The Oligarchs

In 1931 Joseph Stalin ordered the magnificent cathedral blown up. After four months of scavenging the edifice for every scrap of gold, prying off the marble and copper and weakening the bricks with small dynamite blasts, workers toppled the structure in a series of explosions on the cold morning of December 5, leaving behind a tall, smoking mound of rubble. “A terrifying silence reigned in this place,” a witness noted.¹ Stalin wanted to build an even larger “palace of soviets,” a high-rise taller than the Empire State Building, with a gargantuan statue of Lenin on top. Architectural competitions for the new skyscraper went on for years, but the project was abandoned after Stalin’s death. In Nikita Khrushchev’s time, a large, heated outdoor public swimming pool was built on the site. The cathedral was officially wiped from the history books, but not from memory.

In 1989, when Mikhail Gorbachev permitted more openness about the past, Vladimir Mokrousov constructed a small plaster-and-cardboard model of the cathedral, working from an old photograph of the original cathedral that a friend had given him. Like all who dared defy official ideology, Mokrousov was cautious and indirect, at first. A prolific sculptor with a lined forehead, gray eyes, long, gray hair, and shaggy beard, Mokrousov worked out of a drafty, aging two-floor studio in Moscow with creaky floorboards. He created a mock-up of the original cathedral, working quietly. He had to hide the model because the Union of Artists still had a charter prohibiting members from working on religious subjects. The cathedral was at least officially a forbidden topic, and Mokrousov did not want to take the risk of attracting the attention of the KGB.

In 1989 a competition was announced for a World War II war memorial in Moscow. The entries were displayed at the Manezh exhibition hall next to the Kremlin, and Mokrousov, in a flash of rebelliousness, decided to submit his model cathedral to “correct the mistake” that Stalin had made.² It was just one of four hundred entries—many of them bearing the hammer and sickle—but Mokrousov’s particular model caused a stir. It was on display for two weeks and then suddenly disappeared. Mokrousov said the KGB seized it and put it in a vault. But the KGB was too late. Mokrousov’s model sparked interest in the idea of resurrecting the church. In addition to a newspaper article about it, a small grassroots movement was born, the members gathering periodically in Mokrousov’s studio. They called themselves the Obschina, a Russian word that means a local religious or ethnic community. In the next few years, the Obschina activists stood on street corners across the country seeking signatures and small contributions for restoration of the grand cathedral. Their dream was strictly a street-level affair; the Russian Orthodox Church and the Russian state paid them little heed.³ On December 5, 1990, to mark the anniversary of the destruction of the cathedral, a stone was laid near the spot, and the following March, a two-meter-high plaster cross, sculpted by Mokrousov, was erected; people gathered around it and prayed. They were a mixture of nationalists and religious believers at first, but later, after the August 1991 coup, they were joined by some of Russia’s democrats, who saw the cathedral’s rebuilding as a symbolic spike through the heart of Communism. In 1991, on the sixtieth anniversary of the cathedral’s destruction, Boris Yeltsin declared that “this unprecedented act of vandalism was committed not by foreign invaders but by people blinded by false ideas and motivated by hatred toward everything good and saintly.”⁴

Yeltsin appointed Yuri Luzhkov mayor of Moscow after Gavriil Popov unexpectedly resigned on June 6, 1992. Luzhkov inherited a confused and worried citizenry facing grim shortages and deep uncertainty. He recognized that he needed to inspire hope, but he was not a charismatic figure. He was a pragmatic man, a Soviet-era administrator and engineer with a limited understanding of politics. Certainly he had no idea what kind of politics would inspire people in the brand-new state that was unfolding. Vasily Shakhnovsky, who was a senior aide to both Popov and Luzhkov during this time, told me that Luzhkov took office suddenly, unexpectedly, without a grand plan or strategy. Shakhnovsky recalled, “He found himself in a very difficult situation because he didn’t have a ready, thought-out program.” Shakhnovsky said Luzhkov followed his instincts.⁵

On the streets, the Obschina was collecting contributions with growing vigor, the members standing in subway stations and posting notices on light poles seeking support. The Obschina won official government recognition, allowing it to register as a legal group and open a bank account. Activists presented tens of thousands of signatures to the authorities, petitioning for reconstruction of the cathedral. A small bank was even started in the name of reconstruction of the church. But no matter how hard the grassroots campaigners tried, they were amateurs, and the chances of their dream becoming a reality remained slim. They raised only paltry sums from their public solicitations. Mokrousov’s wife, Valentina, who had become treasurer of the Obschina, began to wonder if they would ever succeed; members were asking why nothing was happening. “There was very little money, but we needed to do something, at least start something,” she said.⁶

Luzhkov took notice. His parents had told him the story of the cathedral, he recalled, and he had seen photographs of it and heard legends of great craftsmen who worked on the original structure.⁷ According to Mokrousov, Luzhkov personally signed an order turning over to the Obschina the 6.7 hectares of land on which the cathedral had once stood, so that they could build a small chapel. At the time, the chapel seemed like a modest but practical goal. The Mokrousovs then discovered that the land was occupied by a Chechen used-car dealer. In a daring gambit, Valentina went to the dealer and demanded payment for use of the land. To her utter surprise, he immediately paid her 3.5 million rubles, the equivalent of several thousand dollars, in cash. With this money, the Obschina erected a fence and commissioned some blueprints, but their dream was still elusive. Yeltsin put reconstruction of the cathedral on a list of big projects to be built in the new Russia—someday.

Mokrousov’s grassroots campaign was overtaken by a far more powerful force: Luzhkov. Mokrousov and his wife were privately somewhat bitter that their own hard work, painstaking years of standing on street corners seeking signatures and donations, had been abruptly tossed aside. They resigned from the Obschina, which was soon abolished by a formal notification from the patriarchate, and the land for the cathedral was taken back by the city. Luzhkov took over the financial side of rebuilding the cathedral too. In September, an official Moscow city fund for reconstruction of the cathedral was announced, and on January 7, 1995, the cornerstone was laid. Luzhkov said he wanted to complete the new cathedral’s shell in time for the commemoration of Moscow’s 850th anniversary in 1997. Yeltsin granted a federal tax break for contributions to the effort.

What occurred in the next year was nothing short of remarkable for a city where, in Soviet times, ambitious building projects had often languished, unfinished, for many years, a city struggling with unmet needs in housing, health care, schooling, and roads. Luzhkov sent into battle an army of 2,500 construction workers who labored around the clock, pouring a mountain of concrete to meet blueprints that were fresh off the drawing boards. The workers were forced to pause several times, waiting for the designers to finish the plans. The poured concrete was warmed with electric heaters in winter to keep it from freezing. Luzhkov agreed to a method of construction that would use 10 million bricks instead of 40 million. Twice or three times a week, Luzhkov arrived on the site, promising the workers an endless supply of kvas, the sweet Russian soft drink made from fermented bread.

A forest of construction cranes rose by the Moscow River, as well as a chorus of doubts. Would it not be better, critics asked, to rebuild one hundred smaller churches, which were also destroyed by the Communists, or ten new hospitals? Wasn’t the symbolism of the cathedral a throwback to the age of Russian imperialism? Why such a brazen, mammoth structure at a time of so many other troubles and desperate needs? Luzhkov did not heed these complaints. He built.

On the outside, the cathedral, 335 feet high, resembled the original, but inside, in addition to the chapels, it was a modern headquarters for the patriarchate, with garages, elevators, conference rooms, video systems, modern ventilation, and cafes. In place of the swimming pool built over the original building site, a gigantic gray, granitecovered base stretched for a city block, housing the Church of the Transfiguration and a museum of the history of the cathedral. The southern side held a massive twelve-hundred-seat Hall of Church Councils, five refectories, and a kitchen capable of feeding fifteen hundred people.⁸

Luzhkov devoted attention to every detail. By one account, it was calculated that less gold could be used to gild the cathedral’s domes—just twenty kilos instead of the original 312.6 kilos—by spraying a fine layer of golden lacquer that included only microscopic particles of gold between a layer of titanium nitrate, as a base, and a graphite overlay. Luzhkov, wanting to check whether this would look real, supposedly went to the patriarch of Moscow and all Russia, Alexy II, with two samples, one the cheaper version and one real gold leaf. Without disclosing which sample was real, he asked the patriarch to choose which one looked better. The patriarch choose the cheaper variant, which was used.⁹

After years of lassitude and shortages, and despite criticism and economic chaos all around him, Luzhkov’s reconstruction of the cathedral made a powerful, symbolic statement at the dawn of the new Russia. The structure itself was an imposing castle by the Moscow River, with a fairy-tale look that shimmered from a distance. As a religious shrine and architectural monument, the cathedral was unquestionably a potent symbol. But I think it had a broader message as well. The reconstruction was an antidote to all the uncertainty and doubt of those first tumultuous years of change. Luzhkov’s message was, It can be done.

But how? Six years after it was begun, the project, originally estimated between $150 million and $300 million, had cost $700 million. Luzhkov and Yeltsin offered only vague explanations about how the cathedral was financed, but the riddle was partly answered on January 6, 1996, when a large marble plaque was erected outside the lower cathedral. In gold leaf, the plaque declared: “These were the first to contribute selflessly,” and then listed well-known and lesser-known bastions of finance and industry. Among the first on the list was Alexander Smolensky’s Stolichny Bank of Savings, which donated fifty-three kilos of gold for the cupolas of the cathedral. The natural gas monopoly Gazprom donated 10 billion rubles for marble to clad the walls. Inkombank gave $1.5 million and two dozen icons. The Moscow Interbank Currency Exchange donated $1 million. In the next four years, the lists of donors grew, and new tablets were erected. The donors included the biggest Moscow utilities and city-affiliated businesses, such as the telephone and electric companies, prominent banks, restaurants, retailers, food traders, oil exporters, a famous chocolate company, and dozens of other factories and firms, powerhouses of the new capitalism and the new Moscow.

The donors were not entirely altruistic. The truth was that their contributions were as much a tribute to Luzhkov as to the cathedral. Luzhkov created a political machine in which power and property—his own formidable rule and his control over Moscow’s enormous resources—were leveraged into rebuilding the city. In Luzhkov’s realm, the laws of the market and the law of the land were not nearly as strong as the hand of the mayor. When Luzhkov made demands, businesses leaped to attention; without Luzhkov’s support, they could not survive. The financiers, traders, industrialists, and restaurateurs all paid up, and were rewarded in return. As soon as Smolensky contributed the gold ingots, the patriarchate deposited its accounts in Stolichny Bank of Savings. Mikhail Ogorodnikov, spokesman for the city’s cathedral rebuilding fund, explained: “Luzhkov was able to understand and combine this wish for economic freedom with economic diktat. Eighty percent of the money for the cathedral was donated by banks and corporations. How is it possible to make them work for the city? Luzhkov got them to understand: if you do nothing for the city, you will not find it comfortable here, you will not survive without the support of the city.” Unlike others who tried to coax Russia’s new rich to give money, Luzhkov was more direct. Ogorodnikov described Luzhkov’s approach this way: “You live in this city. You are making money in this city. Pay the city its due. Otherwise, you will not be here.”¹⁰

What Luzhkov reconstructed was not just the cathedral that Stalin demolished, not just a gleaming symbol of post-Soviet Russian renaissance. The cathedral was also a concrete demonstration of a new model of capitalism that Luzhkov muscled onto the Russian stage in the 1990s, a model that mixed public and private interests, blended power and money, spawned corruption and massive new public works, all with one central figure, Luzhkov, at the helm.

The Luzhkov model—Moscow Inc.—was not what the reformers had in mind. Anatoly Chubais and Yegor Gaidar were dreaming of building a Western-style model of capitalism, with underlying principles of competition and openness and a separation of business and the state, and they wanted to leave it to the market to choose the winners and losers. By contrast, Luzhkov intended to choose the winners and losers himself. Instead of a Western approach, his model was more in the inscrutable traditions of the East, centered on the whims of a potentate rather than profit and loss. Luzhkov’s model was called, by some, “state capitalism” because the city itself became a major participant in business. Luzhkov did not object to the label “state capitalism.” Critics also called it “crony capitalism” because it benefited Luzhkov’s pals.

In Moscow, Luzhkov had the instincts of a populist, the organizing skills of a machine politician, and the ambitions of a builder. He borrowed from both Chicago’s Mayor Richard Daley and New York’s master builder Robert Moses. He did not see building—and grand architecture—as an end in itself, but as something that a politician does for people. He was not a towering designer who looked down from great monuments, but a street-level pol who understood the power of looking up at them.

Luzhkov’s empire had a seamy side—corruption and his own heavy-handed style—but he was immensely popular, especially in the years of frenetic building in the mid-1990s. Muscovites twice elected him mayor by large margins, 89.6 percent in 1996 and 70 percent in 1999. He had no serious competition in 1996, but in 1999 was challenged by a well-known, liberal former prime minister, Sergei Kiriyenko. Nonetheless, Kiriyenko’s campaign flopped. Muscovites seemed to approve an implicit trade-off Luzhkov represented: he would take from the new rich and give to the city. Galina Starovoitova, a progressive member of parliament from St. Petersburg who was murdered in 1998, told me once that Luzhkov won popular approbation, rather than scorn, for squeezing money out of banks and businesses. “A lot of ordinary people think these new rich, these new Russians, should share their wealth with the city,” she said, “and this is a way to cut, a little bit, their superprofits.”

The rise of Luzhkov’s empire in Moscow was not inconsequential for all of Russia. It appeared in the early, inchoate years as the country was groping out of the darkness of Soviet socialism, when it was not clear how to build markets in a country that had no experience with capitalism since early in the century. Soon it became evident that not just one but several paths could be taken on the road to a market economy. One was the Chubais-Gaidar liberalism, in which market forces ruled. A second was rapacious, winner-take-all, oligarchic capitalism, which will be more fully detailed in the next chapters. The third type was Luzhkov’s boss-ruled city machine.

These differing approaches did not mean that Luzhkov and Chubais politely debated each other in front of a chalkboard in an economics classroom. It was real-time trial and error, a zigzag of thrust and retreat. Luzhkov, who rose to power somewhat by chance with Popov’s departure, was not the type to waste time with theory. He was a doer, shaped by the old Soviet-era managerial experience but also animated with a contemporary alacrity, seizing on his good fortune to lead the most prosperous metropolis in the country. In the end, Luzhkov put into practice an enormous, functioning example of what he thought the new Russia should be.

Larisa Piyasheva had her own vision of capitalist Moscow. An ultraliberal economist, Piyasheva had been recruited by Popov in November 1991 to carry out rapid privatization of business and industry. Previously, the city had practically given away apartments to their current inhabitants. The next stage was to privatize small businesses. Piyasheva wanted to give all the stores, cafeterias, restaurants, beauty salons, auto repair garages, and shoe repair shops of Moscow to the workers, and all at once. It was called “avalanche” privatization, a simple, bold, and far-reaching idea. Piyasheva saw it as entirely free market, and also very populist. “An enterprise would be given to the employees for free,” Piyasheva told me of her plan. “They became the owners. My idea was that property should be given away. It used to be state-owned property; now it would become private property.” Like the other liberals, Piyasheva figured that eventually the good owners and the bad would be weeded out by market forces, but she did not want to waste time sorting it out at the beginning. In her “avalanche” idea, a week was all that would be needed to approve the privatization of any enterprise. Presto: the hairdressers would own the salon, the mechanics would own the garage. “Some become rich, others lose,” she said. “But this stage of competition is not under state control.”¹¹

Piyasheva’s idea never had a chance, however. One reason was that Popov, who had brought her into the city government, was growing weak politically, constantly quarreling with the Mossovet, the city council. Piyasheva’s privatization plan was announced in November 1991, but barely a month later, on December 19, Popov made his first attempt to resign, saying he felt reforms were being frustrated by the city council.¹² He was out of office six months later.

One of the first things Luzhkov did on becoming Popov’s successor was to fire Piyasheva and bury her liberal ideas. “He just got rid of the whole department,” she recalled, “and he took everything into his hands.” Piyasheva saw—accurately—the side of Luzhkov’s character and mentality that wanted to be a khozyain, the evocative Russian term for the leader of a given social domain, a home, a village, an enterprise, or a country. Luzhkov was a khozyain who wanted to extract a price from the city’s businesses. Through leases, contracts, and rent obligations, every player in the Moscow economy would be captive to Luzhkov. “Their concept was directly opposite to mine,” Piyasheva told me. “When I was talking about fast privatization, Luzhkov would say it was impossible to give property to people just like that. Don’t give anything for free! Everything should be managed. Luzhkov is the owner. He can close down any restaurant and any hotel—he can change an owner. He has the authority. He is the khozyain. And as the khozyain, he manages his household. If something dissatisfies him, he changes it. And he keeps full order. It is a feudal way of organizing things.”

After disposing of Piyasheva’s radical ideas, Luzhkov’s next move was to take on Chubais and block mass privatization in the capital. In the summer of 1993, Chubais, who was then trying to get his legislation through the recalcitrant Supreme Soviet, came to Luzhkov’s office. They drank tea. In appearance, they were contrasting figures: Chubais, tall, with his gangly posture and youthful self-assuredness; Luzhkov, short, pugnacious, with a bald cannonball of a head and rugby-players’ build. Both men had, once, accepted the Soviet system and then found their own path out of it; both were at the time supporters of Yeltsin, who was facing an increasingly tense revolt in parliament. Quietly, Luzhkov told Chubais that, although they had been allies in the past, he could not support mass privatization. There was no money in the country, so the factories would be sold for nothing, he complained. Besides, I think that Luzhkov may have had an unstated reason for opposing voucher privatization: he wanted to pick the new owners of property in Moscow, not leave it to the winners of a voucher auction, beyond his control. “Let’s agree that privatization cannot be conducted this way—property cannot be sold that cheaply,” Luzhkov appealed to Chubais. “We will get a speculator instead of a khozyain.”

Luzhkov supported Yeltsin during the events of October 3–4, 1993, when Yeltsin violently faced off against the rebellious parliament, shelling the White House where his nationalist and conservative critics were holed up, accompanied with armed hoodlums. The confrontation left 145 dead. Luzhkov sat in on Yeltsin’s crisis meetings and cut off water, telephones, and electricity to the besieged White House during the confrontation. Just as Yeltsin used the events to write a new constitution giving him broad powers, Luzhkov too used the crisis to impose a new political structure on the city, which was confirmed by voters in the December elections. Instead of the unwieldy 498-member city council, Luzhkov, with Yeltsin’s backing, created a new thirty-five-member city Duma, or legislature, which proved almost totally compliant in the years ahead.

After the October events, Luzhkov again appealed to Chubais to stop mass privatization. Chubais refused. Luzhkov declared war. “From now on, you are my ideological enemy and I am going to fight you and the methods you are instilling in the country with all possible means,” he said.¹⁴ Privatization of large enterprises in Moscow then began to slow, and Luzhkov bent the city to his own will. He simply refused to follow the national privatization program. He went to Yeltsin on November 24, 1993, and argued that Chubais was selling off the country “for a song.”¹⁵

Luzhkov was no stranger to the failures of the Soviet system and saw himself as an advocate of the market. But Luzhkov’s understanding of the market, and of private property, was that it had to be managed by a khozyain; property was earned by hard work, not received for a token price. When it came to putting property into private hands, Luzhkov wanted to know the capabilities of his new owner first, while Chubais wanted to give away the property first and let the market sort out the effective owner later on. This went to the heart of their vastly different models of capitalism for Russia. Luzhkov said that “a man works with initiative not because he has property but exactly because he does not have property, yet has the right to earn it with productive labor.” Luzhkov scorned the new owners that Chubais created as “parasitic capital”—people who didn’t know the first thing about factories and manufacturing but put their money in Swiss bank accounts or into “foreign villas, yachts, cars, and other pleasures.” In Luzhkov’s world, these were never going to be good owners, they would never meet his definition of a khozyain. “Do you think such people—whose wealth fell on their heads—could turn into effective owners, organizers of industrial production? Of course not,” Luzhkov said. “They felt they were ‘caliphs for an hour’ and were trying to exploit this hour to the maximum, pressing everything possible out of their new property.”¹⁶

Luzhkov still believed in some aspects of the old system, including state subsidies, and he was not allergic to state ownership of industry, whereas Chubais sought to raze the command economy to the ground. Years later, Luzhkov continued to pump subsidies into the ailing Zil truck factory to keep it alive, but over time this approach did not work. Luzhkov abhorred the suddenness and seeming haste of shock therapy; it offended his sense of order. “Chubais is a radical,” Luzhkov said. “He thinks in extremes. One moment, he opens the lid of the coffin, the next he is hammering the last nail into it. In his life everything is like this—the last blow on something or someone. I prefer to move by steps and not by revolutionary, radical leaps and bounds.”¹⁷

The confrontation with Chubais gathered steam in the spring. At a press conference on February 11, 1994, Luzhkov vowed not to allow the national privatization program to be carried out in Moscow and blasted Chubais, saying that he had privatized Russia “the way a drunkard sells off all his possessions in the street in order to buy booze.” The “drunkard” phrase stung. Chubais replied that Moscow had the worst privatization record in Russia, with only 2 percent of the large businesses privatized. Chubais fumed: “This is bureaucratic lawlessness that is a violation of the rights of the simple person.” Privatization, Chubais added, takes “from the hands of the high-level bureaucrat the property that he truly does not want to let go of, the property that was the foundation of his power for decades.” On March 23, 1994, Chubais announced that he would order fifty factories in Moscow auctioned off despite Luzhkov’s objections.¹⁸ Then on April 1, Luzhkov struck back, suspending the registration of enterprises as joint stock companies, a critical prelude to privatization. Chubais accused the mayor of breaking the law. He appealed to the general prosecutor, demanding that Luzhkov be charged with criminal negligence. Luzhkov refused to budge. Prime Minister Chernomyrdin ordered Luzhkov to fall in line with the national program, and Luzhkov still refused. The quarrel was settled on June 10, 1994, when Yeltsin announced that Luzhkov had won. Yeltsin said at a news conference that efforts to reconcile the two had failed, so he ordered the government “to leave Moscow alone.”¹⁹ The move was widely seen as expressing Yeltsin’s gratitude for Luzhkov’s support during the battle with parliament the previous October. A bitter Chubais washed his hands of the capital. “In Moscow we see so many breaches of the law, so many breaches of the constitution, so much corruption that I can have nothing to do with it,” he said.²⁰

In the days of hyperinflation, cash lost its value rapidly, so Luzhkov found other currency with which to make deals. He leveraged, bartered, and traded his real estate for the things he needed for the city. These informal trade-offs were not necessarily wrong or illegal. The idea had been tested in Luzhkov’s early dealings with Gusinsky, in which the city gave away buildings in exchange for renovation and a return “gift” of half the real estate. The trade-off gambit became standard procedure. For example, in the mid-1990s, Inkombank had grown to be Russia’s third largest bank, and its largest commercial bank. The president, Vladimir Vinogradov, wanted to set up his corporate headquarters in a rundown prerevolutionary building near the Kremlin. The city simply gave the building to Inkombank in exchange for a promise to restore it and a long-term lease. Two years later, when I visited, the headquarters building gleamed with an elegant, turn-ofthe-century look. Luzhkov came to the ribbon cutting. A small fifteenth-century church in the square, just in front of the bank, was also restored, at a cost of several million dollars, by Inkombank. Vinogradov, who had been among the early leaders of the cooperative movement, became a Luzhkov backer and donated twenty-four restored icons from the seventeenth and eighteenth centuries to the cathedral project. Luzhkov bestowed Vinogradov with a city award. Vinogradov contributed to Luzhkov’s pet project to build apartments for Russians living in Sevastopol. The bank won city accounts and financed city projects, such as demolishing the unsightly five-story Khrushchev-era apartment blocks.²¹

This cozy relationship was reenacted over and over, especially with Vladimir Gusinsky, who became the most prominent of the bankers allied with Luzhkov. Luzhkov described Gusinsky as a business “partner” in this period.²² Gusinsky located his headquarters in the mayor’s high-rise; city workers were paid from Gusinsky’s Most Bank and withdrew cash from automatic teller machines placed in the lobby of a building housing city offices. In 1994 Gusinsky’s bank held a significant portion of the city’s revenues, including deposits of the departments of municipal housing, licensing, education, architecture, finance, international relations, traffic police, and city militia, among others.²³

Luzhkov’s city government leased out property for a nominal sum, but then the city bosses made unwritten demands not in the lease: to plant trees, rebuild a hospital, pave a highway, set up a kindergarten. The side deals were more important than cash. In 1994 Luzhkov was anxious to clean up an old toxic dump, which he called an ulcer on the city. Wastes had been accumulating there for decades and the dump was described by one specialist as an ocean of contamination. Luzhkov turned to a privatized dump truck company, Moscow Mechanized Construction Number 5, which agreed to take on the hazardous task of removing the poisonous eyesore. The company removed 2.6 million cubic yards of soil and replaced it with clean sand and earth, working around the clock for two years. But the company, which primarily worked on city housing construction sites, also needed Luzhkov’s help. It had bought a $10 million fleet of new dump trucks from Volvo but still owed $3 million, which it could not pay. Luzhkov came to the rescue, arranging a loan at 4 percent interest from a Moscow bank, when market interest rates were far higher, so the firm could settle the debt. When the toxic waste dump was cleaned up, Luzhkov held a ceremony to mark the accomplishment and handed some workers keys to new Zhiguli cars and new apartments as prizes.²⁴

Mikhail Moskvin-Tarkhanov, a member of the city Duma who had been among the Moscow reform democrats in the early 1990s and later became a Luzhkov loyalist, said the mayor essentially invented his own substitute for the Soviet command economy. Moskvin-Tarkhanov described it as “soft administration and strong economic regulation.” He explained: “That is, we have a soft administrative system when we can first say what we want, then propose, then force, and finally punish.”²⁵ Pavel Bunich, an adviser to Luzhkov who had worked with him in the Soviet years on the idea of self-financing for factories, made no secret of the fact that Luzhkov had figured out how to squeeze Moscow’s new businessmen. “Luzhkov knows how to ‘sweat’ sponsors, but he also knows how to thank them. All bankers and entrepreneurs know: money in the morning, and in the evening they can get privileges on rent, city orders, credits, or loans.”²⁶ Bunich added: “Luzhkov has certain levers that make it possible for him to thank sponsors. If you are a businessman, it would certainly be better to have an office in the center near the Kremlin. Luzhkov can do it for you. Luzhkov can establish rent from zero—skywards.”²⁷

Alexei Kara-Murza, a liberal philosopher and politician in Moscow, told me once, “The problem does not lie in the fact that Luzhkov is so unique, but that Moscow is so unique in Russia.” The city floated on rivers of capital that simply did not exist anywhere else in Russia. In 1997, five years after Luzhkov became mayor, the city reaped 25 to 30 percent of the taxes of the whole country but had only 6 percent of the population. Of Russia’s twenty-five hundred banks, seventeen hundred of them were in Moscow; of the top twenty-five banks, all but one were in the capital, and they held 80 percent of the deposits. Eighty percent of nationwide television advertising originated in Moscow. Muscovites were twice as likely as city dwellers on the whole in Russia to travel abroad, and more than twice as likely to own a telephone, a personal computer, a microwave, or a credit card. Moscow was the citadel of Russian capital, and the rush of riches became so strong that even St. Petersburg, Russia’s second-largest city, seemed a sleepy backwater by comparison.²⁸

Gaidar later called attention to just one of the many ways Luzhkov exploited Moscow’s unique position. Russian law required companies to pay taxes where they were officially registered. The far-flung national monopoly networks all registered in Moscow. Rostelecom was in charge of telephones over all of Russia, but it paid taxes to Moscow. Unified Energy Systems, the electricity monopoly, generated power and distributed it over all Russia, but it paid taxes to Moscow. The same was true of Gazprom, the mammoth natural gas monopoly, and Transneft, the oil pipeline company, both of which spanned not only Russia but parts of Europe. They too paid taxes in Moscow.²⁹ “Moscow happens to sit next to a fountain spouting gold,” Gaidar declared. It’s a city with “money to burn.”³⁰

When I asked Luzhkov about this, he took issue with the claim and insisted that the big companies brought no more than 12–15 percent of the city budget. Luzhkov said the Moscow miracle was not the result of its status as the capital, but the way he managed it. He was a pragmatic khozyain with the riches he inherited. He paid the doctors and teachers on time, and pensioners rode city transport for free. “We say that we are going to build 3 million square meters of housing, and we do,” Luzhkov insisted. “We say that 5 million square meters of roads will be repaired, and we do the repairing.” And the best evidence, Luzhkov recalled, was that business flooded the capital. If he had been a bad khozyain, business would have fled.³¹

Wearing his trademark leather cap, Luzhkov jaunted about the city on Saturdays, touring construction sites, trailing journalists, aides, and petitioners, demanding explanations, poking into blueprints, and dressing down his lieutenants. Luzhkov’s visits never provoked soaring rhetoric, just a staccato of short, sparse, blunt sentences, not unlike the bricks and mortar around him. Luzhkov was not a philosopher king; he spoke the language of construction, engineering, and chemistry. He thought in terms of goals set, approached, and achieved, and, if not achieved, he angrily demanded to know why. He resembled, more than any Russian politician of the age, the visionary Robert Moses, who built the great complex of parks, beaches, apartment houses, bridges, parkways, and roads of modern New York City. Like Moses strolling through Central Park or Coney Island, Luzhkov roamed his domain, dreaming of public works large and small. He meddled in everything from the largest covered stadium in Europe to the tiny details of a fast-food menu.

In these years, Moscow was a city of 8.6 million people, although by some estimates there were another million or more unofficial residents or visitors at any moment. The city, spread out over 1,091 square kilometers, suffered from aging and decrepit infrastructure. The most dramatic examples came very suddenly on a cold winter day when the massive underground heating pipes melted the frozen ground above, and grotesque chasms opened up—swallowing cars and people. Everywhere, the city was hurting from years of neglect: roads with enormous potholes, chipped and slippery steps, invisible traffic lights, trees choking from pollution, streets groaning with auto gridlock, and always those smelly, dark, forbidding entrances to residential apartment blocks.

But in Luzhkov’s day, the city became cleaner, and more functional, than at any time in memory. Luzhkov opened new subway stations, paved rutted roads, created outdoor markets, built playgrounds, installed public fountains, and, most importantly, alleviated the pent-up demand for housing. He built between 3.0 and 3.4 million square meters of new apartment space each year. He sold apartments to the rich and used the proceeds to pay for fresh housing for tens of thousands of families who had been on municipal waiting lists for years. To his credit, whenever there was a city emergency, a bridge collapsed, or some other disaster erupted, Luzhkov showed up and took charge.

But at some point Luzhkov hungered for more. Vladimir Yevtushenkov, a one-time plastics engineer who was a close friend of Luzhkov and became one of Russia’s richest men, told me that Luzhkov grew restless and hankered for something more creative than building apartment blocks and paving roads. “He wanted to try things of a larger scale,” Yevtushenkov said.³² Luzhkov’s wife, Yelena Baturina, recalled that he saw construction as an ideology, a beacon that could inspire people, keep them from losing faith. Luzhkov “understood the most important thing,” she said, “that at such destructive times, it was important to find an idea that would unite people. In Moscow, building became an idea that united Muscovites.”³³ On Luzhkov’s birthday one year, his wife was wondering what to give him. She spotted an excavator by the roadside. She had the shovel filled with roses and delivered it to Luzhkov. The perfect present for The Builder.³⁴

When I interviewed Luzhkov, after a long wait, I wanted to know: what was his great vision or inspiration as a builder? I had long assumed that Luzhkov’s ambition was defined and expressed by construction—the new city squares, the parks and highways, the towering new apartment buildings that were his trademark. But his answer was less visionary than I had expected. Luzhkov told me his real “ideology” was not so much construction for its own sake but making the city more livable. This was a street-level, populist perspective, not quite the soaring motive that I had once assumed. “In 1995 I couldn’t speak about it because life in Moscow was so revolting,” he said. “Moscow was so dirty that if I had spoken about comfort, I would have been told, you are mad, you are crazy. Now I say it fearlessly and openly and frequently: we must make our city more comfortable.” Luzhkov’s definition of comfort was broad, embracing symbols of “spirituality,” such as the cathedral, as well as more mundane affairs like the Ring Road.³⁵

The Ring Road was a Luzhkov project that virtually reshaped the city. A beltway encircling Moscow, the 109-kilometer road was known in Soviet times as a dangerous, rock-strewn, potholed mess. Over five years, at a cost of 18 billion rubles, Luzhkov rebuilt the entire route into a eight-lane superhighway, complete with on-ramps, rest stops, pedestrian overpasses, gas stations, and radar speed traps. Luzhkov also dreamed of turning Moscow into a year-round sports capital. Once a week, Luzhkov played soccer with his staff at the Luzhniki stadium along the Moscow River, and he also played tennis there with his wife. Soon, tall construction cranes hoisted into place a 10,000-ton steel ring supporting a 140-foot-high, 12-acre sliding roof of glass-reinforced plastic, making it Europe’s largest domed stadium. The $230 million renovation included replacement of the seats. Luzhkov’s wife, Yelena Baturina, won a contract to replace old wooden benches in the 85,000-seat stadium with new plastic seats that met European standards for matches to be held there.³⁶

One of the great pieces of unfinished business of the Soviet era was Poklonnaya Gora, or the Bowing Hill, a historic site that derived its name from an old tradition in which travelers coming to Moscow bowed to the capital. It was also said that by tradition soldiers departed for war from the hill, and to it they returned victorious. From here, Field Marshall Mikhail Kutuzov yielded Moscow to Napoleon in 1812, vowing not to lose Russia. After World War II, a sporadic effort was made to build a war memorial on the hill, and in the 1980s the chosen design was a central monument of red granite, cast in the shape of a massive curling banner topped with a star. During perestroika, the design became bogged down in debate and protests, and when Luzhkov became mayor, it was unfinished, although a spacious war museum behind the monument was partly complete. Luzhkov retooled the project and, in a crash construction effort, finished it in 1995, in time for celebration of the fiftieth anniversary of the victory over Germany. Luzhkov constructed a Russian Orthodox chapel, a synagogue, and a mosque on the grounds of the park. He was widely known for encouraging religious tolerance and revival, except for Chechens, who suffered on the streets of his city. Near the park, Luzhkov began construction of a giant international business and trade center with a pedestrian bridge spanning the Moscow River.

When Yeltsin was worried in 1993 about demonstrations outside the Kremlin walls in Manezh Square, Luzhkov threw up fences around the spot, which kept all the demonstrators away. The fences were ostensibly for a construction project. But only later did Luzhkov actually come up with the project—to build an underground shopping mall. The mall would be three stories deep, with 23,408 square meters of retail space. Typically, Luzhkov set stiff deadlines and demanded round-the-clock construction but then disrupted the plans with his own personal whims. According to one engineer, three months before the opening, Luzhkov ordered drywall ceilings to be replaced with brass strips. Mistakes by the architect resulted in part of the mall being unrentable. In the early years, the mall was a commercial disaster: the rents were so high that it was mostly vacant. The Manezh turned into a $110 million white elephant.³⁷

Luzhkov preferred, and imposed, a kitschy, baroque aesthetic on his Moscow monuments and buildings. Sometimes it was no more than an extra frill, such as functionless turrets atop a modern glassfacade office building to spice it up.³⁸ Other times, it was more profound, especially when the aesthetic decision was left to Luzhkov’s friend and prolific sculptor Zurab Tsereteli, a Georgian-born artist whose impact on the cityscape rivaled that of Luzhkov. The gregarious Tsereteli had a penchant for Soviet monumentalism, but his style was sentimental and sugary. Tsereteli, president of the Russian Academy of Art, received a large portion of municipal art commissions in the Luzhkov years, and his flamboyant work left an indelible impression. For the Manezh shopping mall, Tsereteli designed a simulated voyage through Russian centuries, set in marble, chrome, and brass. Outside, he arranged a fountain decorated with bronzes of animals from Russian fairy tales. At the Moscow Zoo, Tsereteli designed a cavelike fantasy entrance with a waterfall and clock. Instead of the Soviet red granite banner on Poklonnaya Gora, Tsereteli designed a 141.8-meter-high obelisk that supported a 24-ton likeness of the Greek goddess Nika, accompanied by two trumpeting angels. Critics called it a “grasshopper on a stick.” My own impression is that the sculpture was peculiar, but the park itself, with a broad promenade, forest, and a small hill for sledding, was a city dwellers’ delight, an example of how Luzhkov understood that a population packed into tiny apartments needed functional, pleasant outdoor spaces. In the afternoon and evening, from early spring through late autumn, the park was often full, despite the artistic oddities.

The mayor patiently tolerated criticism of Tsereteli’s style. Writer Alexander Solzhenitsyn fumed that “Moscow is being recklessly disfigured” and dismissed Tsereteli’s works as “massive and third-rate memorials.” One grim, bulky Tsereteli sculpture about genocide, titled Tragedy of the Peoples—a monument showing a line of starved, naked figures collapsing into a cluster of tombstones—was originally placed at the opening of Poklonnaya Hill. After complaints that it was too depressing, mobile cranes came one day and hauled it away to a spot behind the museum.

Tsereteli sparked his greatest outcry with a 165-foot-high, $15 million statue of Peter the Great erected on the Moscow River, not far from the cathedral, in 1997. The very idea of the sculpture is absurd: Peter the Great, founder of the Russian navy, moved the Russian capital to St. Petersburg to escape Moscow’s dark intrigues. But what really triggered protests was the actual sculpture itself, which depicts an awkward tsar astride a galleon, holding a golden map, as little metallic flags flutter in the breeze. Critics said the proportions were wrong; the statue looked like a big toy soldier. Despite protests, Luzhkov backed Tsereteli, and the monument remained. A visitor cruising down the Moscow River in a tour boat would see, in short order, Gorky Park and a model of the discarded Soviet space shuttle; Tsereteli’s Peter the Great; and the Cathedral of Christ the Savior. At times Moscow could seem like a very strange post-Soviet Disneyland.

Of all the buildings, parks, and monuments, the cathedral became Luzhkov’s most famous contribution to the city skyline. Ogorodnikov recalled the storied history of the original structure—Tsar Alexander I blessed it, three more Russian emperors took forty-four years to erect it. “And Luzhkov did it in five years,” he said. “It was important for his career. He built a monument to himself.”

I remember my own first impressions of Moscow in the winter of 1990: a dark and closeted city slumbering under a gray fog. The barren high-rise apartment blocks were forbidding towers in the night, their entrances threatening and foul-smelling. Grimy store windows featured faded cardboard cutouts of nonexistent groceries. Moscow was described once as a “dysfunctional dystopia that somehow kept on barely functioning.”⁴⁰ But the Moscow I came to know in the Luzhkov years fairly crackled with light and an energetic if superficial brashness. It became a city of extremes, of generous and garish gestures, of wealth gained and spent obscenely, of casinos, discos, restaurants, electronics, gastronomes, mobile phones, billboards, boutiques, and a nascent middle class. A real estate boom sent prime office rents to levels higher than the most prestigious buildings in New York and Tokyo. More than 150 casinos, nearly half of them unlicensed, opened in the mid-1990s. At the Cherry Casino on the New Arbat, my Washington Post colleague Lee Hockstader found hundreds of Russians thronging to the blackjack and roulette tables on weekend nights, but the slot machines were practically ignored. The manager was quick to explain. “You can’t show off to a slot machine,” he said. “These people don’t just come to gamble. They come to show off their money, flash it around. And a slot machine doesn’t care if you have a big roll of $100 bills in your pocket.”⁴¹

A rich young Muscovite spent hundreds of thousands of dollars to plaster billboards all over town with a close-up image of his exquisite wife and an inscription, “I love you.” For weeks, the billboards were a mystery. No one could figure out who had put them up or why. When the story was finally told, many people deemed it a shining and chivalrous act—not ostentatious in the least.⁴² Hockstader recalled that Luzhkov and eighty close associates dropped by the swanky Maxim’s restaurant a few weeks after it opened in 1995. “There were spit-andpolish waiters, Tiffany lamps, Belle Epoque paintings, soft music, terrific wine, sublime food—and a check that ran more than $20,000,” he reported. “The mayor’s party paid cash. In dollars, of course.”

Emotions were often rubbed raw in the contrasts between freshly minted wealth and aching poverty. When Yeltsin was preparing for heart surgery in October 1996, I decided to try and find out what it was like for an average Russian who needed the same heart operation. In the courtyard of the Bakulev Cardiovascular Surgery Institute, I found Nina Dyomina, a lonely figure dabbing tears from her eyes with a soiled handkerchief. “Money, money for everything,” she cried softly. “The only word you hear is ‘money!’” In a hospital ward, her husband, Viktor Dyomin, then fifty-eight years old, lay in need of heart surgery. Although the operation was theoretically free, Dyomina, who had come from a provincial town, needed money to pay for medicines and care, and even then she might have to wait years for her husband’s operation. The formula was simple: no money, no surgery. Those who could pay for private care got it. Those without money, forced to depend on the aging Moscow city health care system, could wait forever. Despite all the money lavished on the cathedral and the Manezh shopping mall, the number of hospital beds in Moscow did not grow in the 1990s, and two health care systems existed: one for the haves and another for the have-nots. For many of the most unfortunate city dwellers, the homeless, Luzhkov offered the boot. Police rounded them up from railway stations and vegetable markets and put them on trains, forcibly deporting them to villages or makeshift camps far beyond the city limits. Nor was it pleasant to be dark-skinned in Luzhkov’s city. Those with darker complexions who were thought to be from the North Caucasus—especially from Chechnya—were often unceremoniously rounded up on city streets after the Chechen war began.

Luzhkov regarded Moscow as a fortress and he fought for years to keep the gates closed to outsiders. Defying the courts, he enforced a Soviet-era residence permit, known as a propiska, for everyone living in the city. In the Soviet era, people were told where to work and live by the Communist Party. The 1993 Russian constitution attempted to bury this legacy. It promised that all Russians “shall have the right to freedom of movement and to choose their place of stay and their residence.” But the constitution was only paper; in practice, Luzhkov was stronger. The old Soviet procedures were kept alive. Luzhkov feared a wave of immigrants that would overtax the city and compete for its resources. The propiska stood, although it was later called a fee for residency. Obtaining one in the mid-1990s required a payment of about $7,000, far beyond the means of most people living in the provinces.⁴³

Luzhkov tried to ease tensions brought on by unemployment and the humiliation many felt as the old verities of the Soviet system disappeared. He became the champion of a grimy, sweaty army of traders who carried goods on their backs, into Russia from overseas and back and forth between Moscow and the provinces. Known as shuttle traders or chelnoki, after the Russian word for the shuttle in a weaving loom, which rapidly carries thread back and forth, they numbered a million or more in the mid-1990s, hauling suitcases, duffel bags, boxes, and crates for endless hours on planes, buses, trains, and cars, often under exhausting and miserable conditions—including frequent demands from militiamen for bribes—just to earn small profit margins. Luzhkov provided a king-sized crossroads for shuttle traders at Moscow’s Luzhniki stadium. Outside the arena, under a statue of Lenin, spread over dozens of acres, he established a bazaar that rivaled Middle Eastern souks. Every day, thousands of people came to buy and sell, many arriving at dawn after overnight bus rides from the provinces and departing again before sunset, carrying their goods home for peddling on a distant street corner. The shuttle traders were often teachers, nurses, and military officers, moonlighting to eke out a living. When the buses pulled out from Luzhniki, they left behind mountains of empty boxes, remnants of the shoes and video machines that the traders had unpacked in order to squeeze more into each nook and cranny of the bus. The market itself was a chaotic sea of bargain hunters, gawking at leather coats and wolfing down sausages and potatoes. The goods—imported coats, rugs, watches, shoes, hair dyes, sweaters, tapes, and more—were hoisted on rickety metal frames reaching high into the trees. “This kind of business,” Luzhkov declared, “has become a way of survival for millions of Russians.” The markets also became havens for criminal gangs that extracted protection money from the merchants.

As Moscow’s mayor, Luzhkov was a micromanager when it suited him. On holidays, he often would dictate the kind of signs and lights storefronts could display. He once signed a decree banishing certain English words and insisting that Russian words be used instead, to be chosen from a list provided by—Luzhkov. Thus “minimarket” became “gastronom.” Those who dared defy the mayor were subject to fines up to $700.⁴⁴

Luzhkov fussed over the smallest details. He personally selected the caricature of a nineteenth-century Russian cossack officer as the mascot for a new chain of fast-food restaurants in the city, Russkoye Bistro. He chose the smart orange uniforms, the borscht and tea, and scrutinized every item on the menu, including such Russian traditional foods as hot pirozhok pies and the drink kvas. “Everything we sell was tasted by the mayor himself,” boasted Vladimir Pivovarov, the deputy general director. The restaurants were part of the Moscow city commercial empire, often described as “state capitalism,” in which the city was the direct owner of the business. By 1997 Moscow Inc. included fifteen hundred businesses, mostly former Soviet enterprises, and the city was a partner with outside investors in another three hundred firms. The businesses included hotels, construction outfits, bakeries, publishing houses, banking, aviation and communications firms, beauty salons, an oil refinery, and a pair of venerable, troubled auto factories. Luzhkov was in position to give city businesses a huge advantage over competitors. In the case of Russkoye Bistro, the city contributed choice spots for the restaurants, cheap utilities, and bank loans at low interest rates. The system captured perfectly Luzhkov’s vision of the khozyain, but it hardly fit the Chubais notion of a new generation of private owners competing in the marketplace. Arkady Murashev, a former Moscow police chief who led a liberal opposition campaign for city council, infuriated the powerful mayor once when he said Luzhkov had become “the biggest entrepreneur in the city, having taken control of everything.”

But Luzhkov’s brand of state capitalism failed when it came to a far more ambitious commercial venture, rescuing the moribund Zil truck factory. Once a crown jewel of Soviet industry, Zil built the four-ton bulletproof limousines enjoyed by Communist Party leaders. The factory fell on hard times after it was privatized. The first private owners used some questionable financial schemes to nearly wreck the company. The city took a controlling stake in a bailout in late 1996. A factory that once churned out 200,000 vehicles a year was making only 17,000 that year and sinking into loss and debt. “Comrade Zilites, I think that you steal!” Luzhkov thundered to the assembled management of Zil one day, after the city assumed responsibility for the faltering plant. Luzhkov, with typical brusqueness, declared later: “They say to me, you are crazy. The factory has already died. Nothing of the sort. Give me half a year, and Zil will be standing quite seriously on its feet.”⁴⁵

He was wrong. Luzhkov funneled enough cash into the factory to keep it afloat, in part by guaranteeing a loan from commercial banks. He forced municipal departments to order Zil trucks. But the trucks Zil made were uncompetitive on the open market—a far more popular model was made by the rival Gaz factory in Nizhny Novgorod—and Zil was, in true Soviet fashion, cranking out a product for which there was no market. Four years after Luzhkov’s promise to put Zil back on its feet, the company was still running in the red, with no end in sight. Luzhkov fared just as poorly with the other big Moscow auto factory, Moskvich, for the same reasons. State capitalism simply could not substitute for a real market.

The dark side of Luzhkov’s empire was endemic, uncontrolled corruption, fueled by the passions of the new money that flooded Moscow. The city was rife with protection rackets—virtually every business had to employ a krysha, or roof, for protection in the early 1990s—and several large organized crime gangs thrived. Bribery, kickbacks, and secret overseas bank accounts were common, and disputes were settled with car bombs and contract murders. In this respect, Moscow was not unique, but a more concentrated example of the corruption sickness that befell all Russia. When the government itself was a major breeding ground for corruption, when city bosses and federal ministers were routinely on the take, the law enforcement authorities alone could not have cleaned up the mess. They were just as much a part of the corrupt network as the ministers and bureaucrats. The issue was much more profound: Russia had not become a state with the rule of law, and its rulers were often indifferent to, and sometimes complicit in, the chaos.

Luzhkov told me he struggled with the crime wave in Moscow, but he laid blame for it on the way Russia’s economy was built in the early 1990s, when the “shadow economy” turned into big business. “Representatives of the criminal world penetrated both business and law enforcement bodies,” he said, “and they imported their rules.” He insisted that the level of corruption in Moscow was lower than in other cities.⁴⁶

But it was impossible to do business in Luzhkov’s Moscow without being harassed for bribes by inspectors, police, and bureaucrats. To get a street-level view, one day I visited a typical bakery and candy store near Moscow State University, Bread Store 185. In the back of the store, I listened to Vera Trusova, a pleasant woman in a boldly striped sweater who was once an engineer, describe the trials endured by small businesses in Luzhkov’s city. She cupped her hands in a begging sign of helplessness as she recounted how the latest city inspector, who was checking price stickers, imposed fines on her that were equal to a month’s pay. The petty corruption—demands for bribes were made by anyone with a badge—were wrecking her business. “If she comes right now, I am still going to bow down before her,” Trusova said of the latest inspector. “And I am going to say, ‘Yes, how much?’” Trusova wrote a letter to fellow small business owners, in which she recalled how a team of inspectors was “driving by the store, and a lamp was not burning in the window. A fine. They approach the store, and there’s a cigarette butt lying on the ground. A fine. The salesperson was not wearing a cap. A fine. And they found dust on the lamp in the storage room, a fine. They wrote out a pile of fines and walked out of the store, happy!”

A more ominous shadow was cast over Luzhkov’s empire on a gray Sunday afternoon, November 3, 1996. At about 5:00 P.M., an American businessman, Paul Tatum, left the Radisson-Slavyanskaya, a 430-room hotel he had helped convert into one of the first Western-style hotels in the city. Tatum, a flashy, eccentric forty-one-year-old Oklahoman who was among the early wave of enthusiasts about the rise of capitalism in Moscow, walked with two bodyguards toward the Kievskaya Metro stop, just beyond the hotel. As he descended down the worn stone steps of an underpass, a lone gunman opened fire from the parapet around the stairway. Twenty shots rang out, eleven of them hitting Tatum, who died shortly after being shot. The killer escaped, leaving behind the murder weapon, a Kalashnikov free of fingerprints and wrapped in a plastic bag.

At the time, Tatum was locked in a nasty business dispute over the hotel. Tatum’s company owned 40 percent, the Minneapolis-based Radisson Hotel chain owned 10 percent, and Luzhkov’s city held the other 50 percent. Tatum’s fight pitted him against Umar Dzhabrailov, an ethnic Chechen, a slight man with shoulder-length hair, always impeccably tailored, who swooped up and down the main hallway of the hotel surrounded by a flying wedge of bodyguards. Dzhabrailov was the city representative of the joint venture that was running the hotel, as well as other properties. Tatum had been sharply and openly critical of Dzhabrailov—saying he was part of the Chechen mafia in Moscow—and their arguments spilled into the newspapers and television. Tatum said he was being pushed out of the hotel venture; Dzhabrailov said Tatum failed to pay his debts. Tatum arrived at the hotel one day in June 1994 and was blocked by armed guards. He held a news conference in the hotel parking lot to denounce his Russian partners. A week and a half later, accompanied by a dozen bodyguards and wearing a bulletproof vest, he bullied his way back into the hotel.⁴⁷

Luzhkov remained silent about the murder for a long time. Inexplicably, he kept Dzhabrailov in place and later promoted him to manage the Manezh shopping mall. Still later, Dzhabrailov campaigned for president of Russia, plastering central Moscow with his smiling face on billboards.⁴⁹ Luzhkov later told a reporter, “If the American side has sound evidence of his involvement in this horrible murder and terrorist act, I am ready to draw the most radical conclusions—I mean to stop all contact with him, business or personal. If not, we will take the decision on whom to deal with on our own, without any pressure or instructions from America.”⁵⁰ Luzhkov said in response to my question about Tatum: “There was no decisive reaction to this murder from your side either. And I have as little to do with this murder as you do.”⁵¹

Luzhkov was almost never criticized by the press, in part because he provided a financial lifeline to many newspapers and television stations in the form of subsidized rents. One journalist told me that his entire apartment building, occupied by the newspaper’s reporters, was given to them cheaply by Luzhkov. They believed he could take it away, and they were careful not to offend him. Luzhkov was a king in his own realm, and he reveled in the fact that no one could challenge him. “For long years, Yuri Mikhailovich lived in an environment, in an atmosphere of being everybody’s favorite,” his friend Yevtushenkov told me. “He was a sacred cow whom nobody dared criticize much.”⁵³

In a speech that was reprinted in Moscow News, an independent weekly newspaper, Yegor Gaidar said, “The economic life in Moscow is terribly bureaucratized and full of regulations, which results in widespread corruption. Everybody who has to deal with the Moscow municipal structures knows it perfectly well. And, regrettably, the process here is growing bigger, not smaller.”⁵⁴ Luzhkov filed suit against Gaidar, saying the city’s reputation had been hurt. Gaidar took the case seriously. His lawyers provided evidence of bribe taking in the city, but, after an initial victory in the lower court, Luzhkov won on appeal. The judge gave no reason.⁵⁵ Yet the obvious truth of Gaidar’s claim was illustrated once again in November 2000, when police arrested Vladimir Kochetkov, who was head of a municipal housing and construction authority, after he tried to extract a $827 bribe for signing a contract for street lights. They found that Kochetkov had a $700,000 Swiss bank account, and they discovered $67,000 in a plastic bag behind a radiator in his house.⁵⁶

The first years of the new Russia were a perplexing time for Luzhkov as a political leader. The country declared itself a democracy and market economy, but the laws, traditions, and mind-set of the earlier era lingered. There was no handbook for this twilight zone between the Soviet experience and the new capitalism. One of the most difficult questions was the relationship between public and private interests. The old system was ruled by arbitrary party diktat, and private business interests did not exist or were banished to the shadows. Then, practically overnight, the party was gone and replaced with a new electoral-based democracy. The new political leaders, among them Luzhkov, were just as suddenly faced with a plethora of hungry new private business interests. These business interests, no longer relegated to the shadows, were powerful. In the passage from the old world to the new one, the lines between public interest and private gain were blurred. The private interests helped themselves to the public treasure, and the new leaders of Russia—including Luzhkov—let them at it.

The mixture of public interest and private business was foreshadowed in a brief controversy involving Luzhkov’s role in a company called Orgkomitet, which had somehow secured the monopoly privilege to sell city-owned housing to private owners. In 1991 Luzhkov, then vice mayor under Popov, became head of Orgkomitet. As a city official, he transferred the rights to two valuable buildings to Orgkomitet, which was an apparent conflict of interest.⁵⁷ After press criticism and pressure from a prosecutor, Luzhkov resigned from the company on April 22, 1992. One of Luzhkov’s assistants told me that Orgkomitet was one among many shady, quasi-private companies that began to feed off the city in the 1990s, and Luzhkov got involved by “accident.” Luzhkov later said, “Orgkomitet was created along with a huge number of new market structures at a time of pervasive uncertainty. As soon as we saw what it was, we immediately liquidated it.”⁵⁸

But Orgkomitet was an early precursor of Luzhkov’s basic system, which combined public and private interests. This approach came into full view in the 1990s with the birth of a corporate giant headed by Luzhkov’s close personal friend, Yevtushenkov, the one-time plastics engineer, a quiet and cautious man with wire-rim glasses and a very low-key style that belied his influential position at Luzhkov’s side.

Yevtushenkov’s path to wealth began at a small backwater of the municipal bureaucracy, the Moscow City Committee on Science and Technology. It was a marginal department, and Yevtushenkov, the director, found that his budget subsidies had dried up. In 1993, the year after Luzhkov became mayor, Yevtushenkov went commercial. He simply transformed his small city department into a private company. The original idea, he said, was to generate profit for the committee to substitute for lost state subsidies. “I was experimenting, as everyone was,” Yevtushenkov explained. His experiments became very profitable indeed, leading to the creation of a sprawling conglomerate with holdings in telephones, electronics, insurance, tourism, and other businesses. The company was called Systema.

Yevtushenkov told me that he was a friend of the Luzhkov family but insisted that he did not use his friendship to speak with Luzhkov about business ventures.⁵⁹ Another Luzhkov assistant said that Yevtushenkov was closer to Luzhkov than anyone else except Luzhkov’s wife, Yelena Baturina. Yevtushenkov had been best man at their wedding. Luzhkov’s wife was president of a plastics company, Inteko, which Luzhkov had described as his chief source of family income. At one point Yevtushenkov sold his 24 percent interest in another plastics factory, Almeko, to Baturina’s firm, which she ran with her brother Viktor.⁶⁰

The source of early capital for the Systema conglomerate is not known. One version came from Yevgeny Novitsky, president of Systema, who said the conglomerate grew out of a group of import-export companies making easy money in the early 1990s selling Russian oil abroad and importing computers. “We took loans, purchased oil, sold this oil to the West. Then we bought computer goods, televisions, computers, food products, sold them in the market here, and on account of this, a large profit market developed. In 1993 it was possible to make 100 percent in one operation. Buy something for a dollar, sell it for two.” The story sounded typical of the quick-riches tales of the era, but it did not account for the advantage that Yevtushenkov enjoyed as a pal of the mayor.

That advantage came in the early days of privatization. According to its own reports, Systema’s assets multiplied almost sixfold between 1994 and 1996, to more than $1 billion. One of the most revealing acquisitions was the Moscow telephone monopoly, the fifth-largest phone system in the world, with 4 million lines. It was a notoriously creaky network, and one exchange, 231, had been in service since 1930.⁶¹ But it was still a potentially lucrative company, since the demand was strong for more and better phones. If telephone rates could be raised—and that was a decision Luzhkov would have to take—the phone company could be profitable. “Quite by chance,” Yevtushenkov recalled, “I found myself in a field that began to develop very fast—telecommunications.”

When Luzhkov’s government decided to privatize 33 percent of the telephone company in 1995, Yevtushenkov went for it. He just created a new version of his old city government committee. The name was slightly changed, however, from Moscow City on Science and Technology to Moscow City on Science and Technology and Company. The “and Company” was a group of firms mostly controlled or owned by Systema. His new firm was declared the winner of the Moscow City Property Fund investment tender for the Moscow phone company on April 21, 1995. The price was $136 million, of which $100 million could be provided in equipment; the price was a fraction of the company’s market capitalization at the time of $2 billion.⁶²

When the privatization results were announced, the winner was identified only as the “Moscow Committee on Science and Technology and Company.” The Systema conglomerate, the real force behind the deal, was not mentioned. The privatization was an insider deal. It was exactly the kind of cheap sell-off that Luzhkov was publicly denouncing in his fight with Chubais, but his own city was engaged in the same practice, benefiting his friend Yevtushenkov.⁶³ When I asked the Moscow property committee for details of the tender, all I received was a fax listing the conditions before the tender, and a second page, a short list of investment tender winners for the week. No prices, no terms, no details.⁶⁴

Systema was a very private, almost hidden company. In the mid-1990s, when Yevtushenkov was expanding, Systema was not well-known and received less attention than the financial and industrial empires of Gusinsky, Smolensky, Berezovsky, and Khodorkovsky. Even the smart financial analysts in Moscow seemed confused about Systema. As late as 1998, stock brokers who issued research bulletins to foreign investors about the telephone company often failed to note that the “Moscow Committee on Science and Technology and Company” was linked to Systema. Nor was it clear who really owned the Systema conglomerate. The company issued no detailed reports on its ownership and only skimpy financial documents. Novitsky told me the parent company was 100 percent owned by another firm, Systemainvest, which in turn is 40 percent owned by a Luxembourg investment company, and the remainder in the hands of individuals, including Yevtushenkov. Luzhkov denied that Systema was “a spare pocket for the mayor.”⁶⁵

As Moscow boomed, Yevtushenkov’s conglomerate became ever more deeply woven into the fabric of the city’s financial flows. The Moscow Bank for Reconstruction and Development, part of Systema, became one of Moscow’s “authorized” banks, with the lucrative privilege of distributing city money, such as the subsidies to Zil. Systema’s insurance company insured the Moscow subway. Systema-Neft operated a chain of Moscow gas stations. Systema-Gals was a major real estate developer in the center of Moscow. Systema Telecommunications had interests in two Moscow cellular phone companies, one of which became a market leader. Systema also owned Detski Mir, the famous, sprawling children’s store, the Intourist travel agency, and a group of electronics factories. Yevtushenkov wore many different hats all at once: Luzhkov’s friend and adviser, the boss of Systema, and other posts such as chairman of the council of the Moscow Stock Exchange. He moved effortlessly back and forth between public interest and private business.

Alexei Ulyukaev, a reformist member of the city council and the deputy director of Gaidar’s institute, described this as typical of the Luzhkov method. “In the Moscow network, it’s important to have two legs—one in business, the other in the administration,” he told me. Luzhkov created a system in which it was not unusual for a city department to be linked to a private business. “On the one hand, they manage budget money,” Ulyukaev said, “but then they are, on the other hand, making money. And third, the city oversees it all. They are supply, demand, and administration.” Ulyukaev called it “commercialization” of the government. “Virtually every structure of the city has its own off-budget fund,” he said, used for collecting profits from its businesses. The profits were often hidden. In a prospectus written for overseas investors in 1997, the city admitted that all of its off-budget funds amounted to a fifth of the entire $9.9 billion in revenues, and many experts said the actual amount was far greater. Ulyukaev said the details remained undisclosed to the city council as well.⁶⁶

What would be considered conflict of interest in a Western economy was standard procedure in Moscow. When the city borrowed $500 million on global capital markets in 1997, it decided to make loans from the proceeds to encourage investment. Yevtushenkov had a seat on the twenty-four-member council that decided on the loans. Who got the money? Systema did—at least three loans: $16.5 million for a downtown real estate project, $16.5 million for a factory making television sets, and $15 million for a plant making digital telephone exchanges. Yevtushenkov told me he wasn’t present when the loans were discussed, but a city official said he was present and sat silently.

The rise of Systema is not just a story about wealth or about Luzhkov’s blatant mixture of power and money. At the time Systema began to take shape, the new Russian economy was becoming a tribal, clannish system. It was giving birth to conglomerates (politely called financial-industrial groups) that were in fact small empires in the making, often allied with a political leader. Luzhkov, the boss of a sprawling, increasingly prosperous metropolis, needed his own alliance with a financial-industrial group. In the early years, it had been Gusinsky, and later it became Systema and Yevtushenkov.

Luzhkov began to think about new horizons. Reporters were already badgering him about whether he would run for president. Yeltsin, then sliding into sickness, would not be president forever. “I am tired of repeating that I do not intend to run,” Luzhkov replied in 1995. “This is not my cup of tea.” He then added, “But even if I decided to run for president, is it a crime, an illegal act?”⁶⁷

In fact, Yevtushenkov and Luzhkov, who vacationed together and spent hours on weekends in long discussions, began to speculate privately about what it would take for Luzhkov to run for president, after Yeltsin. In the end, Luzhkov supported the Russian president during the 1996 elections, but the discussions went on long after that. Yevtushenkov believed that Luzhkov had one very powerful argument: he could change the country in the same way he had rebuilt Moscow. Yevtushenkov felt that Luzhkov had a chance to make history.

It was a daring thought, but there was one problem that would only show itself later: Luzhkov was not ready. He was at heart a khozyain, a manager, a Soviet man who had adapted to the new economy. He was still a creature of Moscow’s unique situation, and his experience in politics was forged within the protected cocoon of Moscow. The bustling city-state was a world apart from the rest of Russia.