"Dermokratizatsiya" and "Prikhvatizatsiya": The Russian Kleptocracy and Rise of Organized Crime

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"Dermokratizatsiya" and "Prikhvatizatsiya": The Russian Kleptocracy and Rise of Organized Crime

Robert I. Friedman, Red Mafia: How the Russian Mob Has Invaded America. Boston: Little, Brown, and Co., 2000; 296 pp.; ISBN 0-316-29474-8 (cloth); $25.95.

Paul Klebnikov, Godfather of the Kremlin: Boris Berezovsky and the Looting of Russia. New York: Harcourt, 2000; 400 pp.; ISBN 0-15-100621-0 (cloth); $28.00.

James O. Finckenauer and Elin J. Waring, Russian Mafia in America: Immigration, Culture, and Crime. Boston: Northeastern University Press, 1998; 320 pp.; ISBN 1-55553-508-9 (paper); $18.95.

Chrystia Freeland, Sale of the Century: Russia's Wild Ride from Communism to Capitalism. New York: Crown Publishers, 2000; 389 pp.; ISBN 0-8129-3215-3 (cloth); $27.50.

Jeffrey Robinson, The Merger: The Conglomeration of International Organized Crime. Woodstock, N.Y.: Overlook Press, 2000; 383 pp.; ISBN 1-58567-030-8 (cloth); $27.95.

As then British prime minister Benjamin Disraeli once sourly remarked, "What we anticipate seldom occurs, and what we least expect generally happens." Russia watchers in the West expected the Russian economy to prosper, as did the Chinese economy, once Boris Yeltsin, the first freely elected Russian president, cast off the communist mantle in 1991. Instead, he fostered the growth of crony capitalism, deliberately enriching a handful of men in return for their political support. Since Yeltsin's resignation in 1999, journalists and scholars have begun to analyze his regime more frankly.

Although Gorbachev established in Russia the principles of free speech and democratic accountability, Yeltsin failed to expand the aims of glasnost and perestroika. The "democrats," led by Yegor Gaidar and Anatoly Chubais, freed prices in 1992 and unleashed hyperinflation before they privatized Russia's assets. Most Russian citizens lost their savings in only a few weeks. While the few billionaire "oligarchs" liken themselves to the American "robber barons" of the nineteenth century, no real comparison can be drawn. Those well-connected young men made fortunes not by creating new enterprises that increased their country's wealth, as did Carnegie (steel), Rockefeller (oil), Ford (automobiles), and Morgan (finance). Instead, they played the role of old state trading monopolies, arbitraging the huge difference between old domestic prices for Russian commodities and the prices prevailing on the world market. Instead of investing in the Russian economy, they stashed billions of dollars in Swiss bank accounts. Experts estimate that as much as $15 billion leaves Russia each year as either "capital flight" or laundered money from illegal transactions.1

According to Swiss attorney general Carla del Ponte, by 1999 Russian organized crime gangs had "infiltrated some 300 Swiss companies" and were "using Switzerland as a piggy bank."2 Failing to create a broad class of shareholders, Chubais' voucher privatization in 1993-94 merely ceded Russia's industrial assets to corrupt enterprise managers or to the new Moscow banks. Chubais and his allies subsidized the new banks by granting them Central Bank loans at negative real interest rates, giving them the accounts of government institutions, and manipulating the government securities market in their favor. In the rigged loans-for-shares auctions of 1995-97, Chubais sold off the remaining gems of Russian industry to a few insiders. By 1999 the Russian economy was half the size that it was a decade before; the top 10 percent of the population owned half of the nation's wealth.3

Without much exaggeration, one may call the legacy of Boris Yeltsin one of almost unmitigated failure-the biggest disaster (economically, socially, and demographically) since the Nazi invasion of 1941. For ordinary Russians, a "democrat" is construed to be a crook, and "democracy" a curse word. On the streets of Moscow they call the latter "shitocracy" (dermokratizatsiya) and privatization "grab-it-ization" (prikhvatizatsiya). …