PSCRP-BESA Reports No 74 (August 11, 2024)
Recently, amid the war in Ukraine, which has caused numerous changes in the Russian elite, as well as sanctions, which have caused the flight of foreign capital, the head of Chechnya, Kadyrov, together with leaders of other factions of the Russian elite, has been actively seizing and dividing assets. The scandal surrounding Wildberries, Russia’s largest online marketplace, has brought the process to the forefront of public attention. There is another important element related to the confrontation between different ethnic groups. In particular, according to many experts, the Wildberries case is a conflict between two interest groups from the North Caucasus: one representing Dagestan and the other representing Chechnya. The recent involvement of Ramzan Kadyrov in the Wildberries case immediately turns the situation into an ethnic conflict between different factions of the ethno-political elite.
This situation is an interesting one for experts in the broader context of how and when a split in the Russian elite may or may not occur. The classic work of American political science professor Henry Hale, “Patronal Politics: Eurasian Regime Dynamics in Comparative Perspective,”[1] formulates the theory of “neopatrimonialism” or “patronal politics” for Russia and other post-Soviet states (in other words, they are governed not by institutions but by patron-client networks of power), and notes that the cause of almost all regime changes in post-Soviet countries was a split in the elite.
The interest of many political analysts and journalists in this topic increased after the Prigozhin mutiny (June 23–24, 2023). This event sparked active discussions in the Western press about whether a change of political regime in Russia could occur as a result of a split in the elites. Experts on the Russian economy have also contributed to this discussion. In particular, Igor Lipsits, a former professor at the Higher School of Economics in Moscow, often hypothesizes that the conflict of elites in Russia is beginning to develop on the basis of a struggle for assets. Moreover, Lipsits believes that the escalation of this conflict over the division of assets could lead elite groups to open confrontation and civil conflict. This process is particularly dangerous for the stability of the existing political system in Russia if the property conflict intersects with existing ethno-political tensions (which are abundant in the North Caucasus, including Chechnya and Dagestan).
Wildberries is an online marketplace well known to the vast majority of Russians, an analog of Amazon. Ninety-nine percent of the shares belong to Tatyana Bakalchuk, who has been the CEO of this company for many years. In 2024, she was ranked 22nd on Forbes’ list of Russian billionaires with a fortune of $7.4 billion. The remaining 1% of shares belonged to her husband, Vladislav Bakalchuk, who actively participated in the management of the company and helped his wife. They did not sign a prenuptial agreement, so in case of divorce Bakalchuk could claim half of his wife’s property under Russian law.
Against the backdrop of Russia’s oligarchic capitalism, Tatyana Bakalchuk’s enterprise, created from scratch by a former teacher who built an online retail business, stands out as a pure business, without the use of administrative connections. Bakalchuk is one of the few successful women in Russian business. However, skeptics claim that Tatyana Bakalchuk (who has Korean ancestry) is related to Sergei Tsoi, a Rosneft vice president who previously headed the press service of Moscow’s first mayor, Yuri Luzhkov. The system created by Luzhkov in Moscow was characterized by unprecedented paternalism and corruption as early as the 1990s. Accordingly, skeptics attribute Bakalchuk’s business success, at least in part, to this connection.
Wildberries has faced several serious problems and scandals in recent years amidst the country’s tough economic situation. Despite its huge cash flow, the company has barely made a net profit for several years. Since the end of 2021, Wildberries has been criticized by sellers, customers and its own employees. The main complaints are related to chaotic changes in working conditions and a repressive system of fines imposed on the company’s employees and partners. In March 2023, the owners and employees of pickup points went on strike over new rules requiring them to pay the full cost of defective or replaced goods. Fines from pickup points have now become the company’s main source of net income. In 2022, Wildberries earned more than 8 billion rubles on fines. Obviously, against this background, the idea of restructuring and partial sale of the company has long been forming in the mind of Tatyana Bakalchuk. However, recently her conflict with her husband and co-owner of the company has only aggravated the situation.
In June 2024, it was announced that Wildberries would merge with Russ, the largest advertising operator in Russia. The shares in the new legal entity were divided as 65% for Wildberries and 35% for Russ, although the market value of Wildberries significantly exceeds the market value of Russ. In this connection, numerous expert and journalistic publications speculated about a hostile takeover of the company by one of the elite groups linked to Dagestan.
Russ Group is the largest outdoor advertising operator in Russia, which requires active interaction with regional and municipal authorities, as well as significant lobbying potential. The company was founded in 1995 and was at one time owned by Rupert Murdoch. It was later sold to Russian investors. At one time, the company tried to completely monopolize the entire advertising market in Russia, using its influence in the State Duma. By modern Russian standards, it is quite profitable: in 2023, the company’s revenue amounted to 27.9 billion rubles with a net profit of 4.86 billion rubles. Among the owners of the company are Levon and Robert Mirzoyan, Duma deputy Bekkhan Barakhoev, a representative of Dagestan, as well as the state-owned VTB Bank.
The decision to merge was made in the best traditions of state capitalism. The participants in the deal received the personal blessing of Vladimir Putin, who was told that the deal would create competition for such companies as Amazon and Alibaba, as well as the largest digital banking network for ruble transactions, bypassing SWIFT. The merger meeting with Putin was facilitated by Suleiman Kerimov, a prominent Dagestani businessman, politician and philanthropist. His business empire includes a controlling stake in the oil trading company Nafta Moskva, a major stake in the gold mining company Polyus, one of Russia’s largest, and a significant stake in Uralkali, the world’s largest producer of potash fertilizers. Kerimov has been a member of the upper house of the Russian parliament since 2008, representing the Republic of Dagestan.
Putin supported the initiative. The control of the merged company was divided between Tatyana Bakalchuk and Robert Mirzoyan, a representative of Russ. In fact, according to experts, Mirzoyan now controls the company, as he is the main owner of the merged structure. There were rumors of an affair between Bakalchuk and Mirzoyan, which could be one of the reasons for the rift between Bakalchuk and her husband.
In mid-July, Wildberries re-registered about two dozen of its subsidiary legal entities to the merged company. The company also announced a project to place and pay for outdoor advertising through the Wildberries seller’s personal account.
In July 2024, Wildberries co-founder Vladislav Bakalchuk, Tatyana’s husband, publicly accused Russ of a hostile takeover and complained to the head of Chechnya, Ramzan Kadyrov. Bakalchuk also lamented that his wife had been taken away from him. Kadyrov, an advocate of the forcible return of wives to their husbands (a practice that is widespread in Chechnya under his control), supported Vladislav and said that he had instructed Adam Delimkhanov, a State Duma deputy from Chechnya, to look into the matter. This position of Kadyrov echoes the ideology of modern conservatism, officially adopted in Putin’s Russia, which restricts women’s freedom. Kadyrov also accused unnamed “prominent people from the Caucasus” of a hostile takeover, publicly challenging them. Kadyrov published his statements on his personal Telegram channel. This gave rise to talk of an ethno-political conflict hidden beneath a property dispute. Kadyrov’s involvement in the struggle reflects his political ambitions, his desire to strengthen his position at the federal level and dominate the Caucasus.
On August 5, Wildberries completed its merger with Russ, and the company is now called “R.V.B.”. However, the Bacalchuks are now facing a legal battle over the division of assets.
The story around Wildberries, as well as a number of other lesser-known recent cases of asset struggles in Russia, confirm the view of experts (such as Lipsits) who expect the struggle for resources to intensify in the context of the economic and political crisis. Many observers interpret the selective prosecution of certain bureaucratic groups (such as those associated with the allocation of funds in the Defense Ministry under Minister Shoigu) in the context of resource division. Corruption becomes less tolerated in wartime, but in the absence of strong legal institutions, attempts to impose some order can be used by competing elite groups for their own ends. This, in turn, increases the likelihood of intensified competition for assets.
However, it is at least naive to believe that such turbulence will lead to a revolution in Russia. In the short term, on the contrary, it may strengthen the ruling elite by consolidating it on the basis of the division of resources obtained from the defeated groups. Meanwhile, the process that experts in Russia refer to by the term characterizing South Korea’s experience — “chaebolization” — will continue. In the analyzed context, it means an increasing concentration of property in the hands of several competing financial and industrial elite groups. This process will be accompanied by all known social consequences of property concentration in the form of growing social inequality and fierce intra-elite competition. In the longer term, the preservation of such an equilibrium is unlikely, but, as Keynes said, “in the long run, we are all dead”.
Albert Hirschman’s theory can be applied to analyze the situation in the Russian elite under the conditions of aggravating property conflicts[2]. He examined three possible behavioral strategies: “Exit, Voice, and Loyalty” to explain people’s reaction to ineffective behavior of organizations. By “exit” Hirschman means the possibility of people leaving the organization if the quality of management deteriorates. ‘Voice’ refers to active attempts to influence the organization to make a difference. In a political context, this behavior leads to reforms as people try to improve the situation by staying within the system. “Loyalty” refers to a commitment to the organization that can prevent people from leaving the system even if the quality of governance declines.
In the context of political processes, when serious problems and conflicts arise in a state, its citizens can continue to remain loyal to the existing system, emigrate (exit) or participate in political protests (voice). In fact, under current conditions in Russia, the option of political protest remains closed to the elite (at least in the short term). The control of security agencies over the business elite is very tight. Therefore, under the conditions of intensifying struggle for resources, the losing side currently has only two real strategies: loyalty or exit. The strategy of loyalty implies resignation to losses or turning to a stronger competing elite group for support. This was the strategy that Bakalchuk’s husband followed when he defected to Kadyrov, hoping that Chechnya’s influence would outweigh that of Dagestan. The second strategy is emigration. However, this is not an easy option for representatives of the Russian economic elite. There is a threat of complete confiscation of assets in Russia, and oligarchs living abroad may face Western sanctions because of their past ties to the Russian leadership.
In general, as long as the losing side has only two options – to seek the patronage of stronger bureaucratic groups or emigrate (with all the above-mentioned disadvantages of the emigration strategy) – relative political stability at the upper levels of the elite will be maintained. The elite will not split, and the political regime will remain intact. The situation will change only when, for some reason, a voice strategy (i.e., open protest from within the system) becomes possible. The discontent of individual business groups and the associated civil bureaucracy, even if it becomes (or has already become) massive, will not have a short-term effect. It will increase the potential for a split in the elites, but will not lead to its realization. In other words, the split of the Russian elite can only occur if it affects the security forces or the highest echelons of political power. Only this can actualize the potential political consequences of growing asset conflicts.
The conflict around Wildberries shows that in the event of a collapse or significant weakening of the current political regime in Russia, inter-elite clashes, including those with an ethno-political dimension, over ownership of assets could become much more acute. It is quite obvious that Kadyrov’s forces and other North Caucasian bureaucratic and security groups will become important players in such a scenario.
Professor Andrei Kazantsev-Vaisman (PhD, Dr.Sc.) affiliated research fellow at the BESA-PSCR Program. He is an expert on Central Asia and Afghanistan, Russian foreign and security policy, and energy policy. He previously lectured at the Moscow Higher School of Economics, the Moscow State Institute of International Relations and the European University Institute (Italy). His publications include the books “Great Game” with Unknown Rules: World Politics and Central Asia (2008) and International Networks of Jihadism: Central Asia, Caucasus, Middle East and Afghanistan (2019).
[1] Henry E. Hale. Eurasian Regime Dynamics in Comparative Perspective. Cambridge University Press, 2014.
[2] Hirschman, Albert O. Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Harvard University Press, 1970.