Sometimes even bad business makes for good government

ALMATY - You're excused if you haven't heard the recent news from Kazakhstan, what with all the commotion in that other ‘stan across the mountains. But what's going down over here is big, and may end up being more important for the region than the routing of the Taliban or the smoking of Osama out of his Tora Bora hole. The situation also offers a lesson about politics and business useful to far more "advanced" transitional societies, including those in Central Europe.

The drama boils down to a rumble between the different groups of tycoons and officials who currently lord it over the country, which may be sitting on the biggest unlooted horde of hydrocarbons in the world. In one corner are strongman president Nursultan Nazarbayev - who has been a big dog in Kazakhstan since Gorbachev was a pup in the Kremlin politburo - and a loyal retinue of presidential relatives, state officials and hangers-on. In the other corner is an unsteady alliance of former officials and, to everyone's surprise, two of the country's most notorious - and notoriously quarrelsome - business oligarchs. Late last month, the feud cracked into the open, with the dismissal of a group of reformers from government, including the deputy prime minister, and the establishment of a new political movement, the Democratic Choice of Kazakhstan. While not exactly a jackboot dictatorship, Kazakhstan does not see things like this very often.

The fuse that set off the big bang was an infamous son-in-law of the president (there are more than one), who had apparently used his post at the KNB - the "N" used to be a "G" - to squeeze one too many millions out of the Kazakh business community. But some say the stakes are much larger.

To date, business has been more or less indistinguishable from politics in Kazakhstan. Both have been about seizing and defending territory and trying to extract the maximum "rent" from that turf, whether the presidency, an empire of banks and aluminum smelters, or the municipally owned hotel I have been holed up in for the past week, where my restaurant bill last night included a charge of 285 tenge ($1.90) for the temporary use of a bottle of Tabasco sauce.

Many large domestic businesses were privatized at fire-sale prices in the early and mid-1990s to well-connected folks who rolled them into predatory conglomerates or simply looted them. Meanwhile, firms that have stayed in state hands are under the sway of politicians or various Nazarbayevky. The only parts of the economy that run according to anything like normal business rules involve smaller local firms and larger international ones. This in part explains why Almaty is a city full of people driving around in shiny new SUVs trying not to scuff their tires on the beggars freezing to death in the gutter. It's not a pretty picture.

According to many folks I spoke with here, the restive tycoons are not just tired of being hit up by relations of the first family, and being cut out of choice deals. Instead, they have decided that the time has come to dismantle the old way of doing things and move toward a more open, rules-based system of government and business.

This was certainly the gist of the lecture given to me by one of the two biggest tycoons, Mukhtar Ablyazov, the chairman and beneficial owner of the country's second-largest banking group, TuranAlem. With the fuming conviction of a recent ex-smoker, Ablyazov said the country's first priority now must be to make its government more democratic and accountable, its courts and media more transparent, and so on. The same message is being voiced by Ablyazov's former arch-nemesis, Kazkommertsbank boss Nurzhan Subhanberdin.

But why would these men and their new coconspirators want to change the rules of a game that has made them so filthy rich and powerful?

One answer is simple greed. At a certain point, the tycoons apparently began to realize that the old game was played out, that there was no new turf left, no "free" assets left to grab and milk. Meanwhile, the dead hand of the old system was choking off new opportunities. Uraz Dzhandosov, the former deputy prime minister who leads Democratic Choice, told me that the tycoons had also started to figure out that "in the long run, the groups with better governance, and transparency, will win." At the same time, the old-fashioned business groups were being infiltrated by an increasing number of newfangled executives, people who had worked in the West or at Western companies and were committed to doing things differently.

But a more powerful group of politicians and their patrons and supplicants are apparently stuck on doing things the way they know best, and now everyone is waiting to see which side the wily Nazarbayev will come down on. While some believe he will co-opt the new opposition by appointing its leader prime minister early next year, the youthful Dzhandosov told me that he isn't holding his breath. Or, as in Russia, Nazarbayev may throw the tycoons in jail, or force them to decamp to the south of France. Whatever happens, count on it to take place under umpteen layers of intrigue, in classic Central Asian fashion.

The lessons? Firstly, never underestimate the tendency of business to move faster than government in the direction of transparency and good governance, or the impact that business's enlightened self-interest can have on an unresponsive, authoritarian government. (Next to the tycoons, the country's NGOs and other "third sector" do-gooders seem utterly irrelevant.) You can do well and still do good, even in places where those who clean up in business usually are the dirtiest operators.

Erik D'Amato can be reached at erik@erikdamato.com

Erik D'Amato