The Real Problem with Putin's Russia: Vodka
Editor's note: This article was originally published during the run-up to the Sochi Olympics, but its conclusions are worth pondering in the aftermath of the Crimea crisis.
One of the main themes in the buildup to the 2014 Winter Olympics in Sochi has been the games’ exorbitant pricetag. By many accounts, the final cost of staging the games -- primarily for the construction of Olympic venues and infrastructure in Sochi -- may be in excess of $51 billion, or some $39 billion beyond the initial budget projections. The well-founded accusation is that much of the overrun was lost to the black hole of corruption and cronyism, as funds for quality facilities are siphoned off in graft and kickbacks. In the meantime, critics have tweeted tongue-in-cheek “Sochi survival guides,” suggesting how much vodka needs to be consumed to deal with the resulting dysfunction.
But where did this system of entrenched corruption come from in the first place? Foreign observers are quick to lay the blame on the autocratic system that has grown during the past fourteen years of Vladimir Putin’s rule. Others fault the lawlessness and economic chaos under Boris Yeltsin following the collapse of communism. Yet during Yeltsin’s rule, Russians faulted the corrupt Soviet system, while the Soviets saw corruption as a legacy of the system of feudal capitalism under the tsars. Even as far back as the 1850s, Tsar Nicholas I commissioned an anti-corruption investigation, which exposed graft and bribery even among his highest officials. When asked how many of Russia’s forty-five governors would not take bribes, the commission could find only two. Privately Nicholas lamented that he was the only honest man in Russia. So not only is corruption ubiquitous in Russia, it has very deep historical roots. What’s more, as I explore in Vodka Politics: Alcohol, Autocracy and the Secret History of the Russian State, those roots have everything to do with that other deeply-rooted Russian pathology, the overconsumption of vodka.
At the most basic level, corruption blurs the line not only between public station and private interest -- which we now see between massive public Olympic construction projects and the incredible amounts private wealth accruing to the politically well-connected -- but more fundamentally between the legal and the illegal. So it makes sense that the roots of corruption extend back hundreds of years to when public and private were indistinguishable and law itself was imprecise, with the introduction of the vodka tax-farm system through which the imperial Russian state extracted massive revenues from the increasingly intoxicated peasantry.
But what is a “tax farm,” exactly? Well, dating back to the Roman Empire, tax farming was the earliest form of outsourcing, in which the state leased the collection of tax revenues to private entrepreneurs. Like a traditional farmer harvesting crops in the field, a tax farmer harvests tax revenue. And just as a tenant farmer pays the landlord to cultivate a parcel of land, the tax farmer pays the state to cultivate the vodka trade over a particular territory. Even back in the seventeenth century, every four years the state would hold a public auction in which the highest bidder won the exclusive right to administer the liquor trade in a specific, geographically defined district. This meant selling the state’s liquor to taverns and retail outlets, and collecting the state’s liquor taxes, licenses and fees. Any income beyond their administrative costs and the amount they’d promised to pay the state at the auction was the tax farmers’ profit -- and they had every incentive to maximize that profit by any means possible.
Just as it had been for the Roman Empire, the tax farm was a reasonable solution to the challenges of governing a huge, diverse, sparsely-populated territory. The state didn’t need a sprawling taxation bureaucracy, and didn’t need to worry about finding competent bureaucrats to staff it: instead it simply outsourced the administrative burdens to the private tax farmer. In return, the tax farmer guaranteed the government a reliable, constantly growing stream of revenue that was immune from market peaks and troughs, since the annual rent had already been set at auction. “No other major source of revenue enters the Treasury so regularly, punctually, and easily as the revenue from the liquor tax farm,” the finance ministry reported in 1816: “indeed its regular receipt on a fixed date each month greatly eases the task of finding case for other expenditures.”
Over time, the highly lucrative vodka trade became the central financial pillar of the autocratic Russian state. In 1680, income from the tax farms on salt and vodka accounted for 53 percent of all imperial revenues. By the 1830s, the “indirect” vodka taxes outpaced even direct taxes. In an investigation of the tax farm in his Provincial Sketches, famed satirist and onetime deputy governor Mikhail Saltykov-Shchedrin lamented that up to two-thirds of government revenue came from the vodka farm.
To maximize their take from the vodka trade, the state imposed ever stricter regulations on the tax farmer. So as not to flood the market, the treasury allocated each tax farmer only a set quota of vodka from the government’s warehouses and stipulated that it be sold at a fixed price, leaving the farmer only a razor-thin margin for legitimate profit. Since the vodka farmers were still reaping outlandish profits through various abusive practices like watering-down and undermeasuring the vodka, the treasury squeezed them even more, demanding that even the paltry amounts that the tax farmers were to gain legitimately would also go to the state -- implicitly acknowledging and sanctioning the corrupt practices of the tax farmers, and occasionally even providing legal cover for their unscrupulous behavior.
“Who can buy from the government a given quantity of vodka at a fixed price, sell it to the people without raising its price, and from it pay the government ten times as much?” asked a scathing nineteenth-century exposé in liberal dissident Aleksandr Herzen's influential independent newspaper Kolokol (The Bell). This riddle underscored the inherent contradiction of corruption: on the one hand, the government demanded strict adherence to the letter of the law while, on the other hand, it could only maximize its take by encouraging its administrators to break those laws. It was the state's willingness to look upon the tax farmers’ transgressions with a wink and a nod that transformed occasional bribery into a political system permeated with obligatory corruption from top to bottom.
Almost single-handedly the vodka farm transformed sporadic bribes and gratuities into a system of routine, semi-formal payments to all levels of government officials. In the nineteenth century, observers noted that “Every person having any degree of influence receives regular cash payments from the tax farmers, according to their influence, as well as a monthly gift of vodka.” Every year, the typical vodka farmer doled out tens of thousands of rubles to district government officials, jurists, and law enforcement in order to ply his trade.
The biggest bribes went to local politicians -- the governor, his chancery, and mayors -- to buy powerful political cover for his schemes. These payoffs often exceeded the officials' annual salaries. Penza governor A. A. Panchulidze annually received 24,000 rubles -- or three times his official salary -- from the local tax farmer, allowing the tax farmer there to rule Penza province “in the style of a medieval turkish pasha.” As contemporaries noted: “The receipt of a payment from the tax farmers means that the official must, at the very least, look through his fingers at all the abuses of the tax farm, and that no complaints or denunciations against the tax farm or its employees can be proceeded with.”
Then (as today) Russian corruption also permeated law enforcement: officers, commissioners, captains, and everyone in between became complicit in the vodka trade. Consequently, like any kingpin, the vodka tax farmer was above the law. Even if charged with a crime, the tax farmer could not be brought to court until after his four-year farm had expired and all accounts had been settled -- a process that could take years. Even with the politicians and law enforcement in his pocket, there was still enough to buy off the judiciary, too: hundreds of rubles annually for the circuit court judge, assessor, secretaries of the rural police courts, and presidents of the exchequer court who supervised liquor tax revenues. As the Kolokol exposé pointed out: Having made such deals with the tax farmers, the government of course not only cannot prosecute the tax farmers for the abuses, but is actually obliged to protect them; otherwise they'd be wishing for a miracle requiring the tax farmers to do the impossible! Therefore, by tolerating and enabling the tax farmer, the government is consciously robbing the people -- dividing up the spoils with the tax farmers and others who have participated in the crime.”
From the bottom to the top, government officials often relied more on the tax farmer’s bribes than their meager state salaries. Not surprisingly, their loyalties were divided between their official legal duties and breaking those laws to keep the “gifts” flowing from the tax farmer.
Of course -- then as now -- not everyone was complicit in the systemic corruption. Some officials were too insignificant to deserve a bribe, while an admirable few refused to soil their hands on moral or ethical grounds. Such “untouchables” did not last long in Russia: rather than being rewarded for their honesty, the fastidious were looked at with suspicion and derision. According to a nineteenth-century French account:
Most officials show little respect for an honest subordinate, but will view him as a Utopian, a restless “frondeur.” Further, to refuse a bribe is to ensure the enmity of the rich and influential caste of tax farmers, who will always work for the removal of an honest official. And sooner or later they will succeed. . . . As the laws are complicated and the formalities insurmountable, an official is bound to have broken some, and that is enough. . . . As a result, once an honest official has earned the enmity of the tax farmers, his superior will leave him to their mercy, public opinion will not shield him, and he will be left with nothing but his conscience.
In such a permissive environment corruption always wins. Accepting a bribe is not only profitable, but safe and socially acceptable -- like picking up money found lying on the ground. To refuse was to raise the scorn of powerful people. Yet the corruption of the entire governance system was a natural consequence.
In some cases it was unclear who controlled whom. Consider, for instance, Tsar Nicholas I, who in 1850 was enraged to discover no vodka for sale at the low, government-mandated price anywhere in his own capital. Incensed, the all-powerful emperor launched an immediate inquiry into this obvious violation of the tax farm regulations. Within days, the St. Petersburg tax farmers met with the finance minister and made clear that following the law by providing such cheap drinks would threaten their ability to pay the taxes on which Nicholas' government relied. Ten days after ordering the inquiry, Russia's supreme autocrat quietly rescinded his own order. Some observers went so far as to declare that “the government has no officials -- they all serve the tax farm; some by cooperation, others through connivance or silence.”
Once entrenched through the vodka tax-farm system, corruption in Russia took on a life of its own, seeping into the transactions of self-governing village communes and their assemblies, the court system, law enforcement, and even the local parishes of the venerable Russian Orthodox Church. And even after the vodka tax-farm system was abolished along with serfdom in the 1860s, the damage had already been done: the disrespect for law in a system of personalized power continued, while corrupt officials used their riches and deep connections at all levels of the government to move into other lucrative endeavors. Even Tsar Alexander II’s sweeping political and economic reforms did nothing to stop the petty corruption of the tavern keepers, and the watering-down and undermeasuring of drinks. It did nothing to remedy the infiltration of vodka, money, and influence into Russia's traditional institutions of local self-government and the Orthodox Church.
What does this history lesson tell us about Russia’s corruption problem today, and the prospects for doing anything meaningful about it? Today, as back then, the divisions between politics and business in Russia are horribly blurred. Kremlin politics has taken on a distinctly feudal character -- a ruling caste dominating a system of vassals in which political loyalty and profitable public positions are bought and sold. Then, as now, corrupt practices among the political leadership provide a model for the rest of society -- which in turn casts doubt on who is actually in control: the government or the agents of corruption? Then, as now, the state is saddled with an inefficient, corrupt, and ever-growing bureaucracy that nobody designed and nobody seems to control. Now, as then, the resulting economic incentive is to invest in bribes rather than legitimate business practices to spare harassment by the authorities, which only further entrenches these practices. Now, as then, this systemic corruption hinders economic development by obstructing investment and inhibiting trade.
Intriguingly, there is implicit acknowledgement by contemporary Kremlin opponents that now, as then, vodka politics is part of the problem. In his closing defense of a politically motivated embezzlement trial in July 2013 -- allegedly orchestrated to discredit him and prevent him from holding future office -- anti-corruption crusader Alexei Navalny declared he would “do everything possible to defeat this feudal regime... under which 83 percent of national wealth belongs to 0.5 percent of the population.” Navalny challenged the judge, those assembled in the courtroom, and those watching the live online broadcast to consider what benefits they’ve seen from skyrocketing oil and gas revenues over the past decade.
Has anyone received access to a better medical care, education? To new apartments? What have we got? … We have only got one thing. You all know the one product that since Soviet time has become more affordable: vodka. This is why the only thing that is guaranteed to all of us, citizens of this country, is the degradation and the chance of drinking ourselves to death.
Popular apathy “only helps this disgusting feudal regime, which, like a spider, is sitting in the Kremlin.” In concluding, Navalny declared that indifference toward corruption only benefits the state and the well-connected few, while putting the rest of “the Russian people on the path of degradation and drinking to death, and to take away all of the national wealth from the country,” just as in imperial Russia.
Well then -- if the parallels are so stark, what does history suggest in terms of the prospects for genuine reform? Here too, the outlook is gloomy. Since corrupt individuals and practices outlast the reasons for their formation, generations of imperial, Soviet and post-Soviet leaders have had to grapple with these consequences. Indeed, placing debates over present-day anti-corruption measures in this deep historical context underscores corruption's intractability and the inadequacy of proposed remedies.
On the one hand, many of the practical policy suggestions for grappling with corruption in present day Russia -- like empowering autonomous business organizations, redrawing legal districts, or rotating judges to reduce the potential for patronage -- are simply not enough to meaningfully overcome the problem. Even the monumental reforms enacted by Alexander II -- which fundamentally attacked the roots of systemic corruption -- hardly made a dent. Why should we expect greater results from smaller, more easily circumvented initiatives like rotating judges?
On the other hand, academic accounts claiming that -- theoretically -- corruption can be restrained by “strengthening the rule of law” or by empowering “accountable local self-government” may well be true, but these suggestions are vague and impractical. Virtually every Russian leader over the past hundred years -- including some of the world's most powerful autocrats -- has vowed a war on corruption, and each one has failed. “Blat [the system of insider connections] is higher than Stalin,” as the old Soviet saying goes -- and it isn't far from the truth. Patronage, bribery, and corruption are the legacies of Russian state building. Along with the corrupt officials who secured positions of economic and political power through such means -- they are also the intractable foundations of the autocratic state itself. They serve the needs of the autocracy, which in turn relies on them.
The only conclusions for true reform, then, are the most pessimistic ones. Some suggest that real change will come with only a complete overhaul of the social and political systems that make corrupt behavior in people's economic interest. Not only are such wholesale structural changes in contemporary Russia unrealistic, but history suggests that they are not adequate. To root out corruption, Russia would need to completely demolish its political, economic, and social structures, develop a vibrant economy that makes bribery and graft less vital to a household’s bottom line, and adjust to cultural norms that no longer tolerate the rewards of position. To change such deeply entrenched cultural practices would take generations.
The sad prognosis is that Putin and every Russian autocrat who follows will continue the eternal battle with corruption. And whether genuine or half-hearted, every such attempt is likewise doomed to fail until they meaningfully confront the nexus of alcohol, corruption, and autocracy that constitutes Russian vodka politics.
Originally published under the title "Everyone Knows Vodka is Destroying Russia, But You'll Be Shocked by How Deep The Rot Goes."