Making a Million Isn't What It Used to Be

Life in Russia's fast lane - with quick riches and extravagant spending - hits a few speed bumps

On a Paris corner, a New Russian compliments another on his tie.

"I paid $1,000 for it in that shop right there," says the fellow with the tie.

"You're a fool," scoffs the other New Russian. "I saw the same tie just around the corner for $2,000."

This is one of dozens of popular jokes in Russia these days on New Russians - the flashy, Mercedes-driving, Rolex-wearing, Riviera-sunning, casino-playing, gold-chained, nouveaux riches of the post-Soviet years who never ask the price - unless to make a show of paying more.

But in another sign of creeping economic stability, the age of the flamboyant Russian nouveaux riches is doing a fast fade. It shows at art auctions and at Rolls Royce dealerships in Moscow. It shows in a slight narrowing of the income gap between rich and poor in official Russian statistics. And it shows in a shift in the culture of prosperous Muscovites.

While the ultra-rich are still ultra-rich in their guarded suburban compounds, much of the fast money that bought German cars and Italian clothes in post-Soviet Russia has been lost.

They have left a growing group of affluent but not-rich Russians that are finally settling down and getting to work.

Nikolai Leonov, answering his own telephone behind a spartan desk in a small but modern office, is by no means poor today as he pours his time and money into his catalog sales business. But two years ago he was rich. He drove a top-of-the-line Audi sedan and spent little time running this business, because he and some friends were making big money in investing and banking.

"But we were not professionals," he acknowledges. They lost their money when two banks they had invested in went bankrupt.

They are not alone. "Those who became suddenly rich were not professionals in any field," says Mr. Leonov, who himself had a doctorate in geophysics but knew little about banking. "Mostly, they have lost their money."

"Now you have to know something about your business."

This is a story heard in many tony Moscow circles these days.

Still wealthy, less flamboyant

There is still plenty of serious money in the hands of wealthy Russians. Limousines with tinted windows and four-wheel-drive chase cars for security still careen around town. Supermarkets and athletic clubs that once catered to foreigners with hard currency are now frequented by prosperous Russians. And at art and antique auctions in Western Europe, Russian buyers are still major players.

But the culture of wealth is changing - Mercedes-Benz and BMW are out of fashion, says Leonov. Instead, Russians with money prefer the lower profile of a Volvo. "It's a nice car but it doesn't stand out too much."

In the Klondike years of primitive Russian capitalism, roughly 1992 through 1994, thousands became rich overnight. They struck export deals. Friends called friends who called friends about selling a bargeload of scrap copper or an oil shipment. They were in the right places when state property was privatized. They opened banks and won deposits from state agencies and large export firms.

The key to wealth was seldom clever business skills, but rather the right connections inherited from the Soviet years. Many of the nouveaux riches were the sons and daughters of the late-Communist nomenklatura, the party and bureaucratic elite. The line between what was respectable and disreputable was gray, but many of the nouveaux riches were - and are - outright criminals. No one can say with certainty how many.

In the heady years, says Anatoly Zaitsev, assistant director of the Gelos Antiquarian Association, an auction house and gallery, he recalls one buyer who gestured at an entire wall of rare, 19th-century paintings and antiques and said, "Pack it up by 2 p.m. tomorrow," without asking the price.

"There were plenty of people with buckets of money," he says, "but they got it through some big [stroke of] chance. They never learned how to earn it." So they spent it the same way they got it, in big careless chunks. "They threw it on the wind."

This is when less-prosperous Russians - including most educated professionals - began making New Russian jokes, such as the one about the fellow who replaced his new Mercedes sedan a month after he bought it "because the ashtrays were full."

"In the past two years, those who learned to earn money started businesses and are running them," says Mr. Zaitsev. "Those who didn't are no longer wealthy."

The wealth of many of the newly rich Russians rests on just one, two, or three very successful deals, says Olga Kryshtanovskaya, director of elite studies at the Sociology Institute for the Russian Academy of Sciences. "If they get half a million or a million dollars, they keep spending it for the rest of the lives," she says, without ever establishing a regular income. But in the past couple of years, she says, such people have been pushed almost entirely out of big businesses, and the opportunities for hyper-profitable deals have dried up considerably.

New role models, mafiosi style

But the cultural impact of these nouveaux riches has been considerable, she adds. They have become role models for many young Russians from lower on the social scale, who admire the striking clothes and luxury foreign cars, as well as the mafiosi behavior of the men and the expensive-prostitute look of the women.

"It has become a fashion," says Mikhail Kamensky, a Moscow art dealer and consultant. "Every wealthy person tries to look like a criminal, and every criminal tries to look like a wealthy person."

The emerging class of wealthy Russians looks more like an upper-middle class in the West. Most of them are much like Leonov at his catalog business.

They are working harder for their money and thinking more about planning for the years ahead. "I am helping many of them sell the art that they bought when they were rich," says Mr. Kamensky.

Businessman Leonov lives in a single-family house in the posh suburban village of Zhukovka, among bank owners and senior government officials. "People who live in such places are either wealthy or influential or both," he says. Keeping his residence in such an expensive place is not only quieter and fresher, but important for the professional contacts it brings.

He also rents a Volga, a big but common Russian car, with a driver. Otherwise, his money all goes back into his business, he says. Leonov's observation of his friends agrees with the trend Ms. Kryshtanovskaya sees. Wealth seems to be spreading out to more people, and the wealthy also seem to be less wealthy than a couple years ago.

The Russian State Statistics Committee reported earlier this month that the top 10 percent of Russian earners made 12.8 times as much as the bottom 10 percent. A year ago the top earners brought in 13.5 times as much. So the figures show some leveling as well.

One of Leonov's friends still drives a Bentley, he says, although he will buy something humbler for his next car. But anyone who can in Russia still keeps a Swiss bank account or finds another way to keep some money abroad. Few Russians yet consider their country to be stable.

At Gelos auction house, Mr. Zaitsev saw an influx of buyers in the months leading up to the presidential election, where it looked like the Communist candidate had a good chance of winning.

"People appeared who wanted to invest in something of hidden value, not in traceable bank accounts," Zaitsev says.