Return of the snollygoster

By bne IntelliNews February 1, 2013

Ben Aris in Moscow -

There is a brilliant word that has oddly fallen out of use, especially given the way that leaders in bne's region have been running their countries in recent years. "Snollygoster" was coined in the 19th century and means: "A shrewd person not guided by principles, especially a politician."

The last time this word was used by anyone prominent was in 1952 by then US president Harry Truman (who got it wrong and thought it meant "bastard"). The word was born in the freewheeling days of America's youth when the country was a lot less democratic than it is today. In those days it was common to find politicians under the sway of men like rail tycoon EH Harriman or financier JP Morgan. The Oxford English Dictionary defined it simply as "shyster" in 1845.

Over the last 200 years the word has fallen out of use after checks and balances were introduced and transparency increased to the point where snollygosters in government found it difficult to get away with solely serving themselves anymore - at least in theory: the power of big corporations and the revolving door that connects Wall Street and the Mall in Washington DC these days would suggest the opposite. But the word is a lot more pertinent to the transition states of Central and Eastern Europe and the Commonwealth of Independent States (CEE/CIS), which are suffering from the same snollygoster problem as the US did shortly after its independence.

Etymologists believe that one possible root of the word is "snallygoster" - a mythical beast, half-reptile and half-bird, invented by slave owners in Maryland to scare their slaves out of voting. Most governments in CEE/CIS are not above using similar blunt tactics to ensure their own grip on power. Put the other way round: the genuinely honest politician in the region operates at a significant disadvantage.

Where there's smoke there must be fire

No place better illustrates this problem than Ukraine - once hailed as the "only true democracy in Eastern Europe" following the triumph of the Orange Revolution in 2004.

Legal cigarette sales in the Ukraine tumbled again in 2012 and are expected to fall further this year from 80bn cigarettes to 75bn, Yuriy Kyshko, director for corporate issues at Imperial Tobacco Ukraine, told Interfax-Ukraine in January. Kyshko says the problem is not just the increase in smuggling of cigarettes, but the rise in the production of counterfeits, which now account for 4.4% of totals sales, according to Imperial Tobacco's analysis. "There has never been such a high level of counterfeit products on the cigarette market," Kyshko said.

Cigarettes are at the very bottom of the consumer goods food chain, but worth a lot of money. Cheap and always in demand, they were the very first product to arrive in the newly liberated markets of the east back in 1991. For Ukraine's government to have lost control of this business (and its associated tax revenue) to criminal gangs testifies to the speed at which the country is falling apart. Ukraine is rapidly going to the dogs.

The country's industrial production slumped 7.6% on year in 2012, its hard currency reserves are dwindling at an alarming rate and, in a sign of things to come, its largest airline AeroSvit went bust in December. In January, Prime Minister Mykola Azarov predicted the economy would grow by 3-4% this year, but the European Bank for Reconstruction and Development (EBRD) countered a few days later by cutting its growth forecast to only 1%. The International Monetary Fund (IMF) was due in Kyiv in the last days of January to restart negotiations on the stalled $15.4bn loan programme without which the country is facing the prospects of a debilitating devaluation and financial crisis.

How did Ukraine get into such a mess? In the second half of the 1990s the economy was growing by over 10%, the equity market was the world's best performing in the years after the Orange Revolution, and the rise of the middle class fed a bank-acquisition bonanza in 2006-2007. But the combination of a weak president and entrenched snollygosters prevented the Orange team from making much progress. The nail in the coffin was the 2010 presidential election, ironically the freest and fairest ever seen in the former Soviet Union, in which Viktor Yanukovych beat out Yulia Tymoshenko for the country's top job by only a few percent.

By taking control of both the Rada and the president's office, Yanukovych and his Party of Regions were in a position to actually move ahead on the reform agenda and capitalise on Ukraine's obvious potential. What he did instead was to simply capitalise on his position. In the midst of a global economic crisis, Yanukovych decided it was a good time to build himself a new presidential palace, the Mezhyhirya residence, at a reported cost of over $9m, to mention only one example. Yanukovych is a snollygoster of the first order.

The Family Man takes charge

Ukraine has become a textbook illustration of the snollygoster problem. The transition to an effective government is as much an HR problem as it is a question of holding fair elections. The incoming president of a transition state faces a parliament that is typically stacked with snollygosters, as the first generation of politicians are usually the most ruthless ones who use their own money, then state funds, to buy and keep power.

Once in the job, the president's first task is to stay there. If he is a true reformer, the first job of the snollygosters is to get rid of him. Faced with a choice between consolidating raw power and reforming the country, most presidents stack the cabinet with their friends and leave the economic reforms for later.

Without any functioning institutions or system of accountability, in the early stages the course the country follows is also heavily dependent on the moral character of its leader. Islam Karimov has been a disaster for Uzbekistan, but Estonia's first president, Lennart Meri, was a gift that the tiny Baltic country is still enjoying.

The performance of most leaders in the former Soviet Union lies somewhere between these two poles, with the majority tending toward Karimov's end. However, a few like Russia's Vladimir Putin and Kazakhstan's Nursultan Nazarbayev are probably closer to the middle of the spectrum. Both men have enriched themselves - if press reports are to be believed Putin is one of the five richest men in the world and all the significant assets in Kazakhstan belong to the Nazarbayev family - but both men have overseen significant liberalisations that have also enriched many of their citizens.

Geography plays a role too: little countries are a lot easier to reform than big ones. Georgia's Mikheil Saakashvili is generally seen as one of the most progressive leaders in the CIS and famously ended corruption amongst the traffic police by sacking the entire force overnight. But Saakashvili only needed two deputies to oversee the job of hiring replacements. Russia's police force runs into the millions and the president can only be superficially involved in the hiring process. As Deputy Prime Minister Arkady Dvorkovich told bne in an interview last year: "We can't force reforms on the regions from a federal level. We have to get the regional governors on board first."

Ukraine today looks very much like Russia in the 1990s under Boris Yeltsin. Both have clans close to the president dubbed "the Family" and in both the oligarchs (by definition snollygosters) are very close to the government. In Yeltsin's day, the Family clan was run by his daughter and her husband, the Kremlin chief-of-staff Valentine Yumashev. Billionaires Roman Abramovich and Oleg Deripaska (who married Yumashev's daughter) were also key members. In Ukraine it is Yanukovych's two sons who are in charge, while oligarch and owner of System Capital Management, Rinat Akhmetov (the richest man in the whole CIS), is also a Rada deputy and clan leader. "In the medium term it seems unlikely that Ukraine's oligarchic system could cease to exist as it would demand a deep and far-reaching transformation of Ukrainian politics and economy," Wojciech Kononczuk, an analyst for Warsaw-based Centre for Eastern Studies (OSW), wrote in the Kyiv Post. "At the moment it is hard to identify any strong political force which is interested in a 'de-oligarchisation' of Ukraine and - what is crucial - has the instruments to perform such a change."

Breaking the mould

Ukraine's venal politico-oligarchic system highlights the dangers of rapid change. Revolutions or even elections are not enough to put a country on the right path. The bureaucratic-client system needs to be smashed and replaced with something more accountable.

On taking office in 2000 this is exactly what Russia's Putin did. Within months, he had smashed the politico-oligarchic system by driving two oligarchs into exile - media mogul Vladimir Gusinsky and Boris Berezovsky - and dissolving the Federal Council, Russia's upper house of parliament, as most of the deputies were in the pocket of the business groups. As a result, the economy quickly started to boom (helped by rising oil prices). The western perspective is that Yeltsin was good (democratic) and Putin bad (authoritarian). However, the Russians have a different view: Yeltsin (chaos and poverty), Putin (stability and prosperity). "Since [the 1990s], the relations between the Kremlin and big businessmen has changed completely," says Kononczuk. "However, at present, big business does not have such a strong and decisive influence on politics in any other Eastern European country as it does in Ukraine."

Putin's mistake was to, naturally enough, appoint his friends from the securities services to his own administration, who went on to become the so-called Siloviki faction. Chosen on the basis of their loyalty to the president, unsurprisingly plenty of snollygosters were awarded high office.

Is Putin a snollygoster? This is a difficult question to answer. Certainly he is no Nelson Mandela or Aung San Suu Kyi. The best way to sort the snollygosters from the merely egotistical and fairly corrupt president is to see how much public debate they allow. Debate is the hallmark of democracy and the core of representative government where everyone can have their say before a compromise is thrashed out.

In countries like Ukraine, Belarus and Uzbekistan there is little to no debate, but in countries like Russia and those in Central Europe there is a lively and continuous debate over policy. Russia is currently facing some very big choices about where its future lies, and what is remarkable is not that there is no consensus on how to deal with these issues, but that the debate is so public.

The really interesting question is to what extent the snollygoster problem is inevitable? Estonia's Meri managed to avoid it almost completely, but then he had only 1.5m people to supervise - the size of one regional Russian city. Snollygosters will inevitably creep into positions of power in a system as large as Russia's. Putin should have done more to rein in his snollygosters, but by smashing the Yeltsin system he has definitely taken Russia further forward. "The problem the Siloviki face is that they may control the state's cash, but they don't have title to it," says Sergei Guriev, rector of Moscow's New Economic School. "The oligarchs have been smart, as they own all their companies outright. That will make it hard to take these assets away. But the Siloviki don't own anything and will have a problem legitimising their wealth should they ever leave government."

Things to do

The snollygoster problem is not limited to Russia and Ukraine - or even to the CEE/CIS region; there are snollygosters galore in the West too. Ex-Italian prime minister Silvio Berlusconi's name springs immediately to mind; a succession of Greek premiers would also feature high on the list. Closer to home, Hungry and Romania are probably the biggest victims of snollygosters in power of all the countries in Emerging Europe.

Over the past decade, the Hungarian economy has repeatedly disappointed and it seems as if investors have simply written off the country in terms of its economy and markets being able to perform like those of a normal western state. "At the core of Hungary's problems is a dysfunctional political system and currently a government that is extremely hostile to foreign investors," Lars Christensen, head of emerging market research at Danske Bank, said in a recent note. "The result has been that the economy has basically seen no growth for more than six years."

The whole issue of how to deal with the ubiquitous snollygosters that make these countries "dysfunctional" hasn't really entered into the debate of how to transform these countries - and this is equally true to the nascent opposition parties.

The default solution is simply to sweep bad governments away and hold fresh elections. Russia's famous opposition journalist Masha Gessen offered an unusually explicit comment on this topic when asked what was her "best case" scenario for Russia's opposition during an interview with Bloomberg's Charlie Rose last year. She said she hoped there would be a mass protest that led Putin to order his troops to fire on the crowds, an order they refused to follow, which resulted in his government being swept from power to be replaced by an interim government followed by open general elections. But this is exactly what happened in Russia in 1991, in Ukraine in 2004, in the subsequent "coloured revolutions" in the former Soviet Union, and most recently in North Africa last year. With the possible exception of Georgia, none of these changes has resulted in much improvement in either standards of living or the quality of government. In almost all cases, the citizens are worse off than they were before.

This reality is not lost on Russians, who have seen their lives transformed over the last decade. Unlike the 20-something, unemployed Arabs that fuelled the Arab Spring demonstrations, it's the middle-aged middle classes who have the most to lose from a chaotic change of power that populate the ranks of Russia's protest movement.

More emphasis needs to be placed on improving transparency as a first step in dealing with the snollygoster problem. Ironically, the Russian government has already started taking baby steps in this direction. In December, several laws were passed that will force not only Duma deputies (and their families) to declare their personal wealth, but extended this rule to civil servants too. From this year, any asset worth more than three-times a bureaucrat's annual income must be declared and accounted for on pain of confiscation and/or dismissal.

Ideally, boosting the rule of law and accountability before the law is the ultimate protection against snollygosters taking over, but as the US found out this is the work of years, if not decades. In the meantime, the press is in a position to play a unique and important role in the fight against the snollygosters of the east. It is one of the few democratic institutions - in its role of the fourth estate - that can be rapidly deployed against the worst abuses. But the press remains muzzled in the east. It is not for nothing that Putin targeted Gusinsky when breaking up Yeltsin's system, as the oligarch owned news channel NTV, then Russia's most powerful independent broadcaster.

The western press doesn't offer much more succour, as there are plenty of snollygosters among the international press corps too, although their position is complicated by the slow-burning crisis that the news business is facing since the advent of the internet. There is considerable pressure from editors in London and New York to "sex up" the story, and demonizing an obviously imperfect president is a lot easy to sell in the newsroom than going into the subtleties of the challenges that transition countries are grappling with. The upshot has been a race to the bottom among most famous titles.

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