Vodka Politics (77 page)

That summer, while his protégé Medvedev was drumming up support for an epic showdown with alcohol, Prime Minister Putin and his cabinet were noticeably subdued. “We [Russians] should drink less,” was his most energetic statement on the matter. Putin critics, including former chess grandmaster-turned-dissident Garry Kasparov, suggested that his frigid response was business related: heavily invested in Rosspirtprom, Putin’s friend and former judo partner Arkady Rotenberg stood to lose millions from slashing vodka. Indeed, this was one of the most damning accusations of corruption against Putin in a widely circulated exposé titled simply
Putin. Corruption
. “Why would Putin raise taxes on his friends’ business?” asked the report’s authors, including opposition politicians Boris Nemtsov and Vladimir Ryzhkov. “The lower the price, the higher the sales. And so, while people across this vast country are drinking themselves to death—it is simply not considered a problem for this government.”
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A necessary corollary is that, if the state were to raise taxes on vodka (either in the name of public health or state finance), it’d also likely find a way to protect the business interests of the well-connected members of the ruling
sistema
. It seems that is precisely what it has done.

In 2008, the Kremlin formed
Rosalkogolregulirovanie
(RAR), a new government bureaucracy ostensibly meant to streamline oversight and control over the vodka market. But instead of the usual bluster about promoting public health, First Deputy Prime Minister Viktor Zubkov—whom Putin had personally entrusted with the new vodka authority—has focused almost exclusively on revenues being lost to the black market. Just like Arkady Rotenberg and Vasily Anisimov—the billionaires controlling the national champion company Rosspirtprom—Zubkov also had ties to Putin’s elite judo club Yawara-Neva, as member of its board of trustees and chair of its audit committee. What’s more, Zubkov was also a long-time board member of Rosspirtprom itself—one of the companies RAR was now in charge of regulating. Ignoring any conflict of interests, many of the RAR executives simply emigrated with Zubkov from Rosspirtprom. And perhaps not surprisingly, these omnipotent government regulators have been selectively wielding their licensing power primarily to rebuild Rosspirtprom’s market share at the expense of domestic and foreign competitors, with reducing public drunkenness a mere afterthought.
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Of course, the protection of these vested interests in vodka works at cross-purposes to the promotion of public health and wellbeing. If the farce of RAR wasn’t enough, these misplaced priorities are evident even among others tabbed with promoting the public good. Take, for instance, pronouncements by Putin’s Minister of Health and Social Development, Tatyana Golikova, who has focused on alcohol and the plight of Russia’s youth. And with good reason: with
more than half
of all recent high school graduates projected to die before they reach retirement age, the children truly are Russia’s demographic future.
⁴³
Yet inexplicably, instead of targeting vodka—the potent tipple that comprises the vast majority of the Russian alcohol market—she instead took aim at beer. “Some 33% of young men and 20% of females drink alcohol, including beer, every day or in a day, while regular beer drinkers account for 76% of the population.” This was an unusual tactic, since it is common knowledge among health experts that distilled spirits like vodka have a far more damaging impact on health than fermented wines and beers.
⁴⁴

Golikova was trained as an economist, not a physician or epidemiologist—curious qualifications for the nation’s top health authority. She previously served as first deputy finance minister under her mentor, Alexei Kudrin. As health minister, Golikova was besieged by allegations of corruption, starting with Navalny’s probes. Investigators have alleged her complicity in the embezzlement of hundreds of millions of dollars allocated for health ministry purchases. Potentially more damning are accusations that she intentionally failed to regulate the
dangerous, highly addictive narcotic called desomorphine—known as “krokodil” due to the scaly, rotted appearance of the flesh around injection spots—manufactured by a company where her stepson works, effectively making Russia’s health minister also its “main drug dealer,” in the words of opposition journalists.
⁴⁵
Time will tell whether such damning accusations have merit.

Golikova’s demonization of beer rather than the more potent vodka foreshadowed Duma legislation in 2009 that proposed a ten to thirty-five percent increase in taxes on vodka (which made up seventy percent of the market) while increasing levies on beer by
two hundred
percent. “200% tax is not enough,” declared United Russia representative Viktor Zvagelsky, deputy chairman of the Duma’s powerful Committee for Economic Policy, who wanted to see the beer levy increased by an additional eighty percent. His reasoning? “The risk of alcohol dependence among consumers of beer is higher than that of consumers of wine or hard liquor.” Flying in the face of all epidemiological research and historical experience in Russia and abroad, Zvagelsky claims: “Beer alcoholism is, in some cases, more dangerous than distilled spirits.”
⁴⁶

“I find it very hard to understand the logic behind the disproportionate increase of excise duty on beer compared to strong alcohol,” replied Anton Artemiev, chief executive of Baltika, Russia’s largest brewery. “It will inevitably favor the consumption of hard alcohol, including vodka, and is bound to have a negative effect on alcohol abuse in the Russian society.”
⁴⁷

Cynics saw the logic of vodka politics all too clearly. “The motivating factor behind the proposal was as old as they come: taxes,” wrote Tim Wall of the
Moscow News
in 2009. In addition to its vodka problem, Russia had also become the world’s third-largest beer market, behind only China and the United States, a major difference being that fully four-fifths of the beer consumed in Russia was made by foreign-owned brewers while almost the entire vodka market was either in state or private Russian hands. Slapping such a hefty tax on beer would not only bring in another two billion dollars; it would also bolster the position of (domestic) vodka producers vis-à-vis their (foreign) beer rivals—all ostensibly in the name of the public interest. “The Kremlin is just doing what governments do when they’re short of cash,” Wall concluded, “roll the drunks for a few roubles, dollars, pounds or euros. And Russia’s federal budget will be seriously short of funds in the next couple of years, particularly if the oil price falls.”
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Despite the vocal protests of beer manufacturers, the measure passed, severely damaging multinational producers like Carlsberg and SABMiller with their extensive investments in Russia. The predictions came true, of course: beer sales dropped between five and fifteen percent by 2012 while domestic manufacturing of the more potent vodka expanded by roughly the same amount.
⁴⁹

The counterintuitive crusade against beer continued in 2011, when a bill from Medvedev’s original 2009 anti-alcohol plan came before the Duma, intent
on re-categorizing beer as an “alcoholic beverage”—meaning it could no longer be advertised on television or be purchased at any of Russia’s ubiquitous kiosks. The original bill focused primarily on the more potent, higher alcohol brews. Proposed exemptions covered weaker beers under five percent alcohol by volume, which comprised the lion’s share of beer sales. Yet somewhere between the first and second reading (and quick passage) of the bill, the five percent exemption mysteriously disappeared: effectively imposing a total ban on
all
beer in kiosks, dealing a major blow to brewers and retailers alike.
⁵⁰
In the process, an originally sensible, incremental restriction was transformed into a drastic, sweeping imposition, similar in spirit to the failed autocratic sobriety measures of the past.

As with the previous anti-beer legislation championed by United Russia deputy Viktor Zvagelsky—who (according to articles linked on his official website) has authored most of the legislation related to the alcohol industry—this was not so much a benevolent move in the defense of public health, but rather a blatant attempt to defend the market share of domestic vodka manufacturers against predominantly foreign beer companies. Did I mention that before entering the Duma in 2007, Zvagelsky was deputy CEO of Rosspirtprom, and founder of at least three highly lucrative vodka production and distribution companies that would profit handsomely from driving beer out of the alcohol market?
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The picture is becoming clear: Rosspirtprom, the RAR, Duma, and the ministry of health have effectively hijacked another well-intentioned public initiative to serve the private financial interests of high-ranking members of the autocratic
sistema
, thereby perverting the very intent of an anti-alcohol campaign. If the past 500 years of top–down alcohol control in Russia is any guide, recent increases in the consumption of vodka and dangerous surrogates—even while the Kremlin claims to be fighting against them—are worrying signs that the time-tested pattern of financial interests trumping the wellbeing of Russian society is primed to repeat itself again. And that is even before considering the entrenched interests of the treasury itself.

Since vodka politics has always been about the centrality of alcohol to Russia’s state finances, its ultimate defenders have always been its finance ministers. From Sergei Witte and Vladimir Kokovtsov in the imperial era to Vasily Garbuzov under the Soviets, the ministers of finance fastidiously defended the state’s coffers against all comers. Thanks to the steadily increasing alcohol taxes levied under president Medvedev’s anti-alcohol campaign, by 2012, the treasury was swimming in over two hundred and fifty billion rubles ($8 billion) annually from liquor taxes, more than twice the amount collected in 2007.
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The finance minister overseeing this vodka windfall was Alexei Kudrin, who had capably directed Putin’s ministry of finance since 2000, and had been a Putin loyalist from their time in St. Petersburg many years earlier. This was the same
Alexei Kudrin whom Putin left out of the loop about establishing the national champion Rosspirtprom in 2000, which he was forced to bail out in 2006 after Putin’s botched consolidation (
chapter 22
). Instead of splurging Russia’s incredible oil and gas windfall of the Putin years, the fiscally conservative Kudrin built up the monetary reserves that helped Russia weather the global financial crisis. Still, his defense of the treasury—and of vodka politics—continued under Medvedev, despite growing tensions. It was Kudrin whom Medvedev called out over Twitter for not addressing spending on “national priority” social issues.

In early 2010—while Russia was still being lashed by the global financial crisis—Prime Minister Putin announced sixteen billion in new spending on healthcare. Critics saw it as a populist splurge ahead of the 2012 elections. Admittedly “disappointed,” Kudrin vocally opposed the healthcare plan. “I think we will have to hold serious discussions,” he said, hoping the government would reconsider. When the Kremlin refused, Kudrin looked to make up the expense with cigarette and alcohol taxes.
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What followed was perhaps the most audacious defense of the basic tenets of Russia’s autocratic vodka politics—
ever
. Completely undercutting Medvedev’s anti-alcohol campaign, in September 2010 Kudrin brazenly declared that Russians “should smoke more and drink more” in the interests of state finance. “People should understand: Those who drink, those who smoke are doing more to help the state,” Kudrin claimed, by “giving more to help solve social problems such as boosting demographics, developing other social services and upholding birth rates.”
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Flabbergasted opponents quickly pointed out to the finance minister that budgets don’t work that way: expenditures on health and social projects aren’t linked to tobacco and alcohol excise taxes. “Nevertheless,” continued an article in the communist opposition newspaper,
Pravda
: “Minister Kudrin transferred the message accurately: the state will take advantage of smokers and alcohol consumers.”
⁵⁵
Bemused bloggers joked that Kudrin should at least be awarded the Nobel Prize for Honesty. Instead, the following month the austere Kudrin—who helped Russia weather the Great Recession—was honored as
Euromoney
magazine’s 2010 Finance Minster of the Year.
⁵⁶

The tensions only increased the following year, as the 2011 Duma elections inched closer, followed by the crucial presidential elections of March 2012. Kudrin proposed dramatically quadrupling the vodka tax. Following public outcry that such heavy-handed measures would lead to the same doom as Gorbachev’s and Nicholas II’s efforts—namely by fueling the underground vodka economy of dangerous surrogates and counterfeits—Kudrin drew a strong rebuke from Putin himself. “You know my attitude to the alcoholization of the population: we have, of course, to fight that. But there is no simple, linear solution,” Putin declared. Kudrin’s plans were dialed back accordingly.
⁵⁷

Yet the biggest confrontation was yet to come. In September 2011—a week after Medvedev announced he would step aside so that Putin could again run for president, Russia’s outgoing president threw down the gauntlet. Perhaps frustrated by the entrenched vodka opposition to his reforms from all levels of government including the treasury, Medvedev gave Kudrin a public dressing-down for his vocal opposition to social spending and publicly second-guessing his competence.