Russia, Inc.: Power, Politics, and Money in Putin's Kremlin

"Russia is, I would argue, a quintessentially patrimonial state," said Donald N. Jensen, director of communications, Radio Free Europe/Radio Liberty at a Kennan Institute lecture on 19 March 2007. "Property and power are mixed. Political power is an extension of the rights of ownership, and the reverse is also true—ownership is an extension of political authority," he asserted.

Jensen cited recent news reports about the case of former Russian Prime Minister Mikhail Kasyanov, who was ordered to surrender a luxury dacha in the Moscow region and pay a fine of almost $4 million for allegedly obtaining the dacha fraudulently. According to another report, Kasyanov is also under investigation for alleged corruption in the sale of fighter planes to India. Mr. Kasyanov's legal problems are more the result of the loss of his position than any violation of law, contended Jensen. He quoted former Prime Minister Yegor Gaidar, who once commented: "In Russia, when you lose your job, you lose your property."

Russia is clearly not the only patrimonial country in the world, Jensen continued, and there are numerous internal and external influences on Russian policy apart from considerations of patronage. He noted, however, that the nexus of power and money is driving some fundamental trends in Russian politics, with significant implications for how Russia is ruled, its foreign policy, and the stability of the Russian state. In short, Jensen argued, Russia is no longer "in transition" to anything: "Russia is what it is—it is not unchanging, but it is a fully formed system in many key ways."

A central characteristic of the current Russian system is the tangled relationship between the state and the private sector. It is difficult to measure direct state ownership in a patrimonial economy, according to Jensen, but even where the state has no direct or indirect ownership, it has tremendous influence over how Russian companies are run. At the same time, the oligarchs remain a powerful force. The economy is perhaps as monopolized as it was under Yeltsin, he estimated, with ten or twelve individuals controlling about 60 percent of the Russian national product. These oligarchs still have extraordinary influence over state policy. "This relationship is permeable," emphasized Jensen, "It doesn't matter whether the balance is towards the oligarchs, as it was in the Yeltsin era, or towards the state, as it is in the Putin era. The point is that the balance shifts back and forth."

The same dynamic of a shifting balance of influence between Russian business elites and the Russian state is visible in Russia's foreign policy. Jensen noted that while Gazprom is often described in media commentary as a lever of Russian foreign policy, "you also see the commercialization of Russian foreign policy interests." The Russian state advances Gazprom's interests in Europe; and Russian policy towards the security risks posed by Iran and North Korea cannot be understood without taking into account Russian commercial interests. Other nations, including the United States, defend commercial interests as part of their foreign policy, acknowledged Jensen, but "I would argue that the extent of commercial considerations in Russia's foreign policy is far more pronounced than in the West."

The mutual cooptation between the state and the business elites has helped to foster and entrench corruption throughout the Russian economy. Jensen stated that an official from the Russian Ministry of Interior recently estimated that "almost 10 percent of the Russian economy is under the control of organized crime groups who face little or no official resistance." According to another estimate, said Jensen, almost 25 percent of the Russian economic activity takes place within the black market. "Crime is not a threat to the Russian system; it is the Russian system," he concluded.

The pervasive crime and corruption in Russia, as well as the shifting balance of influence between the state and the private sector, severely limit the options open to President Putin. "I would argue that Putin is not usually a dictator, but sometimes is… that he is not a front for oligarchs, but sometimes is… that many times, Putin is simply institutionally incapable of getting what he wants, such as reforming the military," said Jensen. If Putin's options are limited, his role within the Russian system as arbiter between competing factions is essential to the system as a whole. Jensen observed that Ned Keenan's description of the Russian tsars applies equally to Putin: "It mattered little who was at the center of the system, but it was crucially important that someone be at the center of the system."

Russia may be a fully formed system, but it is far from stable, Jensen contended. "One of the reasons that the elites are so consumed by the presidential succession in 2008," Jensen noted, "is that their property rights in a new regime would be insecure and likely to be threatened if a new president is selected who goes against their individual interests."
A more fundamental threat is that the mix of a patrimonial system and pressures from globalization, as well as from inside Russia, put stresses on Russia's system of competing elites. "The elites are never quite sure at a given moment how successful their efforts to manage democracy are," he cautioned.