How Russia’s gangster capitalists seized power

Putin’s brutal regime emerged in conditions of economic anarchy as a new capitalist class was forming amidst the collapse of the previously planned economy. Peter Taaffe reviews a recent book that graphically describes what happened. 

Catherine Belton, a former Financial Times journalist, has written a most devastating critique about the rise and consolidation of the state-capitalist Putin regime, following the collapse of Stalinism in the early nineties. This book is essential reading for all those who wish to understand exactly how Vladimir Putin, a very minor KGB official originally, with his roots in Stalinism, was able to construct what is now in effect a ‘mafia state’ – but on a gargantuan scale compared to the Italian mafia – and which has led to the terrible devastation in Ukraine.

She correctly describes in the most lurid detail how the “original KGB” was able to transform itself from part of the rotten Stalinist bureaucracy into a capitalist state machine. In effect, the old KGB has been able, through Putin and his branch of the Stalinist secret police based in Leningrad-St Petersburg, to carry through the biggest robbery of productive forces in history after the collapse of Stalinism. This KGB state, grouped around the Leningrad siloviki (strongmen), managed over a period to concentrate power and a considerable amount of the productive forces into their own hands.

The author describes how Putin evolved from a secret policeman whose caste aimed to defend the Stalinist regime, above all against the possibility of a working-class uprising. In this process, he stamped his own political character on the government and the state he now personifies. As one of his cronies said of Putin, “he’s been sent by God to save the country”. Catherine Belton explains that at the same time, “they served at his pleasure. These yes-men understood the deep hypocrisy of the system, the sham democracy represented by the Kremlin’s ruling party United Russia, and how deeply corrupt it had become. They were used as vehicles for self-enrichment. It was a far cry from the anti-capitalist anti-bourgeois principles of the Soviet state they had once served. These people [those who supported Putin] are a mixture of ‘homo sovieticus’ and the wild capitalism of the last 20 years. They have stolen so much to fill their pockets. All their families live somewhere in London. When they say they need to crush someone in the name of patriotism they say this sincerely. It’s just that if it’s London they’re targeting they will get their families out first”.

These creatures “who work in the Kremlin now say – with absolute sincerity – how great it is they can get so rich… In the 90s this was unacceptable. You had to either go into business or work for the country. Now ministers hand out licenses to make money. And of course, all this comes from the boss. The first conversation that Putin has with a new state employee is, here is your business. Share it only with me. If someone attacks you, I will defend you… and if you don’t [ie use your position as a business], you are an idiot”.

Belton furthermore indicates the deep cynicism and power-hungry characters that surround Putin, with one declaring: “Look at the people around Putin… I look at them and they don’t believe in anything. They understand it’s all crap. United Russia is crap, the elections are crap, the president is crap… and then they go on stage and say how great everything is. All the toasts they make… are total lies… there is such cynicism… they’re stealing from all sides. Then they come out and speak about how Putin is fighting against corruption. I look at them and think that this is the end”.

The author summarises the situation by recording a frank exchange between two bureaucrats from within Putin’s circle who recoil at the system they helped to create. This system resulted in “the rise to power of Putin’s KGB cohort, and how they mutated to enrich themselves in the new capitalism. It is the story of the hurried handover of power between Yeltsin and Putin, and how it enabled the rise of a ‘deep state’ of KGB security men that always lurked in the background during the Yeltsin era, but now emerged to monopolise power for at least 20 years and to eventually endanger the West”.

She concludes “the system Putin’s men created was a hybrid KGB capitalism that sought to accumulate cash to buy-off officials in the West [who] after the end of the Cold War had long forgotten about the Soviet tactics of the not-too-distant past. Western markets embraced the new wealth coming from Russia and paid little heed to the criminal KGB forces behind it. The KGB had forged an alliance with Russian-organised crime long ago, on the eve of the Soviet collapse, when billions of dollars worth of precious metals, oil, and other commodities were transferred from the state to firms linked to the KGB. From the start, foreign intelligence operatives of the KGB sought to accumulate ‘black cash’ to maintain and preserve influence amongst networks long thought demolished by the Soviet collapse. For a time under Yeltsin the forces of the KGB stayed hidden in the background, but when Putin rose to power the alliance between the KGB emerged and bared its teeth”.

From Dresden obscurity to Moscow

Belton goes on to describe how Putin was transformed from a small-time operator in Dresden in East Germany, then later in Berlin at the time of the collapse of Stalinism, to become the major individual in the process which has resulted in the current catastrophe and all the horrors that have preceded it.

By the end of the 1990s, the young tycoons who had been a product of this collapse began to turn around the legacy of the past, of falling production and deep debts, into a certain growth in the economies of the former Soviet Union, but they had helped “to create these new billionaires through the loans for shares options [which] they would never forgive or forget and would be the kernel for the KGB’s later revanche… The KGB then was in the shadows and able to control much of the cash flow from the nation’s oil wells… but they had been outwitted and the financial reins had been taken out of their hands. This was a turning point where the new tycoons of Russia’s new vast oil wealth led to the creation of the oligarchs who held considerable sway over the weakened Yeltsin government. The remaining members of the old-guard security services were ousted, and a scramble took place to acquire this new wealth”. However, as one former senior foreign intelligence officer commented: “The oligarchs forgot to whom they owed a debt”.

In the rush to shore up their new accumulated wealth, one of the new rich, Mikhail Khodorkovsky, himself emanating from the former bureaucracy, “didn’t notice that nearby, in St Petersburg, there was a chill in the air”. Things were being run differently. Isolated from the gold rush from Moscow’s economic boom, the forces of the KGB were exerting far greater control in the city where the economy was tougher and darker, in the violent scramble for cash. The group that took over the city was part of a nexus of organised crime and KGB men that came to rule the roost in St Petersburg in the 1990s and Putin was at the centre of this.

Unlike in Moscow where they largely stayed in the shadows, they were much more visible: “St Petersburg’s economy was far smaller than Moscow’s, the battle for cash more vicious, and the mayor’s office had tentacles extending into most businesses”. The main reason for the potency of the KGB’s reach was that the mayor, Anatoly Sobchak, left Putin to handle the day-to-day overview of trade along with another prominent bureaucrat. Catherine Belton comments: “In the chaos of the Soviet collapse the institutions of power seemed to be melting away. Organised crime groups moved in to fill the vacuum running protection rackets, extorting local businesses, and taking over trade”.

In this violent murky world, Sobchak was out of his depth, but the former KGB operative Putin was completely at home and was fully understood by the crooks surrounding him. They formed an alliance together. The system had collapsed but part of it had remained, particularly the alliance between Putin, his KGB allies, and organised crime, which “ran much of the city’s economy for their own benefit”. They had a slush fund that had its roots in the barter schemes of KGB-run firms. This involved St Petersburg’s Tambov organised crime group. It was a business, according to one local FSB officer, that consisted of “murder and raiding”. Eventually, Sobchak was assassinated as Putin moved on to Moscow.

St Petersburg mobsters took over. They began to privatise the Tambov group. They did this by buying up shares from the port’s poor workers who had received them as government vouchers, as the share they held in the nationalised business. This became a model for the former soviet economy as a whole. As the author comments: “As Putin and his KGB men became more secure in their control of the city’s economy, they began to dream their own bourgeois dreams”. In the process of consolidating his position Putin fitted up his former senior partner Sobchak, whose eventual assassination could be traced back to Putin himself. He used his bureaucratic criminal activities as a launching pad for ultimate power in Moscow and the rest of Russia.

Economic breakdown

Meanwhile, under the Yeltsin regime, the economic problems flowing from the dissolution of the planned economy became more and more obvious. Under Yeltsin, the country was hurtling both to a return of the market and, at the same time, to a looming economic disaster. Former KGB members, including Putin, gathered together in August 1998 with a declaration that the KGB would soon return to power: “We’re not going to tell you who it is, but he’s one of us, and when he’s president, we’re back”.

As an example of the squandering of the resources of the Russian people, Catherine Belton records that “$1m had apparently been spent by Yeltsin during an official visit to Budapest in Hungary”. Little wonder then that Yeltsin’s popularity was at an all-time low of 4%.  At the same time, the Kremlin was reconstructed with the use of 50kg of pure gold purchased to decorate the halls, and 662 square metres of the finest silk to cover the walls. The Kremlin was to be transformed to its “tsarist-era glory” as a marked contrast to decades of “communist rule”. “When it was all completed, visiting foreign leaders, like Bill Clinton and the German Chancellor Helmut Kohl, were overawed by the grandeur”.

The new rich did everything to consolidate Putin’s role, particularly the oligarchs who had profited enormously under Yeltsin and, as a consequence, the gap between rich and poor widened enormously. One estimate stated that “almost 50% of the nation’s GDP was produced by the companies of just eight families”. It added: “If things stayed that way, they would soon control 50%… with all profits going into private pockets. No taxes were paid. It was looting pure and simple… a path to nowhere”. In fact, it was a path to a very rich future for the oligarchs and the new rich, who flourished under the rule of Yeltsin, and even more when Putin was firmly seated in power.

Putin used his position to consolidate his power step by step, both in Russia itself and the autonomous regions of the former USSR who found themselves with new super-governors answerable to Moscow and Putin himself. Indeed Boris Berezovsky, a representative of the new elite, claimed that Putin was “a dictator”. The author of this book “saw that he was a dictator before everyone”.

There is incredible detail on the Stalinist methods of Putin to eliminate all opposition, particularly those who were in his immediate circle. The sections of the book dealing with the threat from Khodorkovsky, the champion of even more privatisation, are illuminating. He played for the support of the new rich, but his gamble backfired badly. He went on television to denounce the growth of state corruption, arguing that the level of corruption in the country had reached 10% of GDP, $30 billion a year. This was at a time when the annual tax take was estimated to be about 30% of GDP. Putin unleashed all his weapons against Khodorkovsky, who had denounced the overconcentration of power in the hands of the president. This incurred the full wrath of the latter and the state he controlled, which ultimately led to the downfall of Khodorkovsky and his jailing for ten years.

Khodorkovsky, at the time of his arrest, was the richest man in Russia. His arrest sent shock waves through the new rich. One oligarch declared that the new rich “can’t say you are the legitimate owner. Privatisation didn’t create legitimate property. The other oligarchs understood this well. None of them claimed they were the owner of the business. They understood they were just holders”. Belton says what happened to Khodorkovsky was revenge for the 1990s when the KGB was forced to wait on the sidelines: “What’s happening now with Putin is the revanche of the KGB… The KGB created the oligarchy. They had to serve it. Now they are having their revenge”. They could justify their actions, says the author, “by telling themselves they were preventing the handover of the country’s richest oil assets to the West”. This was sufficient at the time, together with the jailing of Khodorkovsky, to fall in line behind the Putin regime.

This led to a situation where “the entire oligarchy was bowing down before [Putin] and offering him this and that and coming to him for permission for the slightest thing”. The constant bowing and scraping, the kowtowing went to Putin’s head. He was beginning “to believe his powers as the new tsar”. He was emboldened to take tougher and more authoritarian decisions, but also to make terrible blunders like the war against Chechnya and the subsequent bloodbath. This is comparable to the monumental blunder that has been demonstrated in the current attack on Ukraine, which looks like it could enormously backfire.

Consolidating the Russian centre

The loss of Ukraine in the ‘Orange revolution’ of 2004-2005 was keenly felt by the central Russian bureaucracy. Ukraine had been the third biggest soviet republic after Russia itself and Kazakhstan. There had been heavy investment in the industrialisation of Ukraine, which was once an agricultural region but was transformed into a major defence manufacturing hub vital for supplying Russia. Moreover, Ukraine was a vital transit route for Russia’s most strategic exports of oil and gas. About 85% of Russian gas exports to Europe were shipped thorough Ukraine’s pipeline network. At the same time, the Crimea peninsula was still important to the military interests of the Russian state, particularly as a naval base.

The Orange revolution was a blow to the Kremlin’s plans, as the beginning of the separation of Ukraine from Russia proceeded. Putin publicly argued that “the collapse of the Soviet Union had been the greatest tragedy of the twentieth century”. By this, he did not mean a tragedy from the original concept of Lenin, Trotsky, and the Bolsheviks. In stark contrast, the leaders of the Russian revolution stood for a wholly voluntary union of different nations into a fraternal collaborative coming together for the mutual benefit of all the nationalities that were united. The elements of compulsion were later introduced by Stalinism to retain nationalities within an undemocratic Stalinist so-called ‘federation’. However, once the Soviet Union had collapsed, and with it the planned economy, to be replaced by wild capitalism, the nationalities began to forcibly separate from what became for them the denial of their legitimate national and democratic rights.

During the Orange revolution demonstrators took over and created a tent city in Kyiv, to be met by banning and shooting. One senior Russian government official declared then “that if Ukraine continued on a Western tilt, Russia was ready to go to war over Crimea to protect its military base there and the ethnic Russian population”. It was at that time that Putin and his agents first denounced the leadership of this movement as ‘neo-Nazi’ without any proof whatsoever – a ruse once again repeated to justify the current invasion.

At the same time, the oligarchs, who were Putin’s firm base, were piling up immense wealth. They had to look further afield. The flight of capital into Western bank accounts had become mind-boggling. One estimate by capitalist experts “found that $800 billion had been stashed offshore since the Soviet collapse – more than the wealth held by the entire Russian population”. This allowed them not only “to live as Russia’s new nobility, but also to create strategic stores of black cash”. This ready cash was useful for all kinds of investments, including buying up desirable properties around the world. London was favoured to the extent that, under Tory governments, and especially under Boris Johnson’s ‘benevolent’ regime, it soon became widely known as ‘Londongrad’.

The squander-mania of Putin was revealed in the expenditure on vanity projects such as the Sochi Winter Olympics, which became three and a half times more expensive than NASA’s project to send a rover to Mars!

The mountainous corruption inevitably attracted like-minded crooks such as Donald Trump. In 2008 a Russian tycoon appeared on the horizon to help Trump out with financial assistance to cover his legendary debts. In turn, when Trump won the presidential election in 2016, Belton writes, “at first the Russians couldn’t believe their luck. The scenes in the Russian parliament were uproarious. When a lawmaker ran into the parliamentary session that morning to shout about the news that Trump had won, the entire hall leaped to their feet in raucous applause. That evening champagne was poured”. One Russian nationalist MP declared: “It is phenomenal how close [Putin and Trump] are to one another when it comes to foreign policy”. Belton then poses the intriguing question: “Had Russia pulled off a monumental operation to install its man in the White House?”

An unstable regime

The bloody drama of Ukraine is still unfolding as we go to print. However, one thing is certain: when Putin, puffed up like a bullfrog, first launched this invasion, he believed he could just sweep aside the resistance of the Ukrainian masses and the anger of the rest of the world. However, currently, instead of victorious parades, the body bags of Russian troops are being returned, stoking up opposition that is already growing. This in turn has led Putin to go even further in his repression of Ukraine. He is seeking to use the same methods and the same army generals who were deployed in Syria, who savagely and indiscriminately bombed Aleppo in the ongoing civil war there.  Such methods will only serve to further outrage world public opinion against Russia and store up even greater resistance from Ukraine.

The Russian workers will rediscover the socialist traditions of 1905 and 1917, and of the original democratic workers’ state which came out of this before it was crushed by the heavy boots of Stalin and the bureaucratic regime. Putin wishes to maintain a quasi-Stalinist regime, but on a different class basis, ie outmoded capitalism. However, compared to 1917, Russian society is now developed and advanced, with an educated working class that will find the Putin regime intolerable. The same applies to the masses of Eastern Europe, China, and the rest of the world.

With the immense information contained in Catherine Belton’s book, we have tried to demonstrate here that the future of Russia and Eastern Europe does not lie with the political methods of a Stalinist regime battened on to outmoded capitalism.

Notwithstanding the horrors of this war, the working class and particularly its new generation will learn powerful lessons on how to avoid making the mistakes of their forebears and place no confidence in so-called strongmen, but in their own power and democratic control.

We characterise Putin’s Russia as a venal capitalist regime that will inevitably come into a head-on collision with the working masses both of Russia and of the countries that were formerly under the heel of Moscow Stalinism. All the main elements of a planned economy have disappeared and what we have is a veiled dictatorship, with the trappings of a stooge parliament, presiding over a capitalist regime.

Moreover, it has shown its ‘imperialist’ appetite by the invasion of Ukraine, but particularly in the bloody actions of the last period. There are no impediments and checks on Putin and his government that one would normally associate with a bourgeois-democratic regime. Numerous examples of a devastating character are related by Catherine Belton. She gives the example of “the state bank for special Kremlin projects linked to an obscure Crimean bank run by Putin’s childhood friend” who was involved in shadow banking and ‘black cash schemes’. It was even proposed that “a $50 million penthouse would be gifted to Putin”, which Trump, unbelievably, was involved in. The author states: “The KGB at least believed that it had recruited Trump”.

What does this all mean for the ongoing struggle in Ukraine, for the working class, both there and worldwide?  We face an unprecedented situation in Ukraine and Eastern Europe, which in turn has initiated one of the most disturbed periods in the history of capitalism. Putin, before this war, thought that he had a clear run to impose his methods not just on Russia but on the states of the former Soviet Union. But instead of a triumphalist Putin dominating the scene, he has initiated a war that could have incalculable consequences for Europe and the rest of the world.

The Putin regime is clearly capitalist in its methods and in its appetite for further conquests. It has also sought to lean on China for succour and material assistance. While we characterise Putin’s Russia as clearly an unambiguous voracious capitalist regime, we draw some important differences between Russia and China. The Beijing regime is also a ‘state-capitalist’ regime but of a very peculiar character. While there are many similarities with Russia, there are some striking differences. While China has one of the highest numbers of millionaires and billionaires in the world, the state still exercises powerful leverage in regulating how industry and society evolves. This allows the state to appear, unlike in Russia, as a powerful regulator in the direction of industry and the maintenance of a certain amount of ‘socialistic’ planning. However, this situation cannot continue forever without either a Chinese workers’ overthrow of the bureaucracy or an increasingly normal capitalist regime. This in turn will not be decided just within the borders of China but will be influenced powerfully by international events, like those we are witnessing in Russia and Eastern Europe at the present time.

The Socialist Party and the CWI give unequivocal support to the suffering masses of Russia, China, and the world. The events we are witnessing will leave an indelible impression on the toiling masses. Putin and his like, in showing the bloody face of capitalism, are supplying a powerful lesson to the peoples of the world that only a socialist confederation of Europe and the world can eliminate war and suffering forever.

Putin’s People: How the KGB took back Russia and then took on the West

By Catherine Belton

Published by William Collins, 2021, £9-99

Socialism Today Issue 257 May 2022

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May 2022