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Halfway home and a long way to go: Demokratizatsiya, Vol 8, No. 4, 2000 The law is like a horse cart; it will go whichever way you turn it. —Russian proverb Keith E. HENDERSON Keith Henderson is a scholar in residence at the Transnational Crime and Corruption Center, American University, and teaches "Global Corruption, Technology, and the Rule of Law" at American University’s Washington College of Law. He wishes to thank students at the Washington College of Law and his colleagues at TraCCC, in Washington, D.C., Georgia, Russia, and Ukraine, particularly Vladimir Brovkin, for their contributions to this article. In 1997, Elena Bonner, human rights activist and widow of Nobel Peace Prize laureate Andrei Sakharov, made an observation that in many respects sums up the current state of affairs in Russia and many other countries of the former Soviet Union:"The intelligentsia seems to have abandoned its historic calling of compassion and assistance in the favor of grabbing crumbs dropped by the corrupt and powerful."1 In this article, I focus on the causes of systemic corruption in Russia, Kazakhstan, and the successor states to the former Soviet Union and analyze how this omnipresent phenomenon makes many of the reforms of the last decade unsustainable, unimplementable, and unenforceable. With the tenth anniversary of the dissolution of the USSR fast approaching, the region is at a critical point. The roads those countries choose today will affect the region’s and the globe’s political and economic future for decades. Although the region encompassing the former Soviet Union is vast and diverse, the experiences of attempted reforms in two of the largest and wealthiest countries, Russia and Kazakhstan, vividly illustrate the myriad barriers to progress. The complexity and interconnectedness of the problems in the two countries illuminate the systemic corruption that is the region’s most serious problem. My analysis shows two categories of countries or subregions at different stages of economic and political development. The first category includes Russia, Moldova, Georgia, and Armenia. Each of those countries has made significant progress in a relatively short time. They now can generally be viewed as quasi-democratic market societies, but they are only halfway home. The second category of countries includes Belarus, Azerbaijan, and the Central Asian republics of Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan, and Tajikistan. Those countries are still ruled by authoritarian leaders and have a long way to go before they can begin their democratic journey. The main conclusion drawn from the analysis is that until political and economic systemic corruption is addressed in a holistic manner, countries in the region will not become stable, market-based democracies and reforms will not be enforceable or sustainable. Corrupt informal networks or alliances involving policymakers, oligarchs, and law enforcement and security officers represent the biggest hurdle to enforcing reforms and developing the rule of law in the region. An analysis of the causes and consequences of corruption in Russia and Kazakhstan is relevant, because their collective economic and political future has important regional and global ramifications. Russia and Kazakhstan’s 200 million-plus well-educated people and their vast natural resources are important strategic assets. However, for the people in the region to realize their potential, they must move from a society ruled by men to one of laws. At the dawn of the twenty-first century, the most important issue confronting the international community from a security, economic, or democratic perspective is whether the rule of law will become globalized. Russia and Kazakhstan have an important role to play in that evolving process. The Commonwealth of Independent State (CIS) countries—Russia, Ukraine, Turkmenistan, Uzbekistan, Kyrgyzstan, Tajikistan, Kazakhstan, Armenia, Azerbaijan, Georgia, Moldova, and Belarus—are still struggling to effect fundamental reforms in a monopolistic political and economic environment filled with secrecy, historical social undercurrents, and unusual power linkages. Both the pre- and post-Soviet governing networks at the country and regional levels depend on systemic corruption and secrecy for their very existence. In Freedom House’s 1998 Nations in Transit, journalist Stephen Handelman commented: "Corruption has replaced the command economy as the region’s most conspicuous, and oppressive, feature."2 He theorized that those governments’ retention of the power to determine who can own what property and for how long may be the most significant factor in explaining systemic corruption. Handelman forecast that until attitudes of openness, honesty, and trust in government take root in popular culture there is little hope of short-term change and even less hope that outsiders can affect the outcome significantly. Corruption is usually described as the abuse of public power for personal gain, although all acknowledge the existence of widespread corruption within the private sector as well. The practical result of systemic corruption is multifold, including distorted, nontransparent policy, revenue raising, and budgetary decisions; criminal infiltration and/or corruption of public officials, key government institutions, processes, and strategic business enterprises; ineffective or counter-productive technical assistance; a cynical press and public; rampant human rights violations; unenforceable or arbitrarily enforced laws, policies, and regulations; an underdeveloped middle class; government and self censorship; capital flight; money laundering; increased national and transnational crime; decreased trad eand investment; and poverty. It is the interaction of those factors that often leads to political, economic, and financial instability, as witnessed by recent events in Indonesia, Peru, and Russia. As far back as 1994, the OECD Financial Action Task Force estimated that as much as $85 billion annually was laundered from narcotics trafficking in the United States and Europe alone. Global laundering of money is now believed to be more than $500 billion a year. Many scholars believe that money derived from criminal proceeds circulating globally has the potential to penetrate Western society and expose it to serious financial and societal risks.3 They also note that money laundering has far more potential to control significant elements of society and business in transition countries, where democratic institutions, the economy, and financial conditions are much weaker. In such countries, public services such as education and healthcare suffer most, because autocratic leaders are accountable to no one, and many of their efforts go to protect the status quo and suffocate their political and economic competitors. Funding for corepublic services often loses out to theft, embezzlement, or fighting ethnic or political wars.4 A review of corruption literature and World Bank indigenous and international business community surveys, shows the interrelated problems of crime, corruption, and unpredictable judiciaries to be more acute in the CIS than in any other region of the world. Of the 3,600 indigenous and international businesses surveyed in 69 countries, approximately 80 percent of those in the CIS rated these three problems the highest barriers to economic growth.5 Perhaps more important, companion and subsequent public surveys in those countries indicate that crime and corruption reinforce public cynicism and are seen as by-products of democratic reforms; citizens also believe their new form of government is either incapable of protecting or refuses to protect their property rights and civil liberties.6 The Roots of Corruption Although corruption is usually grounded in a country’s cultural, political, and economic history, customs, and policies, it often flourishes or becomes systemic when institutions are weak and economic policies distort the marketplace. In the late nineteenth century, during the reform era of Czar Alexander II, corruption had already been identified as a centuries-old problem that was a major deterrent to Russia’s integration with the West.7 The causes of corruption noted then areessentially the same as they are now: • a society ruled by men not laws • a secretive, restrictive bureaucracy that stifles justice, the press, and the development of strong state institutions • a weak civil society unable to check government action • a disdainful citizenry Throughout Russia’s history, the bureaucratic apparatus made it impossible to control bribery. A regional governor or Communist Party secretary held an absolute monopoly of power in the provinces. During the reign of the last czar, especially after 1912, the increasing influence of Grigory Rasputin, the "friend" of the imperial family, virtually destroyed an emerging rational system of civil service based on merit and industrial reform and instituted one based on patronage, behind-the-scene deals, and inside favors.8 Historians have written that the Russian ruling elite has had a monopolistic lock on political and economic power since the eighteenth century. The last czar in 1917 and subsequently the last chairman of the Communist Politburo in 1991 were the omnipotent rulers of the elitist administrative network. Neither the 1917 Communist revolution nor the peaceful 1991 democratic revolution fundamentally altered that system of government and bureaucratic control.9 After formally eliminating the right to own property and effectively destroying the legal profession in the 1920s and 1930s, Communist Party officials proceeded to construct a lawless society grounded on well-organized, entrenched subordination to the rule of men not law. To accomplish this seemingly impossible geopolitical feat, they created a highly organized, well-trained security and police network. The security network allowed or encouraged its members to steal from the state and the public, within boundaries established by party officials, inexchange for monopolistic political power. By 1950, the Communists had eliminated the institutions of law and many of the foundations of civil society, institutions essential to holding government and business officials accountable and protecting citizens’ liberties and property rights. All laws and party actions were then justifiable to achieve the "social ends" of the state.10 After Stalin’s death, a classic oligarchy emerged, structured in a rigid hierarchy within the CommunistParty.11 Although many historians view Stalin as having built a lawless, repressive society in the 1920s, 1930s, and 1940s, Leonid Brezhnev is generally viewed as having established links between criminal networks and public officials.12 During his reign in the 1970s, formal public institutions were camouflage for private gain, and key decisions were based on ethnicity and made by a small circle of friends. Cheating the state and rule by men not law became accepted practice and principle. In Soviet republics such as Uzbekistan, corruption permeated everything, and patronage networks developed strong ethnic characteristics and anti-Moscow attitudes. In essence, the Soviet patronage system delegated authority to control others through a network of repressive police institutions. Those institutions took orders only from the Communist Party—not from the courts or local authorities. The party network in Moscow and the Soviet republics oversaw and tightly controlled the system, but it began to lose power during the tumultuous glasnost period under Gorbachev, as he attempted to reform the Communist Party. However, members of the network concluded that they had to resist Gorbachev’s , and then Prime Minister Gaidar’s, efforts to implement radical economic and political reforms because such reforms would ultimately deprive them of their power base.13 Their self-interested, collective decision led to the ouster of most of the real reformers, effectively ended glasnost, and enabled the network to consolidate more economic and political power.14 When the party lost power in 1991, the intact network began to consolidate economic power by becoming secretly involved in the privatization process in Russia and other CIS countries.15 Shortly there after, they joined a small group of intellectuals and market reformers, such as Yegor Gaidar, after concluding that the old administrative system they controlled was going to collapse.16 During the 1990s, Yeltsin’s failure to build new institutions to replace the party and the nomenklatura oligarchy fatally weakened the state’s ability to manage the complex reform process and to control crime and corruption.17 The police and the intelligence community (then the KGB), although themselves imploding, continued obedience to this network for a variety of reasons, including sharing in the transfer of vast state resources to party and nomenklatura insiders at bargain prices.18 Ten years after the fall of the Iron Curtain, there is growing evidence that many of the patronage networks and political controls that existed under communism are more powerful than ever.19 Large elements of the privileged ruling elite, or nomenklatura, continue to operate under the corrupt system at both the central and local levels. This form of lawless, meritless governance effectively prohibits the development of a strong civil society, democratic institutions, and effective law enforcement. Like the presidency itself in many CIS countries, organized bureaucracy is not accountable to the public or the legislature and continues to make decisions through autocratic processes controlled by secret networks.20 The links between the old Communist nomenklatura in Moscow and the law enforcement and security communities they constructed and controlled for more than seventy years remain strong in many countries throughout the region.21 The situation was exacerbated through the corrupt privatization process that occurred in Russia and many other countries during the 1990s. Although the network of privileged elites has its roots in the Communist Party, today it extends to the new private sector and encompasses the globe. Studies of the new Russian elite in the 1990s show that the majority of its members are drawn from the second rank of the Soviet-era nomenklatura.22 Systemic corruption has deep historical roots and thrives on a monopolistic set of interrelated political and economic circumstances for sustenance and growth.23 The oligarchy of political leaders, bankers, and media and business tycoons has a monopoly on economic and political power, stealing strategic state resources and engaging in capital flight and global money laundering.
"Ukraine had finally acquired its own elite, meaning that for the first time in its history the country is being governed by locals, the people who were born in the territory." The 1990s: An Unholy Alliance—The Nomenklatura, the Oligarchs, thePolice, and the Law Enforcement and Intelligence Communities In the 1990s, the Russian bureaucracy became larger than ever and continued to suffer from the same ailments that existed under the communist system. Under President Yelstin, large parts of the bureaucracy were further demoralized by an all-controlling, ever-expanding, personal apparatus that operated out of the Office of the President.24 Although this network remained largely under the control of the nomenklatura and the president’s men, it now sometimes deals with competing forces, including new business oligarchs, organized crime, privatized security services, and the corrupt law enforcement community. The form of government and the individuals and institutions in control at present are strikingly similar to those of decades past. The all-powerful Soviet bureaucracy, under the tutelage of the nomenklatura and the KGB, controlled the daily workings of the government. During the Communist and Yeltsin eras, the bureaucracy was encouraged to steal from the state with the permission and protection of the nomenklatura. The nomenklatura rewarded their loyalty by turning a blind eye to theft and bribery, guaranteeing personal protection and providing special government benefits and job security.25 The Yeltsin government, composed largely of former high party officials and the nomenklatura, effectively held power by sharing the proceeds from newly distributed state property with the same network it controlled during the Communist regime—often through "insiders only" privatization, embezzlement, or theft. The network included bankers, intelligence officials, and police. During Soviet times, key government decisions in the provinces were made by a troika composed of the police (MVD), the Procuracy, the KGB, and the Communist Party secretary.26 Since 1991, those forces have largely retained control, but now they often operate under different titles—such as minister, governor, FSB (formerKGB), general procurator, mafia boss, or director general (business enterprise chieftains).27 These power institutions have never undertaken fundamental institutional reforms and continue to operate as a corrupt mutual protection network. The emergence of extremely wealthy and powerful tycoons is one of the main differences between the old communist system and the new. Many have prospered by monopolizing Russia’s most important natural resources. Under the Communist regime, one elitist network or clan controlled virtually everything. Today, there alpower structures in countries such as Russia, Ukraine, and Kazakhstan are a mosaic of competing networks, clans, and forces vying for power and national resources. In many of the republics and regions, corrupt fiefdoms have been created. Local clans and networks rule freely, control the police, and are largely unaccountable because the central authorities are too weak to govern. In sum, the new system that emerged in 1991 did not so much represent the birth of a new form of government as a transformation of the old one. In retrospect, the revolution that many believed occurred was more a chaotic effort by nomenklatura-centered power networks to maintain political control and accumulate economic power and valuable state assets. The KGB, the MVD, and the Procuracy were free from party control for the first time and became integral transition players. In essence, it was a transition from party-nomenklatura rule to rule by unrelated, unaccountable institutions and the nomenklatura—all with the support of a corrupt KGB and law enforcement community.28 Russia’s prime ministers during the 1990s came from the party/nomenklatura/KGB/MVD network. Historically, the police in Russia have never been politically independent, and that is true today. An awesome troika, consisting of the procurator general (prosecutors), the minister of interior (MVD or police), and the FSB/intelligence community are accountable only to the presidents of countries or to powerful business oligarchs and criminal groups that have the resources to compensate them. Since 1991, the president of the Russian Federation and the presidents of virtually all of the CIS countries still effectively rule their respective countries through this unholy network. These patronage networks now also have the support of elements of the military.29 In the mid-to-late 1980s and continuing into the early 1990s, members of the police and the KGB left government service in droves to become involved in the newly privatized enterprises and to join private security services, which were needed to protect the oligarchs’economic power base and control financial flows through sham banks.30 Streams of well-trained civil servants left their government positions to make more money in various legitimate and illegitimate areas of the emerging private sector. In the early 1990s, Vladimir Putin was among those who resigned from the KGB to work on trade and investment transactions with the mayor of St. Petersburg. During that time, those who remained in government service were underpaid, overworked, and demoralized. They did not understand why they should risk their lives or work for meager wages to protect the newly wealthy oligarchs, corrupt public officials, and expanding criminal networks. Some believe that the fate of Yeltsin’s attempted law enforcement reforms was sealed in 1992 when he failed to raise the pay of the law enforcement community and undertake comprehensive civil service reform. That situation bred rampant bribery and created serious tensions and sometimes violent competition between the public and private security forces and the emerging oligarchs. The police/security network has strong ties to transnational organized crime groups, various high-level political figures, and numerous business enterprises.The transition process in Russia and other countries in the region enabled the network to expand far beyond its pre-Soviet borders and traditional activities. Insome cases, it has criminalized or corrupted important segments of the CIS economy and key state institutions.31 In 2000, Russian institutions are too weak to implement reforms and fairly and effectively enforce laws, because key institutions like the courts, the FSB, the MVD, and the Procuracy did not undergo fundamental reform during the 1990s.32 Those institutions remain systemically corrupt; they are not politically independent; and telephone justice still prevails over the letter and spirit of the law. Thus, they all must undergo a comprehensive overhaul before reforms will begin to take root. Former president Yeltsin’s efforts at reform in the early 1990s eventually failed, as he bargained with potent political forces inside and outside of government in exchange for political power and stability. At that time, those promoting fundamental reform of the corrupt criminal justice system and democratic reforms aimed at public participation, institution building, the rule of law (through initiatives such as the Russian jury trial initiative), and comprehensive reform of the criminal procedure code lost their battle to a cadre of economists and lawyers who focused almost exclusively on market reforms. The latter group’s political clout and resources were enhanced by a supportive donor community that was also focused on effecting market reforms as expeditiously as possible—without due regard for other important issues such as public participation and democratic processes.
Transnational Organized Crime Networks Up to one million people are now reported to be employed by newly privatized security services. Many are former police and intelligence agents or members of organized criminal networks. Public law enforcement has, in effect, been privatized or replaced with private security networks, most of which are unregulated and often linked to organized crime. Official Russian statistics indicate that around 8,000 criminal formations comprising an estimated 100,000 people now operate in Russia. About 20,000 crimes connected with corruption are recorded in Russia every year, but experts believe this figure is less than 1 percent of the real scale of corruption. A recent poll of businessmen in Moscow revealed that several thousand bribes are given and taken in just one day. Corruption has a particular hold over strategic spheres of the economy such as oil, gas and aluminum. The Russian government estimates that one-fifth of the strategic raw materials exported in 1995 took the form of contraband. The motor vehicle business, banks, real estate, and land deals are also subject to significant corruption. Some specialists call Russia’s economy mutinous and calculate that there is $300 billion or more in Russian capital in foreign banks.33 Although an estimated 110 Russian mafia gangs now operate in more than 44 countries worldwide,34 less than a dozen are believed to wield significant economic and political power inside and outside of Russia.35 Those groups grew at an unusually rapid pace during the 1990s, both in the scope of their activities and their geographic reach. They are now better funded and organized and consequently are continuing to expand their traditional activities, such as human trafficking, contract murders/enforcement, and narcotics and weapons smuggling. In addition, they have gained control over the majority of financial institutions and have infiltrated large blocks of the parliament, the executive, the judiciary, and the legitimate and illegitimate economy. They have become key players in world financial crime. Chechen gangs operate mainly in Germany, Austria, the UK, Poland, Turkey, Jordan, the Netherlands, Hungary, and the former Yugoslavia. Their main operations are banking, car smuggling, illegal oil deals, drug smuggling, and prostitution. Solntsevskaya is probably the largest Chechen gang and is involved in a widerange of activities, including drug production and smuggling, kidnapping, prostitution, extortion, arms and car smuggling, and banking and economic crime. They are particularly active in Germany, Austria, Poland, Belgium, the Czech Republic, the United States, Italy, and the United Kingdom. The Podolskaya gang, while smaller, is well armed and violent. Estimates are that it controls about 25 percent of the street trade and prostitution in Moscow. Casinos, money laundering, drug and arms smuggling, and trademark piracy are among its staple illegal activities. Its main import-export activities are believed to be in the Netherlands. Another Russian gang, called the 21st Century Association, is an umbrella organization and one of the most powerful in Russia. It has wide-ranging mafia and business activity operations in eighteen Russian regions and seven countries abroad, including the United States and Western Europe. Traditionally active in the oil industry, in recent years it has been shifting its focus to economic crimes and high-level public corruption schemes. Large sectors of the Russian Far East are reportedly controlled by organized crime networks that have established operations throughout Asia and Africa.Those groups are engaged in various activities, including human and narcotics trafficking, prostitution, weapons smuggling, and financial crimes. Latin American networks, such as those in Colombia, have also linked up with their Russian counterparts.
The 1990s—Movement Forward or Backward? After a decade of reforms and elections, it is clear that countries of the CIS have traveled only a short distance down the long and winding road to the rule of law.36 Of these countries, Georgia, with all of its problems related to poverty and unrest in the Caucasus, has probably traveled the greatest distance, although it has only begun to address endemic corruption and institutional law enforcement reform issues. As they did under Communist rule, many countries, regions, and republics in the CIS function along two parallel structures: the official institutions, such as the security chiefs, prosecutors, police chiefs, governors, and mayors; and the unofficial networks of the nomenklatura. Private property ownership rights are still not fully accepted, legally realized, or enforceable in many countries, regions, and republics, and the ruling network usually grants them only conditionally and for a price. In a number of CIS countries, some of the promises made by the political leadership to undertake political and market reforms were simply smoke screens utilized to maintain power and protect their own interests. The smoke screen was needed to obtain popular support and financial support from the West. The abuses of the privatization process in many countries, the empty anticorruption campaigns , and unreformed law enforcement structures were not openly discussed until recently, when greater press freedom, fledgling democratic institutions and civil society, and global links through technology combined to create more openness. During much of the 1990s, most countries in Russia’s orbit did not have political, civil, or legal institutions strong enough to support revolutionary reforms.Criminals, corrupt public officials, and businessmen took advantage of that fact and colluded to perpetuate that reality. Others chose to undertake micro-"high-priority" economic reforms with little regard for the fundamental rule of law issues at hand. The latter, narrow approach to fundamental economic and political reform was expressly supported by the Yeltsin administration and various influential members of the donor community, including the United States.37 During that period, corruption facilitated by personal ties became even more important, formal structures disintegrated, and corrupt networks flourished and expanded in numerous directions. Most in the middle and lower levels of the bureaucracy still resort to bribery because they otherwise do not make enough money to provide the bare necessities for themselves or their families. These economic and political realities make it difficult to reform existing laws, create institutions, or change ethical behavior. Indeed, corrupt lower to mid-level bureaucrats and self-interested high-level public officials, organized criminal and intelligence networks, monopolistic oligarchs, and unreformed, for hire lawenforcement regimes characterize most CIS countries today. The tentacles of this netwo rk reach around the globe.38 Systemic corruption is a sign that political opposition and a system of checks and balances do not exist or are extremely weak.39 Political elites and economic oligarchs make virtually all key policy and business decisions and control and pay off the police. They share the rewards of corruption and protect each other from the attendant risks, perpetuating the system they built by freezing out new entrants or charging them a high admission price.
Corruption in Kazakhstan and How It Compares with Corruption in Russia The oil sector reveals much about how systemic corruption works and shows the escalating cost to businesses and the public. Corruption explains why that sector is not globally competitive or more attractive to investors and why the people of Kazakhstan and Russia have reaped few benefits from the multibillion dollar oil deals effected in their countries over the last decade. The political system in Kazakhstan is more like a benign dictatorship than a presidential democracy. In comparison with Russia, the political system of Kazakhstan is more centralized, less fragmented, and shows more continuity with the Soviet past. Kazakhstan’s first and only president, Nursultan Nazarbayev, rules without apparent constitutional constraints. Many newly passed, reform-oriented laws are not enforced fairly or effectively. In theory, key institutions—political parties, courts, media, and the parliament—are in place but they are not functionally independent of the president and his network The two main opposition parties are tolerated but only within limits that cannot be transgressed. Laws are still used to repress free speech and protect public officials; for example, a recent law makes it illegal even to discuss the property holdings of the president or his family. Under such circumstances, many find it difficult to take Kazakhstan’s democratic and market reform efforts seriously.40 "The problem with the tax system in many post-Soviet states is that much of the money is in the so-called shadow economy, which is often outside the state’s formal control." Serious opposition candidates such as former prime minister Akezhan Kazhegeldin were barred from the January 1999 presidential elections on the grounds that they were being investigated on charges of corruption. Critics charge that the president’s selective prosecution of political opponents and journalists makes clear that the legal and political arenas in Kazakhstan, like the oil sector, are the exclusive domain of the president’s men. A leader of the opposition party was beaten and arrested in a neighboring country. Another leader was barred from running in elections. Independent journalists are routinely harassed, censored, bankrupted, and silenced. Kazakhstan has preserved the infrastructure of authority inherited from the Soviet times, although most Russian elites have been replaced with Kazakhs who have close ties to the president. The Kazakh governing structure closely resembles the power structures in Ukraine, Azerbaijan, and the other four Central Asian republics. During the 1990s, President Nazarbayev consolidated control over all of Kazakhstan’s institutions, including the parliament, the media, opposition parties, and the courts. The president’s political and constitutional maneuvers have rendered those institutions virtually powerless. To the extent that they exercise power, they do so largely at his direction or with his tacit consent. They are used to oppress, as they were under Soviet rule. In addition, the president has further consolidated power by balancing the interests of three distinct clans or hordes through government appointments and protection networks. In the Kazakh context, "hordes" is a historical term that implies a national subgroup distinguished by its own subnational identity, physical appearance, dialect, geographic concentration, and other affinities. President Nazarbayev belongs to the so-called Great Horde. To date, he has maintained a balance of power between the hordes’elites, but because of strong political forces operating in civil society, as well as significant underlying political unrest and poverty, there is no guarantee that that balance can be maintained. Although Kazakhstan has some of the word’s most highly prized oil reserves, current and potential investors are becoming wary of systemic corruption there. Some are turning to more friendly, predictable market swhere the long-term cost of business is calculable and the rule of law is more than just a constitutional theory. In Russia, where government is more open, but corruption is also more chaotic and unpredictable, either indigenous and international businesses have not been permitted to make legitimate investments or they have decided that it was not politically wise or economical for them to do so. The international oil industry inRussia also has less leverage to negotiate with Russian officials and quasi-private oil barons than it has in Kazakhstan, where more significant investments have been made. Kazakhstan’s primary source of internal revenue and external power is oil. From a global perspective, the long-term cost and risk of corruption are unpredictable and often make a deal financially unattractive when compared to other, less-corrupt markets. The Kazakhs and other Central Asians are somewhat different from the Russians in that they have traditionally relied on informal network negotiations to maintain power. In contrast, the Russians are more prone to be confrontational, examples being Lebed’s harsh actions against the aluminum magnates in Krasnoyarsk and Yeltsin’s bombing of the Russian Duma in the early 1990s. President Nazarbayev’s network, on the other hand, are perceived as being negotiators par excellence. Their modus operandi appears to be to maintain order and become rich by brokering deals through delegating and sharing power with others in less-strategic sectors, and by widely distributing some of the proceeds of brokered deals to a well-organized, old-boy network. During the last decade, Nazarbayev sent packing many of the old Russian elite, without physically provoking them,while successfully negotiating deals with the United States and with European and Russian conglomerates. He has now turned his sights toward the Middle East and China. One reliable intelligence source estimates that some of the president’s top aides pay more than a thousand bureaucrats monthly stipends from the illegal proceeds of oil deals and related bribery. The bureaucrats protect the network’s interest and resolve problems, which they basically created to extract more bribes. Over time, the ever-expanding network has become so expensive that companies cannot make the profits in Kazakhstan that they can make in other markets. |
