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The Man Who Rebuilt MoscowBy David Hoffman
Washington Post Foreign Service
Monday, February 24, 1997; Page A01
Stroll down broad Tverskaya Street toward the Kremlin in the heart of this capital and stop for a hot pirozhok pie and cup of kvas at Russkoye Bistro, where the food is cheap, the service swift and the motif thoroughly Russian.
The smart orange uniforms, the borscht and tea, even the architecture of Moscow's newest fast-food restaurant were chosen painstakingly by one man. He personally selected the store emblem: a 19th-century Russian Cossack officer.
He then erected a 72-foot-high electric sign in giant letters declaring "Russkoye Bistro." And the money began rolling in.
Russkoye Bistro restaurants are now sprouting up all over Moscow, and no wonder. The man behind them is Yuri Luzhkov, the vigorous, bullying, populist mayor of this metropolis of 10 million people. The squeaky-clean, chrome-and-glass restaurants are just a small glimpse of how Luzhkov is marshaling a new kind of capitalism onto the Russian scene. It is state capitalism, in which the government is the powerhouse -- choosing between winners and losers in the market, and becoming a big business by itself -- and Luzhkov is the muscle man.
Soon it may launch Luzhkov toward the Kremlin.
From the modern look of Russkoye Bistro, to the golden cupolas of the restored Cathedral of Christ the Savior on the Moscow River, to the massive roof being stretched over Luzhniki Sports Arena, to the giant underground shopping mall nearing completion at Manezh Square -- Luzhkov has had a hand in all of them -- no detail of Moscow's post-Soviet rebirth escapes his attention.
He has become the undisputed boss of Russia's capital, with its lively commercialism, sea of peddlers and traders, and pervasive corruption.
President Boris Yeltsin's long illness has fueled speculation that another power struggle, and possibly a presidential election, looms for control of Russia. If so, Luzhkov, 60, barrel-chested and bull-headed, a one-time Soviet administrator who transformed himself into a disciple of profit, is increasingly described as the candidate who could represent the moneyed and progressive interests of today's Russia -- those who, broadly speaking, want to continue the transition to free markets and democracy.
The fight for power in Russia is a contest between powerful clans, and Luzhkov sits atop one of the mightiest of these ruling oligarchies, a Moscow group of politicians, city agencies, banks, businessmen and security forces. He faces one serious liability: In the decaying provinces, there is resentment of the prosperous capital. But Pavel Bunich, an adviser to Luzhkov and a member of parliament, predicted this envy would recede "once people see there are no potholes on the roads."
In recent months, Luzhkov has been sounding off on national themes, and polls show his ratings are inching upward. Among Moscow's political elite, he is increasingly seen as the only political figure capable of doing battle with Alexander Lebed, the popular but authoritarian retired general who also hungers for the presidency.
"I'm not planning to join this wild, false start of a race," Luzhkov protested recently. But he added, "The absence of the president for such a very long time will leave its mark."
Just after the 1991 coup attempt, then-Soviet President Mikhail Gorbachev was equivocating about whether to resign from the Communist Party when he was visited by Gavril Popov, a mild-mannered professor who was then Moscow's mayor, and his deputy, Luzhkov. It looked like Gorbachev would try to hang on, Popov recalls in a new memoir.
"Then Yuri Luzhkov began to speak," he said, "with all of that manager's forcefulness of his. Luzhkov's vigor turned out to be a complete surprise. The decision to leave the party was taken." He "practically dictated the text" of Gorbachev's departure statement.
Luzhkov's forcefulness soon came to dominate the city. A one-time manager in the Soviet chemical industry, he succeeded Popov as mayor in 1992. He saw that results mattered, not showcase statistics. Amid the chaos of those first years after the Soviet collapse, Luzhkov was an achiever, a builder -- and people noticed.
"We see a person who gets things done, a strong person, an independent person, one who practically has no doubts, who quickly solves concrete problems," said Alexei Venediktov, news director of Echo of Moscow, a radio station.
Residents found that the city became cleaner, and more functional, than at any time in memory. Luzhkov opened new subway stations. He paved rutted roads. He began rebuilding the treacherous Moscow beltway into a 10-lane superhighway. Food became plentiful at outdoor wholesale markets, though many of the burgeoning street markets became unruly magnets for criminals.
Most importantly, he struggled to alleviate the pent-up demand for housing. He built 32 million square feet 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. It was a classic Luzhkov trade-off, soaking the rich to help others.
Luzhkov had a powerful helping hand: Moscow was ripe for change. It became a magnet for all the entrepreneurs and wealth of the post-Soviet era. It gave more money to the federal budget than did any region. Moscow has the most reform-minded electorate in the country and last year returned Luzhkov to office with 88 percent of the vote.
But he has had his failures, especially runaway crime. The city is rife with mafia gangs and protection rackets; bribery, kickbacks and secret overseas bank accounts are day-to-day facts of life; car bombs and contract murders have become common ways to settle disputes; and neither the corruption nor the violence has been brought under control by the city's weak law enforcement authorities. Last year, an American businessman, Paul Tatum, who was involved in a legal dispute with a city agency over a hotel property, was slain on the street. His killer was never found. Corruption here begins with traffic police who demand bribes and reaches into the higher echelons of business and government.
Luzhkov has sanctioned brutal tactics against the city's homeless, forcibly removing them to distant villages, and the police often arrest and rough up dark-skinned people, usually from the Caucasus region.
With an eye on Moscow's 850th anniversary celebration this autumn, Luzhkov has been erecting monuments to Russia's revival, both spiritual and commercial. In the tradition of Robert Moses, who shaped much of 20th-century New York City, Luzhkov has been the driving force behind several projects that are already reshaping Moscow's skyline.
Gangly construction cranes now tower over Luzhniki Stadium, where a 10,000-ton steel ring is being put in place to support a 140-foot-high, 12-acre sliding roof of glass-reinforced plastic. It will be Europe's largest roofed stadium. Although short of cash, the city has already poured $36 million into the project.
Not far away rises the 334-foot-tall dome of the ornate Cathedral of Christ the Savior. Built by the Russian Orthodox czars in the 19th century to commemorate the victory over Napoleon, the cathedral was dynamited by Stalin in 1931. It has been elaborately -- and critics say excessively -- reconstructed. The finances are murky, but the final cost has been estimated at $300 million.
Nearing completion farther down the river toward the Kremlin is the Manezh Square underground shopping mall, three stories and 84,000 square yards of retail and office space, much of it still vacant. And on the banks of the river, a huge and, in the view of many, ugly statue of Peter the Great is rising into the sky, designed by Luzhkov's court sculptor, Zurab Tsereteli.
Most of Russia today has fallen into hard times reminiscent of the Great Depression in the United States. So, the question often arises, how did Luzhkov pay for all of it?
In the center of town, Inkombank, Russia's third-largest bank, is located at 4 Slavyanskaya Square. The building, erected in 1913, was a business center before the Russian Revolution, but fell into disrepair in Soviet times. Now it has been restored, and offers a clue to how Luzhkov built an empire.
After the Soviet collapse, privatization chief Anatoly Chubais oversaw the largest transfer of state property to private hands in history. Factories, buildings, trucks and everything else from the Soviet state were given to new, private shareholders -- including every Russian citizen, who received a voucher for his or her share of state property -- at a fraction of its true value.
But in Moscow, Luzhkov stopped the Chubais plan cold. "Like a drunk," he said of Chubais, "he sold off everything in the house." In 1994, Yeltsin personally gave Luzhkov control over Moscow's vast inventory of state property. Ever since, he has been cashing in. Last year, officials said, the city took in $1 billion in privatization revenues, more than all of the federal privatization effort.
When Inkombank, a new, post-Soviet bank, was interested in the old building on Slavyanskaya Square, the city simply gave it the building, in exchange for a promise to restore it, and a long-term lease. Now, the refitted headquarters gleams with an elegant, turn-of-the-century look. Luzhkov came to the ribbon-cutting. The bank's president, Vladimir V. Vinogradov, has become an ally of his, donating 25 restored icons to the Cathedral of Christ the Savior. "We have close business ties with the city," said bank spokesman Alexei Shatalov. "We have partnerships and commercial relations."
This cozy relationship is multiplied a thousand times. According to many business people, Luzhkov used property as leverage. The property was leased for a nominal sum, but the city also made unwritten demands not in the lease: to plant trees, rebuild a hospital, pave a highway.
Luzhkov "has certain levers which make it possible for him to thank sponsors," said Bunich, his adviser. "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." Or, in exchange for credits, Bunich said, Luzhkov can give banks the coveted designation of "authorized," meaning they can share in lucrative city business. "Luzhkov can establish rent from zero -- skywards," he added.
Popov said in an interview that much of the corruption stems from the wide-open scramble for valuable property. "One-third of this is taking a legal way," he said. "One-third is taking a traditional Communist way of a fight under the rug, so to speak. And one-third is mafiosi ways."
For example, Luzhkov was eager to clean up an old dump filled with dangerous toxic waste, which he called an ulcer on the city. An excavation firm, Moscow Mechanized Construction No. 5, agreed to take on the hazardous task. The company removed 2.6 million cubic yards of contaminated soil, working around the clock for two years. The company also needed help. It had purchased $10 million in new dump trucks from Volvo, but still owed $3 million it could not pay. Luzhkov came to the rescue. He arranged a loan from a local bank, at 4 percent interest, when market rates were far higher, so the company could settle the debt.
In another case, Ren TV, a prominent television production company, wanted to expand to broadcasting on its own channel. According to its president, Iren Lesnevskaya, the company needed capital. Luzhkov helped secure a $20 million loan from a bank partially owned by the city and he is now chairman of the board of Ren TV.
Galina Starovoitova, a progressive member of parliament from St. Petersburg, said Muscovites cheer when Luzhkov squeezes wealthy banks and businesses for his special projects -- ecology, television, housing. "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 super-profits."
Luzhkov has also squeezed the federal government. Yevgeny Yasin, the economics minister, recently noted that Moscow's anniversary festivities are nearing. "I am scared to death of this anniversary," he said, "because I know that Luzhkov will clamor for additional spending."
Not only does Luzhkov oversee a treasure-trove of property, but the city is a major presence in Moscow business. While the early Russian reformers sought to tear down the state, Luzhkov has reinforced it. Some call it state capitalism. Others charge it is monopolistic and anti-competitive.
Vladimir P. Vinogradov, manager of the city property administration, said Moscow runs 1,500 businesses, mostly former Soviet state-owned enterprises. In another 300 firms, the city is a partner with outside investors. The businesses include bakeries, hotels, construction, publishing, banking, aviation and communications firms, beauty salons, an oil refinery and a pair of giant, troubled automobile factories.
Popov said Moscow has free markets: Individuals hawk their wares on street corners. But when it comes to the city enterprises, he added, "even the words 'state capitalism' would be too flattering. Because actually we are not dealing with state capitalism, we are dealing with a variety of monopolies."
The power of Moscow as a business empire can be seen in the founding of Russkoye Bistro. Luzhkov wanted a truly Russian fast-food joint to compete with the phalanx of Western outlets. The city owns 20 percent of Russkoye Bistro and contributed real estate, cheap utilities and preferential credits. According to Vladimir Pivovarov, deputy general director, Luzhkov fussed over the enterprise as if it were his own. "Everything we sell," he recalled, "was tasted by the mayor himself."
But Luzhkov's grandest commercial venture has many people wondering if he has reached too far: The city has taken control of the moribund Zil truck factory here. Once a crown jewel of Soviet industry, the factory made only 17,000 vehicles last year. The city borrowed $44 million from a consortium of Russian banks -- with one of its hotels as collateral -- for the project. Rather than top-to-bottom restructuring to make the factory more competitive, Luzhkov's plan has a state capitalist angle: City agencies will be ordered to buy more Zil trucks, tax breaks will be doled out, parcels of land will be sold off, and advertising will be created for Zil. Yasin said Luzhkov is also seeking federal aid. But it is not clear that even Luzhkov can create a market for Zil trucks.
On a smaller scale, many of Moscow's small business people complain they are constantly required to pay bribes for routine business. One storefront owner said, "To get permits is very difficult and takes a long time. Very often you have to pay people off, and you're happy when you can."
He said every business in the city employs a krysha, or roof, a paid mafia protection racket. Sometimes the krysha is one and the same as the local police force. "It's not my biggest concern," he said. "At least I know there is someone to call."
Luzhkov is almost never criticized in the Russian media. One reason: He is genuinely popular. Another: He is extraordinarily powerful.
Luzhkov, who refused to be interviewed for this article, does not take criticism lightly. By his own count, he has filed and won 25 slander suits in Moscow courts, "and got rich off it, by the way." Venediktov, the radio station news director, said the news media realize that an angry Luzhkov could easily close them down. "Newspapers aren't ready," he said. "This could bankrupt them."
In fact, the city helps many news media outlets, giving them low rents, tax breaks and discounts on electricity bills that Luzhkov has estimated are worth $15 million a year. Venediktov said the station got a check for about $10,000 to pay for a year's subscription to the Reuter news service.
Luzhkov rarely discusses his family and private life, but in public he is a colorful and energetic politician who often is seen touring construction sites, riding a new bus, jumping into a frigid river or answering call-in questions on local television.
Despite his denials, it is clear Luzhkov is looking beyond Moscow. He is a "romantic" who thinks he has a mission to transform Russia, Venediktov said. "Moscow has become a modern city. And so Russia will become modern."
© Copyright 1997 The Washington Post Company