President Vladimir Putin has set up a twin economic system in Russia. The apolitical part of the economy is subject to the laws of the free market. In parallel to this is the political part of the economy, where large state-owned structures control massive amounts of money flowing into and out of the budget, and is controlled by a handful of his friends, or what we call the “stoligarchs”. Thanks to the economic mismanagement that comes with this system, Russia’s economy will probably stagnate and for the first time in Putin’s decade and half in power the country faces the very real possibility of a systemic collapse. As long as the stoligarchs are in charge of as much as a fifth of Russia’s economic activity, the economic reforms currrently being discussed will, at best, allow Russia to only muddle through. 

When Putin assumed office in 2000, the very first thing he did was kick the Yeltsin-era oligarchs out of the Kremlin. The original seven and their proteges dominated business and politics under Boris Yeltsin and had helped themselves to the country’s choicest assets. Putin himself is widely believed to have been chosen by Russia’s uber-oligarch at the time, Roman Abramovich, who was known as the “cashier to the Family”, a reference to the tight clique around the ailing former president.

Putin quickly organised the so-called oligarch meeting in July 2000, gathering the country’s  leading businessmen, and laid down the law. Boris Nemtsov, then leader of the Union of Right Forces party who helped to organise the meeting, told bne IntelliNews at the time: “This is the end of the oligarchs in Russia. All the businessmen present agreed to live under equal conditions and that there would be no more special conditions for anyone.”

Today, of those seven oligarchs only Vladimir Potanin is still actively in the game; he also happens to be the richest man in Russia at the moment, worth a cool $14.7bn, according to a Bloomberg ranking. The rest are leaving, left long ago or are dead.

Putin’s relationship with the oligarchs has been evolving steadily since he took office. After ousting the old guard he encouraged the emergence of a new one, co-opting the oligarchic system and turning it into what bne IntelliNews dubbed ZAO Kremlin (closed joint stock company Kremlin) in a cover story in 2007. In addition to being head of state, Putin controlled the businessmen as if they were a corporation. CEO Putin held regular face-to-face meetings with the captains of industry, who had to seek approval for their investment projects. Putin retained the power to “fire” any oligarch who disagreed with him.

The new regime was made clear to everyone present at that infamous meeting 16 years ago, Potanin told bne IntelliNews at the time: “Putin confirmed that he will meet the businessmen on a regular basis. I think he perceives the businessmen more as partners than as enemies.”

Over the last few years, the ZAO Kremlin model, a form of “state capitalism”, has been refined further. Putin has gone from meeting with the businessmen and listening to their plans, to effectively employing the oligarchs and giving them direct orders. The system allows him to formally and informally control the biggest flows of capital into and out of the budget. Perhaps he became tired of the oligarsch’s greed, their perennial interference with politics and the ostentatious lifestyle of many of their number.

Potanin once spent $95,000 on 4kg of white truffles, an innocent excess, but his protege Mikhail Prokhorov personally embarrassed Putin after being arrested on pimping charges (later dropped) in the French resort of Chamonix with a gaggle of girls, only a week after Putin personally awarded him with a medal for services to the Motherland. Putin personally called Prokhorov in his French prison cell to give him a tongue lashing, according to a bne IntelliNews source with knowledge of the affair.

In the last three years, the circle around the president has shrunk to only a handful of close associates from government and business, according to bne IntelliNews sources. Increasingly, it seems that Putin is personally involved in their work, but leaves running the rest of the economy to the liberal faction that sits in the economy and finance ministries, as well as the Central Bank of Russia (CBR).

Between them, this tight clique of stoligarchs controlled just over a fifth (21.7%) of Russia’s GDP at the end of 2015, according to bne IntelliNews estimates based on their company revenues (and assuming Russia’s current economic worth is $1.2 trillion). The stoligarch banks and companies had combined sales of at least $260bn in 2015, according to reported financials of just the easily identified businesses. On a valuation basis they do slightly worse (not all their companies are listed) and are worth a collective $176bn, or 14.7% of GDP.

The politics of business

More than half the stoligarchs are bosses of Russia’s biggest state-owned enterprises, but a few are private businessmen who unsuprisingly do a lot of business with the state.

Forbes magazine has dubbed three of Putin’s closest stoligarch allies – Gennady Timchenko and the Rotenberg brothers, Boris and Arkady – the “Emperors of State Tenders”. Arkady Rotenberg’s firms, including construction company Stroygazmontazh, have amassed a total of RUB555bn ($8.6bn) of state contracts over the last three years, according to Forbes, including the job of building the RUB384bn ($6bn) Kerch bridge between Russia and the recently annexed region of Crimea, as well as a RUB200bn ($3.1bn) contract to build part of the Power of Siberia gas pipeline between Russia and China. The bridge and the pipeline are the two most politically sensitive projects in the country and both were awarded without holding tenders for the work.

Such favouritism has made these men immensely rich. Timchenko made his money with his oil trading Gunvor Group, which sold a large proportion of the oil produced by state-owned major Rosneft to the international markets. Later he bought into Russia’s largest independent gas producer Novatek, the only private company in Russia with a gas export licence. According to the same Bloomberg billionaire ranking, Arkardy Rotenberg was worth $1.4bn as of June 14, while Timchenko is worth $13.2bn and had the honour to be the stoligarch with the fastest growing fortune this year.

Timchenko has been included on the US sanctions list and repeatedly accused of fronting for Putin. However, as Professor Mark Galeotti and bne IntelliNews columnist points out: “He owns everything in Russia already by dint of his office. He doesn’t actually need any money, as how would that change his life?”

For its part, after the sanctions were imposed the company vigorously denied the charges of corruption. “Gunvor categorically denies that Vladimir Putin has or has ever had any ownership or that he is a beneficiary of our business directly or indirectly,” it said in a statement in 2014.

The other stoligarchs are all state employees. Two are responsible for providing the budget with some of the largest sums of money: Gazprom CEO Alexei Miller and Rosneft CEO Igor Sechin run the country’s two largest companies and thus major contributors to the budget.

Having huge amounts of money flowing through the books is one of a stoligarch’s defining characteristics, but playing a political role is another important facet. Putin went as far to say at Gazprom’s tenth anniversary party in 2003 that the company is an “explicit tool of foreign policy”. Likewise, Rosneft was used to nationalise Mikhail Khodorkovsky’s privately owned Yukos oil company, exposing itself to lawsuits that have come back to bite. The Hague-based Permanent Court of Arbitration awarded Yukos $50bn in damages for illegally nationalising the company, but a Dutch court overturned the ruling in April. The Kremlin sees the suits as a legal attack on Russia’s sovereignty and Rosneft has become the de facto national champion in the ongoing duel with Europe.

But for the Kremlin and Rosneft, control over the company is all about business and earning money for the state. All these state officials always emphasis the importance of their supply contracts in interviews, and despite the sanctions and the showdown have never threatened to cut their customers off for political reasons.

“Rosneft and other Russian companies will adhere strictly to their supply contracts, which are safeguarded by credits and contractual penalties. That is why contracts exist. As an internationally traded company, Rosneft is listed on the London Stock Exchange and adheres to its standards,” CEO Sechin told Germany’s Spiegel Online in an interview two years ago, shortly after sanctions were imposed.

First Deputy Prime Minister Igor Shuvalov took the same line at a lunch with bne IntelliNews in 2006 in Berlin after Russia cut off Ukraine’s gas supplies for non-payment of bills. “We had a contract with Kyiv and they didn’t pay. It was force majeure. We made it plain that if Ukraine didn’t pay the bill, we would stop supplies. It is the most normal thing in the world in business. We reduced oil supplies to Belarus for the same reasons.”

The same but different is Russia Railways (RZhD), which doesn’t make the state any money, but spends it in spades. Former RZhD boss Vladimir Yakunin, who was replaced by Oleg Belozerov last August, was investing billions a year as part of a $1 trillion investment programme launched in 2007. More recently, the railway system has been intimately involved in a string of massive Russian military exercises, moving large numbers of troops and equipment around the country while Putin rattles his sabre at the West.

Finally, there are the bankers who are responsible for moving the money about and getting more when it is needed. This includes VTB Group CEO Andrei Kostin and the newly appointed Sergei Gorkov, CEO of Vnesheconombank (VEB), Russia’s de facto development bank that is financing many of the infrastructure projects that the private sector stoligarchs are building. For example, VEB financed most of the construction associated with the 2014 Sochi Olympics; companies linked to Boris Rotenberg, especially road and bridge builder Mostotrest, which is also working on the Kerch bridge, were awarded 20 construction projects in Sochi worth $5.6bn, according to reports. VEB is now effectively bankrupt, as many of its loans from Sochi have gone bad. Nevertheless, Prime Minister Dmitry Medvedev awarded Mostotrest CEO Vladimir Vlasov a medal for the company’s work on the Olympics.

The politically charged jobs theme runs through much of all these companies’ work. While the state controls many companies, another hallmark of a stoligarchic enterprise is the overt connection to Kremlin politics. And this is not just showcase projects like Artic oil exploration or revamping a Black Sea resort for international athletic competitions. Their work stretches across the country, into nearly every town and touches the lives of almost all Russia’s citizens.

An explicit example of how the Kremlin uses the stoligarchs to shape domestic politics was the decision to rewrite school history books. In 2013, Boris Rotenberg became the chairman of the Enlightenment Publishing House, formerly the biggest supplier for textbooks in the Soviet Union. In 2011, the government ordered the Ministry of Education to check all textbooks and effectively rewrote the history books with a political bias. Many of the books of Enlightenment’s competitors did not pass the ministry’s evaluation; Enlightenment won about 70% of the contracts for new school textbooks in 2014.

Personal loyalty

All these men are linked, but Putin remains at the centre of the business connections web. Timchenko and the Rotenbergs regularly work together. Timchenko is linked to Sechin thanks to his oil trading days. The railway’s pension fund TFK-Finance took a controlling stake in Mostotrest of 64% last year by buying an additional 39% stake from a group of investors that includes Arkady Rotenberg’s son Igor. The brothers are also linked to Belozerov, as he used to be deputy head of Rosavtodor, the state agency in charge of roads, and Mostotrest is the biggest builder of roads and bridges in Russia. Timchenko is linked to Gazprom’s Miller, as Gazprom also owns 10% in independent gas producer Novatek, where Timchenko controls a fifth of the company. And so on...

But the preeminent hallmark of the stoligarchs is a close personal connection to Putin himself. Nearly all of the pack are from St Petersburg, the president’s home city. Sechin worked as Putin’s deputy when he was in the late mayor Anatoly Sobchak’s administration and Putin used to practice judo at a dojo run by the Rotenbergs. Moscow gossip has it that Putin holds regular Friday evening parties at his dacha in Barvikha to the west of Moscow where these men gather. According to reports, the state company boss that meets with Putin the most often is VTB’s  Kostin.

But being close to Putin is not a guarantee of stoligarch status, as the president has already “sacked” many oligarchs, dozens of top state officials and even a few stoligarchs. The bottom line is that they all have a job to do, gas to pump, bridges to build, bonds to issue; but if they do it badly enough, they will be fired.

Putin can be ruthless when it comes to underperforming or uppity oligarchs. In 2000, he immediately drove two media oligarchs – NTV founder Vladimir Gusinsky and chairman of ORT (now called the First Channel) Boris Berezovsky – out of the country, taking control of national TV in the process.

The banking oligarchs – SBS Agro bank founder Alexander Smolensky and Inkombank founder Vladimir Vinogradov – went bust in the 1998 crisis on their own, but Khodorkovsky was arrested in 2003 after clashing with Putin over his plan to build a privately owned oil pipeline from his fields in Siberia to northwest China.

Out of the original group, only Potanin and Alfa Group’s Mikhail Fridman have survived, although it is now clear that Fridman is also leaving following his deal to sell his share in oil company TNK-BP to Rosneft in 2013. Putin rather ominously hinted at investigations into the oligarch’s businesses if the consortium that sold their half stake in TNK-BP to Rosneft didn’t reinvest it in Russia during his annual ‘meet the people’ press conference in 2012.

“If we admit that [the AAR oligarch consortium] is a legitimate owner, that they received the money legally, it’s still up to them to decide where to invest,” Putin said after telling them to invest at least a “significant portion” of the £28bn they earned in Russia.

Fridman has blatantly ignored this advice. He has already invested $1bn of it in New York real estate through a Jewish friend of his and also set up L1 Energy (aka LetterOne) in London that is looking for a new oil company to buy. He closed a €5.1bn deal in March 2015 to buy 13 North Sea gas fields from Germany’s RWE, only to see the deal nixed by the British authorities.

New blood

After Putin took office in 2000, a new generation of oligarchs came to the fore. Berezovsky’s protege, Roman Abramovich was virtually running the country with Yeltsin’s daughter Tatyana Dyachenko (now Yumasheva) in 1999 as the president became increasingly sick. But Abramovich started to withdraw immediately after Putin’s election in 2000; his oil company Sibneft began paying out 100% of profits as dividends for several years before he finally sold it to Gazprom in the middle of the decade.

Pre-eminent amongst the new guard was Abramovich’s protege Oleg Deripaska, who rose to become top oligarch dog in Putin’s early years, while Potanin’s protege Prokhorov also rose to the top of the tree and was conspicuously close to Putin. Other famous names from this period, such as metallurgists Viktor Vekselberg and Alexander Abramov (now partnered with Abramovich in the Evraz steel company), Facebook investors Alisher Usmanov and Yuri Milner, as well as Novatek boss Leonid Mikhelson, were also successful, but have consciously kept out of the Kremlin’s way.

Putin seems to have tired of these younger men, who were all in it for themselves at the end of the day. Prokhorov may still have a net worth of $7.6bn, but the perennial party-loving bachelor has fallen out with the Kremlin recently and is already being held at arms length by Putin, bne IntelliNews’ Jason Corcoran argued in a recent article “Is the party over for the Great Gatsby oligarch?“ Since then Prokhorov has started a fire sale of his Russian assets.

Deripaska was flying high in the noughties, but following the 2008 financial meltdown he had to turn to the Kremlin for billions of dollars in bailout loans. Putin publicly lost patience with him, likening him to a cockroach and chewing him out on TV in the small town of Pikalevo where the oligarch had a plant. “You have taken these people hostage with your ambition, incompetence and pure greed,” Putin told the assembled administration of the plant, which included Deripaska who was squirming in his seat. “Thousands of people – it is absolutely unacceptable… Give me back my pen,” Putin added after Deripaska almost walked off with it after being told to sign an order to resurrect the plant.

Deripaska has since lost his position as one of Russia’s top 10 richest men and has fallen out of the top 200 richest people in the world, according to Bloomberg’s survey, but is still worth $3.1bn.

Former telecommunications minister Leonid Reiman was probably the first stoligarch and the first to get the chop too. Another close personal friend of Putin from his St Petersburg days, Reiman was accused of being behind Megafon, omce the third largest mobile phone company, which he controlled hidden behind the Bermuda-registered IPOC trust fund. He caused a major scandal when he unilaterally took some frequency from the other mobile phone companies and assigned them to Megafon. Reiman eventually left government in 2008.

More recently, RZhD’s Yakunin was unexpectedly sacked in October 2015, followed five months later by VEB president Vladimir Dmitriev. While many theories have been put forward as the reason for their sacking (one version is Putin was miffed that Yakunin’s son took British citizenship and moved to London), the most likely explanation is that they simply screwed up at work.

Yakunin has been accused of large-scale corruption and this was becoming an embarrassment; anti-corruption blogger Alexei Navalny released pictures of the railway chief’s $100mn sumptuous country estate that looks more like a modern Russian Versailles than a dacha and wrote a series of exposes about Yukunin’s alleged business empire. Like Sechin, Yakunin never revealed his income during his ten-year tenure at the helm of RZhD despite an order by Putin to do so. Perhaps more damaging was his botched reform of local commuter trains in 2014 that led to mass outages and a public outcry from angry Russians unable to get to work.

Dmitriev’s case is even more dramatic. VEB’s catastrophic failure over the last year is reason enough to sack him, as the bank is so badly insolvent that even the Kremlin, with some $390bn in reserves, couldn’t bail it out. VEB is a massive bank – its assets are estimated to be worth 9% of GDP by themselves. But because of the mismanagement, VEB has run up an estimated RUB1.2 trillion ($17.8bn) in bad debts – possibily more. To put that into perspective, VEB’s losses are $1bn more than the entire planned military modernisation budget between 2016 and 2020.

The bank received a preliminary RUB180bn (about $2.8bn) bailout earlier this year and the Kremlin is intending to pay off the debts in dribs and drabs over the years to come. The current subsidies are just enough “to keep our pants up”, one senior official told Bloomberg in June.

Yakunin and Dmitriev should be happy they were only sacked. The former boss of RusHydro, Yevgeny Dob, was arrested on June 22 on charges of embezzling RUB353mn (currently $5.5mn), which he awarded himself as a bonus. Dob was sacked by Putin at about the same time last year as Yakunin (and Dob gave Yakunin a board seat at RusHydro shortly afterwards). Putin previously said that “utilities is the most corrupt sector in the economy” in the winter of 2012 and began the clean-up operation at Rushydro. It seems the former management were not cooperative enough.

It is still not clear whether the new state company bosses, Belozerov at RZhD and Gorkov at VEB, will ever qualify as true stoligarchs. Gorkov is a banking professional and formerly on the board of Russia’s retail banking behemoth Sberbank. He was brought in to clean up Dmitriev’s mess and is due to propose a detailed rescue plan later this year. But he is not from St Petersburg and does not appear to have any direct personal links to Putin other than the fact that he trained as a spy and graduated from the academy of the Federal Counter-Intelligence Service of Russia in 1994.

Employing almost a million people and managing over 85,000km of track, running RZhD qualifies Belozerov as a stoligarch, but he also lacks direct ties to Putin. He was born in Latvia and did study in St Petersburg, but is 18 years younger than Putin, who had already left the northern capital for Moscow by the time Belozerov started his career. As the head of RZhD, the third largest rail network in the world that turned over $27bn last year and accounts for 40% of Russia’s total freight traffic, he will exercise considerable power, able to choke the oil, gas and mining industries if he so chooses.

But Belozerov also might be a straw man: Arkady and Boris Rotenberg supported Belozerov’s appointment, financial daily Vedomosti reported, quoting a government source who said the billionaire brothers wanted to enter the railroad business. And, as already mentioned, Belozerov used to be deputy head of Rosavtodor, Russia’s road agency that works closely with Timchenko’s Mostotrest.

Finally, VTB CEO Kostin is also something of an outsider. Born and educated in Moscow, he started with a prestigious job in the Soviet diplomatic corps and was stationed in London among other postings. After the fall of the Soviet Union, he worked in various private banks in Moscow, including the National Reserve Bank that belongs to London’s Evening Standard publisher Alexander Lebedev. Eventually Kostin was appointed as president of VEB in 1996 where he told bne IntelliNews at the time he had built up significant commercial business, despite the fact that VEB was the state development bank. Kostin then hitched his wagon to prime minister Mikhail Kasyanov, who was later ousted in 2004 and is now a leading member of the opposition. But Kostin adroitly switched allegiances as the political landscape rapidly transformed under Putin and in 2002 he was rewarded with the appointment as chairman of VTB, where he has been ever since.

Another hallmark of stoligarch companies is that many seem to lose massive amounts of money and VTB is no exception. Last year, VTB bank had to apply to the state for a RUB300bn ($4.7bn) bailout after so many of its loans went bad. As bne IntelliNews reported in the cover story “Russia’s state banks are rotten“ last summer, its balance sheet is full of dodgy deals and misvalued collateral. The bank’s private equity arm has produced no profitable investments, according to bne IntelliNews sources close to the business. The bank’s profit “doubled” to RUB10.6bn ($165mn) for 2015, whereas Sberbank, which is roughly the same size as VTB, saw its profit rise to RUB223bn ($3.4bn) in the same period. VTB was just about breaking even in the first quarter, reporting net income of a mere RUB1.7bn ($26.5mn) and is guiding for lower profits for the foreseeable future.

But the bank remains a major part of the state’s financial infrastructure. In the recent $1.75bn sovereign Eurobond issue, the first for years, the bank unusually acted alone as lead manager, unable to attract any foreign banks to participate due to US State Department pressure. VTB has also been nominated to organise the privatisation of oil company Bashneft, one of several companies expected to be privatised this year, and will probably act for diamond miner Alrosa as well.

German Gref, CEO of VTB’s sister bank and retail giant Sberbank, does not qualify as a stoligarch, not because Gref doesn’t have a personal relationship with Putin (he does) but because Sberbank is home to about half of all Russian retail deposits. The state simply doesn’t dare muck about with the bank that holds about half of all Russian's life savings. If Sberbank got into trouble that would be the equivalent of economic Armageddon.

Rosselkhozbank, the state-owned agricultural bank, is another candidate for stoligarch-hood, and books the same scale of losses as VTB thanks to state-directed lending decisions in a strategically important sector. However, it is run by Dmitri Patrushev, the son of former FSB boss Nikolai Patrushev, who doesn’t meet the “personally close to Putin” criterion, and the bank is entirely focused on the agricultural sector so doesn’t have the diversification the other stoligarchs boast.

Business first then democracy

Why has Putin set up the stoligarch system? It obviously undermines the rule of law and encourages corruption. Part of his motivation is his perception of Gorbachev’s failed Perestroika experiment; Putin has said in speeches that he believes Gorbachev’s mistake was to do the political reforms (Glasnost) before the economic ones. He quickly lost control of the situation leading to the collapse of the Soviet Union. Putin’s plan is to do things the other way round: fix the economy first and then (presumably) ease control over politics.

That is what he is talking about when in his state of the nation speech in 2005 he described the collapse of the Soviet Union as “the greatest geopolitical catastrophe” of the 20th century. But in the same speech he stressed that Russia was “free and democratic”, though crucially added: “Russia will decide for itself the pace, terms and conditions of moving towards democracy”.

Notably, at the same time he was throwing oligarchs into jail and tightening his grip on power at the start of his reign, he also introduced the radical flat tax regime – 13% for individuals, 24% for corporates – rewrote the labour code, introduced a federal treasury system to stop regional governments stealing budget funds, and a raft of other liberal market reforms that paved the way for eight-years of 6-8% growth, helped in this effort by the rocketing price of oil.

However, there is a big flaw with the hybrid state capitalism model that has emerged. The most obvious is there is no guarantee Putin will ever get round to the “democratic” part of the plan. He has shown little inclination in this part of the transformation. If anything, Russia has become less democratic as more and more power accrues to Putin personally as a result of the stoligarch system.

But Russia has reached a point where state interference is an obstacle for more growth. The government needs to nurture business if it is going to create an investment-based growth model. Cheap money is only half the answer. The fact that the stoligarchs sit above the law and are untouchable in their rapacious empire-building undermines the very confidence needed to encourage long-term investment decisions. Larger companies can cope with this system, but only if they invest as much effort in government relations as they do in investor relations.

The stoligarch system at heart is not about getting rich personally, but about the exercise of power. This system is not corrupt per se, but obviously state-directed lending in a non-competitive environment encourages at the very least rent-seeking. Overall, Russia has improved its ranking on the Transparency International Corruption Perceptions Index to 119 out of 168 countries, but that has not stopped the stoligarchs from becoming some of the wealthiest people in the country.

The private sector stoligarchs are all billionaires; the public sector stoligarchs are all the highest paid public officials in the country. But the fact that stoligarchs regularly get fired from their cushy posts underlines that they are not just there to enrich themselves, but they have a job to do and there is some measure of accountability.

The use of private sector stoligarchs is a little harder to understand, but here there is an aspect of keeping the money in the family and a pragmatic measure to dodge the problem of corruption.

Putin is from the Soviet generation and he can’t bear to see hundreds of billions of rubles leave the state budget for the coffers of the private sector without earning him some political capital in the process. That is why in 2015 Arkady Rotenberg’s companies won more state orders than any other entity in Russia; Stroigazmontazh received state orders worth RUB555bn ($8.6bn), according to Forbes. Gennady Timchenko was ranked third, with his Volga Group receiving orders from the state worth RUB161bn ($2.5bn) last year.

The stoligarchs are also a shortcut to reining in corruption. Russia launched a major anti-corruption drive when Dmitry Medvedev was president in 2008, but little real progress was made and little is likely to be made in the near future. By using stoligarchs to carry out the biggest state-funded projects rather than organising them through the official but faceless government channels, Putin doesn’t eliminate corruption, but he has made someone directly responsible for the project and he can control the level of corruption personally. Notably, corruption by lower level officials in charge of budget funds has been banned. In June, the mayor of Vladivostok, Igor Pushkarev, was arrested on corruption charges, the latest in a string of regional governors to be hauled in for graft. The government’s effort to reduce corruption is ongoing. In the middle of June, yet more rules were introduced to better regulate access to public procurement and cut down on corruption at both state and municipal level.

The result is a hybrid system that is part free economy and party neo-central planning. As bne IntelliNews recently argued, corruption is the system in Russia, but it is a little more sophisticated than that. Putin is increasingly leaving the apolitical parts of the economy to the state apparatus to run, where market forces and the rule of law are supposed to apply, but he keeps control over those parts of the economy where the state makes and spends the most money, and where only his personal rules of the game apply.

Putin has explicitly rejected the Western version of democracy, the “Washington consensus”, and resents attempts by the West to impose it so much that he has gone as far as banning foreign-funded NGOs or foreign ownership of more than 20% in any Russian media outlet. His state capitalism alternative is probably founded in a belief that the rule of law is insufficient to stop corruption in Russia – or at least it can’t be put in place fast enough for him to use it as a way of transforming the country. His is a version of China’s “one country, two systems” approach to the political economy.

The beauty of the stoligarch system, as far as Putin is concerned, is the sheer concentration of cash in so few hands, all of whom he can sack on a whim. ZAO Kremlin was manageable, but that relies on dozens of unreliable oligarchs and several hundred multi-millionaires, all of whom are trying to play the system for their own benefit.

The launch of Russia’s third round of liberal reforms, Plan K, strongly suggests Putin is happy to leave the liberal camp to reform the rest of the economy under the leadership of former finance minister Alexeo Kudrin. But Putin is not prepared to give up control of the segment of the economy with all the money in it. Why risk leaving a fifth of Russia’s GDP to corruptible courts to regulate, when all he needs to do is pick up the phone and say what he wants done to one of clutch of people he can count on two hands?