The Oligarchs, page 19
Berezovsky’s laboratory earned its vnedrenie from the Avtovaz plant in Togliatti. The plant was one of the largest industrial undertakings in the Soviet Union. It churned out hundreds of thousands of the little Zhigulis and accounted for over 1 percent of the entire economy. Oslon recalled the institute would typically have a plan: “Laboratory of Berezovsky. Client: the factory Avtovaz. Theme: development of the system of designing of automobiles.” The laboratory wrote reports, the institute sent them to the factory, the factory paid the institute and sometimes the researchers.
But in the late Soviet years, everyone knew that vnedrenie had become a shell game, part of the business of jockeying for resources inside an economy of scarcity. No amount of scientific research was going to save the dinosaur of developed socialism, but the subsidies for research kept coming and the researchers kept insisting they were actually making industry better. “We had a foolish system,” said Grodsky. “There existed a whole bunch of methods, calculations of how this formula had influenced the process of producing cars, whatever. It was very funny. It was kind of a game, and everybody was playing.” He added, “Boris was a genius in the sense that he was one of the first people at the institute who established very profitable contacts between his lab and Avtovaz. It was money that people could live and work on.”13
But Berezovsky had far greater visions than small-time favors and pocket change. He knew that the boxy little Zhiguli cars were the dream of Everyman. Avtovaz to him was more than a factory. It was a gold mine.
“I understood one important thing,” Berezovsky told me. “At that time, an enormous number of people wanted to buy cars. It didn’t matter if they lacked an apartment. It didn’t matter if they lacked clothes. But if only there would be a car!”
Berezovsky paused. He was sitting in the nineteenth-century mansion he had transformed into a business club wearing a pressed white business shirt and an elegant maroon silk tie, sipping from a glass of red wine. He savored the memory, as if it had rushed back to him again through all the years, of how desperately people wanted a car of their own, a dream that he too had shared.
“Possessed,” he told me, pausing again. “I remember myself. My first car appeared when I was forty years old. Half a car. One week mine, the other week his. And we didn’t argue about it once. Not once.”
The Volga automobile factory was built in the spirit of the triumph of socialism. In 1967 young Komsomol construction brigades from three hundred cities and towns converged on a barren site near the Volga River to erect what would become the largest automobile factory in the Soviet Union. They began excavating not just a mammoth factory but a whole factory city, including blocks of apartments to house 150,000 future autoworkers. For three and a half years, every day, forty-five thousand workers, two hundred bulldozers, five hundred construction cranes, one hundred excavators, and two thousand dump trucks labored to erect the new industrial metropolis.14 The plant itself was a gigantic building, fourteen kilometers around the perimeter with twenty-one entrances. On April 19, 1970, the first car rolled off the assembly line, the VAZ 2101, a modified Fiat 124 with a tiny 1.2 liter engine and trademark squared-off nose and round headlamps. It was called the Zhiguli, named after the rolling hills on the west bank of the Volga River. Just three years later, the millionth Zhiguli was produced, and by 1974 the plant reached full production on three massive assembly lines, each with a capacity of 220,000 cars a year.
The scale of the factory was immense, but so was the demand for cars, just one of many consumer goods that had fallen into shortage.15 In the late 1970s and early 1980s, the factory began to run afoul of the larger malfunctioning of central planning. Shortages of parts and bad workmanship plagued the little Zhiguli. By the years of perestroika in the late 1980s, the factory was rotting from within. Soon the vultures came to pick over the carcass.
The central planners created a car distribution system that had no relation to the market. Prices didn’t really matter; color was irrelevant, a guarantee useless. The idea of kicking the tires and slamming the doors was ludicrous. The distribution was based on party, privilege, and connections: cars were sent to various groups, such as unions or enterprises or Komsomol, based on svyazi, and the groups decided who would get the prized vehicles. At issue was not whether you could buy a Zhiguli but whether you could get one after ten years of waiting on the list, and whether, if you got one, you would keep it or resell it immediately at a huge profit.
To make matters worse, the simple Zhiguli was not a breadbox, although it looked like one. It was a moderately complex piece of machinery that needed maintenance and spare parts, and they too slipped into the shadow economy. Like the cars, spare parts were distributed by the planners and not the market. Soon, as millions of Zhigulis began to wear out brake pads and foul spark plugs, as fenders were crunched and headlamps shattered, spare parts became a valuable second currency. They were tradable, portable, and always in demand. As the shortages grew, so did the value of the parts. It was a classic example of the socialist economic crack-up in slow motion. A Zhiguli owner removed the windshield wiper blades from his car every time it was parked so they would not be stolen. The shortages grew more and more severe in the 1980s; at one point there were special gangs with giant suction cup devices. They would spot a clean, uncracked windshield, and, when no one was looking, stick the suction cups on it, pop it out, and steal it in a flash. Adding to the despair of car owners, the network of service stations were also chronically short of spare parts, and any kind of serious repair demanded not only a mechanic but spare parts. The 1,033 service centers could hardly cope, and during the period of Gorbachev’s reforms, the black hole of auto spare parts became a gaping abyss.
Avtovaz was suffering not only because of the overall crisis of Soviet socialism. The factory was being destroyed from within by theft. Crude laws of supply and demand existed in the black markets. If something was in shortage, and was badly needed, the demand was met by stealing. If cars and spare parts were currency, then Avtovaz was an enormous treasure chest. The factory was theoretically owned and run by the state, but as state control weakened, others began to rob the treasure. So strong was the black market demand for spare parts that whole containers of them were brazenly stolen off the factory floor by criminals, causing the assembly line to grind to a halt. As criminals grew even more daring, they stood on the assembly line and chose which finished cars they would take. Moreover, the factory depended on a network of suppliers that was growing weaker as the Soviet Union itself was spinning apart. Cars right off the assembly line were traded to suppliers for desperately needed parts, which were being stolen anyway. The fences around Avtovaz became famous as a twenty-four-hour black market in parts and whole cars. Avtovaz, a company with 4 billion rubles in sales and $670 million a year in hard-currency earnings from exports, a vast warehouse of windshield wipers and carburetors that were extremely valuable, a phalanx of assembly lines producing modest but desperately sought automobiles, was being turned into an extremely lucrative bazaar. The managers of the factory knew that their plant was being dismembered, and they joined in the festival of theft. Everything was for the taking.
Berezovsky was losing his interest in science. His restless mind was wandering. “I have always done only what I loved,” he told me years later. “I have never ‘gone to work.’ Right? I do only that which I love.” Berezovsky also claimed that he had an acute sensitivity to the change going on around him. “You must look at the world through the eyes of a child,” he said. He saw in 1988 that the Soviet Union was undergoing a profound transformation. Gorbachev had flung open the doors of opportunity; the cooperatives were springing to life; the first banks were opening. The long socialist experiment in collectivism was ending, and the advantage would fall to individuals who seized the moment, who could think for themselves. Berezovsky envisioned himself among them.
“Speaking bluntly, the tragedy for the majority of people was the state had taken care of them, and the state had cast them aside,” Berezovsky recalled. “That is, overnight the state ceased to care about them, right? Millions of people ended up without social protection, couldn’t go to the health clinic. People thought that someone was supposed to take care of them. The state, right? I didn’t think that way. Maybe more quickly than others, I understood that this was the beginning of a new era.”
Berezovsky leaped into the business world. By his account, his first deal was software. “We simply used the knowledge that I had gained professionally, from the institute, and the work we had done at the institute, and started to sell that work.” Berezovsky was no Willy Loman, going door to door peddling his wares. He worked at a state institute and sold the software to the State Committee on Science and Technology, the powerful government agency that was a conduit between the Communist Party and the Soviet scientific establishment. Berezovsky said he “absolutely vulgarly lobbied our project” with the agency. “We convinced them that it was a good product, and we sold tens of thousands of copies of this software. And those were the first millions of rubles that we earned, and a million rubles at that time was a whole lot.”16
Berezovsky was a relentless charmer. His friend Boguslavsky recalled that Berezovsky—the compressed ball of energy—could also display a certain studied patience when it suited his needs. He thought nothing of waiting on a doorstep to personally buttonhole someone for a favor. “There were not a few occasions when Boris needed something from me,” Boguslavsky recalled, “and in the morning I would be walking downstairs, and I would see Boris at the entrance, just waiting for me. He was waiting because he wanted to fix something with me, and my phone was busy or turned off, and he wanted to do it right then—so he would just sit and wait at the entrance.” The same scene—Berezovsky waiting patiently in a Kremlin anteroom, waiting in a television studio outer lobby, looking for a favor or a deal—would reappear over and over in the years to come.
The intrepid Berezovsky used the same patience and resolve to good advantage with one of the executives at Avtovaz, Vladimir Tikhonov, who often came to Moscow on business trips. According to Boguslavsky, when Tikhonov arrived in Moscow for meetings, Berezovsky, for whom no task was too humble, would volunteer to be his chauffeur. Tikhonov often met in Moscow with Italian auto industry chiefs and specialists who had designed the Togliatti plant. As they were shuttled around Moscow, their driver, Berezovsky, absorbed every word.
“Boris was never shy,” Boguslavsky recalled, “if he needed something.”
In January 1989 Gorbachev’s economic reforms were still a matter of great uncertainty in the West. At the end of the previous year, a secret national intelligence estimate prepared by the CIA and other U.S. intelligence agencies opened with a declaration that “Gorbachev’s efforts at reviving the Soviet economy will produce no substantial improvement over the next five years.” There is “some chance that Gorbachev’s economic programs may not survive.”17
In the end, Gorbachev survived in office only three more years. But 1989 turned out to be a remarkable political turning point toward the end of the Cold War. The Soviet Union pulled its last troops out of Afghanistan; the Communist Party began to lose its monopoly on power; the Berlin Wall fell; and in the spring, the Congress of People’s Deputies became the first popularly elected legislature in Soviet history. Despite pessimism about Gorbachev’s future in the U.S. intelligence community, the economic revolution he had unleashed was unfolding on the streets and in the cooperatives. One very small glimpse of it could be seen in a café on Moscow’s Leninsky Prospekt, where the first roots of Berezovsky’s capitalist empire were sunk into the earth.
The café was called Adriatica, and in January 1989 Berezovsky, Boguslavsky, and Pyotr Aven, a mathematician-economist who had worked with Gaidar in Moscow, as well as some other friends, gathered there to start a business. They didn’t have a clear idea. They were just being carried along by the times; everyone around them was going into business, and they were already a little bit late. Boguslavsky said the idea was to set up a legal “shell,” into which each of them could bring their own deals. They rented a small room and put up a chalkboard on which they wrote ideas for the fledgling business. A detailed account of those years was written by Yuli Dubov, who became a deputy to Berezovsky. He has called the book a novel—he changed the names of the participants and added some unrelated events to spice up the story—but he has also said, “I painted what I saw.” Many people I spoke with who knew Berezovsky in those years described the book, Bolshaya Paika, as the most precise account of the period, although it is sometimes overly generous in its portrayal of Berezovsky.18 Dubov listed the ideas that the novice businessmen wrote on the board:We need our own bank.
At least we need to organize normal conditions here! We spend days here, and there is nothing to guzzle!
I suggest we get seriously involved in medicine.
We need normal phones. And at least one Xerox machine.
What would the business do? In some cases, they threw in existing individual projects, such a computer networking contract that Boguslavsky had in Czechoslovakia. It brought in early cash. While his friends were casting about, Berezovsky had a vision. He wanted to start a big business, nothing like the small cooperatives then dotting Moscow street corners. He decided to form a joint venture with a foreign partner, which would be more solid than a cooperative and could be useful in getting money out of the country. Aven told me that Berezovsky always had the largest ambitions of anyone in the group. “Berezovsky always wanted to have a billion dollars,” he said. “He always would take higher risks.”
From his days as a driver for Tikhonov, and from his expanding contacts at the factory, Berezovsky learned of an Italian company, Logosystem SpA, a systems integrator based in Turin and a Fiat supplier. The specialists from Logosystem frequently flew to the Soviet Union to fix the assembly line at Avtovaz. When Western businessmen came to the Soviet Union, they were often bewildered by an array of problems and inconveniences. Berezovsky knew he could smooth out their troubles. Berezovsky offered to become an intermediary for the Italians, giving them a base in Moscow for their work with Avtovaz. They agreed. In May 1989, Berezovsky founded Logovaz—borrowing half the name from the Italian Logosystem and half from Avtovaz.
For Berezovsky, the sprawling Avtovaz plant in Togliatti was fertile ground for his human networking talents. “When he got to Avtovaz, he started to search,” Aven told me. “What did the executives need? They needed connections in Moscow, and they didn’t have them. They wanted to go abroad with an Academy of Sciences delegation, and he could help them.”
His first major break came with Alexander Zibarev, who was then a deputy general director of the factory in charge of spare parts. Berezovsky made a classic connection: he brought Zibarev to the institute to work on a dissertation, which was essential for any up-and-coming Soviet industrial manager. In 1987 Zibarev received a candidate of science degree from the institute based on his thesis, “Perfecting the Centralized Mechanism of the Distribution of Spare Parts for Automobiles,” using Avtovaz as an example. Zibarev later defended his doctoral dissertation too. Berezovsky told me that he took a “very active part in the work on that dissertation.”
Zibarev “wanted to be respected,” Berezovsky recalled. “And to defend a candidate’s dissertation, that means respect.” Berezovsky insisted that Zibarev wrote the dissertation himself, although “he discussed very many things with me.”
In turn, Zibarev helped Berezovsky, bringing him to the executive suites of Avtovaz, where Berezovsky met Vladimir Kadannikov, the head of the enterprise. Kadannikov was considered part of a new generation of perestroika industrial managers and had become director in 1986. Berezovsky wanted the factory to serve as one of the founders, as well as a client, of his new company, Logovaz. According to Boguslavsky, the powerful Kadannikov at first didn’t see the point—why did he need an intermediary with the Italians? But finally, Boguslavsky said, Kadannikov agreed to give Berezovsky money just to get him out of his hair. “Initially, he was very skeptical,” recalled Boguslavsky, who became deputy director of Logovaz. Later Kadannikov became more enthusiastic.
Dubov, the author, told me that Berezovsky came across to the Avtovaz executives as someone who could think big, as they did. “He simply understood that, of course, you could first create a cooperative, a small one, and then come to Avtovaz and say, ‘I have a small cooperative, let’s work.’ But you could also come to Avtovaz and say, ‘Let’s create an enterprise together.’ What sense did it make to come to Avtovaz with another cooperative? Some fifty cooperatives would have already been there, and he would have been the fifty-first. But he was the only one to come and say, ‘Let’s work together.’” Both Zibarev and Kadannikov eventually became part of Logovaz while keeping their positions at the factory. Kadannikov proved key in making deals that were profitable for Logovaz at the expense of his own factory, Avtovaz. But this awkward position was not unusual for the times—most top executives were scrambling for a piece of the action on the side.
In his novel, Dubov described the first meeting with Kadannikov as a seminal moment. The director “didn’t retain in his memory any details of the meeting and failed to feel anything important about it. But he should have. Precisely at that moment a small knot was tied, and a tiny thread began to stretch. And this thread was to develop into a net, sometimes visible, sometimes not, but a very solid one, that would later seize the fate of the country, that of the factory, and the fate of many people, including the director himself. And very likely some of these people, having a more fine intuition, would have flinched at that minute and looked at their watches. Because the first brick was laid in the foundation of the financial empire.” That empire, in real life, was called Logovaz.
