CORRUPTION Syndromes of Corruption

Oligarchs and Clans 133
After the fall: markets without order
Early on, much post-Soviet corruption was straightforward: in a series of
smash-and-grab operations, members of the old nomenklatura laid claim
to ‘‘their’’ industries, mines, and enterprises. Sometimes these moves
were portrayed as privatizations (Varese, 1997: 591–592); other assets
were simply stolen (Karklins, 2002: 25–27) and defended by mafiya
muscle where necessary. Old enterprises, banks, and ministries were
simply rebranded as private concerns, often with the same people in the
same buildings continuing to run day-to-day affairs (Satter, 2003: 49). In
a sense this first ‘‘unofficial’’ round of privatization only ratified trends
already taking place during the last years of communism. That meant,
however, that the official privatization efforts launched in 1992 encountered
powerful entrenched interests (McFaul, 1995: 212, 224).
Reformers could hardly take back the enterprises that the ‘‘red bureaucrats’’
had seized, and they could make few credible promises to investors
in official privatizations. Indeed, later entrants often found it necessary to
use corruption of their own to protect against predation by the early
movers and their bureaucratic clients (Varese, 1997: 580). The resulting
bidding war for official influence seriously undermined the credibility of
state institutions just as official privatizations were being launched.
That process was supposed to take place in two phases. ‘‘Voucher
privatization,’’ launched in October, 1992, gave each citizen a voucher,
nominally valued at 10,000 Rubles, supposedly representing one share of
the nation’s industrial structure (Appel, 1997; Lavrentieva, 2002;
Pribylovsky, 2003; Satter, 2003: 49–50). In theory vouchers created
broad-based ownership and distributed wealth to those needing it most:
as antiquated as Russian industry was, officials still believed the ‘‘true’’
value of one share far exceeded 10,000 Rubles and that citizens would
benefit from the difference. In practice, however, the system was poorly
understood by citizens who were given little real information and had
never experienced legitimate market interactions; converting vouchers
into their theoretical full value was impossible. Many sold their vouchers
to speculators for next to nothing or lost them in fraudulent ‘‘cooperative’’
schemes. At the program’s end in 1994 officials claimed that the overwhelming
majority of vouchers had been redeemed; actual benefits,
however, flowed to very few.
‘‘Money privatization’’ began in 1994. In this phase the goal was to
auction off state-owned assets, thereby attracting foreign investment and
expertise, creating profitable enterprises owned by a range of competing
interests, and earning major revenue for the state. The latter, in turn,
would narrow public deficits, support the Ruble, and enable state