Vladimir Yakunin - The Treacherous Path - An Insider's Account of Modern Russia

The tariff freeze brought to an end the expansive period in which we had embarked successfully on great projects such as Sochi and the modernisation of the Transsib and BAM lines. As 2014 rolled around, the impact of the cost-cutting began to make itself felt with ever greater force. Repairs and maintenance soaked up what money we had and I learned that there is little so dispiriting for a CEO as watching your company’s assets depreciate in value and to be unable to make the investments needed to arrest the slide. With any kind of state support now a distant memory, and our income slashed as a result of the tariff freeze, it was clear that nobody was interested any more in how the railways could be used to stimulate economic growth; the focus was on how much money could be saved. ‘Opex optimisation’ had become the order of the day.

From then on, we were told to make ever-greater efficiency savings. People began circling around Russian Railways like vultures. They demanded additional divestments of our ‘non-core assets’ (such as Greek ports) and activities such as hospitals, hotels and schools. Some of these cuts could be made relatively easily, but at other times it could feel as if we were being asked to pick apart the intricate, interdependent railway system by people who did not realise the implications of doing so. Almost a decade previously, as we embarked on the reform of Russian Railways, the President had warned me against making irrevocable mistakes; I feared that in the harsh new world into which our politics had stepped, they would soon become unavoidable.

What value could accrue from slicing away hospitals that were integral parts of local communities – sometimes providing the only medical care for miles around – and which also had a measurable impact on the performance of Russian Railways? For instance, when Russia was struck by an influenza epidemic, our employees fell sick at a rate of 18 per cent less than the country’s average. Was it really going to be more efficient to sell this part of our holdings off?

We often resisted some of the savings that people tried to force upon us, and often we were successful. But it was symptomatic of an erosion of vision, the effects of which you could see at the very top levels of the government too. My life up until this point had always been filled with argument and discussion with the people around me, be they friends, politicians or business associates. I, like them, have been eager to debate every aspect of our country’s economic, social and political evolution in the years since 1991. I remember, for instance, how many of us disagreed with Vladimir Putin over whether Leningrad should revert its name to St Petersburg or Petrograd (named after Peter the Great; Petersburg was hastily changed to the less German-sounding Petrograd in 1914). The referendum of June 1991, in which the city’s population voted for St Petersburg (and at the same time elected Anatoly Sobchak as mayor), settled this issue, but there would be plenty of others for us to debate in the years that followed.

I remember endless fierce exchanges about the role of the state, about foreign policy, about how far reform should be pursued – anything that touched on the kind of nation we thought Russia should be aiming to become. And these disputes had spilled into our deliberations about the modernisation of Russia’s railway system.

But now, the free-marketeers with whom I had once argued so forcefully had all lost their seats at the government’s top table. [18] I remember having an argument in Moscow with Alexey Kudrin about the extent to which state intervention in the economy should be limited or not (an argument that remains as vital as ever). Later on, after he became Minister of Finance, he told me, ‘stop arguing with me, I am a professor and I give lectures on this subject’. This did not end the argument; far from it. Rather, it was a spur for me to acquire a PhD in Political Science and take up a number of academic positions, including as Head of the State Policy Department at Lomonosov Moscow State University, and as a visiting professor at Peking University and the Stockholm School of Economics. So I am grateful for those words, which I imagine he has not given a moment’s consideration since, because they have opened up another rewarding dimension in my life (and in the process provided yet another example of the law of unintended consequences in action). We are still no closer to reaching an agreement about the role the state should play in civil society, but it is worth remembering that after he was ousted from his position in 2011, I was the first to extend a hand of support to him. Kudrin was no longer part of the government, Gref was running a bank, Chubais an investment fund. The men who had stepped into their places were low-profile bureaucrats. They were perfectly competent when it came to supplying ad-hoc solutions to the problems that were thrust beneath their noses, but unable or unwilling to lift their heads and try to work out what kind of direction they should be steering the country in so that it might avoid those issues in the future.

What made all of this increasingly hard for me to bear was that it was coupled with more pronounced efforts by the government to exercise control over Russian Railways from the inside. This process had begun as early as 2008, when there was a substantial turnover in government personnel. Because we were a state-owned company, the government had the authority to construct the board of directors. They exercised this right by appointing young entrepreneurs who had little experience of the real world (and even less knowledge of transport systems) into senior roles. The government knew that in doing this they would not only be able to circumscribe the authority of the company’s management, but also to gain an upper hand in the decision-making process. It felt as if they were trying, step by step, to change the DNA of the organisation and undermine all the efforts we had made to create a distinct and robust corporate culture.

Russian Railways was a huge company employing over a million people, whose operations exerted a monumental influence on the country’s economic and social life. The board had always been populated by highly respected railway professionals with many years of service in the field; it deserved more than boys who it seemed had only just escaped adolescence sitting in sullen silence when questions they did not understand were raised in board meetings.

The government – or to be more precise, certain elements within it – began to intervene more and more regularly into the operations of the company. The state parachuted in its own ‘independent experts’, but even a cursory glance at a list of those people who were imposed upon us would tell you that, in contrast to the existing members of the board, these new faces were not professionals in the field; they possessed no obvious expertise, and it was as if they were randomly chosen.

With them came a special independent governmental group who, I learned, were empowered to scrutinise our investment programmes. They had the right to criticise our budget and recommend drastic changes to it. Of course, I had no objection to oversight, and I welcomed any input from experts that promised to help improve our performance – why else would we have spent so much money on the services provided by research institutes and consultancy firms? – but it was difficult to discern anything constructive in the role this group was playing. We were manoeuvred into spending hundreds of hours in discussions with environmental, financial and law-enforcement agencies. They asked endless questions and demanded we provided them with colossal quantities of documentation to support our replies. It got to the point where we had to hire a lorry to deliver the paperwork they claimed was so essential. With hindsight it is clear that all this paper-shuffling was a cleverly implemented plan designed to use endless foot-dragging bureaucracy to smother any attempt we made to embark on large-scale capital expenditure.