Vodka Politics (73 page)

“The country just keeps going down—in numbers, in health, and in its possibilities for the future,” demographer Nicholas Eberstadt told
New Yorker
journalist Michael Specter at the time of Putin’s 2004 reelection. Putinism was making Russia more wealthy but less healthy. “Russia, like Africa, I am very sorry to say, is taking a detour from the rest of humanity as far as progress is measured by improving general health.”
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It wasn’t just that there were fewer Russians, but those who remained were more sickly—largely due to the epidemic levels of vodka consumption. At the end of Putin’s second administration, Dr. Aleksandr Baranov of the Russian Academy of Medical Science reported that Russians had actually become more languid and
shorter
than even during the depths of the Yeltsin-era nightmare. As human societies modernize, they generally get taller, making population height an important health indicator. Baranov’s announcement that “Russia is becoming one of the shortest nations”—measuring in a half-inch shorter than during the 1990s—flew in the face of reported macroeconomic progress. (Of course the replacement of the diminutive 5′7″ Putin in 2008 by the 5′4″ President Dmitry Medvedev did not dispel the image—and actually unleashed a barrage of short jokes, including how the new president was a product of Russia’s technological advancements in nanotechnology.) But this was no laughing matter—Russians had gotten more feeble: the average boy had lost eighteen percent of his muscle mass as compared to the Yeltsin years, whereas girls lost twenty-one percent. Average lung capacity was down twenty percent, and one in five children was underweight. Cases of HIV/AIDS, tuberculosis, cancers, hepatitis B and C, all manner of physical and mental disorders—and especially adolescent alcoholism—continued to ravage Russian youth. The ministry of defense raised alarms
that the decreased quantity and quality of conscripts would undercut the military’s ability to field a healthy standing army—leading to the 2006 establishment of public health as one of four National Priority Projects: to be spearheaded by then-First Deputy Prime Minister Dimitry Medvedev.
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To unveil these projects, Putin made a dramatic pause in his 2006 State of the Nation Address from the opulent Marble Hall of the Kremlin.

And now for the most important matter. What is most important for our country? The Defense Ministry [!] knows what is most important. Indeed, what I want to talk about is love, women, children. I want to talk about the family, about the most acute problem facing our country today—the demographic problem. The economic and social development issues our country faces today are closely interlinked to one simple question: who we are doing this all for? You know that our country’s population is declining by an average of almost 700,000 people a year. We have raised this issue on many occasions but have for the most part done very little to address it.
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Before detailing new financial incentives to entice mothers to have second and third children, Putin quickly glossed over the most important factor: alcohol—noting only that “we are taking measures to prevent the import and production of bootleg alcohol.”
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Nothing more.

This seemed like a massive oversight. For all of the advances under Putinism, Russia still suffered an epidemic of intoxication, yet Putin never formulated anything resembling an alcohol policy. “As long as a bottle of vodka costs the same as a kilo of apples, milk is more expensive than beer, and a packet of cigarettes is cheaper than chewing gum, you ought not to worry about a demographic crisis,” claimed Mikko Vieonen, representative of the World Health Organization in Moscow. “Under such circumstances, any country would have a demographic crisis.”
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Russian alcohol experts pleaded with the Kremlin to do something: raise the drinking age, limit hours of sales, increase penalties for those selling alcohol to kids, clamp down on drunk drivers, home brewers, and third-shift vodka, increase funding for intensive care units, dispensaries, and alcohol rehabilitation programs, increase educational programs, restrict advertising…
anything
. Yet “not one of these measures was acted upon” under high Putinism. Meanwhile, as we shall see, efforts to consolidate control over the vodka market backfired spectacularly.
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How can we account for such inaction? The standard trope, of course, is to fault a lack of political will. But as we have seen, there was extensive political will among those actually coping with the problem at the local level. As in any
autocracy—the primary impediment to change is at the top. When his State Council presented him with a draft Concept of State Alcohol Policy, Putin simply laughed: “What? Do you want me to become another Ligachev?” By invoking the scapegoat for Mikhail Gorbachev’s disastrous anti-alcohol campaign, Putin ended all discussion.
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But discussed or not, Russia’s alcohol problem raged on.

So we are faced with a paradox: with a treasury flush with oil and gas wealth, and possessing all the instruments of autocratic power, how could the seemingly omnipotent Putin be so powerless to confront his professed top political priority? For commentators like Lilia Shevtsova, the answer boils down to power. “It is not that Putin does not want to realize his pet projects,” such as alcohol and the demographic imbalance, but rather that “the interests of the ruling caste force leaders to concentrate only on what is important for its survival.”
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In other words—as it has been for generations of Russian vodka politics—so long as sobriety and health conflict with the economic interests of the autocratic system, they will be kicked to the side.

Meanwhile, Back On Bicycle Street…

At the end of his first presidential term just as at its beginning, the business side of Putin’s vodka politics was most evident back at the red-brick Kristall compound. The storied factory was to be the crown jewel of Rosspirtprom—a state-run national champion conglomerate created on the eve of Putin’s inauguration. Putin tapped two men to rein in the world’s most lucrative vodka market: Sergei Zivenko and Arkady Rotenberg. Who were they, and what qualified them for such important (and incredibly lucrative) positions?

As it turns out, Rotenberg had been Putin’s close friend for some forty years, dating from their childhood judo competitions back in Leningrad. In the pre-Putin 1990s Rotenberg was a mildly successful businessman who enjoyed promoting judo. By 1998 he had become director of St. Petersburg’s elite judo club, Yawara-Neva, with his buddy Vladimir Putin its honorary president. “I am the CEO, but it’s the brainchild of Vladimir Putin,” Rotenberg later admitted. “It was his idea.”
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In 1999 Rotenberg started a business relationship with Zivenko—another nondescript thirty-something businessman with an interest in the alcohol trade, despite only ever getting drunk once in high school, while seeing his friend off to the military.
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Yet within months these inexperienced businessmen were entrusted with controlling Russia’s most lucrative market.
How
?

In a recent interview Putin’s top advisor Andrei Illarionov described how the Rosspirtprom decision went down. After hearing only secondhand that the “primary and most important stream of federal finances” had been bequeathed to Putin’s “clan,” Illarionov dialed up Alexei Kudrin—acclaimed austerity hawk and
Putin’s decade-long Minister of Finance—to see if he knew anything. He didn’t. Minister of Economic Trade and Development German Gref likewise had heard nothing of this huge decision. “I soon realized that for Putin, there are two distinctly separate groups of people,” said Illarionov, “let’s call them the ‘economics group’ versus the ‘business people.’ With the one group—Kudrin, Gref, and me—Putin discussed issues of the general economy; while with the help of the other, he seized control over property and financial flows.”
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What happened once the trade was in their hands? By the end of Putin’s first term Rosspirtprom holdings controlled over forty-five percent of the legal vodka market, worth more than two billion dollars annually, largely through corporate raiding and back-room arm twisting. Trying to get Russians off
samogon
and third-shift vodka and get them back on the state-sanctioned stuff won Zivenko many enemies in the tumultuous vodka underground. They placed a six-million-dollar bounty on his head. Even at his office he retained an armed security detail.
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Yet, as he confided to Viktor Erofeyev in 2002, he was only a thorn in the side of those who preferred disorder in the alcohol market.

Shortly thereafter he was investigated by the Accounts Chamber and fired. But don’t feel sorry for Sergei Zivenko—as the short blurb in his
Forbes
100 profile explains, he “hit the jackpot” as director of Rosspirtprom. And though he “only stayed in the job two years, he put the experience to good use.” In those two short years he went from middling businessman to one of the richest men in Russia, with a net worth of $220 million—not too shabby. Then—along with his other Rosspirtprom managers—Zivenko simply moved down the line: creating the so-called Kristall Trade and Industrial Group, which produces the premium (and potentially copyright infringing) Cristall Black Label, with annual revenues of $400 million.
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Yet that is nothing compared to Putin’s judo partner, Arkady Rotenberg.

Not long ago the Russian business newspaper
Kommersant
’ sat down with the reclusive Rotenberg: “In 1998, you led the sports club Yawara-Neva, with Vladimir Putin as its honorary president,” began the interview. “And here within a relatively short time, you’ve become a big businessman with substantial assets across the country and in various sectors of the economy. Is it just a coincidence?”

“I understand the subtext of your question,” Rotenberg replied. “Knowing high-level government officials has never been an impediment to business in our country, but it is hardly a guarantee of success. After all, Putin knows far more people than those who have become famous and successful today.”
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Instead, he claimed it was the philosophy of judo that produced his good fortune—first by heading Rosspirtprom and then parlaying that into creating the successful SMP Bank with his brother Boris. By the end of Putin’s second term Rotenberg had bought up the companies that built lucrative pipelines for Gazprom. From such humble beginnings in the dojo, through heading the national champions
Rosspirtprom and Gazprom, Rotenberg has a net worth estimated by
Forbes
of $1.1 billion.
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Rotenberg seems to embody a core element of Russia’s ruling
sistema
whereby useful friends become appointed millionaires—making quick fortunes in the private sector while serving the interests of powerful individuals in the government through their informal ties of trust and loyalty.
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Even downplaying direct connections, Putin’s indirect effect was unquestionable. Whether as tribute or opportunism, in 2003 a new vodka brand rolled off the production line at Kristall: Putinka. Just like
vodka
is the diminutive for Russia’s “little water,”
Putinka
is Russia’s “little Putin” in a bottle. Adoring Russians drank it up, quickly becoming Russia’s second most popular brand. Even in a country with surprisingly little brand loyalty, Putinka maintained its dominance over the next decade—raking in the equivalent of $500 million annually, as the Kristall plant churned out more than eight million bottles monthly. For his part, Putin has repeatedly scoffed at the commercialization of his legacy, but at least when it comes to vodka, he’s done surprisingly little to confront it.
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Rosspirtprom’s privileged position looked to get even better through a series of laws on alcohol production aimed at reducing the “rampant corruption, illegal activity and extremely high rates of alcohol poisonings” and signed by Putin in 2005.
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Effective January 1, 2006, alcoholic beverages could only be sold with new government excise stamps. All production facilities were required to have new monitoring and accounting equipment and could only be licensed if they were not behind in paying their taxes. Such regulations would clamp down on illicit production, squeeze out small producers, and further consolidate the market for Putin’s national champion—all in the name of quality control. Instead, the bungled implementation by a corrupt bureaucracy had the opposite effect—dealing a death blow not only to thousands of Russian consumers but ultimately to Rosspirtprom itself.

“The end result of the laws and resolutions was a farce,” claimed Dr. Aleksandr Nemtsov.
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The new excise stamps hadn’t even been printed in time. By the time they were shipped to producers, including Rosspirtprom, their facilities had been idle for weeks or even months. The government scrambled to extend deadlines, but the entire market was in chaos. With liquor stores suddenly empty, thirsty Russians turned to the very illegal producers that the Kremlin had hoped to crush while decimating the company it had planned to strengthen.

The human consequences were the most apparent: many hard-up drinkers reverted to quaffing industrial solvents, antifreeze and the like, while third-shift producers made vodka from similar industrial poisons. With tragic predictability, the spring and summer of 2006 saw a nationwide epidemic of fatal alcohol poisonings. In many countries authorities can declare a state of emergency for widespread civil unrest or acute natural disaster: in Russia, four regions
(including the beleaguered governor of Pskov) imposed a state of emergency for bad vodka.
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