Western Naivete in the Case of Mikhail Khodorkovsky

by on June 7th, 2005

The Russian “legal system,” which would be funny if it wasn’t so painful, has declared Mikhail Khodorkovsky guilty on a dozen or so counts of anti-social behavior. For this, he has been stripped of all assets and will spend the next nine years in jail.

Moscow has always been spectacularly obvious about her tolerance for those who rise above the rest. And yet to solely blame the evil Putin would be to underestimate the unbelievable ability of the Russian people to blame the exceptional among them for all ills, and of the West’s unbelievable ability to glaze over the obvious. Here is a quick review of the simple, and sadly unoriginal story of the fallen “oligarch.”

In 1991, the Soviet Union collapses on itself – not least because its government-run industries are incredibly expensive to maintain due to their inefficiency and voodoo economic principles. Yeltsin attempts to plug the power vacuum by unraveling the threads of state-run industry. He forges ahead quickly, as popular economic theory insists that property (power) spread among the population is less likely to be captured by a single group. In a country without financial, legal or administrative institutions that establish the parameters or enforce the rules of property transactions –the cart was placed under the horse. Could it have been done a different way? There are entire schools of thought dedicated to such retrospective analysis. However, many agree that Yeltsin’s main objective was to secure the power against the obnoxiously loud Communists.

So lets look at the facts: we’re in a hurry to dismantle state-run industry (create ownership, throw off the yoke of debt) and we haven’t established institutions that enforce regulations, contract laws, property taxes, independent judicial systems, etc. There were attempts to adopt Western-style institutions, by (in Microsoft terms) copying and pasting. Even the word “business” was adopted from English to become the Russian “biznes.” A foreign idea in a broken land. For the sake of simplification, it can be said that state assets were auctioned off through several schemes, and eventually ended up in the hands of “the oligarchs.” Now – this is the point of contention: How did these people get these assets? Some had political/economic connections. Others developed them. The biznes-savvy seized the moment. There was not a single asset that was acquired for its actual worth. And anyway, how does one establish the worth of an asset that didn’t have a single honest accounting book to its name? Khodorkovsky stood out because he brought transparency to a company he made thrive – enough transparency to create western interest in Russian oil. Putin’s inner circle framed the predicament as follows: he can allow American leverage over his only security (Russian oil) or he (and several others) can make a few billion rubles while removing a very annoying and brilliant biznesman. A tough choice…

So was Khodorkovsky after political power too? Anyone claiming that a Russian Jew is guilty of displaying serious (presidential) political ambitions will be met with laughter from anyone remotely aware of Russian society. The media has formed another naively western analysis. The generation of Russian Jews that will be politically ambitious without being labeled delusional is yet to be born. The tolerant West must not underestimate Russian anti-Semitism. That is not to say that Khodorkovsky & Co. were oblivious to the political game or that they didn’t attempt to fund (buy) political influence in the State Duma to protect their economic interests. But to expect someone to stay clean in a pile of manure is almost as naïve as to attempt it.

For two years we watched as western media fell for the oldest trick in the socialist book – nationalization through accusation. The uncanny auctioning of Yukos assets to a non-existent company was a predictable season finale to a bad drama series. Roman Abramovich, owner of Sibneft oil company (and Khodorkovsky’s replacement as Russia’s wealthiest man) played the decoy de jour. The Yukos-Sibneft deal effectively subjected Yukos assets to Sibneft’s Board of Directors. But the deal was perhaps too obvious (albeit not to western media) and an auction of assets was necessary to repay the State its dues. An obscure company placed a last-minute bet on Russia’s most successful oil giant, and won. Surprisingly, the company had a non-existent forwarding address. I haven’t heard of what happened to the hundreds of thousands of Russians previously employed by Yukos, but I hear the former Yukos board members (that aren’t in jail) fled to Israel.

Perhaps these accusations are too complicated for the West to rock the boat while fighting the war on terror.

The outcome: Putin got away with something worse than murder. He reminded every foreign investor and aspiring biznes talent who’s boss. And that will take a bigger toll on Russia’s short-lived “democracy” and its non-existent “market economy” than if he had put on his KGB uniform and done what suits him best.

Some extra facts for the still perplexed:

-Yelena Baturina, owner of a construction and plastics company, and incidentally the wife of Moscow Mayor Yuri Luzhkov, is worth $1.4 billion.

-The millionaire owner of Russia’s largest juice producer, Nikolai Bortsov, is a member of Russia’s parliament and among 18 government officials on the Forbes list of the “Golden 100.”

-Russia’s richest “public servant,” Suleiman Kerimov, is worth $2.6 billion.

-Let’s dare Russia to investigate their tax records.

John McDonald