CORRUPTION Syndromes of Corruption

134 Syndromes of Corruption
ministries to pay back salaries and improve public services. But foreign
investors proved reluctant: even where they were allowed to bid it became
clear that asset sales were rigged (Satter, 2003), that prices bore no
resemblance to actual values, and that property rights were far from
secure (Freeland, 2000; Satter, 2003). The problem with money privatization
was not that it failed to put public assets into private hands; indeed,
emerging tycoons and their official partners rapidly moved in. By
November, 1994, 78 percent of service enterprises had been privatized;
by September of 1995, 77 percent of industry, accounting for 79 percent
of industrial jobs and 88 percent of production, had moved into private
hands by one mechanism or another (Varese, 1997). The problem was
that those assets fell into the hands of emerging oligarchs, often at ludicrously
low prices. Large factories went, for just a few million dollars
each, to those who had bought influence rather than to those best able to
improve the facilities. United Energy Systems, which generates virtually
all of Russia’s electricity (of which more will be said below), was sold for
$200 million; a similar firm would have been worth $30 billion in central
Europe and $49 billion in the United States. Oil wells went for prices that,
based on known reserves, were about one-half of 1 percent of those
expected in the West (Satter, 2003: 51). Very little revenue flowed to
the state. By early 1995 it was clear that money privatization was failing
on virtually all counts; the result was the ‘‘loans for shares’’ scheme, which
did more than any other episode to strengthen economic oligarchs.
At a key juncture in Russia’s move away from communism, desperately
needed resources were falling into the hands of corrupt businessmen and
their cronies both in and out of government, while the state remained
impoverished. Other resources left the country altogether: one estimate of
capital flight during the Yeltsin years pegs the figure at between $220 and
$450 billion (Sattter, 2003: 55). State institutions, weak at the beginning
of the decade, were further undermined by shortages of both cash and
credibility. Between 2000 and 2002 the Putin government announced
legal reforms in the corporate sector, but there is little to cheer about in
recent events. Yukos and Sibneft, major oil producers, went to oligarchs
such as Khodorkovsky through rigged bidding. At the end of 2004
Yuganskneftgaz, Yukos’s oil production arm – seized in the wake of
Khodorkovsky’s arrest – was back in the public sector as the state’s oil
firm Rosneft quickly bought out the little-known winners of another
‘‘auction’’ (CNN.com, 2004). The 2002 privatization of United Energy
Systems was advertised as an example of enhanced transparency, but
foreign bidders were again seen off, domestic interests engaged in bidrigging,
and the auction ‘‘loser’’ announced it would join the winner in
generating Russia’s electricity (Jack, 2002; Karush, 2002; Albats, 2003).