russia: Voices from Within (Armonk, NY: M.E.Sharpe, 1995), 233-54; and also Lynn Nelson and Irina Kuzes, Radical Reform in Yeltsin's Russia: Political, Economic, and Social Dimensions (Armonk, NY: M.E.Sharpe, 1995). Back.
Note 45: Martin McCauley, Russia's Leading Commercial Banks (Seattle: CEBIS, 1994), 14. Back.
Note 46: Burt, 15-16; and Coleman, S101. Back.
Note 47: Yergin and Gustafson, 105. Back.
Note 48: Ibid., 52; also see Makarevich, "Kapital ischet novye formy samoorganizatsii," Finansovye izvestiya, February 16, 1996, 20. Back.
Note 49: Yoram Ben-Porath, "The F-Connection: Families, Friends, and Firms and the Organization of Exchange," Population and Development Review 6 (1980), 1-30. Back.
Note 50: Alexander Gerschenkron, "Economic Backwardness in Historical Perspective," in M. Granovetter and R. Swedberg, eds., The Sociology of Economic Life (Boulder, CO: Westview Press, 1992), 117-21; and also Max Weber, The Russian Revolutions (Ithaca, NY: Cornell University Press, [1906, 1917] 1995), 23. Back.
Note 51: Berthold Hoselitz, Entrepreneurship and Capital Formation in France and Britain since 1700," in M. Abramovitz, ed., Capital Formation and Economic Growth (Princeton, NJ: Princeton University Press, 1956), 291-337. Back.
Note 53: Theodore Von Laue, Sergei Witte and the Industrialization of Russia (New York: Atheneum, 1969), 99-100. Back.
Note 54: Witte, son of a foreign-trained expert, had Dutch Lutheran roots. Back.
Note 55: Prince Meshcherskii as quoted in Von Laue, 193. Back.
Note 56: Boris Kagarlitsky, The Mirage of Modernization (New York: Monthly Review Press, 1995); also see Kagarlitsky, Restoration in Russia: Why Capitalism Failed (New York: Verso, 1995). Back.
Note 57: Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity (New York: The Free Press, 1995), 26. Back.
Note 58: Weber, 77, 210. Back.
Note 60: Nikolai Berdyaev, Istoki i smysl' russkogo kommunizma (Moscow: Nauka, [1955] 1990). Back.
Note 61: Berdyaev, Samopoznaniye: Opyt filosofskoi avtobiografii (Moscow: Kniga, [1940] 1991), 253-54. Back.
Note 62: Berdyaev, "Dusha Rossii," in M. Maslin, ed., Russkaya ideya (Moscow: Respublika, [1918] 1992), 301-12. Back.
Note 64: Yurii Levada, ed., Sovetskii prostoi chelovek: opyt sotsialnogo portreta na rubezh 90'kh (Moscow: Mirovoi Okean, 1993), 15. Back.
Note 68: Grigorii Vainstein, "Obshestvennye nastroyeniya v segodnyashnei Rossii," Mirovaya ekonomika i mezhdunarodnyye otnosheniya 8 (1993), 23-24. Back.
Note 69: "Zatyanuvsheesya molchaniye pered publikoi," Kommersant, February 27, 1996, 24. Back.
Note 70: Yurii Katsman and Elena Kiseleva, "Bankovskii p'edestal," Kommersant, July 1, 1996, 20-25. Back.
Note 71: Makarevich, "Kapital...." Back.
Note 73: Elena Makovskaya, "Kak vykarabkalsya Unikombank," Expert 31 (August 19, 1996), 20-21; also see Evgeniya Pismennaya, "Gosduma speshno zanyalas zakonom o bankrotstve bankov," Finansovye izvestiya, July 18, 1996, III; and also Marina Talskaya, "Tveruniversalbank stal liderom sovsem drugogo ratinga," Finansovye izvestiya, July 11, 1996, III. Back.
Note 74: Katsman and Kiseleva, 20-21. Back.
Note 75: Jonas Bernstein, "Loans for the Sharks?" Moscow Times, December 19, 1995, I-II; also see Bernstein, "Nickel for Your Thoughts?" Russia Review, February 26, 1996, 22-24. Back.
Note 76: "Bankir s gosudarstvennym mentalitetom," Kommersant, December 26, 1995, 47-48. Back.
Note 77: Andrei Galiev, "Takogo esche ne bylo," Expert 31 (August 19, 1996), 4-5. Back.
Note 78: Gleb Baranov, "Den'gi `Gazproma' mogut pereiti ot `Imperiala'k NRB," Kommersant-Daily, August 14, 1996, 1, 5. Back.
Note 79: Hobsbawm and Ranger. Back.
Note 80: Mikhail Loginov and Yulia Pelekhova, "Proverka Incombanka proizvela bolshoi shum," Kommersant-Daily, July 12, 1996, 5. Back.
Note 81: Nikolai Gogol, The Inspector-General: A Comedy in Five Acts, trans. Thomas Seltzer (New York: A.A. Knopf, [1834] 1916). Back.
Note 82: Katsman, "Inkombank nikak ne mozhet upast'," Kommersant 26 (July 16, 1996),18-20. Back.
Note 83: See "Chto pogubilo Tveruniversalbank," Dengi 24/25 (July 1996), 21. Back.
Note 84: Irina Yasina, "Nelzya rugat bankirov za to, chto oni ischut vygodu," Finansovye izvestiya, August 27, 1996, V. Back.
Note 85: "Inkombank Roundtable: Banking in St. Petersburg," Global Finance 9, no. 4 (1995), 75. Back.
Note 86: Irina Yasina, "Moskovskiye banki prodolzhayut osvoyeniye regionov Rossii," Finansovye izvestiya, July 18, 1996, III. Back.
Note 87: Koji Marioka, "Japan," in T. Bottomore and R. Brym, eds., The Capitalist Class: An International Study (New York: New York University Press, 1989), 148. Back.
Note 88: Khisao Onda, "Finansovo-promyshlennye gruppy dolzhny stat symvolom delovogo uspekha," Finansovye izvestiya, August 29, 1996, 3. Back.
Note 89: Pierre Bourdieu, Outline of a Theory of Practice (Cambridge: Cambridge University Press, 1977), 183. Back.
Note 90: Bourdieu, "What Makes a Social Class? On the Theoretical and Practical Existence of Groups," Berkeley Journal of Sociology 32 (1987), 3-4. Back.
Note 91: John Frey, "Mammon's Finger in the Novels of Balzac, Zola, and Gide," in J. DiGaetani, ed., Money: Lure, Lore, and Literature (Westport, CT: Greenwood Press, 1994), 175-183. Back.
Note 93: Honoré de Balzac, La Comedie Humaine (Paris: Gallimard, [1842] 1976-1981). Back.
Note 94: I Timothy 6:10. Back.
Note 95: Olga Kryshtanovskaya, "Just Who are Russia's New Millionaires?," Current Digest of the Post-Soviet Press 26, no. 36 (1994), 3. Back.
Note 96: Vishnepolskii, "ONEXIMbanku na `Norilskom Nickele' pomogut Bog i President," Kommersant-Daily, May 16, 1996, 9. Back.
Note 97: "Tolko tret bankov schitayutsa finansovo nadezhnymi," Finansovye izvestiya, November 28, 1996, III. Back.
Note 98: "336 rossiiskikh bankov likvidirovano i 510 -- podlezhat likvidatsii," Finansovye izvestiya, November 5, 1996, III. Back.
Note 99: Leitzel, 18-21. Back.
Note 100: "Bank zaruchilsa podderzhkoi OON," Kommersant 19 (May 28, 1996), 43; also see Yulia Pelekhova, "WestLB nashel sebe strategicheskogo partnyera," Kommersant-Daily, May 22,1996, 6; and also "Tokobank prinyat v elitarnyi finansovyi klub," Kommersant-Daily, May 23, 1996, 5. Back.
Note 101: Ivan Franko, "Chelovek, umeyuschii reshat' voprosy," Kommersant-Daily, November 2, 1996, 15; also see Natalia Gurushina, "Most Group Creates Media Holding Company," OMRI Daily Digest, January 28, 1997; and also Leonid Zavarskii, "Teoretik i praktik prinyatiya reshenii: Interview Borisa Berezovskogo," Kommersant-Daily, October 5, 1995, 10. Back.
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