But if Russia had freedom of speech and private property in the 1990s, it was not because there was an inbuilt tradition or craving for it, but because Yeltsin allowed it. Malashenko recalled asking American officials why they supported Yeltsin almost unconditionally instead of paying more attention to democratic institutions. ‘Yeltsin is your only democratic institution’ came the answer. Malashenko said: ‘I knew this could not last. If Yeltsin was the only guarantor of our freedom, then we would be finished sooner or later.’32
Fighting for the President
In 1996 the Russian liberal media rallied behind Yeltsin when he faced presidential elections, challenged by the communist leader Gennady Zyuganov. The war in Chechnya, the growing gap between the rich and the poor, and the continuing economic slump had brought Yeltsin’s rating close to zero. Yeltsin was also suffering from serious heart problems and to many, including Gaidar, he did not seem fit to fight – either physically or spiritually. Gaidar wrote Yeltsin a letter, arguing he should not run at all. The problem was, as Gaidar soon realized, there was nobody else who could. The communists were riding high, exploiting economic hardship, accusing Yeltsin of acting against the interests of Russian people and promising to restore equality and Russia’s status as a superpower and to kick out (Jewish) tycoons. In practice, Zyuganov’s victory would mean the end of all the economic reforms and freedoms that Yeltsin had fought for so fiercely since 1991. He decided to run.
One of the biggest threats, however, was not even that the communists would come to power, for it was highly unlikely that Yeltsin would have ceded this power to them, but that the party of war led by Korzhakov would persuade Yeltsin to postpone or cancel the elections altogether and use force instead, as he had done in October 1993. At the very least this would have deprived Yeltsin of legitimacy, isolated him from the West and made him completely reliant on Korzhakov and the security men who would quickly put an end to any reforms.
In charge of Yeltsin’s official election campaign was Oleg Soskovets, the first deputy prime minister and a friend of Korzhakov, who presented Yeltsin with his low rating as proof positive that the only way to defeat the communists was to ban them. The reformers needed Yeltsin to win – openly and fairly.
The Russian business tycoons who observed Zyuganov schmoozing and hobnobbing with the Western elite in Davos, trying to present himself there as a social democrat rather than as the Stalinist and anti-Semite that he was at home, agreed to throw their energy and media resources behind Yeltsin. A fight against the communists was a proxy fight for Yeltsin against a war party inside the Kremlin. Yet, far from paying for Yeltsin’s victory, the oligarchs saw it as a way of making money.
The idea of forming a coalition of the seven largest business tycoons belonged to Boris Berezovsky – the archetypal Russian oligarch who epitomized the 1990s with all the opportunities, ruthlessness, colour, individualism and utter lack of morals. A mathematician by background, Berezovsky specialized in the theory of decision-making and in optimization, using applied mathematics to model how choices are made. He also applied models to his life and to the country, as though it were a giant chessboard where he moved the pieces. He ‘optimized’ the hangovers of the Soviet Union and the inadequacies of the emerging market economy.
Berezovsky thrived on uncertainty and crisis, surviving several assassination attempts, and expanded his influence. Unlike other oligarchs who wished to own their assets and be able to pass them on, Berezovsky did not formally own much of what he controlled. He operated not through share registers, but through people he appointed as managers of his key enterprises, gaining control over cash flow. Berezovsky saw money not as a goal in itself, but as a by-product of his main activity: scheming and playing politics.
He fashioned himself (and often persuaded others to see him) as the chief manipulator of Russian politics: not the first politician, but the man who manipulates the first politician – an image he cherished and poeticized. He cultivated myths about his influence and power and exploited them to obtain real power, money and influence. A man of demonic energy, he was always in ten places at once, always plotting and on the move. The process was as pleasing to him as the result. Like an alchemist, he turned personal connections into money and money into influence. He spoke fast, quietly and articulately. As a Jew, he was a gift to anti-Semites.
Having made his first fortune by selling cars, he worked his way into Yeltsin’s circle after the collapse of the Soviet Union, through the president’s ghost writer and future son-in-law. Berezovsky paid for the publication of Yeltsin’s memoirs and regularly delivered the royalties from sales in other countries – whether real or not, nobody knew. At the end of 1994 – just as Russia headed into war with Chechnya – he persuaded Yeltsin and his family to hand him effective control over Channel One, promising to turn it to their service. He then convinced the Kremlin to sell him and his partners Sibneft, an oil company, at a knockdown price, in order to finance Channel One, which he used as a blunt and effective tool of propaganda. ‘I never saw the media as a business, but as a powerful instrument in a political struggle,’ he said in one television interview. He also deployed Channel One in his wars with business competitors, as did Gusinsky with NTV.
Until 1996 Gusinsky and Berezovsky were at loggerheads, fighting fiercely for the accounts of Aeroflot, the loss-making national carrier. Gusinsky believed (for good reason) that it was Berezovsky who had bad-mouthed him to Korzhakov and Yeltsin and who put up Korzhakov to raid his office in the winter of 1994. In 1996, faced with the threat of Zyuganov’s victory or cancelled elections, the two men put their feud aside and joined resources for Yeltsin’s re-election. They decided to hire Chubais, who had been fired from the government a couple of months earlier, largely thanks to Korzhakov, to lead Yeltsin’s campaign. Chubais, who had the reputation of a highly effective manager, accepted their offer with great enthusiasm: ‘I was planning to fight for Yeltsin anyway and was certainly ready to join forces with them.’33
In fact, Chubais had already tied the knot between the oligarchs and the Kremlin. Business tycoons had a strong incentive for bringing Yeltsin to victory. A few months earlier Chubais had endorsed an audacious scheme devised by one of the oligarchs, Vladimir Potanin, that would transfer control over Russia’s natural resources to a select group of tycoons in exchange for their political support. It was known as the ‘loans-for-shares’ privatization and was the worst example of insider trading and outright sham that the world had ever seen; and it has haunted Russian capitalism ever since. According to this scheme, tycoons would lend money to the cash-strapped government and in exchange be allowed to manage the state’s shares. The loans would run out in the autumn of 1996 – after the election. At that point, in theory, the government could repay the oligarchs and get the shares back to be sold in an open auction. But this was just a smokescreen for a quiet transfer of shares to the hand-picked oligarchs. In practice, the government had neither the money nor the intention to buy the shares back. Foreigners would be excluded and the oligarchs’ banks that managed the shares would auction them to themselves.
Worse still, not only were the auctions fixed, but the money with which the tycoons had bought the most lucrative assets had come from the state itself. The state, or its agency, would deposit its money in one of the tycoons’ banks which would then use this money to bid for a company, while its workers’ wages and payments to suppliers would be delayed for months. The deal was a political pact between the oligarchs and Yeltsin’s government since the second part of the deal – the actual exchange of loans for shares – depended on Yeltsin’s victory. ‘It was a small price to pay for averting a communist revanche,’ Chubais said.34 In fact, the loans-for-shares scheme was so unfair that it undermined its main purpose of reforming Russia into a normal, civilized country.