By 2002, five capitalists controlled 95% of Russia's aluminium, 18% of her oil, 40% of her copper, 20% of her steel and 20% of car production... The capitalist takeover of Russia
WORKERS, JAN 2005 ISSUE
IN THE 1990s, Russia's new capitalist class seized, through privatisation, the enormous wealth that the country's workers had produced during the Soviet era. By 1996, 80% of Russia's 22,500 industrial enterprises, employing 80% of Russia's industrial workers and producing 90% of Russia's industrial output, had been privatised.
The Yeltsin government's programme, strongly backed by the Russian Union of Industrialists and Entrepreneurs, allowed directors and workers to buy 51% of the voting shares in their workplaces, at a nominal price, using the enterprises' own funds. All too often, workers agreed not to interfere with the directors, in exchange for promises of job security, soon broken. Frequently, the directors bought workers' shares before they had any market value or, in collaboration with banks, they outbid the workers. In some cases, President Boris Yeltsin issued special decrees to aid his cronies by excluding others.
The directors used joint ventures, shell companies and offshore havens to leach cash and raw materials out of public enterprises. They created banks and trading companies that seized the factories' output and stripped their assets. They stole Russia's wealth, putting the money into thousands of offshore bank accounts, real estate holdings and offshore companies. Capital flight totalled possibly $150 billion just between 1991 and 1999.
Stealing the energy
But the biggest money-spinner for the new capitalist class was the theft of Russia's immensely rich natural resources through the Loans for Shares scam. The capitalists lent money to the deficit-ridden state. In exchange, they bought at auction, for a fraction of their market value, the shares that the government put up as collateral for the loans. When the government could not repay the loans, the capitalists sold the shares to themselves very cheaply as repayment for the loans. In these corrupt insider deals, the government let the capitalists seize the companies.
As the basis for these auctions, the government used companies' book values as fixed in January 1992. That month, Yeltsin's Deputy Prime Minister, Yegor Gaidar, had freed prices, causing 2500% inflation. This meant that the capitalists could buy Russia's energy resources for tiny fractions of what they were worth. (It also wiped out workers' life savings — seventy million accounts in the state-owned Sberbank alone.) The capitalists later admitted that they paid easily 40 times less than the enterprises were worth.
Stealing the companies
So in November and December 1995 the government sold off twelve of Russia's biggest companies. A handful of private banks, owned by the new capitalists, ran the auctions, disqualified their rivals, excluded foreigners, bid in the auctions and — surprise, surprise — won the auctions. For example, in a closed auction run by his own bank, Uneksimbank, Vladimir Potanin (the deputy prime minister in charge of finance) bought Norilsk Nickel, the world's biggest producer of nickel and platinum, for just $170.1 million. Its profits that year were $1.2 billion. His bank had disqualified a rival bid of $350 million, on a technicality.
In 1995, Yeltsin's friend Boris Berezovsky loaned the government $100 million for 51% of Sibneft, Russia's sixth biggest oil company, worth $2.8 billion, then sold it to himself in another sham auction 18 months later for $110 million. Russia's Audit Chamber later reported that the sale was conducted with "multiple legal violations" and "should be considered invalid".
In 2000, Sibneft bought 27% of its shares for $542 million from shareholders. Less than a year later it secretly sold those shares, for far less, back to the same shareholders. It then announced a $612 million dividend to the shareholders — one of whom, Roman Abramovich, was lucky enough to own 87% of the shares. The Blair government recently gave Berezovsky political asylum, while Roman Abramovich owns Chelsea Football Club.
Stealing the rest
The Yeltsin government sold off other national assets cheaply, including tax concessions, TV channels, radio frequency licences, export licences and government bank accounts. Yeltsin privatised the TV company Channel One, which reached 200 million Russians, without the legally required auction, selling it to his friend Berezovsky for a knock-down price of $2.2 million.
The capitalists also looted state funds and the Soviet Union's gold reserves. The new banks took billions of roubles of party, government and trade union funds, transferring the money to foreign bank accounts and offshore tax havens.
The handful of arrogant capitalists made billions through pillage and piracy All great fortunes begin in crime. Anatoly Chubais, head of the State Privatization Committee, said of Russia's capitalists, "They steal and steal and steal. They are stealing absolutely everything and it is impossible to stop them."
By 2002, five capitalists controlled 95% of Russia's aluminium, 18% of her oil, 40% of her copper, 20% of her steel and 20% of car production. Mafia gangs ran nearly half the private sector and owned half of Russia's largest banks.
Workers and their unions lost hugely from privatisation. The nation's wealth ceased to benefit the working class who produced it; instead it benefited the tiny capitalist minority. So now more than 40% of Russia's people live in poverty, 90% endure worsening conditions and average life expectancy has fallen by five years.
The Soviet people had to make a revolution in 1917 to throw out the Tsarist autocracy; they need a new revolution now to throw out the new capitalist autocracy.