Slick Russia Vs. Free Media

Russia’s vast energy resources and its newly independent media were expected to be twin pillars that would help the country rise from the mire of communism and realize its full potential. The oil and gas industries in particular were supposed to attract vast foreign investment and supply the hard currency Russia needed to build a modern economy and free society.

At the same time, the rise of independent mass media was meant to safeguard that freedom. After eight decades of subservience to the official propaganda needs and strictures of Communist Party censorship, literally hundreds of new publications sprung up in Russia once communism had fallen.

Radio and television reporters suddenly became inquisitive and seemed eager to keep corrupt politicians and rapacious bureaucrats in line.

But things didn’t work out quite as smoothly as planned. To be sure, Russia did manage to tap its energy resources. It became the second-largest oil exporter after Saudi Arabia and emerged as the main supplier of natural gas to Western Europe.

Exports of natural resources — mainly oil and gas — earned Russia a trade surplus of around $50 billion in 2001. That comes to an impressive 15% of GDP. High oil prices, which fortuitously spiked in 1999, right after Russia defaulted on its debt in August 1998, saved the country from a severe economic depression and protected Russians from penury.

And yet, the much anticipated foreign investment into Russia has been all but non-existent. Overall, Russia has attracted less direct foreign investment than Poland, Hungary or the Czech Republic. Together, they make up less than a third of Russia’s population — and they entirely lack its energy resources as investible opportunities.

The independent media in Russia also failed to live up to its promise. One reason was the fact that most of the financial oligarchs who privatized Russia’s economy in the early 1990s — collectively known at the time as the “seven bankers” — acquired their own media empires in the process.

Even though newspapers, magazines and television stations were still largely free to report what they wanted, they largely functioned as mud-slinging tools serving the needs of their owners — the rich oil tycoons and media kings. The public soon lost all respect for Russia’s newly-born Third Estate.

Since coming to power in January 2000, Russia’s rather young President Vladimir Putin, acting in sharp contrast to his septuagenarian predecessor, Boris Yeltsin, has been far less tolerant of criticism in the media. Yet, it fell to the country’s largest oil and gas companies — both of which still have a substantial state ownership component — to muzzle the most outspoken media outlets.

How did this come about? In early 2001, Gazprom — Russia’s natural gas near-monopoly and the country’s largest company — dismantled Media Most. Owned by Vladimir Gussinsky, Mr. Putin’s political opponent, Media Most had relentlessly criticized Mr. Putin’s war in Chechnya and warned about his KGB background.

But unfortunately for Mr. Gussinsky and the Russian people, Gazprom was a key creditor of Media Most — and simply moved to take over the company when it was unable to repay its debts.

To appreciate the outrageousness of this situation, these maneuvers are akin to GE — which has owned NBC since 1986 — closing down the media operation (under the pretext of financial difficulties) to curry favor with the Bush administration.

But Media Most was not the only casualty. Less than a year later, in November 2001, TV6 met a similar fate. This time it was Russia’s largest oil company, Lukoil, that was instrumental in getting the courts to shut down TV6. The Lukoil pension fund, owning a 15% stake in TV6, went to court to get it liquidated, claiming that the company was not performing up to snuff.

That channel was, incidentally, the last remaining independent television station. Many of the reporters who left Media Most when it closed had found refuge at TV6.

Curiously, both Gazprom and Lukoil used ostensibly market-oriented financial methods to battle the feeble independent media groups. And of course, the powers that be in the new Russia might be inclined to point out that Western economists and the IMF have long called on Russia precisely to adopt such methods in its own efforts at market reform.

What Russia needs, they have said, is to allow creditors to shut down companies that can’t pay their debts. Well, here then is a fine example of two blue-chip energy companies taking a leadership role in a badly needed reform process.

Except, of course, it has been only used against maverick media companies that criticized the government a little too much. In other cases, Russian companies that don’t pay their debts are usually allowed to get off scot-free.

It remains to be seen how soon Russia’s energy sector and the media can emerge from recent setbacks. As two of Russia’s most promising assets, the country is counting on them to help lead the way in the post-communist era. In the meantime, Russia has learned a hard lesson about market reform. And the unfortunate casualty of this experience has been an independent media.

December 7, 2001