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How the world got Putin and the Mafia State – Anthony Lipmann

Blog | By Anthony Lipmann | Mar 02, 2022

Wouldn’t it all have been so different if Gorby had hung on? But we all remember how that ended, don’t we?

He and his exceptionally beautiful wife Raisa were holidaying at their seaside place in Crimea in August 1991 when they were put under house arrest. A cadre led by that other Boris, Boris Yeltsin, seized power in that iconic moment when he stood on a tank outside the Russian White House. The first rule of all revolutions had played out. The first movers had been replaced, the ideals of Glasnost and Perestroika had died, and we were on the path to Putin.

I remember those early days in the 1990s well because my job was to travel around the former ‘evil empire’ as a relatively lowly metal merchant, hunting for metals. And, like everyone else, although we wished Russia well, we went over to see what we could pick up.

One day in Tallinn, I got lost deep in empty snowy streets, as I sought a company I was supposed to visit. The townscape looked like a Russian painting in the Tretyakov Gallery; old wooden houses with roofs heavy with snow and eaves dripping with icicles big enough to kill a man. I knocked at a door to ask the way and it was answered by an old academic and his wife. They were so old that they remembered the days before Estonia’s annexation in 1940 by the Russians. As I peered in, I could see booklined shelves, brass candelabra, chandeliers and frayed elegant Persian carpets. They could not believe that someone speaking English had knocked at their door. They had kept their English alive by listening to such BBC Radio programmes as they could obtain. For them, my arrival was like the first day of spring and they did not want to let me go. Communism was over.

Later I visited the Maritime Museum where an elderly female attendant was resting her weary bones on a chair engrossed in a paperback biography of Churchill, a book perhaps left by another trader. ‘You like Churchill?’ I asked by way of opening a conversation. ‘No’, she said in imperfect English, ‘I just want to find out what happened’.

Those were my early impressions, but it soon became apparent that these former Soviet States had a terribly hard task on their hands to improve the lot of their people. On one occasion I found myself part of a delegation from AT&T visiting Ukraine to inspect the Dnipropetrovsk telephone exchange. The Ukrainians’ plan was to barter the value of the silver and palladium in the old telephone relays to pay for a new digital exchange. The only issue was that under communism only 1000 people out of a population of a million in the city had a phone! The metal could barely buy a loaf of bread.

Hints of what was to come were already there. People like me were part of the problem. Me, that is, and the brutalised men in shell suits propping up the bars. What we gave willingly to the post-Soviet world, as its citizens came blinking into the light, like prisoners unexpectedly released from the Bastille, was capitalism – but it was not the capitalism of the welfare state but a form that had been extinct since the time of Dickens – as neat as vodka, but without the tonic. The whole of the Former Soviet Union, you could say, became part of a real-time social experiment to ascertain what happens to a society that is entirely humiliated.

In this interim, a country of such vast resources as Russia became nothing more than roadkill for financial vultures and corvids. Why, people in London wondered, did so little noise come out of Russia in the 1990s at a time when families in some of the grey tower blocks were living without light, heating, sewage disposal, or water and when those who had worked their entire lives had seen the value of their pensions disappear into thin air. Could it be that liberty, that substance that can neither be eaten or slept on - and yet can be breathed - was worth all this?

So, the Russians got to work and in this void the only way to survive was to dismantle the physical structures of the old state and sell it for scrap. For a metal merchant such as me this was OK, because two-thirds of Soviet GDP had gone into preparing weapons for the Third World War, and a lot of it was made out of the stuff. In my industry, the peace dividend was paid in metal and an incredible logic took over. If, as the West had said, the old empire was no more, ergo it meant everything it once owned required a new owner. In those days, that could mean that if you happened to be a guard at a warehouse full of ingots, you concluded that perhaps it was all now yours. Meantime, the military, whose salaries had been left unpaid, started cutting up their tanks. The navy set about plasma-cutting the titanium hulls of their Komsomolets Class nuclear submarines. The air force disassembled their MiGs. On one journey out of Latvia I carried a section of MiG wing onto the plane home because it was made out of a scandium-magnesium-aluminium alloy that interested me. The Russian metals industry that had grown apart from the West was a Galapagos Islands of metallurgy. For a metal merchant this was very heaven!

We saw the powerful influence resources played, when the large Kombinats (factories) in Siberia became the fiefdoms of their former politburo bosses who had now become feudal barons in their regions. The barter deals in aluminium were used to pay for townfuls of white goods, vehicles, coffee, sugar, and chocolate for dependent workers. But this built up new vested interests and strongmen. During this time setting up a legitimate business in Russia was out of the question. I had a Russian friend who just wanted to set up a dry-cleaning shop in Moscow. On ‘day one’ it opened. On ‘day two’ they were visited by the mafia. On ‘day three’ it closed. The dead hand of mafia killed more hopes than it ever killed people. And suddenly, quite early in the 1990s, all those dreams of freedom were gone.

In Siberia it was not long before large Western trading companies realised that in this twilight world it was possible to import into Russia a million tons of alumina, toll it into aluminium at, say, Bratsk, pay for the rail transport in and out, as well as the energy to smelt it all, in non-transferable roubles – and then realise revenue at export in crisp U.S. Dollars. This hard currency was then held in such places as The British Virgin Islands, Switzerland, or Guernsey assisted by an army of lick-spittle accountants and lawyers in the City of London.

Today all I have is a sense of despair at the terrible missed opportunity; deeply exacerbated today at the sight of the Russian invasion of Ukraine. During that early time at the beginning of the 1990s, the best advice the West appeared able to muster was the idea of privatisation. If Russia, the state, did not have sufficient foreign reserves to feed its people or pay its pensions, then the great assets that 70 years of communism had built up could surely be privatised, couldn’t they? That was The World Bank’s and IMFs big idea and Yeltsin needed little encouragement to follow the plan.

Hadn’t it worked in UK when Mrs Thatcher sought to create a share-owning nation, privatising British Gas so that ‘Sid’ could get his shares? So why not Russia? This was the beginning that marked the descent into oligarchy when Yeltsin’s government granted coupon shares in Russian industry to the population. With almost no experience of private enterprise, Russians did not trust the coupons’ value or possess the stamina to wait and see if they’d gain some. If they could sell their coupons for a few dollars, this is what they did.

Essentially, one way to understand Putin is to perceive that he sees the world not just through the perspective of 1970s Cold War paranoia but as if Russia is defending some kind of mental Stalingrad and executing his own personal ‘Not one step backwards’ policy. In this regard his actions are likely to be the most frightening because the West so underestimates the Russian capacity for cruelty – that is, cruelty to its own. As Antony Beevor recounts in his eponymous book of the battle, this was demonstrated at Stalingrad when commanders were ordered to shoot every tenth man on parade - ‘pour encourager les autres’.

Putin feels he is head of a nation that was hated and surrounded before he came to power, while his statements about Ukrainian neo-Nazis betray this time-warp as if he is still fighting the Great Patriotic War. His job, as he sees it, is to restore Russian pride. In fact, he was quite good at all that retro-Sovietism. What he was not so good at, was creating an enterprise economy. Can you imagine Putin’s Russia ever creating a single Bill Gates?

I leave the last word to a metal man I knew in Estonia. Sergei was a Russian-speaking Estonian with links to his Russian homeland. His great interest was metallurgy, and he was so inventive he created an entirely new way of evaporating Rhenium out of scrap, which he did in Tallinn using a means not used anywhere in the world. In due course, once his factory was built, and consuming vast amounts of electricity, he duly got the visit from the mafia who demanded their extortion money. His answer was not one most have been able to choose. He handed them his gun and asked them to kill him. They left and never returned. He is one of the many great characters I have met as Russia went on its journey into its new darkness.

When the West had a chance to assist Russia towards a soft landing and welcome its’ people into the family of nations, we did very little other than sell them a lot of left shoes, facilitate oligarchs to acquire a lot of resources, and then to manage their ill-gotten gains via the City of London.

We will have to do better next time – that is, if there ever is one.