Working on the Railroad

The sudden surge of sympathy of Vladimir Yakunin – the long-time CEO of Russia’s railroads, friend of Vladimir Putin, ideological crusader against Western decadence and owner of a fur coat warehouse who is evidently moving to the Federation Council – is touching but misguided.

Yakunin will be fine. Why? Because he played by the rules.

The rules, as I’ve written before, are straightforward: Members of the Russian political and economic elite are given access to significant sources of rent on a leasehold basis; while they control these sources, they remain politically and economically loyal; and when the state comes calling, driven by the need to redistribute rents and re-balance intra-elite competition, they happily step aside, secure in the knowledge that they will, eventually, be rewarded.

Witness Khodorkovsky, on whom the rules were first tested. Witness erstwhile Moscow Mayor Yury Luzhkov, who fought and lost everything. Witness GFK-Sistema CEO Vladimir Yevtushenkov, who thought about fighting, decided not to, and is doing fine atop his holding, minus one oil company. Similarly Anatoly Serdyukov, who did not fight his dismissal as Minister of Defense, evaded charges of corruption and now enjoys a comfortably senior position in Russia’s military industrial conglomerate Rostekhnologii.

Once again, Yakunin will do fine.

RZhD – the rail monopoly he controlled, but which is 100% state owned – is a source of rents on a massive scale. Despite making an annual operating loss in 2014 of 99.3 billion rubles, it had operating income of 1.8 trillion (about $26.4 billion), including 1.2 trillion rubles from freight hauling and 221 billion rubles from logistics. Among the company’s outgonigs are 215 billion rubles on materials and maintenance, 95.5 billion rubles on fuel, 127 billion rubles on electricity, 6.7 billion rubles on commercial services. Capital investment in 2014 came to 461.8 billion rubles. That’s a lot of contracts to go around.

Remember that Russia’s rentier economy is a lossless system, which means that all the money that fails to make it to RZhD’s bottom line (or Gazprom’s, for that matter) ends up in someone else’s pockets.

Hence the appointment to replace Yakunin of Oleg Belozerov, rumored to be an associate of Arkady and Boris Rotenberg, who have gotten rich off infrastructure and other contracts provided by the Russian government and government-linked corporations. Prior to joining RZhD, Belozerov served as Deputy Minister of Transportation, which, according to Russia’s Audit Chamber, misspent approximately 9.3 billion rubles in the first half of 2015 alone. Prior to that, Belozerov ran the Federal Roads Agency, which also figures prominently in the Audit Chamber’s reports. Before joining the government, Belozerov worked in state-controlled energy holdings. His, then, has been a career of doling out contracts. Whether the RZhD contracts shift to the Rotenbergs remains to be seen, but that’s unimportant. The important thing is for the rents to keep flowing.

Exactly why the time had come for Yakunin to step aside is unclear, but it’s also unimportant. Rather than signalling the fracturing of the Russian elite, as some (remarkably ill-informed) observers have suggested, Yakunin’s peaceful departure demonstrates the resilience of Russia’s rent system. Don’t get me wrong: Putin and his cronies may fall, and maybe even soon, for any number of reasons. Just not this one.

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2 responses to “Working on the Railroad

  1. Pingback: 8/21 Weekly Roundup | The Elicitor

  2. Pingback: A feast in time of plague | Moscow-on-Thames

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