Vodka Politics (65 page)

Gorbachev’s campaign was a vivid reminder that clamping down on legal vodka breeds a thriving underground of moonshiners and bootleggers who
skirt government regulations through bribes and graft. The growth of dangerous
samogon
home brew and mushrooming corruption undercut Gorbachev’s initiatives just as they had done to every previous, dramatic anti-alcohol measure, including the ill-fated prohibition during World War I. Economic logic suggested, then, that once restrictions were lifted and the alcohol market was liberalized, the black market in alcohol would emerge from the shadows and become a legitimate contributor to Russia’s new capitalist economy. As it turns-out—due to vodka’s complex role in Russian culture—something quite different happened.

When times are tough, vodka has always been there—not just as a product to be bought to drown one’s sorrows, but also as the currency used in the exchange. Indeed, just as Russia’s economy was demodernizing, so too was its monetary system. With the ruble rendered practically worthless by hyperinflation, more and more transactions were conducted through the primitive commodity money of vodka rather than modern paper currency.
¹⁸

Back under the tsars, Orthodox priests gave villagers vodka in exchange for working for the parish (
chapter 8
). Set against the Bolshevik Revolution and civil war, Boris Pasternak’s Nobel Prize–winning novel
Doctor Zhivago
described vodka as Russia’s “favorite black-market currency.”
¹⁹
Alcohol even greased the wheels of the modern administrative-command economy itself: most Soviet enterprises employed supply officers, or
tolkachi
, well-connected black market hustlers who, equipped with a few cases of vodka, could find the scarce materials necessary to help the factory fulfill their production quotas. The ministry of foreign trade even got Pepsi Cola from the United States by bartering Stolichnaya vodka.
²⁰

Whenever cash was unavailable or unreliable, vodka was there.
Butylka za uslugu
—a bottle for a favor—was how things got done: whether it was getting a leaky faucet fixed or expediting bureaucratic paperwork, vodka delivered results.
²¹
But what of those, like rural pensioners, who could not afford vodka? From necessity rather than thirst, many turned to home brewing. “We have to harvest potatoes, mow hay and lay in firewood,” explained one elderly
babushka
in a 1984 Soviet investigation, “and for every favor the collective farm workers do, you give them two or three bottles of vodka. We don’t have the money to do this, so we have to brew the liquor ourselves.” After compiling many similar complaints from the countryside, the Soviet journalist simply lamented, “It’s as if money itself is too inconvenient.”
²²
To make matters worse, even elderly home brewers were often fined forty rubles for violating laws against moonshining—a penalty that rose during Gorbachev’s anti-alcohol campaign.
²³

Understanding vodka as a medium of barter, and home brewing as a means of coping with personal economic hardship, helps explain why—when the post-communist transition rendered the ruble worthless and pushed millions
into poverty—Russia saw a dramatic increase in moonshining by those on fixed incomes: not just pensioners, but teachers, nurses, engineers, scientists, and soldiers.
²⁴
So although the old state monopoly was gone, the illegal vodka trade did not wither away—it exploded.

Yet vodka from homemade stills was just a drop in the bucket compared to the tsunami of illegal alcohol flooding into Russia from abroad. By early 1994—unfathomably—as much as sixty percent of all of the vodka sold in Russia was imported.
²⁵
Rather than the top-shelf European liquors like Absolut or Finlandia, these were cheap, and often poisonous, knockoffs smuggled in from other post-Soviet republics. A quick bribe to a hard-up border guard or inspector was often enough to sneak an entire shipment through Russia’s porous borders, which could undercut the price of legally produced, regulated, and taxed Russian hooch by as much as fifty percent.
²⁶

In the West, those concerned about Russian border security normally feared Russia’s “loose nukes” sneaking into the hands of international terrorists. In Russia, the bigger challenge was preventing trucks and even trainloads of illegal, unregulated, and therefore often poisonous alcohol from entering the country, especially in the volatile Caucasus. Forty percent of the vodka consumed in Russia was produced—most of it illegally—in the small province of North Ossetia, where fully one-third of the entire adult population was employed in vodka production. In addition to distilling a large, subsidized quota of ethyl alcohol from the ministry of agriculture, cheap raw-material spirits were imported from Ukraine, with false documents listing Russia as a transit country and therefore exempt from Russian customs duties.
²⁷

When the government-subsidized supply of ethyl alcohol dried up thanks to market reforms, and stepped-up customs regulations put a kink in the “Great Vodka Route” from Ukraine to Russia, North Ossetian producers turned to smuggling cheap foreign spirits through the Georgian port of Poti, from where it was trucked over the mountains and smuggled into Russia through the Roki Tunnel. In July 1997, with the backing of President Yeltsin, General Andrei Nikolayev of the Federal Border Service closed the Russian border to Georgian alcohol trucks that did not pay full import duties.

The tense standoff quickly escalated into a small-scale “vodka war” when a caravan of over three thousand metric tons of pure ethyl alcohol destined for North Ossetia was denied entry to Russia. When the border guards were unswayed by bribes in excess of $1 million, the heavily armed rum-runners opened fire, attempting to fight their way into Russia before being pushed back by military reinforcements. One Georgian truck driver was killed in the crossfire. In the face of pressure from the Georgian foreign ministry and President Eduard Shevardnadze, Yeltsin relented: Nikolayev was dismissed, and the flow of alcohol resumed.
²⁸

Hundreds of trucks laden with illegal alcohol imports are stranded on the Russian–Georgian border, September, 19, 1997. Associated Press/Shakh Aivazov.

Armed standoffs illustrated just how high the stakes—and the payoffs—were for anyone who could sidestep government regulations and meet the demand for cheap booze. Corrupt entrepreneurs set up shell companies to import a single shipment before vanishing without paying duties. Others forged foreign documents for Russian products to sidestep regulations on domestic production.

Shockingly, in 1993, President Yeltsin decreed that particular charitable organizations that had earned his favor—including the Afghan War Veterans’ Union, the Hockey Federation of Russia, the National Sports Foundation, and the Moscow Patriarchate of the Russian Orthodox Church—were exempt from paying customs duties on imports. Consequently, these charities suddenly found themselves knee-deep in the corrupt world of the international vodka trade. The Department of External Relations of the Russian Orthodox Church became a major importer of vodka and cigarettes. The National Sports Foundation—nominally charged with promoting healthy lifestyles—imported thirty-one railroad cars containing nine hundred and seventy-five thousand bottles of vodka in one transaction alone, never paying the 43.5 billion rubles in import duties. Heads of both the Hockey Federation and the Veterans’ Union were assassinated in bloody contract killings in the settling of accounts. When the import loopholes were finally rescinded in the late 1990s, the government estimated that these charities left the woefully indebted Yeltsin regime on the hook for another thirty-seven trillion rubles or some nine
billion
dollars.
²⁹

How much black market vodka actually came from abroad is impossible to know. However, Russian law enforcement estimated that, during the 1990s, a mere two percent of Russia’s thriving shadow market came from homemade
samogon
. The other ninety-eight percent was either imported illegally or manufactured off the books in regular distilleries.
³⁰
The reason was simple: it was more cost effective to pay bribes than the heavy eighty percent excise tax levied on alcohol. With corruption as historically entrenched as alcohol (and, as we’ve seen, actually a consequence of it), and with a population that had little experience in paying taxes under the Soviets, it was apparent why so much of the vodka market remained underground.
³¹

As if out of a Hollywood prohibition drama, the savvy Russian bootlegger directed a complex operation with creative bookkeeping: one set of books recording a distillery’s official production—and hence the quantity of alcohol he pays taxes on—which is entirely different from the factory’s actual output. Since taxes were so high and the competition for cheap booze so intense, profit margins on legal vodka were a razor-thin four or five percent.
³²
It was much more lucrative to move production off the books all together—oftentimes leasing out their facilities during off-hours to third parties who had little concern for tax or safely regulations. So prevalent was this “third shift” vodka that many distilleries in the 1990s—especially in the North Caucasus—reported operating at only five percent of their known capacity.

“It is hard to believe that any sound-thinking businessman would want to launch a business that would work at 4% to 5% of its real capacity,” acknowledged mayor general of the tax police, Viktor Khvorostyan. “This means that the bulk of the work is being done at nighttime, when no one should be working. Can you imagine how huge a potential for illegal production of alcohol this creates?”
³³

The sheer size of the black market in vodka was impossible to mask. Official Russian statistical data (
figure 20.2
) showed a dramatic—and growing—difference between the amount of vodka officially sold and the amount that was officially produced and taxed. By 1996, upwards of two-thirds of sales were untaxed, constituting around $8 billion in potential tax revenue that the treasury lost in those five years alone—on top of the $9 billion from Yeltsin’s “charitable” exemptions.

This potentially dangerous black market vodka was everywhere. By 1997—according to Russian ministry of trade statistics—forty-six percent of all vodka sold was of “unacceptable” quality.
³⁴
When combined with the astronomical consumption of vodka, this diminishing quality had horrific consequences. In the United States—with a population double that of Russia—roughly three hundred people die per year from alcohol poisoning. In 1994, in Russia there were fifty-five thousand such deaths, prompting Russia’s foremost alcohol researcher, Dr. Aleksandr Nemtsov, to claim that “history’s gift of freedom was partly paid for with death at the vodka stall.”
³⁵

Figure 20.2
T
AXED AND
U
NTAXED
V
ODKA
S
ALES IN
R
USSIA
, 1993–1997. Sources: Goskomstat Rossii,
Russia in Numbers: Concise Statistical Handbook
(Moscow: Goskomstat, 1999), 197, 272. Taxed production statistics are from T. Kosmarskaya, “Problemy gosudarstvennogo regulirovaniya rynka alkogol’noi produktsii,”
Voprosi ekonomiki
(1998): 141. See also “Shadow of a Doubt,”
Business in Russia/Deolvye lyudi
no. 82 (1997): 34.