In his intriguing and unconventional account of developments in President Putin’s close entourage, Mikhail Zygar (2015, p. 18) has recounted how a small piece of aluminium—most probably produced in Russia—might have changed the course of history. Persons close to the Russian president told Zygar that when Vladimir Putin was to meet the newly elected US President George W. Bush for the first time, in Ljublana, he decided to show him a small aluminium medal with an image of the Virgin Mary. Putin explained to his US counterpart that this was his most precious family souvenir, a gift from his grandmother that had been miraculously saved when his summer house was completely gutted by fire. In fact, Zygar was told, this piece of aluminium had nothing to do with Putin: it had been forged by the Russian secret services, in order to be used instrumentally as an element of deliberate image building. As President Bush was known to be a fervent born-again Christian, the Kremlin image-makers thought that if Putin could present himself as a believer that would help him to convince Bush that he was a man to be trusted, someone who held the same basic values.
Judging from the comments made by George W. Bush in the aftermath of this meeting, where he said that he had looked Putin in the eye and had found him to be very straightforward and trustworthy, the aluminium trick apparently worked, and the two newly elected leaders got along well together. Of course we cannot know whether this faked holy medal was made from Russian aluminium, or what happened later to this small piece of aluminium that was used to win over the US president. However, what is certain is that the story of the Russian aluminium industry deserves closer academic scrutiny, as this branch of Russian industry can serve as a prism through which to examine the real workings of modern Russia.
The recent history of the Russian aluminium industry has gone through various phases. In order to understand all its ups and downs we need to paint a broader picture, one that includes not only developments in the branch but also the wider political and economic context in Russia. This book aims to show how the aluminium industry is an important element of the Russian political and economic puzzle, and how, in order to survive, it has had not only to cope with global market forces but also to find a modus vivendi with the new system of governance that has emerged in Russia after the collapse of the Soviet Union and the entry of the new elite. Although the subject is the evolution of the Russian aluminium industry throughout the entire post-Soviet period, special attention will be paid to the time after 2000, and how the industry and Russian aluminium tycoons have related to the global aluminium markets that have been the main ‘recipient’ of this Russian commodity and to the political framework that has defined the rules of the game on the domestic front.
Relations and tension between market and political forces are key questions studied by political economists. This book examines how those relations and tensions are managed by one specific branch of the Russian economy that must operate in a challenging political and market environment. What makes the study of the Russian aluminium sector of particular interest is the specific nature of the global aluminium market which has been undergoing a major transition. The centre of interest has been shifting to Asia —more specifically to China , which has now developed its own production of this key industrial commodity. The evolution of the political system in Russia has had both a direct and an indirect bearing on how the various aluminium actors can operate in today’s Russia.
In his study of the political economy of Putin’s Russia, Pekka Sutela observed that there are three factors which make Russia a special case (Sutela 2012, p. 1). The first is geology, which has endowed Russia with exceptional natural resources. Secondly, Russia is the only country that is located in Central Europe, the Arctic, the Pacific Rim, the Caucasus as well as Central Asia ; thus, Russia is part of many pictures without necessarily being the centrepiece of any of them. The third factor noted by Sutela is Russia’s recent past as a superpower founded on a special messianic ideology of the Second World War. The former superpower has a rich industrial base, an educated population, prominent capabilities in research and development—as well as a heavy psychological burden to bear (Sutela 2012: 1).
All three factors have influenced the development of the country’s aluminium industry. Geology poses some challenges, as Russia is not well endowed with bauxite ores, which have had to be imported or replaced by locally available raw materials like nepheline or apatite. Russia’s geography is both an opportunity and a challenge. It provides Russia with important assets—like hydropower , the main source of energy for the country’s aluminium industry. Moreover, the fact that today’s Russian Federation is spread over such a vast territory is advantageous for developing trade and economic relations with other actors, crucially important for the country’s aluminium producers who export the lion’s share of production abroad. But geography also poses challenges: the raw materials and final products must travel long distances, making transport costs a substantial part of the Russian aluminium equation.
Finally, there is Russia’s recent past as a superpower and how that has affected the Russian aluminium industry . We can identify at least three main influences here. First, the rising ideological Soviet superpower decided to develop aluminium production in the USSR for strategic reasons , as access to this commodity was of strategic significance for modernizing the military–industrial complex as well as the aviation and car manufacturing industry. The development of the aluminium industry was also directly linked with the flagship programme of the Soviet Communist Party: electrification of the Soviet Union. Access to cheap hydropower has until recently been a key competitive advantage enjoyed by Russian aluminium producers. Second, the collapse of the Soviet Union as an ideology-driven superpower with global ambitions resulted in a drastic fall in demand for aluminium on the Russian domestic market. Demand for aluminium in Russia in the first years after the collapse of the Soviet project was 97% lower than during the Soviet period. The main reason was declining demand from the country’s military–industrial complex, which was forced to slash production, for economic reasons (Leijonhielm and Larsson 2004, p. 16). Third, the collapse of the Soviet project had been due largely to inability to compete economically with other centres of global power, so the new political elite of Russia decided to change the model of economic development. One measure intended to make the Russian economy more competitive, while also reducing the possibility of sliding back to the recent Communist past, was the programme of privatization of economic assets. The result was that the Russian state relinquished its control of key aluminium assets, which ended up in private hands. That changed the ownership structure of the industry and opened a period of what has been described as ‘Russian aluminium wars ’, with key actors fighting for control over production assets.
This book examines recent developments in a vital sector of the Russian economy that is very strongly connected to global markets, but also clearly influenced by Russian politics. Such a study is an interesting academic endeavour, for several reasons. For one thing, there have been various parallel processes involved in shaping the evolution of the aluminium sector—and indeed of the whole Russian economy—since the fall of the Soviet Union.
First, the system has changed, from one in which the state was the sole owner, to one where private ownership has become predominant. Second, the process of denationalization and privatization of the aluminium sector has passed through several phases—the ‘aluminium wars ’ of the 1990s, followed by oligarchic consolidation at the national level around 2000, and globalization and internationalization from around 2007. Third, internationalization of the sector was to some extent caused by the fact that the post-Soviet Russian aluminium sector has had to redefine itself and go global in order to survive, due to plummeting domestic demand. In the wake of the economic crisis that hit Russia hard after the collapse of the Soviet project, the sector has evolved—from being a central element of the autarchic and heavily militarized national economy that supplied the Soviet military and civilian industry with huge volumes of raw and processed aluminium, to becoming a key player on the increasingly competitive global aluminium market, which also has been facing structural demand-and-supply challenges. Fourth, internationalization of the sector has helped to make it much less opaque and more transparent, as going global has brought the need to meet internationally accepted standards of governance and reporting in order to be able to attract necessary investment.
The evolution of the sector has been influenced not only by global market forces but also by the evolution of the Russian political system. Privatization of the aluminium sector took place during the turbulent 1990s, with Boris Yeltsin as the president of the country and the emergence of the Russian oligarchic system. During this period, several partly violent conflicts led to consolidation of the Russian aluminium industry, and its key assets came under the control of a small group of oligarchs . Vladimir Putin’s ascent to power and the consolidation of the country’s political system have changed the political and economic framework conditions for the activity of the aluminium sector in Russia, forcing the owners to learn how to survive under these new circumstances. To be able to generate revenues on the global commodities market and flourish in Russia, the owners had to learn not only how to ‘read’ the economic script but also how to read the minds and intentions of the country’s politicians. Russian aluminium tycoons whose revenues were generated globally but whose main assets were located in Russia had to learn how to adapt to changing global market conditions and also to the changing rules of the political game in the Russian dual state , where real political power has shifted from the Yeltsin family supported by a small group of oligarchs , to Putin’s power vertical dominated by a small group of new insiders with roots from the Soviet and Russian power structures.
Outline of the book
To examine the evolution of the Russian aluminium sector in a broader historical, economic and political context, this book addresses several specific questions.
The second chapter presents the global market context in which Russian aluminium sector operates. Special attention is paid to the specific characteristics of the lifecycle of aluminium production and marketization, and how those specific characteristics have influenced the development of the global as well as the Russian aluminium sector. We also examine how the situation in the global commodities and aluminium market evolved—in a longer historical perspective, and in the period 2000–2015, which is the main temporal focus of the study. Recent assessments of the future outlook of the global aluminium market are presented, to show how those factors have influenced and will continue to influence the evolution of the Russian aluminium sector. Russian aluminium production is presented in a broader global context through a mapping of the key actors operating in this sector, their strategies, and how their actions may influence decisions taken by the Russian national champion and key global player, United Company Rusal. We examine the role of Russian aluminium producers in the global aluminium market, their share in global aluminium trade, their competition with other aluminium suppliers and their international aluminium trade relations . Here the focus is on the economic dimension of Russian aluminium trade, and the revenues generated by aluminium production and trade, and the share of aluminium in Russian exports in a longer historical perspective.
Following this analysis of the global context, the focus narrows in on the recent evolution of the Russian aluminium sector in the market context. Chapter 3 of this book addresses a number of crucial questions. What has been the Soviet and post-Soviet geographical and economic logic of the sector? What makes aluminium production an important sector of the Russian economy? What is the connection between the aluminium sector and the energy sector in Russia? What is the geographical framework for the operations of the Russian aluminium sector, in Russia and elsewhere? How have the processes of national consolidation of aluminium assets and internationalization of the operations of the Russian aluminium sector affected the geographical dimension of its operations? How does this sectoral geography impact on its competitive ability, regionally and globally? In order to give readers a better understanding of how this sector has changed over the last years, Chaps. 3, 4 and 5 of this book take up several other questions, like the evolution of the economic, political, institutional, personal and corporate landscape that has shaped the developme...