Although there were scenes of armed standoffs, the plot mostly glossed over the methods by which such a small clique made such huge fortunes so quickly. Berezovsky accepted that the film was based – if somewhat loosely – on his own early life. He invited the director to his London home for a viewing of the film and told the BBC, ‘As a work of art I think it is primitive. But I appreciate the effort to understand people like me. It is the first attempt in recent Russian cinema to understand the motivations of those at the peak of power, who drive reforms and make changes rather than cope with them.’[3]
As they started to beat a path to London, and as their reputations grew, so the new breed of super-rich Russians began to intrigue the British public: ‘We like to follow them because we are astonished at how people who not that long ago were queuing for bread are now able to outbid the rest of the world’s super-rich for Britain’s finest houses,’ one Mayfair property agent told us.
In his early sixties, Berezovsky is old enough to remember the bread queues in his own country, but such a modest lifestyle did not extend into his adult years. The man once known as the ‘Grey Cardinal’ because of his dominating influence at the Kremlin was not shy when it came to spending his fortune. In 1995 he bought himself a palatial residence outside Moscow, complete with servants, and accumulated a fleet of sports cars. He acquired an interest in fine wine and smoked only the best cigars. His brazen lifestyle soon became the stuff of legend. Here was a man with a way of life that had once been the province only of the Russian aristocracy before the Revolution.
With an estimated fortune of £1.5 billion at the time, he epitomized the term ‘Russian oligarch’. His power was such that by the autumn of 1996 he could boast that he and six other individuals controlled 50 per cent of the Russian economy.[4] Berezovsky was exaggerating, but from the early 1990s Russia was quickly transformed from a highly centralized economy to one in which some thirty or so individuals owned and controlled the commanding heights: its vast natural resources and manufacturing. Russia moved at high speed from being a political dictatorship to a society not just heavily owned by a tiny, super-wealthy elite, but one wielding, for a while, enormous political power.
The word ‘oligarch’ was first used in Russia on 13 October 1992, when Khodorkovsky’s Bank Menatep announced plans to provide banking services for what it called ‘the financial and industrial oligarchy’. This was for clients with private means of at least $10 million. By the mid-1990s, the word was common parlance across Russia.
The origins of the word lie in Classical Greek political philosophy. Both Plato’s Republic and Aristotle’s Politics describe rule by an elite rather than by the democratic will of the people. Historically, ‘oligarch’ was a word used to describe active opponents of Athenian democracy during the fifth century bc, when Greece was ruled on several occasions by brutal oligarch regimes that butchered their democratic opponents.
Like their ancient Greek counterparts, few of the modern Russian oligarchs became mega-rich by creating new wealth but rather by insider political intrigue and by exploiting the weakness of the rule of law. Driven by a lust for money and power, they secured much of the country’s natural and historic wealth through the manipulation of the post-Soviet-era process of privatization.
When Boris Yeltsin succeeded Mikhail Gorbachev as President in 1991, Russia had reached another precarious stage in its complex history. It had difficulty trading its vast resources and was short of food, while its banking system suffered from a severe lack of liquidity. Its former foe the United States – in Russia referred to as glavni vrag (the main enemy) – was watching events eagerly. Within weeks, advisers from the International Monetary Fund (IMF) and the World Bank teamed up with powerful Russian reformist economists close to the Kremlin to persuade Yeltsin to introduce an unbridled free-market economy involving the mass privatization of state assets. It was a dramatic process of ‘reverse Marxism’ implemented at speed.
This was to become Russia’s second full-scale revolution – though this time from communism to capitalism – in three generations. ‘Russia was broke. There was grave doubt in late 1991 that they could feed their population in the coming year,’ explained James Collins, former US Ambassador to Russia.’The government had lost control over its currency because people were printing it in other republics. The policy of what became known as “shock therapy” was discussed internally [in the US government] and nobody stood up and said “no, don’t do that”. The whole system was falling apart and was best summed up by my predecessor Ambassador Robert Strauss who said, “It’s like two pissants on a big log in a middle of a river going downstream and arguing about who was steering”.’
The first wave of privatization came in the form of a mass voucher scheme launched in late 1992 – just nine months after Yeltsin assumed the presidency. All Russians were to be offered vouchers to the value of 10,000 roubles (then worth about $30, the equivalent of the average monthly wage). These could, over time, be exchanged for shares either in companies that employed them or in any other state enterprise that was being privatized. To acquire the vouchers, citizens had to pay a mere 25 roubles per voucher, at the time the equivalent of about 7 pence.
In the four months from October 1992, a remarkable 144 million vouchers were bought, mainly in agricultural and service firms. The Kremlin presented this ambitious scheme as offering everyone a share in the nation’s wealth. Yeltsin promised it would produce ‘millions of owners rather than a handful of millionaires’. It may have been a great vision but it never materialized. Russia’s citizens were poor, often unpaid, and many had lost their savings as inflation soared and the rouble collapsed. Moreover, after seventy years of communism, most Russians had no concept of the idea of share ownership. There wasn’t even a Russian word for privatization.
There were, however, plenty of people who understood only too well what privatization meant and the value of the vouchers. They started buying them up in blocks from workers. Among those cashing in was Mikhail Khodorkovsky – who would later become the richest man in Russia. Street kiosks selling vodka and cigarettes began doing a brisk trade in vouchers. Stalls began to appear outside farms and factories offering to buy them from workers. Hustlers started going from door to door.
Even though holders were being offered far less than the vouchers were worth, most exchanged them for cash to pay for immediate necessities. Russia became a giant unregulated stock exchange as purchasers were persuaded to trade their vouchers for prices that were nearly always well below their true value. They would exchange them for a bottle of vodka, a handful of US dollars, or a few more roubles than they had paid for them. It proved a mass bonanza for those prepared to prey on a country suffering from mass deprivation.
Hundreds of thousands also lost their vouchers in ‘voucher saving funds’. Some funds were little more than covert attempts by companies to buy up their own shares for a song. Members of the old KGB power elite often laid claim to mines and enterprises in what became known as ‘smash-and-grab’ operations. For a nation ignorant of the concept of shares and unable to appreciate the potential value of their vouchers, people were easily encouraged to part with their stakes. For the winners it was easy and big money.