Bribery is an exchange—corruption is an attribute. The socio-political system becomes corrupted when bribery, nepotism, and the use of public office for private advantage are widespread.10 Corruption blurs the line not only between public station and private interest—between formal duties and informal obligations—but more fundamentally between the legal and the illegal. So it makes sense that the roots of corruption extend back to when public and private were indistinguishable and law itself was imprecise.
Rooted in peasant hospitality and traditions of provincial officials living off the land they administered, petty bribery was a sporadic feature of early Russian society. Only with the harnessing of vodka’s extreme revenue-generating potential did a pervasive system of obligatory corruption come into full bloom.
While autocrats back to Ivan the Terrible knew of the great potential of vodka, the Muscovite state had no way to administer the nationwide liquor trade. Even Ivan’s system of state-run taverns, or kabaks, was crude: tavern keepers, or tselovalniki, swore to protect the tsar’s revenue, which led to pushing the more lucrative vodka over beer and mead. “As the Emperours Territories are great, so is his Revenue,” the tsar’s English physician Samuel Collins noted in 1671. “The Cabacks (or places where in are sold Aqua-vitae and strong Beer) are his Royalty, and farms out some for 10000 Rubbles per annum, and some again for 20000 Rubbles.”11
To further maximize revenues, by the seventeenth century the state leased out individual taverns to entrepreneurs eager to tap into the lucrative trade. Without an effective state bureaucracy it was only a matter of time before the entire administration of the vodka trade would be outsourced to private entrepreneurs, in what was known as the vodka tax farm.
Like a traditional tenant farmer harvesting crops in the field, a tax farmer harvests tax revenue. And just as a tenant farmer pays the landlord to cultivate a parcel of land, the tax farmer pays the state to cultivate the vodka trade over a particular territory. Every four years the state auctioned off the exclusive right to collect liquor taxes, licenses, and fees for a given district. For the winning bidder, any income beyond his administrative costs and what he owed to the state was pure profit, and the tax farmer had every incentive to maximize that profit by any means possible.
Dating back to the sprawling Roman Empire, tax farms were the earliest form of outsourcing. Given the expansive, sparsely populated terrain and the shortage of qualified administrators and bookkeepers, the tax farm system was well-suited to the early Russian empire too. Passing both the administrative burdens and commercial risks onto the private tax farmer, it guaranteed the government a reliable, consistently growing source of revenues that was immune from market peaks and troughs, since the annual rent had already been set at auction. “No other major source of revenue enters the Treasury so regularly, punctually, and easily as the revenue from the liquor tax farm,” the finance ministry reported in 1816: “indeed its regular receipt on a fixed date each month greatly eases the task of finding case for other expenditures.”12 The primary expenditure of the empire was its growing military, which—thanks to the tax farm—could be effectively financed even without a large government tax-collection bureaucracy.
Tax farm systems were common across renaissance Europe, but as the extractive capacity of states increased, they were increasingly replaced with direct taxes overseen by a professional bureaucracy. Compared to such modern institutions, the tax farm seems downright medieval: a hallmark of weak central government, it gives free license to unscrupulous individuals to exploit the peasantry for their own gain. Since the system fused together public tax revenues and private commercial profits—and since the essence of corruption is the confusion between public and private—it makes sense that the origins of systemic Russian corruption can be traced precisely here.13
Even before vodka, tax farming shaped early imperial history: the rising power of Moscow over rival principalities like Tver resulted in part from it being a more loyal and efficient tax farmer for the fourteenth-century Mongolian overlords. Tax farming outlasted the Mongolian yoke through the system of kormlenie (literally “feeding”) whereby officials were expected to support themselves from their administrative territory, so long as they collected taxes for the state. And although kormlenie was outlawed in 1555, tax farming endured for customs duties, salt taxes, and, most importantly, vodka.14
The vodka trade became the bread and butter of the Russian autocracy. In 1680, income from the tax farms on salt and vodka accounted for 53 percent of all state revenues. By the 1830s, the “indirect” vodka taxes outpaced even direct taxes.15 In an investigation of the tax farm in his Provincial Sketches, famed writer and onetime deputy governor Mikhail Saltykov-Shchedrin lamented that up to two-thirds of government revenue came from the vodka farm.16
To maximize their take from the vodka trade, the state imposed ever stricter regulations on the tax farmer. So as not to flood the market, the treasury allocated each otkupshchik (tax farmer) only a set quota of vodka from the government’s warehouses and stipulated that it be sold at a fixed price, leaving the farmer only a razor-thin margin for legitimate profit.17 Since the vodka farmers were still reaping outlandish profits through various abusive practices, the treasury squeezed them even more, demanding that even the paltry amounts that the tax farmers were to gain legitimately would also go to the state—implicitly acknowledging and sanctioning the otkupshchik’s corrupt practices.
“Who can buy from the government a given quantity of vodka at a fixed price, sell it to the people without raising its price, and from it pay the government ten times as much?” queried a scathing exposé in Aleksandr Herzen’s influential independent newspaper Kolokol (The Bell).18 This riddle underscored the inherent contradiction of corruption: on the one hand, the government demanded strict adherence to the letter of the law while, on the other hand, it could only maximize its take by implicitly (and in some cases, actively) encouraging its administrators to break those laws. It was the state’s willingness to look upon the tax farmers’ transgressions with a wink and a nod that transformed traditional blat and petty bribery into a political system permeated with obligatory corruption from top to bottom. “What is really sold at the tax farm auctions is an exemption from the rules,” even admitted Russia’s most infamous otkupshchik, Vasily Kokorev.19 He personally benefited from such exemptions countless times.
“In Russia in the early nineteenth century, it was tax farming that accounted for almost all forms of ‘obligatory corruption’,” stresses David Christian, the foremost historian of Russian tax farms. “Corruption was not a mere side-effect of the tax farm’s operations, it was its very life blood.”20 Once entrenched, such systemic corruption becomes incredibly difficult to dislodge, as even contemporary anti-corruption crusaders like Alexei Navalny can attest.
Corruption Entrenched
Almost single-handedly the vodka farm transformed sporadic bribes and gratuities into a system of routine, semi-formal payments to all levels of government officials. At the height of the vodka farm in the nineteenth century, observers noted that “Every person having any degree of influence receives regular cash payments from the tax farmers, according to their influence, as well as a monthly gift of vodka.” Every year, the typical otkupshchik doled out tens of thousands of rubles to district government officials, jurists, and law enforcement in order to ply his trade.21
The biggest bribes went to local politicians—the governor, his chancery, and mayors—to buy powerful political cover for his schemes. These payoffs often exceeded the officials’ annual salaries. Penza governor A. A. Panchulidze annually received 24,000 rubles—or three times his official salary—from the local tax farmer, allowing the otkupshchik to rule Penza province “in the style of a medieval turkish pasha.”22 As contemporaries noted: “The receipt of a payment from the tax farmers means that the official must, at the very least, look through his fingers at all the abuses of the tax farm, and that no complaints or denunciations against the tax farm or it
s employees can be proceeded with.”23
Then (as today) Russian corruption also permeated law enforcement: officers, commissioners, captains, and everyone in between became complicit in the vodka trade. Today, as then, they engaged in the same extortive schemes. Nowadays in Russia one common scheme is for the notoriously corrupt State Automobile Inspectorate (GAI) to deliberately place obstacles in the road and lie in wait to catch anyone who then (illegally) swerves across the double-yellow line to avoid them.24 Any driver who’s slipped an officer $20 in order to avoid trumped-up charges can relate to nineteenth-century stories of the Kharkov cordon guards—the tax farmer’s private police charged with stopping liquor smuggling between tax farm districts—who would hide vodka bottles inside sacks of oats left along the roadside on market day:
As the [peasant] came along, with a cart containing several sacks of rye, he saw the sack lying on the ground. Crossing himself, he picked it up, untied it and, seeing that it contained oats, put it on his cart and went on his way, supposing that it had been dropped by someone passing along the road before him. He approached the cordon. The guards were ready, for they knew that he picked up the vodka. They stopped the peasant and began to inspect the load carefully. They left one bag to the end and in it, to his horror, they found the smuggled vodka. The peasant swore he was innocent, tried to prove it, wept—but they had no mercy. They bound him, placed him amongst the sacks and carted him to the police. The affair ended with the peasant losing everything he was taking to the market for sale, as well as a good part of his modest means.25
The police also targeted businesses, like the respectable inns that relied on vodka sales to stay in business. Innkeepers who refused to pay the exorbitant kickbacks demanded by the tax farmer would be raided by the police, during which “illegal” vodka would surely be discovered.
Oftentimes village constables simply ignored the disorderly conduct of a drunken peasant or serf until they thought it possible to extort a few rubles from the man or his master, which would buy their indifference for a few more months. It wasn’t much of an exaggeration for contemporaries to claim that “nowadays, the police officials are themselves farmed out to the tax farmers.”26
Like any kingpin worth his salt, the vodka tax farmer was above the law. Even if charged with a crime, the otkupshchik could not be brought to court until after his farm had expired and all accounts had been settled—a process that could take years. Even then, allegations could only be tried in the capital—further straining relations between the central government and its far-flung regions.27
Even with the politicians and law enforcement in his pocket, there was still enough to buy off the judiciary, too: hundreds of rubles annually for the circuit court judge, assessor, secretaries of the rural police courts, and presidents of the exchequer court who supervised liquor tax revenues. As the Kolokol exposé pointed out: “Having made such deals with the tax farmers, the government of course not only cannot prosecute the tax farmers for the abuses, but is actually obliged to protect them; otherwise they’d be wishing for a miracle requiring the tax farmers to do the impossible! Therefore, by tolerating and enabling the tax farmer, the government is consciously robbing the people—dividing up the spoils with the tax farmers and others who have participated in the crime.”28
From the bottom to the top, government officials often relied more on the tax farmer’s bribes than their meager state salaries. Not surprisingly, their loyalties were divided between their official legal duties and breaking those laws to keep the “gifts” flowing from the tax farmer.29
Of course not everyone was complicit in the systemic corruption. Some officials were too insignificant to deserve a bribe, while an admirable few refused to soil their hands on moral or ethical grounds. Such “untouchables” did not last long in Russia: rather than being rewarded for their honesty, the fastidious were looked at with suspicion and mockery. According to a nineteenth-century French account:
Most officials show little respect for an honest subordinate, but will view him as a Utopian, a restless “frondeur.” Further, to refuse a bribe is to ensure the enmity of the rich and influential caste of tax farmers, who will always work for the removal of an honest official. And sooner or later they will succeed.…As the laws are complicated and the formalities insurmountable, an official is bound to have broken some, and that is enough.…As a result, once an honest official has earned the enmity of the tax farmers, his superior will leave him to their mercy, public opinion will not shield him, and he will be left with nothing but his conscience.30
In such a permissive environment corruption always wins. Accepting a bribe is not only profitable, but safe and socially acceptable—like picking up money found lying on the ground.31 To refuse was to raise the scorn of powerful people within the system. Yet the corruption of the entire governance system was a natural consequence. According to one report from 1853: “For the tax farm to exist without corruption is now impossible. The whole atmosphere of the tax farm is such that no one even thinks of abiding by the legal conditions. They think of only one thing—how to get around the regulations, and to extract the maximum advantage from their obscurity and imprecision.”32
Most troubling: such chicanery was done with the implicit (and often explicit) support of the monarchy. In a 1767 decree, even Catherine the Great pronounced: “We assure the future tax farmers of Our Imperial protection, ordering that the sale of drinks be described and treated as government business, and the tax farmers, during their period of office, be regarded as trusted agents for the crown, and entitled to carry swords.”33 Or, as Kolokol bluntly put it: “Under the vodka tax-farm system, the state pillages itself, but then has neither the right nor the opportunity to prosecute the robbers!”34
Such divergence between how the political sistema should operate and the corrupt way it actually worked not only subverted the law’s legitimacy; it also bred a corrosive culture of tacit acceptance of illegal activity. This helps us understand how historical accounts could, for example, describe an Arkhangelsk governor as absolutely “not a bribe taker,” adding “though he did receive from the tax farmers an annual gift of 3 or 4,000 silver rubles.” Likewise in the 1830s, it was reported that the governor of Kazan, General-Lieutenant Strekalov “didn’t take bribes”… once again with the proviso “though he did receive an annual tribute form the tax farmers. At that time, this was reckoned a quite acceptable [bezgreshnyi—“sinless”] form of income. For several tens of thousands of rubles, Strekalov allowed the tax farmers… to rob local households at their pleasure.”35
The natural result was a state thoroughly corrupted from bottom to top. In some cases it was unclear who controlled whom. Consider, for instance, the absolute autocrat Nicholas I: in 1848, a wave of nationalist, democratic revolutions swept across Europe, threatening its established monarchies. Responding to an invitation from the imperiled royal House of Habsburg, Russia’s conservative “gendarme of Europe” flexed Russia’s international muscle by crushing the restive Hungarians, subordinating them once again to Habsburg control. Two years later the omnipotent Nicholas was enraged to discover no vodka for sale at the low, government-mandated price anywhere in his own capital. Incensed, the all-powerful autocrat launched an immediate inquiry into this obvious violation of the tax farm regulations. Within days, the St. Petersburg tax farmers met with the finance minister and made clear that following the law by providing such cheap drinks would threaten their ability to pay the taxes on which Nicholas’ government relied. Ten days after ordering the inquiry, Russia’s supreme autocrat quietly rescinded his own order.
With the corrupting influence of the tax farmer reaching all the way to the emperor, it is hard to disagree with the sad assessment of observers of the time that “the government has no officials—they all serve the tax farm; some by cooperation, others through connivance or silence.”36
Where Does The Money Come From?
On paper, the tavern keeper was regulated just as heavily as the tax farme
r. He had to keep order both in the tavern and the street outside, sell vodka according to legal measures, and prevent dilution, adulteration, and undermeasuring by allowing the customer himself pour the liquor. The tavern keeper was strictly forbidden to drink on the job, sell drinks on credit, or even befriend agents of the tax farm.
However, as today’s Russians are fond of saying: “the rigidity of our laws is compensated for by their nonobservance.”37 Indeed, all of the following shenanigans, and more, were found in the local tavern:
In the tavern, the tavern-keeper is dictator. He knows only one authority—the authority of the tax farmer; one law, that of the tax farmer; one goal, to rob the people, to rob and rob again, using any method available. In his tavern one can fund undermeasuring, short change, theft of the clothes of drunkards, pick-pockets, water served with a whiff of vodka in it and a mixture of something spicy to deceive the taste, side dishes designed to sharpen the thirst, together with all the various temptations to which animal life is subject, music, women, and gatherings of various kinds, of thieves and robbers, slanderers, and planners of criminal deeds. And from all this, gathered together by the art of the tavern-keeper, a river of gold flows into the pockets of the tax farmers. On these dregs [podadonkakh] of Russian life are constructed immeasurable fortunes.38
Beyond extortion, the most common deception was simple price inflation: while the state mandated that ordinary vodka—or polugar—was to be sold at a set price of 3 rubles per bucket (vedro), tax farmers and their tavern keepers could sell “special” or “improved” vodkas for higher prices. If a thirsty peasant waded into a bar looking for the cheap polugar, he’d be told they were out, but there was always plenty of “improved” vodkas—flavored with berries, honey or molasses, or cheaply filtered through charcoal or sand—which could be marked up by the tax farmer or watered down by the tavern keeper. None of this was a mystery to the customer—as one wrote in 1859: “Everyone knows that the retail price laid down in the regulations has not been observed since 1839.”39
Vodka Politics: Alcohol, Autocracy, and the Secret History of the Russian State Page 15