Vodka Politics (71 page)

Moguls who did not fall in line fell victim to raids like those at NTV and Kristall. The interior ministry used chainsaws to break in the doors of Transneft—the state pipeline monopoly—to install its new president. Heavily armed troops forcibly ousted the director of the Kachkanar vanadium mine. In 2004, armed tax police raided the headquarters of oil giant Yukos after arresting its owner, Mikhail Khodorkovsky. At the time, Khodorkovsky was Russia’s richest man, and his political ambitions and seething distaste for Putin were hardly a secret. His company was broken up and renationalized while Khodorkovsky was convicted for fraud, embezzlement, and money laundering. The selective application of the law to a political opponent, lack of due process, harassment of his witnesses and lawyers, and the levying of additional, overlapping charges led the European Court of Human Rights to determine that Khodorkovsky’s human rights had been violated. Amnesty International named him a “prisoner of conscience.”
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Likewise, in 2007 tax authorities raided investment fund Hermitage Capital Management, which earlier had exposed instances of high-level government corruption. Hermitage lawyer Sergei Magnitsky was arrested and held for eleven months without trial (or medical treatment) until his death in police custody, prompting an international outcry.
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In her analysis of power networks and the
sistema
of informal governance in contemporary Russia, Alena Ledeneva describes such leveraging of “administrative resources” as an extreme form of corporate raiding, the primary difference being not only that such
sistema
raiding is the most hostile of hostile takeovers but also that such moves are undertaken for the benefit of well-connected government officials rather than the capitalist raiders themselves.
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Say what you will of the tactics, by the end of Putin’s second term as president in 2008, he had not only leveraged many Yeltsin-era cronies from power, but he had also recentralized many important sectors of the Russian economy, including vodka—or at least placed them in the hands of “useful friends” deemed to be more trustworthy members of Putin’s governing
sistema
.
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Who Is Vladimir Putin?

By interesting coincidence, Vladimir Putin’s grandfather was once a cook for Vladimir Lenin at the state’s country retreat. Spiridon Ivanovich Putin continued to work for Lenin’s widow, Nadezhda Krupskaya, after Lenin’s death. In the 1930s he cooked for Joseph Stalin at his dacha outside of Moscow, where some of the momentous, vodka-fueled dinners so vividly described by Nikita Khrushchev took place… and perhaps Putin’s “
shashlik
agreement” did, too.
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Spiridon’s son Vladimir was a hardened veteran of the brutal nine-hundred-day Nazi siege of Leningrad. Throughout the war and beyond, by Vladimir’s side was his wife Maria, who gave birth to Vladimir Vladimirovich Putin in 1952. The couple raised the boy with strict discipline. Occasionally rowdy at school, young Vlad was an ordinary kid who took an interest in sports—first boxing (which he quit after having his nose broken) and then judo. In his 2000 biography,
First Person
, Putin explained it was judo’s holistic combination of sport and philosophy that saved him from delinquency: “If I hadn’t gotten involved in sports, I’m not sure how my life would have turned out.”
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Putin graduated from Leningrad State University in 1975 with a degree in international law before joining the KGB. He married Lyudmila in 1983, and the couple had two daughters in Dresden, East Germany, where Putin was stationed from 1985 to 1990. In an interview for
First Person
, the family was asked about Putin’s temperament. Lyudmila replied that Vladimir wasn’t much of a drinker. “He is indifferent to alcohol, really,” she said. “In Germany, he loved to drink beer. But usually he’ll drink a little vodka or some cognac.”
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With the reunification of Germany, Putin returned to Russia to work for his former professor, Anatoly Sobchak, who became mayor of St. Petersburg. Confident, responsible, and reliable, Putin quickly rose within the mayor’s office. When Sobchak lost reelection in 1996, Putin was summoned to Moscow. In the Kremlin, Putin’s star continued to rise: from deputy chief of Yeltsin’s presidential staff he became head of the FSB (successor to the KGB) in 1998 and then prime minister on August 9, 1999. At Yeltsin’s traditionally well-lubricated official meetings and state banquets, Putin discreetly emptied his drinks into decorative flowerpots.
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By outward appearances, Putin was just another face card in the constant reshuffling of Yeltsin’s lame-duck administration—but in his memoirs, Yeltsin claimed that he had hoped to bequeath his legacy to Putin all along. “After all, I wasn’t offering him just any promotion,” Yeltsin writes, “I wanted to hand him the crown of Monomakh”—the traditional fur-lined, gem-encrusted crown of the grande princes of Muscovy.
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Days before Putin ascended to the ministership, Chechen insurgents besieged the Russian republic of Dagestan. By September, a series of suspicious (and still unsolved) apartment bombings in Moscow killed over three hundred, putting the entire country on edge. The natural reaction was to blame Chechen terrorists.
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Putin’s coarse response that he would “corner the bandits in the shit-house and wipe them out” showed assertive and sober leadership in stark contrast to the incapacitated Yeltsin.
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Rallying ’round their tricolor flag, the Russian people enthusiastically supported a resumed war in Chechnya as an anti-terror operation.

Putin’s star was rising in the economic sphere, too. The ruble devaluation and debt default in August 1998 instantly made Russian products more competitive
on international markets. The price of Russia’s oil and natural gas exports—now under the control of Putin’s national champion companies—climbed uninterrupted for the next decade, buoying the economy with it. After the demodernization of the 1990s, Russia was finally picking up steam. Little by little, life was getting better. Not surprisingly, four months after Yeltsin installed Putin as interim president, he won the job outright with fifty-three percent of the nationwide vote in March of 2000.
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How do we understand the system that emerged during Putin’s first two terms as president (2000–2008)? Was it democracy with some autocratic traits? Autocracy with a veneer of democracy? Was it a market economy or a reversion to some sort of state socialism or even feudalism? Supporters hailed it as “Putinomics”; critics scorned it as “Putinism.”
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Whatever you call it, the defining characteristics were social
stabilnost
(stability), political centralization, and steady economic growth. Opponents would hasten to add: entrenched cronyism and corruption, a lack of transparency, the eroding of civil liberties, and a continuing disregard for public health. Still, how was this remarkable recentralization possible in such a short period of time?

A decade earlier, still under the Soviet umbrella, president of the Russian Republic Boris Yeltsin famously encouraged regional leaders to “take as much sovereignty as you can swallow” to weaken Soviet president Mikhail Gorbachev.
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Unfortunately for Yeltsin, this devolution of power from Moscow to the regions would be his inheritance, as governors built mini-fiefdoms—as in Pskov, often funded by vodka—at the expense of the center. While Yeltsin was unable to rein in the newly empowered governors, his successor Putin made it a top priority.

Under Yeltsin’s constitution—born of the shelling of the parliament in 1993—each of Russia’s eighty-nine regions appointed two delegates to the Federation Council, the flaccid upper house of parliament. Appointees included crooks, cronies, regional vodka producers, and even the governors themselves, who took advantage of their parliamentary immunity to live the high life in the capital.
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In the summer of 2000, again wielding the threat of criminal investigations, Putin expelled the governors and installed pliant replacements. At the same time as the tax raid on Kristall, Putin grouped all of the regions into seven “federal districts” to strengthen oversight of federal agencies across the country.

Critics quickly raised alarms that these federal representatives were collecting salacious, compromising materials—
kompromat
—on governors and regional power players to be used as blackmail should they deviate from Kremlin expectations. More importantly, the tax ministry set up interregional audit departments in each district—staffed by federal rather than regional appointees—to strictly monitor the governors’ compliance with tax laws.
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As with Kristall, accusations of tax evasion and corruption would be the pretext for raiding and reestablishing federal control.

The heart-wrenching 2004 hostage crisis at Beslan School No. 1—where a firefight and botched attempt to rescue one thousand captives of Chechen terrorists led to the tragic deaths of 334 hostages, mostly children—was pivotal in bringing the regions further under the center. Blaming the tragedy on blundering, disconnected regional authorities, the Kremlin used Beslan to justify eliminating the direct election of governors. Henceforth, governors would be appointed by the president, and serve at his pleasure, allowing Putin to replace potential rivals with loyal disciples and rendering Russia a federation in name only.
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What does this have to do with vodka politics? Well, for one, since many regional governments were built atop vodka mini-monopolies, those arrangements and revenues would now be in the hands of trusted Putin loyalists. In this way, the national champion Rosspirtprom was “a cornerstone of Putin’s centralization policy,” according to Yulia Latynina. “But in order to effect this centralization, the governors must be stripped of their control over state budget cash flows, and no fewer than half of those are generated by vodka sales.”
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Plus—in theory at least—this should have led to greater oversight and coordination of an industry still plagued by counterfeit and third-shift vodkas.

Second, centralization destroyed the ability of the various regions to act as—in Louis Brandeis’s famous adage—“laboratories for social experimentation.”
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Any hope for civic activism or policy innovation “from below” were all but snuffed out. As professor Ekaterina Zhuravskaya explained, “federalism combined with the absence of elections at the local level can potentially work only when the policy is designed solely to deliver economic growth and is not aimed at providing public goods, such as quality education, health care, and social protection.”
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Instead of encouraging civic activism that might help alleviate Russia’s public health woes, centralization only cemented the dominance of regional authorities and their liquor interests.

With alcohol consumption reaching alarming heights into 2007–2008, researchers from the London School of Hygiene and Tropical Medicine tried to determine why nothing was being done. Wasn’t there public concern at the local level? If so, why wasn’t it being translated into action? Based on in-depth interviews with a wide variety of stakeholders concerned with alcohol control, the London group found that the widespread concern with problem drinking was stymied by a general powerlessness to influence policies regarding taxation, education, drunk driving, minimum drinking ages, and other restrictions. Health-sector organizations, physicians, psychiatrists, pharmacists, educators, church organizations, labor unions, employers, and even the local health ministry all decried the moral, health, and economic problems caused by alcohol—but all also lamented that they had no way to influence policy. In other words, unlike the civic response of temperance to
alcohol problems (of far less severity) in the West, the researchers found “no evidence of an existing or emerging multi-sectoral coalition for developing alcohol policy to improve health.”
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Caught in their vodka revenue trap, even the regional governments were powerless to undertake meaningful reform. State and municipal authorities “faced a conflict because of the substantial contribution of the alcohol industry to oblast [regional] tax revenues.” Given the primacy of alcohol revenues to regional governments, their representatives “acknowledged little opportunity to influence federal alcohol policy, and did little within their own areas of responsibility, such as their power to restrict hours when alcohol can be sold.”
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So, who could stand up against the flood of alcohol? Who controlled the local policy process? Not surprisingly, the London group found only two key political players: the Kremlin and the local alcohol producers themselves. In their case study region the local distillery generated over $70 million in tax revenue annually. With sixty-four percent of their output sold within the region, they strongly opposed any local restrictions. Despite the facade of federalism, any genuine policy change would have to be handed down from the Kremlin on high. The study concluded that “although ministries and regulatory agencies recognize that there is a problem, they are either conflicted, because of the revenue provided by the alcohol industry, or feel that it is not their responsibility. In part, their unwillingness to assume responsibility reflects a belief that it is up to the federal bodies to act.”
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