Rite of Passage

The culture of theft and kickbacks is so deeply entrenched that almost no municipal project is free of it. In 2003, for instance, Alexander Apolonov, a Krasnodar sculptor, won a contract from the Russian Academy of Art to recreate a statue of the Russian Empress Catherine II that was destroyed by the Soviets in 1920. He estimated the price at 78 million rubles ($3.2 million) for the 12-meter bronze statue; the administration formally signed an order for the statue to be built on Krasnodar's central square. But, says Apolonov, he hadn't factored in kickbacks. Instead the local officials just deducted them themselves. "The city paid me 16 million rubles ($667,000) less than they stipulated in the contract," he complains. "Instead of beating the bribe out of me, the authorities simply kept the money." Apolonov is currently suing the city administration. "The sad irony of my story is that such state fraud is commonplace in Russia," he complains. "I was too naive to believe I could have an honest agreement with authorities. My friends, Moscow sculptors, laugh at me. They say they include kickbacks in their budgets long before they start modeling."

The morning before the forum began, Krasnodar governor Alexander Tkachev took Medvedev to put flowers at the feet of Apolonov's recently erected statue of Catherine II. Apolonov doubts that his lawsuit was mentioned.

Another thing Medvedev didn't see on his visit to Krasnodar was a standing protest of workers at the gates of the ZIP scientific instrument factory on Zipovskaya Street in downtown Krasnodar. STOP CORRUPTION! STOP HOSTILE ATTACKS! LET US GO BACK TO OUR WORK! read the signs posted by more than 2,000 employees of around 100 small and medium-size businesses who have not been able to go back to their workplaces since September 2006. That was when the 81 acres of the former plant's territory were taken over by armed police working for the plant's former managers. Businessmen who signed leases with the new management found themselves physically locked out of their offices. "We are not protected by law. The state has ignored our complaints," says Andrei Perevarin, one of the owners of a business inside the ZIP complex. "It's like a military siege; they built fences to block the only approach to my office."

Igor Vdovin, the chairman of Russia's National Agency for Direct Investments and a member of the Union of Industrialists and Entrepreneurs, admits that there are serious systemic problems. He talks of "a lack of transparency and accurate information" and "the poor quality of local managers."

Russian business will never grow transparent, because the government has no respect for private ownership, says Yevgeny Zhukov, chairman of Opora, a union of owners of small and medium-size businesses. "We heard complaints from members that representatives of the Krasnodar administration have demanded up to one-third stakes in private businesses, and of cases when the city authorities ignored hostile attacks on transparent and honest taxpayers," he says. "We offer our members legal support, though a majority of businessmen feel reluctant to go to court and use legal methods to solve their problems."

Medvedev at least acknowledges that "legal nihilism"—otherwise known as complete contempt for the law—is Russia's chief systemic problem. But it's the entrenched system of vested interests and patronage that leads to the Kremlin itself that are the ultimate root of Russia's corruption. If Medvedev has the political courage to take on those vested interests, he'll have a real chance of reforming Russia.

Correction: The original version of this story misidentified the head of InjGeo's security.

© 2008