Here's another excerpt summary from Ian Bremmer's The J Curve...this from his chapter on Russia. It's a superb account of "rise of the oligarch's," and Russia's gradual slide to authoritarianism and an increased trend toward centralized control over their media and economy...
Thesis: When a closed country falls down the left side of the J-Curve toward instability, there is no guarantee the country will reemerge as a coherent nation-state.
From the Soviet Union came the Russian Federation, a new state that inherited much of the Soviet Union’s assets and liabilities.
For Boris Yeltsin, the key to the country’s future as a “normal nation” lay in leading Russia through the transition from a command to a market economy, from authoritarian police state to pluralist democracy, and from empire to modern nation-state.
The only roadmaps for a transition from Communism to free market economy in 1992 were the Warsaw Pact states of Eastern Europe--Communism cast out in favor of dissidents who needed no reeducation. In Russia, no one had capitalist policy experience. Implemented Shock Therapy,” early abandonment of state protections in favor of market based adaptation.
Strobe Talbott: need for “Less shock and more therapy.”
Price ceilings were lifted and inflation spiraled out of control. The black market economy proliferated. Bribery became open and commonplace. The collapse of the police state left law enforcement poorly equipped to keep streets safe.
Deepest fear of many Russians: disintegration of the new state. Yeltsin encouraged the drive for political freedom: “Take all the sovereignty you can swallow.” Hoped to pull the Soviet Union down the left side of the J curve, but he regretted the comment once he became president. Fear of a chain reaction of breakaway movements….
The Soviet breakup quickly produced armed conflict in the former Soviet Republics of Tajikistan, Moldova, Azerbaijan and Georgia. The Balkan experience hinted at what could occur in the former USSR.
Russians began to see democracy and free markets not as the antidote but as the source of injustice, immorality, insecurity, etc.
The rise of the oligarchs: Yeltsin’s government was the source of virtually everything they wanted.
Yeltsin’s most powerful opposition came from Gennady Zyuganov’s Communist Party: mix of nationalists, fascists and militarists.
Yeltsin’s popularity plummeted. Oligarchs came to the rescue. The deals they made with the Kremlin helped keep Yeltsin in power. Made the oligarchs the most powerful men in Russia. Yeltsin sold them control of Russia’s media. Oligarchs used the media to promote Yeltsin’s candidacy and distort the messages of his rivals. Yeltsin sheltered the oligarchs from communist opposition.
The Yeltsin experience created a culture of official secrecy that pulled Russia away from the transparency necessary for a successful transition to the right side of the curve and yanked Russian society back to the left.
Boris Berezovsky bragged that seven men owned half of Russia’s GDP.
In August 1998, the ruble was devalued and announced that Russia would not meet its obligation to foreign bondholders. Led to a new Russian financial crisis. Pushed foreign investment out of Russia and financial markets into a downward spiral.
Yeltsin orchestrated a smooth transition in 2000 to a relative unknown, Vladimir Putin. First consensual transfer of power in 1000 years of Russian history. Yeltsin’s surprise early resignation helped the process. The oligarchs helped Putin’s ascendance.
Putin promised predictability. His popularity soared in his hard line toward the Chechen rebels. Young dynamic leader, sober approach that conveyed strength and resolve: what Russia wanted. But Putin’s greatest potential enemies were the oligarchs.
Foreign investors recovered confidence in the Russian government. Bond market and equity markets performed consistently well.
Putin wasn’t in a hurry to pursue to pursue political reform. Democracy was put on hold in Russia. Putin witnessed the chaos of early Russian capitalism.
Putin’s conviction that a greater centralization of power could support reform wasn’t entirely mistaken. The problem with the Yeltsin presidency: not a lack of democracy but a lack of central authority that was the problem.
When Putin took office, he decided that rebuilding strong central authority and consolidating the Russian state had to be his priorities. Needed to find an arrangement with the oligarchs. Called them together and this was the deal: oligarchs could keep the cash and property they’d amassed without fear of prosecution as long as they paid their taxes and steered clear of political conflict with Putin. Precluded them to use the media against him.
Two of the oligarchs, Berezovsky and Gusinsky used their holdings in the media to criticize Putin. Putin raided their media offices and placed them under criminal prosecution for money laundering and other charges.
The move up the left side of the J Curve began in earnest.
Putin retained oligarchs who followed the rules: Alexander Voloshin (Yeltsin’s capable and savvy Chief of Staff) to push through Putin’s early economic reforms and point man for dealing with the new Bush administration. Voloshin became the intermediary with the oligarchs too. The oligarchs retained their influence, including over tax legislation. Putin wasn’t too concerned. Berezovsky and Gusinsky fled into exile. The one left who wouldn’t follow the rules was Mikhail Khodorkovsky, the CEO of the oil giant Yukos and Russia’s wealthiest man, worth an estimated $8 billion.
Khodorkhovsky was rumored to have political designs on the Kremlin. Putin saw him as a clear challenge to his authority. Khodorkhovsky blocked passage of some initiatives that encroached on Kremlin control of domestic and foreign policy. Campaigned publicly for the privatization of Russia’s external pipeline system. Almost sold his company to Exxon-Mobil, passing ownership of a Russian company to foreign hands. Then he signed an agreement with China to build a private pipeline linking Russia with China.
The Kremlin responded by arresting his business partner, Platon Lebedev on charges of fraud and tax evasion. Khodorkovsky stepped up his political activities.
Putin was determined that Russia’s oligarchs wouldn’t be permitted to conduct their own foreign policy. On October 25, 2003, armed agents stormed his private plane during a refueling stop, arrested him and returned him to Moscow for prosecution. Putin stressed that Khodorkovsky was a unique case and sought to calm investors by telling them that Russia was open for business.
Khodorkovsky, like all the oligarchs was guilty of some crimes but he committed them with the complicity of Boris Yeltsin’s government. Berezovsky and Gusinsky ruthlessly stripped Russia of billions in national treasure.
Lesson: A stability built on obsessive risk aversion drives a nation up the left side of the J curve, because openness involves risks. If the process of opening never comes, the society becomes incapable of reinventing itself and begins an inexorable process of decay.
Putin sought to constrain the abundant power of regional governors by organizing Russia’s 89 provinces into 7 federal districts to be presided over by supergovernors appointed directly by the president.
Reigned in oligarchs by bringing the media under direct Kremlin supervision.
As the former communists of Putin’s administration sought to bring stability and predictability to Russia’s politics, they recreated what they knew: a left-side of the J Curve system of vertical power and central control.
Following the Beslan attacks in September 2004, Putin seized the opportunity to further centralize power. He gained control over the body that approves would-be judges for Russia’s highest courts. He sacked his prime minister, Mikhail Kasyanov so that he wouldn’t take the reigns from Putin. Putin maintains heavy influence in the Russian parliament, security forces, judiciary and the loyalty/obedience of the oligarchs.
The ongoing conflict with the Chechen separatists and terrorist threats to the Kremlin create the single most dangerous challenge to Russian stability. Chechen militants are responsible for the only known incident of radiological terror against a civilian population—buried a high-isotope cesium in Moscow’s Ismailovsky Park in November 1995. Dirty bomb threat is a real possibility.
Another threat to Russian stability is the rivalry between China and Russia over influence in Siberia. Ethnic Chinese already control nearly half the Siberian economy.
Another issue: Political pressure for democratic reform. What happens when Putin has consolidated power and carried out the many components of his economic reform package, when the controversial dislocations from energy reform are at an end and Russia is a full member of the WTO? Will he be willing to start spending political capital to create a representational political system? The further up the left side of the curve a state moves, the more difficult it becomes for a regime to let go of the power and control established.
Putin’s relative popularity and the stability he’s built in Russia have risen and may fall with oil prices. Putin faces growing dissent as reforms begin to hit Russians the pocketbook. Oil markets are cyclical and oil prices will drop. What will happen when the entire J Curve shifts downward?
Were Putin to subvert the constitution in an attempt to stay in power past 2008, it would be a disaster for Russia’s hopes of transitioning to the Right side of the J Curve. A reinvigorated Russia might move successfully through a period of uncertainty. But does Putin have a tolerance for political risk?
Neither the U.S. nor any other nation can shepherd these countries through the dangerous transition from the left to the right side of the curve. But they can craft a strategy designed to strengthen forces within those countries to manage their own revolutions.