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Russia’s lessons for SA’s elite

Published Apr 11, 2011


There are two main reasons why corruption thrives. The first is because prosecution is weakened by the public’s indifference towards corruption; and this makes it unpopular for anti-corruption crusaders to go after perpetrators.

The second reason has to do with the increasing resourcefulness of those who engage in corrupt activities. They are an elite group that thrive through corruption and subsequently sustain themselves through corrupt activities.

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The latter case is of serious concern here and it usually involves the use of state resources – be it policy, direct acquisition of state assets, and also the use of state development financing institutions – to sustain the emergence of such a class of elites. The best known example of this is the acquisition of vast wealth after the collapse of the Soviet Union in the 90s.

A group of quasi-businessmen emerged and captured huge stakes in Russia’s oil and gas industry

The group came to be dignified by the name oligarchies.

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The most prominent face of this group is Mikhail Khodorkovsky, who is serving a jail term for tax evasion and other grand embezzlement-related offences in Russia.

The emergence of such a group in Russia and how it came to reconstitute and legitimise itself in the face of the global business community could be a useful point of reference for South Africa.

It is important to ask if South Africa is experiencing the emergence of an oligarchic class that thrives by capturing state resources and then repackaging them as legitimate business ventures.

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This phenomenon would amount to corruption, but not in a straightforward sense.

Rather, it is in a sense of rent-seeking: making wealth without engaging in economic activity.

The modus operandi is to use state resources to build business empires and concomitant political influence to ensure further expansion. Down the chain, the group would then capture political office in a way that shields their way of acquisition from government scrutiny. That completes the cycle and can leave the nation and the political system heavily reliant on the interests of the group.

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This sounds like reading from Karl Marx, but sad as it is, it is how political influence is traded with financial influence in our societies.

The complex issue about this method of accumulating wealth is that big financial institutions are used to finance most of the deals concocted under suspicious circumstances.

And, big finance houses end up being entangled in this web of acquiring assets through state resources.

Western financial institutions played a key role both in advising and financing some of the acquisitions that led to the formation of the post-Soviet oligarchic business ventures – including the once giant Russian oil company, Yukos, and Bank Menatep, for example.

One of the stories that does not see the light of the day in relation to this experience in Russia is exactly how the oil and gas stakes were acquired in the first place.

The stories that are often repeated include when companies such as Yukos and Bank Menatep appear on the scene as legitimate companies whose shareholders also involve established western banks.

Khodorkovsky acquired most of his wealth through a close relationship with the Kremlin.

He aggressively cultivated his political connections to amass wealth, simple as that.

This does not mean he was not a visionary; but he followed dodgy means to get to the helm of the petroleum business in Russia and became one of the main global players in the business.

The assets that constituted Yukos were acquired in controversial wholesale privatisation as the Soviet Union was collapsing.

Why all this sordid post-Soviet history with gangster bankers and death squads?

The developments and the emergence of the oligarchs in Russia show how corrupt, but not illegal, means of acquiring wealth through state resources have created champion business elites in a state of chaos. The international business community came to adore the oligarchs irrespective of their ruthless and openly corrupt way of accumulating wealth.

When the state apparatuses were used to reign in the oligarchs, most of whom are in exile and jails now, an outcry emerged.

Vladimir Putin’s regime was becoming unsettled by the potentially democratising elites who had put Russian companies on the global map. Here, in South Africa, there is a group of elites who are rapidly accumulating wealth through dodgy but not illegal means.

Their deals are financed by established international financing institutions and also government’s development financing institutions, such as the Industrial Development Corporation.

This gathering group of elites is doing well not because it has business acumen, but because it is not totally against private business, thus, it is not agitating against private capital.

The main question to ask is whether this way of accumulating wealth and assets is sustainable in a way that will not pose a long-term risk to the notion of private business and private property.

Thus, would these methods not unduly bring about distortions in private business and result in a crisis of legitimacy when it comes to the private sector in a similar way as was the case in the post-Soviet oligarchs in Russia?

As far as South Africa is concerned, we seem to have mostly individuals accumulating wealth in a seemingly unjustified manner .

We have turned our attention away from the institutional apparatuses under which the phenomena is taking place.

Individuals come and go, but the system would have a long-lasting effect on society.

Individuals only take advantage of what is tolerated by the system.

They do not necessarily make policy for us. They only utilise it.

At the core of our policy though, lies a fundamental confusion as to what constitutes acceptable private wealth accumulation.

South Africa is rapidly shifting towards a sophisticated type of corruption, the type of corruption that is not illegal.

This state-sanctioned type of corruption could pose a serious legitimacy problem on private capital, if it has not already started bearing such consequences.

The public frustration with the controversial acquisition of wealth by a select few is such that the call for nationalisation would gain momentum in South Africa’s development discourse.

Private companies and financing institutions whose concern seems to be to survive in the uncertain business environment in South Africa, would ultimately be labelled collaborators and may risk their reputations by being involved in some of the dodgy deals concocted by the select few who are politically connected. Attempts by established financial institutions, to raise questions about the controversial business deals involving the select few, raise the dilemma for them of being seen as insubordinate to South Africa’s development agenda.

Even more challenging is that private companies and other international financial institutions can count only on the support of the emerging state-assisted business elite to fend off calls for the abolition of private capital.

A similar challenge was seen with Russian oligarchs when they came under pressure from Putin’s regime: the oligarchs were the only force at the forefront of the defence of private capital.

Then the question arose as to how they accumulated wealth in the first place, a question that weakened their line of defence against the repossession of their assets by the state. South Africa needs to be careful to avoid the situation where the morally controversial businessmen who unduly attained their wealth through the state come to be the one and only line of defence of private capital in the country.

Their defence will be weak.

It will not hold against the assault mounted on private capital given circumstances that there seem to be fewer cases of legitimate private capital that have emerged in the post-apartheid era.

Quite often in South Africa, it is argued – in defence of the ensuing controversial acquisition of wealth by the politically connected – that the state is assisting those individuals with the aim to level injustices of apartheid because the apartheid system also created its own elites through state resources.

This argument is untenable because apartheid citizenry is fundamentally different from the expectations of a post-apartheid democratic citizenry.

The two cannot be compared at all; there is no moral equivalence between an apartheid citizen and a post-apartheid citizen.

The emerging group of elites who unduly benefit from political connections will become a liability to private capital in South Africa.

They may not be counted upon to be upstanding defenders of private capital.

n Mathekga is director at Clearcontent Research and Consulting

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