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Today, we are seeing processes that are leading to a «natural» transformation of the Russian elite, Vladimir Jushkin, director of the Baltic Center for Russian Studies, writes.
Olga Bessonova, a doctor of sociology and author of the theory of the «sharing economy», writes: «Russia still represents a 'sharing economy' type of society, where citizens' incomes are determined predominantly not by the productivity of their work, but by their social class, as well as by their territorial location and the sectoral specificity of the employer's organization. Access to resources in such a society depends on power, not on the mechanisms of the market economy.»
According to some sources, 2/3 of the national income of the Russian Federation is currently generated from rental income, about 5 percent from the contribution of living labor, and 10-12 percent from entrepreneurial income.
Douglass Cecil North, Nobel laureate, one of the founders of institutional economics and the author of the concept of «limited access orders», does not consider the elite as a single actor. According to his interpretation, it is precisely on the basis of conflicts within the elite and agreements on the distribution and redistribution of rent that a social order with limited or open (free) access is formed. It seems that it is more reasonable to consider the formation of the Russian elite during the special military operation from the point of view of North’s concept. Limited access orders are understood as social agreements (both political and economic), thanks to which the motives for the use of violence disappear.
Today, we are seeing processes that are leading to a «natural» transformation of the Russian elite.
After February 2022, a review of the results of the privatization of the 1990s began. Independent experts highlight several stages and directions in this redistribution. The first stage involved the nationalization and redistribution of assets of Western companies that had left the Russian market. The confiscated assets were distributed as a reward to loyal businessmen and business groups close to power: the Kadyrov clan, the Rotenbergs, Rosneft, and the power structures.
The second direction of «deprivatization» was the nationalization of the defense industry complex and other «strategic» enterprises. Unlike the previous scheme, these enterprises were not foreign-owned. Researchers note that even if their owners showed loyalty to the authorities and gave up foreign assets, such an enterprise could still be confiscated if the state had an interest in it. To do this, it was only necessary to declare the enterprise «strategic» and subsequently cancel the privatization decision on such grounds.
The third direction can be called revenge for lack of loyalty. In 2024, Deputy Finance Minister Alexey Moiseev openly admitted that property will be confiscated from owners if the current owner «cannot effectively manage the property» or «directs funds earned in Russia to support the Ukrainian armed forces.» In most cases, such property does not go to the state, but is transferred to more loyal businessmen.
According to some sources, 2/3 of the national income of the Russian Federation is currently generated from rental income, about 5 percent from the contribution of living labor, and 10-12 percent from entrepreneurial income.
The fourth direction of deprivatization is the confiscation of enterprises not only from «disloyal» Russian businessmen, but also from those who have foreign citizenship or residence permits. In April 2023, law amendments were adopted, which recognized such individuals as «foreign investors» and simplified the transfer of «strategically important» enterprises managed by them to state revenues. At the same time, there is a consolidation of sectoral mega-holdings under the control of the most trusted individuals and beneficiaries of the regime: Roskhim, the huge agricultural holding curated by Deputy Prime Minister Patrushev Jr., and Rostec.
From the perspective of North's concept, it is clear how dialogue between Russian elite groups allowed for agreement on the rules of the game. North notes: «If piracy yields the highest profits in a society, then organizations in that society invest in the knowledge and skills that make them the best pirates.»
In Russia, the composition of the ruling coalition was formed in the context of the 1996 presidential elections. Already then, this coalition included three key groups – the oligarchs, the high bureaucracy, and the power structures. In the mid-1990s, the oligarchs dominated, because after privatization and especially after the loans for shares scheme, they had financial resources. The state apparatus as the base of the high bureaucracy was weak, and the power structures, which played a significant role in the 1993 conflict with the Supreme Soviet, later discredited themselves during the First Chechen War.
The dominance of the oligarchs, who pushed through decisions that were beneficial to them while blocking the attempts of the high bureaucracy to stabilize the financial system and start collecting taxes, became the main reason for the default and devaluation in August 1998. The elite began to realize that if a second wave of the crisis came, it would affect them too – and they could lose the assets and power they had gained in the 1990s. This became an incentive for the elite to start negotiations among themselves.
Overall, the situation after the 1998 crisis was characterized by the fact that, although the composition of the upper-level elite remained the same – the oligarchs, the high bureaucracy, and the power structures – the oligarchs lost some of their former influence and the position of the bureaucracy strengthened. The power structures were weakened, although they strengthened their positions after the Second Chechen War. The result was that the oligarchs and the high bureaucracy began to balance each other, and no one group dominated.
North notes: «If piracy yields the highest profits in a society, then organizations in that society invest in the knowledge and skills that make them the best pirates.»
However, when the price of oil began to rise in 2002, an alternative emerged – instead of hard work to create conditions for economic growth (which would have benefited everyone, not just the elite), a new source of rent emerged in the form of oil export revenues, control over which required no more agreements with others. As a result, a conflict broke out between the high bureaucracy and the oligarchs over control of oil rents, the culmination of which was the Yukos affair. At the time, it was said: «After the Yukos affair, almost every self-respecting polkovnik or major at the Ministry of Internal Affairs wanted to have his own ‘little Yukos.’» The pressure on business by the power structures, which intensified sharply in the mid-2000s, grew out of this situation to a great extent.
After 2003, the structure of the ruling coalition changed: oligarchic business became a junior partner, while the main partners were the high bureaucracy and the power structures. Until almost the end of 2011, there was a relative balance between these groups: the power structures were influential, but not yet dominant. The bureaucracy was also influential, but could not dominate either. As a result, a dialogue developed between them on the formation of foreign, domestic, and economic policies.
This balance was broken in 2011 against the backdrop of the Arab Spring and the December protests against the rigging of the State Duma elections. The mass protests, unexpected for the authorities, revealed that at least part of big business and the high bureaucracy, which supported liberal views, were appealing to the protesters. This became one of the reasons why Medvedev and Putin switched positions in September 2011, and also led to a sharp turn in domestic policy – not only a campaign of brutal suppression of the opposition and the hunt for «foreign agents», but also a campaign of the nationalization of the elite. After 2012, it was the power structures that became the main support of the regime, and the higher elite became dependent on them.
These processes are significantly changing Putin’s business environment. While Western observers habitually hope that Russian big business is suffering under sanctions and longs for democratization and a return to relations with the West, in reality, those who desire this are rapidly losing their wealth and influence. They are being replaced by those who profit from the war and are interested in its continuation.
At the time, it was said: «After the Yukos affair, almost every self-respecting polkovnik or major at the Ministry of Internal Affairs wanted to have his own ‘little Yukos.’»
At the 34th Congress of the Russian Union of Industrialists and Entrepreneurs in March, Vladimir Potanin, president of Interros, head of Nornickel and member of the bureau of the union’s board, said: «Russian business has already become accustomed to working under sanctions, has found ways to protect itself and its programs from the pressure of sanctions, although, of course, they have a negative impact. […] In our opinion, it would be right for us not to fuss around in front of the client, so to speak, but to move in the wake of state policy, to follow the political line that our government and the president are implementing.»
Thus, as North argued, violence between elite groups can be contained as long as there is rent. The depletion of rent leads to the fact that the contradiction within the ruling coalition grows and there is an incentive to revise the distribution of rent. And a war of all against all begins. The fact that the power structures are currently the most influential is an additional risk factor. Because they are already used to feeling like the masters of life, and the fewer resources there are to hold them back, the more reason they have to put pressure on business and directly redistribute property.