Russian business tycoons are acting very strangely. Some of the most notorious "oligarchs" associated with looting and theft have been spotted investing in their companies, improving infrastructure and even paying wages to their workers.
Consider Vladimir Potanin, who controls Norilsk Nickel, the world's largest nickel producer and one of Russia's notorious oligarchs. He has recently had warm bus shelters built in Norilsk, one of the coldest and darkest of Russia's towns, built in the 1930s by the prisoners of Stalin's labour camps. Heated and glazed, the shelters look encouragingly out of place, surrounded by the remains of Stalin's barracks.
The shelters provide comfort not only to the workers, who until recently had to wait for a bus in temperatures dropping to –500C, but to the whole economy. For the first time since the collapse of the Soviet Union, domestic investment in fixed assets increased by about 18 per cent last year. That included $500m which Potanin invested in Norilsk's mines.
The investment is not prompted by a sudden surge of morality, but by high commodity prices which make production more profitable than asset stripping. Potanin, and others like him, still shows little respect for the rights of minority shareholders or the rules of business as practiced in the west.
Nevertheless the tycoons are developing a sense of ownership. Says Potanin: "The period of initial accumulation of capital is over. The emphasis has shifted from accumulation of assets to sorting them out and to managing the business. Norilsk Nickel is the company we are planning to live with for a long time, investing in it, developing it and capitalising it."
In contrast to the early 1990s, Russians are putting more money into their business than they are taking out of the country. A recent report by Morgan Stanley Dean Witter says the first half of 2000 saw a big decline in capital flight. There is even some reinvestment of Russian offshore capital.
Economists, politicians and entrepreneurs all say Russian capitalism is entering a new phase. Yegor Gaidar, the former prime minister who played an important role in the initiation of Russia's market reforms, believes that the roots of the country's 7 per cent economic growth lie deeper than high commodity prices and the devaluation of the rouble. He says: "Russia has made a journey which other eastern bloc countries made three to four years ago. Market institutions and property rights are established in Russia, even if the future of democracy is less certain. Not a single party in parliament-not even the communists-want the liquidation of the market and private property."
When a team of pro-market reformers, led by Gaidar and Anatoly Chubais, started the privatisation process they did not have any illusions about the system they were creating. Their job, says Gaidar, was to prevent the transfer of state property to red directors.
The subsequent infamous loans-for-shares scheme, which traded state property for political support, may have stopped red directors from gaining control over state property, but it transferred Russia's industrial behemoths into the hands of a small group of politically-connected oligarchs who had milked the cash-flows from their companies and deposited the proceeds in Swiss bank accounts.
Chubais explains: "The loans-for-shares privatisation did not aim to solve an economic problem, the aim was political-to help Yeltsin defeat the communists in 1996. The 1995 auctions of state property-unacceptable from the point of view of the civilised world-created a class of businessman who, a year later, coughed up money for Yeltsin's elections."
But neither Gaidar, nor Chubais anticipated the size of damage, which the oligarchs would cause to the country's economy and the degree to which they would undermine civilised values. Largely thanks to the oligarchs the word "businessman" became associated with "crook" in the Russian language.
Nevertheless, almost ten years on from the first privatisation, there are signs that effective managers and owners are now making a significant impact. Take Severtstal, one of the county's largest steel producer. Thanks to its team of young managers, an inefficient Soviet behemoth-a product of Stalin's crash industrialisation-has been transformed into a modern steel-maker, one of Russia's best managed companies. Alexei Mordashov, Severstal's 35-year-old director, belongs to the emerging generation of well-educated Russian managers who were brought up on Gaidar's reforms.
The past few years have also seen the growth of new businesses created from scratch which are geared to adding value rather than exporting the country's natural resources. Anatoly Karachinsky, head of the country's largest information technology group, IBS, is typical. His company is responsible for IT consulting for Russian and multinational companies and so he closely observes the changing values of Russian business. "Until recently the main objective was to grab as much as possible. Now at least some owners of privatised companies are focusing on how to manage them," he says.
The country may have passed the first phase in its capitalist development, but the problems it faces in the second phase are considerable. Russia's legal system still adheres to the Soviet model while the banking system barely exists. And while the election of President Putin may have confirmed Russia's commitment to market reforms, it has not confirmed a commitment to openness and liberalism.
Solving these problems could take decades, but for people in Norilsk, beyond the arctic circle, warm bus shelters will make waiting for Russia to become a properly functioning capitalist state a bit more bearable.
