#16
The Russia Journal
October 28, 2003
Putin's rebellion and the protest vote
By John Helmer
The idea of fiscal justice â that taxes should be paid in proportion to the
taxpayerâs means â can produce bloody rebellions and even revolutions. But
not in Russia.
What then-President Boris Yeltsin did in the 1990s was an old trick he
might have cribbed from the histories of the old regimes of France if he
had had the resourcefulness to read them. In his case, desperation took the
place of literacy.
Until the French Revolution of 1789 halted the practice, French kings
pursued buying the loyalty of those powerful enough to threaten their rule
by handing out gifts of state assets. Productive agricultural land was the
most important of these, but import concessions and commodity monopolies
were also awarded. In addition, the kings sold titles of nobility. In
return, they exempted the titleholders from paying most of the taxes of the
realm. Thatâs what an aristocracy is made of â the right to exemption from
tax, traded for a royal bribe, and the promise not to take up arms against
the monarch. In this respect, all aristocrats are nothing if not petty
bourgeois, and the foundation of their fortunes, while not necessarily a
crime, is certainly a tax break.
Compared to the tsars, Yeltsin democratized tax exemption among Russians.
He also favored a small elite, which has managed to concentrate most of the
cash value of the exemptions into their own hands while selling off their
debts. They are known as the "oligarchs."
It is easy to understand that, the more insecure kings are, the more tax
exemptions they dispense, at the same time as their expenditure
requirements â for armies to protect themselves from rebellion â grow
apace. The tax base shrinks, as fewer and fewer people are obliged to
shoulder the costs of the unbalanced, crooked state. Yeltsinâs one original
contribution to this long, sordid history was his invention of the 100
percent tax on low incomes: The practice, implemented by a succession of
finance ministers, of withholding salary payments to state employees on the
pretence of bureaucratic delays. By extension of the same practice to all
those owed money by the state, the tax was adopted by private employers
toward their employees.
Throughout the worst of this tax, there was only one revolt â that of the
Supreme Soviet in 1993. By physically liquidating the parliament and
killing more than a hundred of its defenders, Yeltsin taught a generation
of potential tax rebels that it was safer to steal from the system than to
fight it.
In the history of tax rebellions, poor people generally stay aloof. They
die in swarms, but usually from disease, not from protest. Those who are
prepared to fight for fiscal justice â attacking either the king or his
noblemen â usually come from the small propertied classes; well-off
farmers, tradesmen, artisans or small-business owners. They arenât so poor
that they donât pay any taxes. Nor are they wealthy enough to buy their way
into the exemptions of the aristocracy. So, they are the meat in the fiscal
sandwich. When kings fear for their lives, these are the people who pay for
his peace of mind. But their potential for disloyalty is always on his
mind. The development of European bureaucracy, with all its record-keeping,
inspectors and sanctions, is the evolution of squeezing the meat in the
sandwich to the limit.
The current conflict between President Vladimir Putin and the oligarchs is
unique, because, for the first time in Russian history, it is the king who
is trying to dismantle the tax exemptions. He is doing this without any
show of support from the small-business groups who stand to benefit most.
They are too afraid of Putinâs weakness and the oligarchsâ vindictiveness
to take his side, at least for now. Those who ought to be their natural
representatives, the deputies of the Duma Tax Committee, are hirelings of
the oligarchs. Yevgeny Primakov at the Chamber of Commerce and Arkady
Volsky at the Union of Industrialists and Entrepreneurs ought to speak for
them, but they donât dare to raise their voices either.
What Yukos CEO Mikhail Khodorkovsky is trying to do by selling a 40 percent
stake of his oil company to ExxonMobil is nothing less than cashing out the
capital gains on all the Yeltsin dispensations from which he benefited
before next March. The timing is short and the method desperate, because
Khodorkovsky and his fellow oligarchs are certain that Putin will introduce
the necessary taxes to redistribute the wealth in the realm once he is
reelected. "Stealing" is the word that, in the worldwide history of tax
rebellion, all rebels use more often than any other to attack this
practice. Khodorkovsky is no more than a thief trying to bank his loot in
the United States. He may count himself less fortunate than Mikhail Fridman
and Victor Vekselberg, whose sale of Tyumen Oil Co. to British Petroleum
early in the year caught Putin unawares, uncertain of what to do ahead of
the oil-price crisis the Iraq war could have triggered. Roman Abramovich
has been just as fortunate in getting his cash out without paying tax,
although the assets have remained in Russian hands. Thieves they are, in
Putinâs view and in the opinion of most Russian voters.
This too makes for a unique alliance in the history of tax rebellions â the
king in league with the passive poor. It is just as well that Putin has
effective command of the Army and the security services, because his
enemies are currently so numerous, his allies so impotent and the stakes so
big that he might otherwise become a target for violence. Yeltsin destroyed
the inhibition to use violent methods in 1993. The methods the oligarchs
have used also lack this compunction.
Some of the oligarchs donât have the stomach for confrontation with the
Kremlin, but believe that Putin will be satisfied with a pantomime of
concessions. Their paid propagandists at Vedomosti and the Moscow Times
charge that all Putin is holding out for is a slice of the tax-exempt
proceeds for himself. Vladimir Potanin, who controls both newspapers, has
publicly proposed a program of raising employee salaries â although, at the
same time, he is trying to make sure that the employees of his Norilsk
Nickel mining company and the voters of the city of Norilsk will not elect
as mayor the union leader who has been agitating for just such an increase
since January. Vekselberg recently gave in to the first major strike of a
group of employees at his Siberian Ural Aluminumâ while simultaneously
trying to prevent a single newspaper from reporting the wage gains the
strikers have made, in case their example becomes infectious.
Thatâs another of the risks the oligarchs are running, as the conflict with
Yukos drags on toward Election Day on Dec. 7. The chance is growing that
Russiaâs poor may cotton on to what Putin is trying to do and find their
own spontaneous ways of taking the offensive against the oligarchs. A
protest vote of this magnitude wonât show up in the preliminary polls. But,
if it happens, it will signal that Russiaâs young aristocracy is on its
last legs.
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