How have they made it so soon?

John Lloyd

A recent interview I had with the chairman of the Russian Central Bank exemplifies the dangerously tense atmosphere within which the politics of the Soviet Union have been conducted since the August putsch – and underscores the importance of what Arkady Vaksberg writes in his uneven, irritating but critically important book.

What Georgy Matiukhin wanted to say was that a large part of the developing business culture of the Soviet Union was criminal. In seeking to bring the new commercial banks under the control of the Russian Central Bank, his inspectors had discovered, first, that the banks’ capital came either from the Communist Party or from organised crime – the Mafia – or from both; and secondly, that many of their operations, especially in the foreign currency area, had to do with the placing abroad or ‘laundering’ of funds accumulated by these organisations.

He named the banks involved without any caution as to libel. They included Credobank and the Menatep group, one of the biggest of the new banks-cum-trading companies begun by a group of young men who had once been leading members of the Komsomol. The Credobank, started three years ago and expanding rapidly – it is set to move from its dingy warehouse offices on an embankment of the Moscow river to a newly-renovated mansion on the inner ring road – has recently begun to offer its customers VisaCard services. Both banks, he said, were engaged in transferring Party funds abroad (there had been much speculative material on this in the Soviet press) and he likened their activities to those of Nazi officials towards the end of the last war who pushed funds overseas in order both to provide for themselves and their fellows after the loss of a war which they dared not try to end, and to create a base for a revival of the party’s fortunes.

Even more serious were Mr Matiukhin’s allegations about the banks’ and the new business circles’ political activities. He said that the directors of the banks, the new commodity exchanges, the co-operatives, the joint-venture companies, and some of the semi-independent state enterprises, now constituted an essentially criminal class, that they obeyed no rules and that they had inherited much of the fortune and many of the methods of the organised crime structures of the Communist period. Having achieved economic power, he said, they were now openly engaged in trying to exercise political power: to dictate which ministers were appointed to which portfolios, which officials to which institutions. The hostility to him in the press (which had been and still is virulent) was orchestrated by these people: they wanted him out in order to put in their own appointee, someone who was more amenable to their flouting of the rules and who would not ask awkward questions.

On one level, this was what reporters in American films about newspapers used to call ‘sensational’: here was the chairman of the Russian Central Bank saying that the economy was deeply criminalised, naming some of the guilty institutions and alleging that the new Mafia was bidding to take over the government of the country only weeks after the Communist Party had finally been relieved of the job of holding the Union together. On another, it was hard to know how seriously to take it all. Matiukhin was under attack; the atmosphere was – is – polluted with the most extravagant insults, most of them directed at the Communist Party, which acted, and still acts, as a convenient scapegoat for almost every ill, past and present; and there is no effective law of libel or slander so that anyone can say anything, especially to a foreign correspondent. Underlying this was another consideration, routinely evoked by those who attempt to do business in (or with) the Soviet Union and productive of a kind of insouciance about abuses – which is that criminality is inevitable because criminal sources alone are able to provide the necessary new capital. Until the present period, and in many ways even now, capital, like property, could only (legally) be owned by the state. If some enterprises or institutions had any capital in their account, it was in a fiduciary capacity.

This being the case, it is worth asking, as Mr Matiukhin now claims he is asking, where the new ‘capitalist’ institutions got their starting capital from. Many of the new banks opened up with millions of roubles of founding capital: they have very quickly acquired fine, gaudy mansions in which they do business, and fleets of Mercedes or BMWs for their directors – who fly in and out of Moscow’s Sheremetevo airport wearing well-cut double-breasted suits and carrying slim leather attaché-cases, just like their Western equivalents. How have they made it so soon?

An important part of the answer can only lie in the vast, dark corridors of the Soviet Mafia: a set of relationships and networks established in the Sixties. The members of this new class are at once new to the capitalist game and the heirs of a much older tradition than most Western executives are conscious of – a tradition rooted in the criminalised markets of the socialist state. Soviet – that is, Russian, Baltic, Ukrainian, Georgian, Armenian – business people, on whose activities the potential of these states as market economies crucially rests, have no choice but to live through a period in which state/Party capital is illegally transformed into market capital theoretically accessible to everyone via money, stock or commodities. The illegality, to which all who make their (often very good) livings in the marketplace of Russia and the other states now admit, ranges from cutting corners or bribing to get supplies, to transferring huge enterprises into the hands of their directors through the creation of joint-stock companies, or (allegedly) shifting hard currency to secret bank accounts, or cornering state produce and hoarding it till the prices go up. A large variety of scams is available in a society without an effective legal structure or means of enforcing the law – not least because those law-enforcers who try to do their job do not understand what is happening, having had little or no training in financial and market crime.

As a generalisation, we could say that the Soviet societies now work like a flywheel uncoupled from its source of power: still spinning, but more and more slowly and ultimately bound to run down unless a new source of energy is found. The Soviet Government is unable to gain any purchase on events: even where an economic agreement is signed, as it has been between eight of the former 15 Soviet republics, it can scarcely mean much without a powerful central bank and treasury to sustain it. The Russian Government has progressively fallen apart. Collective government hardly exists at any level: every new policy adopted lasts only as long as some higher body does not strike it out. There has been a series of economic and other agreements between the republics: those which establish a barter process for goods can work, but nothing more ambitious ever gets off the paper.

The only individual who seemed to have sufficient support and force of character to establish the rudiments of a new order was Boris Yeltsin, acting in concert with Gorbachev. They may yet decide to implement the measures of reform they have promised – Mr Yeltsin’s speech of 28 October was the most serious of these promises but, as this is written, it remains only words. After the coup it seemed that Russian power would rush in to fill the vacuum left by the disappearance of Soviet power. Instead, Russia itself appears paralysed in a debate over how far it keeps the Union going and how far it cuts itself off from the other republics, relying on the wealth of its own resources for its survival. In the other republics, governments vary from the relatively efficient (Kazakhstan) to the criminally bad (Georgia): most are prey to the ailments of populism, ignorance and corruption.

Nowhere, except in part of the Baltics, have the old systems of thinking and doing been replaced: they continue to work as best they can, providing the only bulwark against a more complete collapse. Yeltsin has put at the top of his power structure a group of buddies from the Sverdlovsk apparat, where he was once First Secretary: he does not fully trust the Moscow intelligentsia who are the main standard-bearers of reform. Most of the republican governments are largely made up of people who were coming up the power ladder under the old system: and in nearly all the republics, Communist politicians (retitled) still run things. Yet the experience of those republics which have non- or anti-Communists as their presidents – Georgia, Lithuania, Moldova – is if anything worse: a pointer to the low state of political culture in (what was) the Soviet Union.

We are looking at a country in a state of suspension, in which the political resources, far from being replenished by the failure of the coup and the victory of the democrats, appear exhausted. At the root of the present stasis is the fear of both politicians and people that they are about finally to destroy the old system of centralised production and supply without being able to see one of private production and supply emerging: in other words, they are conducting economic reform in a vacuum. Many, myself included, believed and said that the centralised system had irrevocably broken down: in fact, that has to be significantly qualified. Its long-term survival is inconceivable, since to revive it would mean bucking every prevailing world economic trend and condemning the country to Twenties-style poverty to no good end, but in the short term, only the remnants of the centralised system keep the country going.

Moreover, it is only the remnants of the centralised system, for all its failings, that command any kind of trust. There is now an alternative, but it is only accessible to those with hard currency or who can afford ‘free’ prices – who can shell out for life’s small essentials sums that are entirely beyond the pocket of most people, even those on relatively high wages, like public transport drivers or mineworkers. On a stall in the street the other day I saw tomatoes for sale at one rouble a kilo – cheap even for the Soviet Union. They were all completely rotten.

Apart from foreigners with hard currency incomes, the people who can easily afford the high prices are the members of the new class: those who own or work in co-operatives, those who work in joint ventures, the staffs of the new commodity exchanges, the freelance tradesmen and women, the managers of state companies who are ‘privatising’ or who are able to sell off some of their products at ‘free’ prices and to pocket a part of the profits – and the criminals. The majority of Soviet citizens, who have to live on a state wage of, say, 400 roubles a month, and who see a kilo of apples being sold at one-fifth of what they earn in a week, make few distinctions between these different categories. For them, they are all criminals – or spekulanti.

Arkady Vaksberg’s book gives us some notion of why this should be. The Soviet Mafia is not systematic, not even at a journalistic level, but Vaksberg is the most prominent writer on crime in the country and in this capacity has led a more dangerous life than any comparable figure in the West, except perhaps in Sicily or Corsica where journalists have died (as they have in the USSR) for reporting their Mafias. It focuses on specific Mafia clans and individuals within clans, all of them with high positions in the Communist Party, which allowed them both to protect themselves and to extend protection to others. These people truly were, in Vaksberg’s phrase, ‘criminals in power’ and their power was, in the end, guaranteed by the General Secretary of the Communist Party, Leonid Brezhnev.

This does not mean that Brezhnev was a capo di tutti capi, controlling crime across the country he was supposed to rule. What mattered was the example he set, the message his regime sent out. Vaksberg describes it like this:

To the extent that nothing could be achieved without open bribery and that the greed of Brezhnev together with his family and his circle was there for all to see, an impression was created close to the truth, that every government official – literally each one of them – was using his position to take bribes for any service. This ubiquitous corruption seemed to the public to take only one form: namely, the obtaining of money or valuable gifts ... The character of relationships both at the very top and the very lowest levels was marked by certain rituals, any deviation from which could knock a man off the rails, label him an outsider and deprive him of any promotion. Expensive presents to one’s boss on the occasion of a holiday, an anniversary, a visit – or without any excuse at all – were given quite openly. It was impossible for an apparatchik to get on without them.

These were rituals in which everyone, without exception, took part. Vaksberg, though a Gorbachev admirer, retells a story which went the rounds of Moscow at the beginning of 1989, to the effect that an edition of the popular investigative programme Vzglad had been banned because it showed an interview with Galina Brezhnev, Leonid’s daughter, in the course of which the surviving relic of the first family displayed an expensive necklace which she claimed to have received from Raisa Gorbachev when the latter was hoping to ‘open her husband’s career path to Moscow’. The urgent question here is: where did Raisa get the money from? The wife of a provincial First Secretary who taught philosophy in an institute should not have had access to the kind of cash which buys expensive necklaces. Thus either Gorbachev (if Galina Brezhnev’s claim is true) accepted money outside his salary – which could only have come in the form of bribes, or ‘presents’ – or he used Party or state money to buy presents designed to further his career.

In fact – and this is one of the conclusions not completely drawn by Vaksberg, but which grows out of his book – those at the top of the Party would not have seen any of this as being out of line. They may or may not have traded in bribes as much as Brezhnev and his favourites: but they all saw the resources of their country as theirs to dispose of. The hearings that followed the August putsch have told us a lot about Party activities. We learn, for example – and this is an allegation backed by documentary proof – that the Party gave the French Communist Party several million dollars last year which it took from credits advanced by the French Government to the Russian Government: a transaction said to have been approved by Gorbachev himself.

This was the root corruption – a corruption wholly endemic to the system. Nothing which the Mafia godfathers did in their Brezhnevite heyday was more than an extension of the fundamental lawlessness of the system: a lawlessness which was at its most malign when Lenin and Stalin had a monopoly holding in it. Brezhnev at least farmed out the opportunities for lawless behaviour within a framework of stifling but relatively mild repression. A third conclusion, again made explicit only in part by Vaksberg, is that the Mafia will be one of the most pernicious legacies of the old system, potentially as powerful and as enervating to the society as the Sicilian, Calabrian and Neapolitan Mafias to their milieus. For, in Russia as in Italy, the Mafia bosses spread their influence and their support structures over a very wide area. Having had virtually no opposition from the civil society once they had assured themselves of cover from on top, the Russians have had a very free hand indeed. So long as they kept the protector happy, nothing could be done against them.

Even the former KGB chief Yuri Andropov, who made it his mission to clean out the worst of the Brezhnev muck, wished to go only so far, because the Party had always to be above both state and law. ‘Andropov did not intend to attempt to get at the top people involved. In the Politburo he still had alongside him the whole senile gathering, from Chernenko [who was to be his successor] to Grishin [the Moscow Party boss], and in Soviet circumstances, crushing them was not something to be achieved through the courts.’

‘In Soviet circumstances’ is a good phrase for what is described by Vaksberg: a burgeoning of crime networks and coercive behaviour within, rather than outside, the prevailing order. Even the Sicilian Mafia, though often protected by senior politicians, is officially outlawed and the object of sustained, if often fruitless attempts to curb it. The Soviet Mafias, in their Communist period, could not even be identified because their protectors were untouchable. They included men like Nikolai Shcholokov, Interior Minister in the Seventies, who counted world-famous artists among his circle; Yuri Churbanov, Deputy Interior Minister and as Brezhnev’s son-in-law doubly untouchable; Dinmukhamed Kunaev, First Secretary of Kazakhstan and Politburo member; Geidar Aliev, First Secretary of Azerbaijan and a Politburo member (fired by Gorbachev, he has made a comeback as President of his native autonomous region of Nakhichevan); Sharaf Rashidov, First Secretary of Uzbekistan; and others at district and regional Party levels – Sergei Medunov, for example, First Secretary of the city of Sochi and then of Kessonar region, who ran a vast network of corruption in the holiday centre.

It may be, however, that these were not the real bosses. In a passage reminiscent of the charges made by Georgy Matiukhin about the power of the shadow economy, Vaksberg says that the ostensibly important bosses ‘protected and guaranteed the inviolability of the real bosses whose positions and functions are unknown to us. It wasn’t the Rashidovites or the Churbanovites who appointed shop managers to ministerial posts, but shop managers who elevated and demoted state-party bosses.’

Theirs was a world of absolute authority underpinned by terror: prosecutors who tried to bring them to justice and did not themselves enjoy protection from a rival Politburo faction were killed or framed. Their wealth was, in Soviet terms, fabulous: they sent their own planes across the Soviet Union for the best food and wine; they set up brothels for their own pleasure and that of their entourage; they put aside huge tracts of land for hunting – Brezhnev’s favourite form of relaxation. In the use of their wealth, they were little different from very wealthy men the world over: the key difference was that the society whose rules they supported and enforced was one where such wealth was not merely frowned on, but wholly forbidden, where the official state morality – let alone the law – preached the opposite of what they practised.

This corruption reached everywhere, and infects the place still. Artists, intellectuals and scientists were drawn into Party-Mafia circles: those who prostituted their talents most flagrantly were most flagrantly rewarded. Shcholokov, for example, handed out tickets giving immunity from traffic violations to his artist friends – it meant that they could get drunk with impunity. Vaksberg himself asked Shcholokov for a passport allowing unlimited visits to his daughter, who lived in Sofia with his estranged wife – and received it immediately.

Vaksberg wrote about these families in Literaturnaya Gazeta in the Seventies and Eighties. He was able to do so in part because of the journal’s prestige, in part because of protection from senior members of the judiciary and the Party – those aligned with Andropov; but mostly because he followed the rules and emphasised that each of the cases he uncovered was unique, a scrape of mud on a pristine garment which the Party was anxious to cleanse.

We now come full circle to Georgy Matiukhin’s allegations that the Mafiosi, bred and nurtured through the ‘years of stagnation’ – in actual fact, years of dynamic change – are now coming to the surface and claiming their inheritance as members of the capitalist classes. Vaksberg only touches on this in a last chapter, but we can believe him when he says that the aim of acquiring foreign currency ‘will determine the new moves of the Mafia and changes in the direction of its many-faceted activities. There is quite a lot of evidence to suggest that the abolition of the monopoly on external trade, the establishment of joint ventures, the getting of foreign capital, the almost free foreign travel – all this gives the Mafia the possibility of entering the market economy not from a standing start but already in the possession of solid start-up capital accumulated from many years’ activity.’ More hopefully, he says that democracy and the market will force the Soviet Mafia to transform itself – to become less pervasive in the manner of the European or US Mafia – or die. But, as he notes elsewhere, the Mafia networks which once upon a time clung to the old Party leaders are now re-forming around the new nationalist governments, especially in Central Asia and the Caucasus where, in the main, the new nationalists are the old Communists, and the Old Mafia bosses the new directors of joint ventures.

Does this ultimately matter? Is it not just a stage the Soviet Union is going through, at the end of which a relatively honest set of market practices will emerge, its origins no more dubious than those of many respectable American fortunes? Unfortunately, there is no ordained path from a ‘dirty’ to a ‘clean’ market. As in Sicily, the relationships and tyrannies established in one era can re-form in another, stifling and impoverishing the society, terrorising honest men and women, putting the highest of premiums on lies, betrayal and cowardice. The people of the Soviet Union have had decades of a regime which encouraged that kind of behaviour: there is no guarantee that the new gods of the marketplace won’t perpetuate it.