The Rise of Putin, Part 4: Consolidating Power

The Rise of Putin, Part 4: Consolidating Power
(Alexei Druzhinin, Sputnik, Kremlin Pool Photo via AP)

When Putin rose to power, the liberals were left in a quandary.  Some intellectuals compared him to Stalin or Hitler, both dirty words in post-Soviet Russia.  Others viewed him as a mediocre manager at best who lacked the vision necessary to lead Russia into this new age.  However, they also did not see any alternative to Putin.  All believed that Putin would be more dependent on the oligarchs than ever.  Some suggested that if they were to challenge the results of the election, Putin would dig-in and take up repressive, dictatorial tendencies.  It was better, at this point, to let sleeping dogs lie, recharge and mount a challenge in four years.

In the aftermath of the election, the opposition to Putin appeared weak and ill-conceived.  While Zyuganov led a campaign of patriotism and promises to increase state pensions, Putin countered with larger increases effective immediately as Acting president.  Economist Yavlinsky criticized the lack of a clear plan in Chechnya and the increase of the minimum price of vodka, but Putin redirected his media attacks on him.  In reality, none of Putin’s opponents had a chance of winning and most of the “enthusiasm” was the thrill of running against him.  At best, they hoped to garner 3% of the vote so they did not have to pay back state campaign funds (about $20,000).

In the end, eleven candidates managed to get on the ballot, largely through bribes and forged signatures.  In the debates leading up to the election, Putin refused to participate at all.  Of those that did, usually 3-5 at a time, many were reluctant to criticize Putin, let alone even mention him. 

Putin visited some regions in January 2000 and had a fawning media covering each event.  In one February appearance on television, he took 38 phone calls from Russians and discussed everything from farm subsidies to Russians captured in Chechnya.  He came across as intelligent, caring, and reasonable.  His only campaign promise was there would be no campaign promises.  He was running as the anti-candidate and a political outsider and this resonated in the minds of Russian voters.  He was the Acting President and that was his ultimate appeal.  Putin’s non-campaign had the added bonus of marginalizing the oligarchs (since he was not making any promises).  In fact, it was a strategy that would pit him against the established oligarchs.  As the successor to Yeltsin, he positioned himself as the face of both change and continuity.  Yeltsin made one appearance for Putin in the campaign, then disappeared until Putin’s inauguration at the request of Putin.

And Putin was not averse to turning on tears to garner votes.  The RTR documentary on his life, “Unknown Putin,” was a classic case of political propaganda.  In February, he tearfully attended the funeral of his St. Petersburg mentor, Anatoli Sobchak, and embraced his widow.  A tough guy who could cry was a strong motivational factor to vote for him, especially among Russian women.  Considered effort went into humanizing Putin who was seen by some as a ruthless leader of the war in Chechnya.  Exit polls showed that the strategy paid off as women gave Putin their vote.  It was compassionate conservatism- Russian style.  

After the election, Putin had to eventually confront the oligarchs.  Yeltsin had managed to forge an alliance between the family and the siloviki, although it was an uneasy truce.  Putin first dismantled the family by taking the most useful and trusted members and installing them in positions in the Kremlin.  The siloviki, from which one can surmise Putin originates, was a  given.  It was now time to set his sights on the oligarchy which he decided to pick off one by one. 

Early on, he summoned all the oligarchs to Moscow and made it clear there would no longer be any divestment of state assets.  Henceforth, the oligarchs would have to make due with the empires they constructed.  Their future success would be determined by how much they could grow in the interest of Russia, not how much they can pillage from Russia.  At the time, he was not going to reclaim their ill-gotten gains. 

However, he laid down two conditions.  First, the oligarchs would have to pay their taxes and second, they were to stay out of politics.  A refusal to meet either condition would bring down the full force of Russian law on them and it would be a brutal battle where the state would reclaim their assets.  For the most part, both Putin and the oligarchs played by the new rules and they adjusted tactics and legally grew their businesses and instituted some semblance of technocratic improvements.  They also steered clear of politics as Putin consolidated his power within the Kremlin.

One oligarch who appeared not to get the message was Mikhail Khodorkovsky who continued to play the political game.  He was the owner of oil giant Yukos.  He had the support of a large contingent of members of the Duma and used his influence to get laws passed to make his corporate empire larger and more profitable.  Worse for him, he made no secret of his desire to challenge Putin in the 2004 election for the Presidency.  Showing that he meant business, Putin summoned forth the full power of the state against Khodorkovsky which resulted in his 2004 arrest and banishment to a Siberian prison.  Yukos Oil was a casualty along with its leader. 

Running along with Putin’s desire to eliminate a potential political rival, the government had its eyes on Russia’s lucrative oil business.  Russia is the world’s largest producer of natural gas and second largest producer of oil.  Using Yukos as an example, Putin went after the energy sector deeming it “strategic.”  Yukos was broken up and its resulting parts sold to a new breed of businessman that answered to the Kremlin.  Many of the Yukos former leadership found themselves charged with various financial crimes (and even murder) and ended up exiled from Russia, or in a Siberian prison.  In effect, Putin had created the “silovarch-” half siloviki and half oligarch.  They are a new elite class that sit in corporate boardrooms but who also have the backing of the Kremlin’s resources, including the intelligence services, security services, the judiciary, and even the military to protect their assets from pesky rivals.  Putin was assuming vertical control of the Russian economy and society with him at the top.

The silovarch class grew quickly when the traditional oligarchs either stepped out of line or discovered that men with Kremlin connections lusted after their assets.  Government tentacles quickly reached into all economic sectors.  Today, it is estimated that 78% of Russia’s government, social, and business leadership has close ties to the FSB.  

The emergence of the silovarch marked a change in the Kremlin’s attitude towards the oligarchs.  The global economy was booming and the United States, Europe and Asia were looking for prospective markets in which to invest.  The legal murkiness in Russia and tales of the sordid history of most Russian firms scared away foreign investors.  Russian banks and businesses quit trying to lure investors and instead started tapping into Western capital markets.  Some directly borrowed from Western banks.  For the first time in post-Cold War history, Russian business reached out for credit beyond the scope of their corporate empires.  Over $500 billion flowed into the country leading to an economic boom.  The fact that oil prices had reached $100 per barrel did not hurt, either.

The silovarchs were backed by the full faith and credit of the Kremlin.  The influx of capital was used to address aging infrastructure, expand industrial operations, and infuse western technology into the management of the companies.  Then came the global financial crisis of 2008 and the inflow of money into Russian coffers was greatly inhibited.  By 2009, a perfect storm arose that almost destroyed the oligarchy.  The good times were over and Putin, stymied by term limits (he won reelection in 2004), assumed the role of Prime Minister while his prime minister, Dimitry Medvedev, became President although it was clear to everyone that Putin was still ruling the country. 

Constitutional changes allowed Putin to run for the presidency again in 2012, this time for a six-year term.  The financial crisis found Russian businesses and banks holding $500 billion in debt with $130 billion due in 2009 with the credit markets essentially seized up.  This created the perfect financial storm for Putin to return to true power in 2011, make the silovarchs more dependent on the Kremlin and draw the ire of the Secretary of State of the United States, Hillary Clinton.  

As Putin was rising to power in Russia in early 2000, there was a changing of the political guard in the United States, as the corruption-stained administration of William Jefferson Clinton was giving way to Bush and an event that would alter the political, legal, and intelligence-gathering mindset of America.

Next: The tragedy of 9/11

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