Thursday, November 27, 2008

Boris Fyodorov Obituary

Boris Fyodorov
Nov 27th 2008
From The Economist print edition

Boris Fyodorov, a Russian economic reformer, died on November 20th, aged 50

MOST of Russia’s super-rich spend their summer holidays on yachts in the sunny Mediterranean. Boris Fyodorov preferred visiting English country churches, the older, the better. The buildings, and especially the gravestones, fascinated him. He saw in them symbols of an historical continuity that Russia had lost under communism. Born in poverty as a factory caretaker’s son, he delighted in making discoveries among his aristocratic roots: trinkets unearthed at his family’s ruined estate, a (Polish) coat of arms. His dacha outside Moscow was notable not for pet wolves or other fashionable extravagances, but for his valiant attempts to create a weedless, stripy English lawn in a hostile climate. He flew a Russian flag there too, scandalising the neighbours, who insisted he needed a permit.

Visitors to his office sometimes wished the chairs had seat belts. Conversation would ricochet from Russia’s recent economic history to the tragedy of the aborted reforms brought in by his hero, Pyotr Stolypin, one of Tsar Nicholas II’s prime ministers. It would touch on the lamentable failure of the Kremlin under Vladimir Putin to promote proper corporate behaviour in the boardrooms of Russia’s big companies, bounce to the hypocrisy of Western bankers who failed to pay their taxes, and come to rest with a robust inquiry into the virtues of cylinder mowers compared with the rotary kind.

The chat would be in muscular, fluent English. Mr Fyodorov’s job in the declining years of the Soviet Union had included monitoring the world economy by reading the Financial Times. This had left him at ease with the jargon of the new age, and also well placed to be finance minister of Russia (still just a part of the Soviet Union) as the planned economy entered its death throes. He briefly represented Russia (after it had become an independent country) at the World Bank in Washington, and then spent a year as deputy prime minister and, for a short while, as finance minister too.

Practitioner, not politician

It was not a great success. Like several other reformers of the time, he had a firmer grasp of economics than of politics: he was too unworldly, too impatient and perhaps too cerebral for the murky world of Russian government. Even so, he helped to create, almost from scratch, a Western-style financial system with capital markets, payments systems and a semi-independent central bank. Despite the wholesale theft-by-privatisation that followed, these achievements look more impressive now than they did in the chaos of the time.

Once out of office, Mr Fyodorov published, among other books, a useful encyclopedia of financial terms. Some were recovered from pre-revolutionary Russian, others were neologisms. As a Russian patriot, however, he detested the practice of simply adapting an English word. Ofshorky (offshore accounts) was a pet hate, particularly because of its association with tax evasion. As head of the tax service, briefly, in 1998, he tried to decriminalise tax collecting, already well on its way to becoming an extortion racket, and also to broaden its reach to the rich and powerful—many of them all too familiar with ofshorky. Bravely, he set his inspectors on such prominent figures as Vladimir Zhirinovsky, a clownish extremist with connections to Russia’s rulers. He also tried to scare expatriate bankers into paying taxes on their salaries (amounting to $5 billion a year, he thought) and their local landlords into declaring the rents extracted from such foreigners ($1 billion).

Mr Fyodorov had by this time also gone into business, founding United Financial Group, an investment bank, with an American friend in 1994. Yet neither wealth, connections, nor the flashing blue light on his black limousine (a hallmark of status in Russia) made Mr Fyodorov quite typical of the elite that moved so smoothly from burying communism to embracing capitalism red in tooth and claw. On the contrary, he despised such people for their lack of scruple. Without a moral basis, he said, capitalism would just become the means by which the powerful would concentrate their wealth.

That was prescient. Mr Fyodorov’s last great cause before dropping out of public life was to try to make big Russian companies treat their shareholders properly, rather than serving the interests of bureaucrats and cronies. As a director of Gazprom, Russia’s vast gas monopoly, he attacked the practice of issuing two classes of shares, one for domestic investors and one for foreigners. That depressed the true value of the company. His own bank made tidy profits from intricate schemes through which foreigners could act as though they were Russian shareholders. Eventually, once its two-tier share system was abolished, Gazprom became one of the world’s most valuable energy companies.

But it remained one of the worst run, much to Mr Fyodorov’s disappointment. For another of his aims was to strip away the intermediary firms that loot cashflow and assets from large Russian companies with the connivance of the management. One of his targets at Gazprom was closed down as Mr Putin and his friends gained control, but others soon took its place. Mr Fyodorov used to lament the fact that even he could not find the right phrase in Russian for “corporate governance”.

1 comment:

trilirium said...

"Mr Fyodorov’s job in the declining years of the Soviet Union had included monitoring the world economy by reading the Financial Times."

My congratulations to Mr. Lucas.
I can think of no better way to explain reasons of the "young economists" failure in the single sentence. ;)