Roubles Without Rules
issue 259 - September 1994
Roubles without rules
The new rich in Russia are spending like there is no tomorrow.
Olivia Ward reports on a society where flamboyant wealth is
viewed with resentment and accompanied by violence.
It’s a tough job being rich in Russia. That’s why so many tough people do it. Outside the glittering casinos that have sprung up like mushrooms after heavy rain, hulking bodyguards smoke and pace as their employers drop millions of roubles for an hour’s entertainment.
‘Money trickles through people’s fingers,’ says Tanya, a clerk in Moscow’s expensive Finnish department store, Stockman’s. ‘It’s nothing for them to come in and throw down a $15,000 fur coat on the cash desk. Perfume, jewelery, Italian handbags, stereo sets – they shop as though it were the last day of their lives.’
Large diamonds are scarce in Moscow jewelery stores, swept up by Russian millionaires decorating their new tall blonde trophy-wives. Henessy can’t supply enough of its most expensive cognac ‘Paradise’ at $300 a bottle. Caviar leaves the shelves as quickly as sausage in the days of empty Soviet state stores. In restaurants where $100 buys a drink and a plate of starters, newly-rich men and women nervously watch others watching them, comparing outfits that scream ‘Made in Italy’.
Russia’s rich are divided into three categories by sociologist Alexei Levinson of the Russian Centre for Public Opinion and Market Research : the ‘puritans’ who find moneymaking an intellectual challenge but are reluctant to spend it on themselves; the ‘Westerners’ who are sophisticated and cosmopolitan in their tastes, and the flamboyant ‘merchants’ on a perpetual comic-strip spending spree.
Some of the wealthiest acquired their money by channeling Communist Party funds into businesses abroad as the Soviet Union collapsed. Others were heads of Soviet industries who took control of the newly-privatized companies, keeping their grip on money and power. Then there were the creative entrepreneurs who took advantage of lifted trade and travel restrictions to buy and sell their way to success in record time. And all over Russia’s sprawling regions super-rich dealers pipeline raw materials out of the country under shady contracts.
The flaunted wealth of the ‘merchant’ rich creates resentment among the majority who still cannot afford the basics needed for daily living. Highly-educated Russians are infuriated by the salaries wealthy employers pay for jobs that were considered menial in Soviet days. Secretaries, bank clerks and chauffeurs earn $500 to $1,000 a month, while doctors, professors and scientists fight for survival on the equivalent of $100.
‘Of course we’d like to move to a larger apartment,’ complains a Moscow teacher with two pre-school children. ‘But even if we found one we could afford we’d be afraid to move. Every month prices double because the rich are willing to pay any ridiculous sum they’re asked.’
In the post-communist economy the top five per cent are pocketing more than 45 per cent of the country’s income, while nearly 32 per cent of families are below the poverty line, according to Social Welfare Ministry figures.
Inflation, only partly fuelled by the free-spending habits of the newly-wealthy, has made Moscow one of the world’s most expensive cities. And lower-paid Russians can’t afford the $2,000-a-month flats, or $100-a-head admission prices to chic new night clubs that are unflinchingly doled out by the ‘new Russians’. While most Russians spend their lives queuing to trade up from a squalid apartment, multi-million-dollar housing developments have buyers clamoring before the cement is dry. One rouble billionaire couldn’t wait for a new home before installing his Hollywood-style swimming pool. The pool, created on the ninth floor of his apartment in an industrial town on the Volga, burst and flooded the neighbours’ flats. Embarrassed, the mogul paid the damages for a complete renovation of the building.
To many Russians raised under communism the market economy is only a theoretical concept. They are deeply suspicious of those who flaunt wealth, and blame those with limitless bankrolls for soaring prices of apartments, cars, imported goods and better food products. A recent Gallup poll in Russia and the US shows that while 62 per cent of Americans think that the country benefits from a growing number of wealthy people, only 29 per cent of Russians agree that they are a national asset. The rich in Russia have a massive image problem.
And, Levinson says, they often try to make up for it with a conformity that outdoes the West. ‘Once somebody tells them what to do or wear, they follow it to the letter. Not long ago it was advertised that a certain shop sold a brand of tennis racket used by Boris Yeltsin. Next day they were sold out.’
The shock of visible wealth in a society in which conspicuous consumption was until very recently a badge of corruption aggravates the situation. Even the wealthy admit that the lawlessness of many nouveaux riches has cast doubt on the emerging market economy.
For the Russian rich, it appears, there are no rules: a fact that dismays the more discreet members of the wealthy population as much as the poor. Regarded with a mixture of envy and loathing, Russia’s newly-monied are a dart board for criminals, political extremists and opportunists hoping to ride on their plush coat tails. In suburban areas near Moscow militias patrol the roadways leading to dachas that stand out like huge brick fortresses on a landscape of farmland and rundown wooden cottages.
The rich may well be in need of such protection. Extortion, kidnapping and contract killing are on the rise. And, says Interior Minister Victor Yerin, ‘those killings were commissioned after conflicts in financial and commercial activity. Some were revenge killings, others aimed at eliminating competition, while some were based on simple greed – the desire to seize property possessed by somebody else.’
No wealthy or even moderately well-to-do businessman is without at least one bodyguard. Some, like the high-profile lawyer Dmitri Yakubovsky, are generals barking orders at battalions of security forces that follow them doggedly from office to home and even out of the country.
Many insist that the police can’t be trusted. And some high-ranking police officials have hinted that they have more sympathy for assassins than for people they feel are tainted by speculative money-making. An industry has been created that employs thousands of ex-police and former paramilitary trainee personnel.
Dmitri Garbarchuk is at the top of the heap. As head of security for the Most Group banking and commercial company he discreetly eliminates ‘unwelcome guests’ from his clients’ lives. ‘We provide a whole range of services,’ says the enthusiastic former cop. ‘Detectives, security arrangements, bodyguards, logistics.’
In the oil-endowed Siberian region of Tyumen, newly-rich businessmen rattle around the bleak landscape in shiny Mercedes 140s, and industrialists from the Urals trade bags of diamonds and emeralds for extravagant imported goods. Galloping consumption isn’t limited to Russian goods. Overseas real estate and yacht-sized foreign cars are status symbols for the recently-rich biznesmyen who can’t think of anything else to spend money on.
‘Taxes alone on a new Rolls Royce amount to $40,000,’ says Sergei Berebenya, who greets half-a-dozen prospective buyers every day in the city’s most expensive car dealership. His latest sale, a gleaming green Bentley, went to Oleg Bolganov, a 25-year-old Urals tycoon eager to add it to his stable of Rolls Royces.
Just three years after communist-era travel restrictions were lifted, Moscow’s dilapidated Sheremetievo international airport is seething with life. ‘You can’t take your electric scooter on the plane,’ a blonde woman with eyelashes as thick as her ankle-length mink soothes her squalling toddler. ‘We’ll buy you another in Paris.’
Airlines and travel companies that used to cater for foreigners and privileged Russian officials can hardly keep up with the orders for international flights and cruises. ‘It’s a madhouse,’ sighs one Western agent. ‘Russians call at all hours of the day and night demanding instant tickets and visas to Singapore or New York. They think because they have unlimited money they can go whenever they like.’
Even if they do have to wait a few days for their visas, for the time being at least, Russia’s newly-rich seem to be having it all their own way – at a price.
Olivia Ward is the Moscow bureau chief of The Toronto Star.
‘I used to be a specialist in building fences,’ says Alexander Smolensky. ‘Now I live behind them.’
One of Russia’s most successful financiers, the balding, ginger-haired Smolensky is standing uneasily in the courtyard of the smart new corporate branch of Stolichny Bank, a technological wonder whose opening is being celebrated by Moscow’s new-money community.
As the bank’s president Smolensky should be inside popping champagne corks with the bureaucrats, politicians, priests and journalists eager to get their noses into the drinks and expensive hors d’oeuvres. But he has a twinge of claustrophobia. The lure of a smoky reception room – even a smartly-designed one with sunlight filtering through the bullet-proof glass – is nothing compared with a few rare moments in the open.
The pause is carefully planned. Like all Russian bankers Smolensky is acutely aware that 17 of his colleagues have been gunned down this year by vengeful mafiyas. A discreet few paces away is his own defence force including three of Russia’s top security strategists, headed by President Mikhail Gorbachev’s former security chief. A mountainous young man looms nearby, his jacket stretched tightly over a bulge under his arm.
‘Sometimes I can’t help it, I deliberately evade them. Then they all go on number one red alert,’ Smolensky chuckles, tugging at his cigarette as though to draw out the precious time away from the office.
At 40 he is too ruddy-faced, too thick in the chin and the waist to slip into the mold of the contemporary London banker. But fitness is one of the sacrifices of the hard-working high flyers of Russia’s fledgling financial establishment.
‘I get up every morning and go straight to the office. I work, work, work. They say bankers do nothing but sit around on bags of money and eat enough for three people, but here it is, two in the afternoon and I haven’t had breakfast. By the time I get home from the office it’s two in the morning.’
Entertainment of the sort that beckons the wealthy of European capitals is out. ‘I can’t go to the theatre with my bodyguards. It’s too uncomfortable for other people,’ he says. The same goes for concerts and art galleries, though he donates money freely to culture and the church.
Banking is his crusade and his business, a mission to ‘civilize’ Russian business and convert the chaotic frontier market into a replica of the Western system. Like the 19th-century British and American capitalists he has found a métier as uncompromising as the Church. Mere living is for other people.
Shopping? ‘Never,’ Smolensky says with a laugh. ‘I haven’t been in a store for years. I have limitations on my life. Walking is absolutely excluded.’
The only relaxation, he adds wryly, is behind the well-guarded fence of his country estate. He’s seldom there. Weekends he climbs on a plane for Austria to visit his wife Galina and 13-year-old son Nikolai, who live in carefully-maintained obscurity for safety reasons.
It is, he admits, not the life he expected as a young man in the Soviet construction industry. When Gorbachev loosened legal restraints on Industry, Smolensky was one of the first to found a building ‘co-operative’, the forerunner of a private company.
He lobbied energetically for a new law that would allow co-operatives to set up banks. Now Stolichny is Russia’s 13th largest financial institution and possibly the fastest-growing. Isolated from his old friends, immersed in the money-obsessed life of the new rich, Smolensky is on a fast track that stretches as far as the distant shores of Russia.
‘My plans for the future?’ he asks. ‘To stay alive.’