The Oligarchs (25 page)

But in the late Soviet years, everyone knew that
vnedrenie
had become a shell game, part of the business of jockeying for resources inside an economy of scarcity. No amount of scientific research was going to save the dinosaur of developed socialism, but the subsidies for research kept coming and the researchers kept insisting they were actually making industry better. “We had a foolish system,” said Grodsky. “There existed a whole bunch of methods, calculations of how this formula had influenced the process of producing cars, whatever. It was very funny. It was kind of a game, and everybody was playing.” He added, “Boris was a genius in the sense that he was one of the first people at the institute who established very profitable contacts between his lab and Avtovaz. It was money that people could live and work on.”
¹³

But Berezovsky had far greater visions than small-time favors and pocket change. He knew that the boxy little Zhiguli cars were the dream of Everyman. Avtovaz to him was more than a factory. It was a gold mine.

“I understood one important thing,” Berezovsky told me. “At that time, an enormous number of people wanted to buy cars. It didn't matter if they lacked an apartment. It didn't matter if they lacked clothes.
But if only there would be a car!”

Berezovsky paused. He was sitting in the nineteenth-century mansion he had transformed into a business club wearing a pressed white business shirt and an elegant maroon silk tie, sipping from a glass of red wine. He savored the memory, as if it had rushed back to him again through all the years, of how desperately people wanted a car of their own, a dream that he too had shared.

“
Possessed,” he told me, pausing again. “I remember myself. My first car appeared when I was forty years old. Half a car. One week mine, the other week his. And we didn't argue about it once. Not once.”

 

The Volga automobile factory was built in the spirit of the triumph of socialism. In 1967 young Komsomol construction brigades from three hundred cities and towns converged on a barren site near the Volga River to erect what would become the largest automobile factory in the Soviet Union. They began excavating not just a mammoth factory but a whole factory city, including blocks of apartments to house
150,000 future autoworkers. For three and a half years, every day, forty-five thousand workers, two hundred bulldozers, five hundred construction cranes, one hundred excavators, and two thousand dump trucks labored to erect the new industrial metropolis.
¹⁴
The plant itself was a gigantic building, fourteen kilometers around the perimeter with twenty-one entrances. On April 19, 1970, the first car rolled off the assembly line, the VAZ 2101, a modified Fiat 124 with a tiny 1.2 liter engine and trademark squared-off nose and round headlamps. It was called the Zhiguli, named after the rolling hills on the west bank of the Volga River. Just three years later, the millionth Zhiguli was produced, and by 1974 the plant reached full production on three massive assembly lines, each with a capacity of 220,000 cars a year.

The scale of the factory was immense, but so was the demand for cars, just one of many consumer goods that had fallen into shortage.
¹⁵
In the late 1970s and early 1980s, the factory began to run afoul of the larger malfunctioning of central planning. Shortages of parts and bad workmanship plagued the little Zhiguli. By the years of
perestroika
in the late 1980s, the factory was rotting from within. Soon the vultures came to pick over the carcass.

The central planners created a car distribution system that had no relation to the market. Prices didn't really matter; color was irrelevant, a guarantee useless. The idea of kicking the tires and slamming the doors was ludicrous. The distribution was based on party, privilege, and connections: cars were sent to various groups, such as unions or enterprises or Komsomol, based on
svyazi
, and the groups decided who would get the prized vehicles. At issue was not whether you could buy a Zhiguli but whether you could get one after ten years of waiting on the list, and whether, if you got one, you would keep it or resell it immediately at a huge profit.

To make matters worse, the simple Zhiguli was not a breadbox, although it looked like one. It was a moderately complex piece of machinery that needed maintenance and spare parts, and they too slipped into the shadow economy. Like the cars, spare parts were distributed by the planners and not the market. Soon, as millions of Zhigulis began to wear out brake pads and foul spark plugs, as fenders were crunched and headlamps shattered, spare parts became a valuable second currency. They were tradable, portable, and always in demand. As the shortages grew, so did the value of the parts. It was a classic example of the socialist economic crack-up in slow motion. A
Zhiguli owner removed the windshield wiper blades from his car every time it was parked so they would not be stolen. The shortages grew more and more severe in the 1980s; at one point there were special gangs with giant suction cup devices. They would spot a clean, uncracked windshield, and, when no one was looking, stick the suction cups on it, pop it out, and steal it in a flash. Adding to the despair of car owners, the network of service stations were also chronically short of spare parts, and any kind of serious repair demanded not only a mechanic but spare parts. The 1,033 service centers could hardly cope, and during the period of Gorbachev's reforms, the black hole of auto spare parts became a gaping abyss.

Avtovaz was suffering not only because of the overall crisis of Soviet socialism. The factory was being destroyed from within by theft. Crude laws of supply and demand existed in the black markets. If something was in shortage, and was badly needed, the demand was met by stealing. If cars and spare parts were currency, then Avtovaz was an enormous treasure chest. The factory was theoretically owned and run by the state, but as state control weakened, others began to rob the treasure. So strong was the black market demand for spare parts that whole containers of them were brazenly stolen off the factory floor by criminals, causing the assembly line to grind to a halt. As criminals grew even more daring, they stood on the assembly line and chose which finished cars they would take. Moreover, the factory depended on a network of suppliers that was growing weaker as the Soviet Union itself was spinning apart. Cars right off the assembly line were traded to suppliers for desperately needed parts, which were being stolen anyway. The fences around Avtovaz became famous as a twenty-four-hour black market in parts and whole cars. Avtovaz, a company with 4 billion rubles in sales and $670 million a year in hard-currency earnings from exports, a vast warehouse of windshield wipers and carburetors that were extremely valuable, a phalanx of assembly lines producing modest but desperately sought automobiles, was being turned into an extremely lucrative bazaar. The managers of the factory knew that their plant was being dismembered, and they joined in the festival of theft. Everything was for the taking.

 

Berezovsky was losing his interest in science. His restless mind was wandering. “I have always done only what I loved,” he told me years
later. “I have never ‘gone to work.' Right? I do only that which I love.” Berezovsky also claimed that he had an acute sensitivity to the change going on around him. “You must look at the world through the eyes of a child,” he said. He saw in 1988 that the Soviet Union was undergoing a profound transformation. Gorbachev had flung open the doors of opportunity; the cooperatives were springing to life; the first banks were opening. The long socialist experiment in collectivism was ending, and the advantage would fall to individuals who seized the moment, who could think for themselves. Berezovsky envisioned himself among them.

“Speaking bluntly, the tragedy for the majority of people was the state had taken care of them, and the state had cast them aside,” Berezovsky recalled. “That is, overnight the state ceased to care about them, right? Millions of people ended up without social protection, couldn't go to the health clinic. People thought that someone was supposed to take care of them. The state, right? I didn't think that way. Maybe more quickly than others, I understood that this was the beginning of a new era.”

Berezovsky leaped into the business world. By his account, his first deal was software. “We simply used the knowledge that I had gained professionally, from the institute, and the work we had done at the institute, and started to sell that work.” Berezovsky was no Willy Loman, going door to door peddling his wares. He worked at a state institute and sold the software to the State Committee on Science and Technology, the powerful government agency that was a conduit between the Communist Party and the Soviet scientific establishment. Berezovsky said he “absolutely vulgarly lobbied our project” with the agency. “We convinced them that it was a good product, and we sold tens of thousands of copies of this software. And those were the first millions of rubles that we earned, and a million rubles at that time was a whole lot.”
¹⁶

Berezovsky was a relentless charmer. His friend Boguslavsky recalled that Berezovsky—the compressed ball of energy—could also display a certain studied patience when it suited his needs. He thought nothing of waiting on a doorstep to personally buttonhole someone for a favor. “There were not a few occasions when Boris needed something from me,” Boguslavsky recalled, “and in the morning I would be walking downstairs, and I would see Boris at the entrance, just waiting for me. He was waiting because he wanted to fix
something with me, and my phone was busy or turned off, and he wanted to do it right then—so he would just sit and wait at the entrance.” The same scene—Berezovsky waiting patiently in a Kremlin anteroom, waiting in a television studio outer lobby, looking for a favor or a deal—would reappear over and over in the years to come.

The intrepid Berezovsky used the same patience and resolve to good advantage with one of the executives at Avtovaz, Vladimir Tikhonov, who often came to Moscow on business trips. According to Boguslavsky, when Tikhonov arrived in Moscow for meetings, Berezovsky, for whom no task was too humble, would volunteer to be his chauffeur. Tikhonov often met in Moscow with Italian auto industry chiefs and specialists who had designed the Togliatti plant. As they were shuttled around Moscow, their driver, Berezovsky, absorbed every word.

“Boris was never shy,” Boguslavsky recalled, “if he needed something.”

 

In January 1989 Gorbachev's economic reforms were still a matter of great uncertainty in the West. At the end of the previous year, a secret national intelligence estimate prepared by the CIA and other U.S. intelligence agencies opened with a declaration that “Gorbachev's efforts at reviving the Soviet economy will produce no substantial improvement over the next five years.” There is “some chance that Gorbachev's economic programs may not survive.”
¹⁷

In the end, Gorbachev survived in office only three more years. But 1989 turned out to be a remarkable political turning point toward the end of the Cold War. The Soviet Union pulled its last troops out of Afghanistan; the Communist Party began to lose its monopoly on power; the Berlin Wall fell; and in the spring, the Congress of People's Deputies became the first popularly elected legislature in Soviet history. Despite pessimism about Gorbachev's future in the U.S. intelligence community, the economic revolution he had unleashed was unfolding on the streets and in the cooperatives. One very small glimpse of it could be seen in a café on Moscow's Leninsky Prospekt, where the first roots of Berezovsky's capitalist empire were sunk into the earth.

The café was called Adriatica, and in January 1989 Berezovsky, Boguslavsky, and Pyotr Aven, a mathematician-economist who had worked with Gaidar in Moscow, as well as some other friends, gathered
there to start a business. They didn't have a clear idea. They were just being carried along by the times; everyone around them was going into business, and they were already a little bit late. Boguslavsky said the idea was to set up a legal “shell,” into which each of them could bring their own deals. They rented a small room and put up a chalkboard on which they wrote ideas for the fledgling business. A detailed account of those years was written by Yuli Dubov, who became a deputy to Berezovsky. He has called the book a novel—he changed the names of the participants and added some unrelated events to spice up the story—but he has also said, “I painted what I saw.” Many people I spoke with who knew Berezovsky in those years described the book,
Bolshaya Paika
, as the most precise account of the period, although it is sometimes overly generous in its portrayal of Berezovsky.
¹⁸
Dubov listed the ideas that the novice businessmen wrote on the board:

What would the business do? In some cases, they threw in existing individual projects, such a computer networking contract that Boguslavsky had in Czechoslovakia. It brought in early cash. While his friends were casting about, Berezovsky had a vision. He wanted to start a big business, nothing like the small cooperatives then dotting Moscow street corners. He decided to form a joint venture with a foreign partner, which would be more solid than a cooperative and could be useful in getting money out of the country. Aven told me that Berezovsky always had the largest ambitions of anyone in the group. “Berezovsky always wanted to have a billion dollars,” he said. “He always would take higher risks.”

From his days as a driver for Tikhonov, and from his expanding contacts at the factory, Berezovsky learned of an Italian company, Logosystem SpA, a systems integrator based in Turin and a Fiat supplier. The specialists from Logosystem frequently flew to the Soviet Union to fix the assembly line at Avtovaz. When Western businessmen came to the Soviet Union, they were often bewildered by an array of problems and inconveniences. Berezovsky knew he could smooth out their troubles. Berezovsky offered to become an intermediary for
the Italians, giving them a base in Moscow for their work with Avtovaz. They agreed. In May 1989, Berezovsky founded Logovaz—borrowing half the name from the Italian Logosystem and half from Avtovaz.