It's all about business, Mikhail. Really

Nov 17, 2003 01:00 AM

by Peter Rutland

The dramatic jailing of Russia's richest man proves once again that Russian politics can still shock and surprise the outside world. One day Mikhail Khodorkovsky, worth $ 8 bn, is hobnobbing with presidents and ambassadors. The next day he finds himself sitting in a Moscow prison cell with two other unfortunates, his daily diet and toilet facilities being dissected in the popular media. Try to imagine developer Donald Trump turning overnight into South African statesman Nelson Mandela.
The standard explanation for Khodorkovsky's arrest is that he is being punished for funding opposition political parties and standing up for Russian democracy. But this is a red herring. The liberal parties that Khodorkovsky was backing have only a few dozen seats and do not represent any sort of threat to President Vladimir Putin.

To understand the arrest, it is important to keep a sense of perspective, and understand just what has been happening in Russia over the past decade. The incarceration does not signal the death of democracy because there was no democracy in Russia to begin with.
Like the police inspector in Casablanca, Russia-watchers say they are shocked, shocked to discover that men in uniform are running the Kremlin. But these are the same people who have run Russia for the past 1,000 years, including the past 10.

What democracy?
Remember how former president Boris Yeltsin came to power in August 1991? By standing on a tank in front of the Russian parliament. This was very heroic and something rightly welcomed in the West, because the army changed sides and backed the democrats over the communists.
But things did not look so good in October 1993, when he turned those same tanks on that same parliament and rewrote the constitution to create a super-presidential regime. A year later the generals were rewarded for their loyalty when Mr Yeltsin allowed them to invade Chechnya, which they promised would be a short, victorious war. This was a blunder for which, nine years later, Russians and Chechens are still paying dearly.

Sure, Russia was having elections during these years. Mr Yeltsin was re-elected in 1996, and Mr Putin was elected in 2000. But these were stage-managed, used not to choose a leader but to legitimise an incumbent.
All the television stations, independent and state-controlled, cooperated in ensuring that Mr Yeltsin and then Mr Putin won the election. And there are substantial allegations that the vote counts were rigged.

The real issue
So let us leave democracy aside, and look at the real issue: Power. With the collapse of central planning, the Kremlin lost its direct control over the Russian economy. Under Mr Yeltsin, two types of economic bosses emerged. One group headed corporations still owned by the state -- like the railways, the natural gas monopoly and the electricity monopoly.
The second group was the flamboyant oligarchs, dynamic individuals who carved business empires out of the chaos of post-communist Russia. Most of the economy was in the hands of the state corporations, but the oligarchs had more ready cash and a flair for using it to buy political influence.

Putin's rule
Mr Putin consistently has pursued a policy of dismantling the power of the oligarchs. His goal is to rebuild Russia's power and influence with a capitalist, market economy. But he does not want to share power with oligarchs, whom he sees as putting their private interests before those of the state. The two leading oligarchs Vladimir Gusinsky and Boris Berezovsky, who controlled the two main television stations and flaunted their political influence, were threatened with imprisonment for past economic crimes and swiftly driven into exile in 2000.
Mr Putin is proud of Russia's traditions, and one established folk saying is “the nail that sticks out gets hammered down”. The rules of the game were clear: The oligarchs could keep their assets acquired during the headlong privatisation of the mid-1990s, but they were to stayout of politics and show loyalty to Mr Putin.

Khodorkovsky wanted to change the rules. By turning his company, Yukos, into Russia's largest oil company, and then selling it to a Western partner such as ExxonMobil and staying on as CEO, Khodorkovsky thought he could guarantee his independence from the Kremlin. On Oct 3, Yukos finalised its merger with Sibneft, Russia's fifth-largest oil producer, clearing the way for a sale to a Western oil major.
It was this, more than anything else, that drove the Kremlin to arrest Khodorkovsky on Oct 25. The last thing Mr Putin wants is to see Russia's oil and gas resources handed over to foreigners. It was bad enough that TNK, Russia's third-largest oil company, had pulled off a merger with British Petroleum earlier this year.

The final straw
Khodorkovsky also planned to develop a network of privately owned export pipelines that would break the monopoly of the state-owned Transneft corporation. Not only would these projects lock in his financial independence, but they also amounted to a parallel foreign policy for Russia.
In April, Khodorkovsky overcame objections and won government approval for a new $ 4 bn pipeline to carry West Siberian crude to Murmansk for export to the United States by sea. And in May, Yukos signed a declaration of intent with the Chinese National Petroleum Company to build a 2,240 km pipeline from Angarsk in Siberia to Daqing in China. This would almost certainly preclude the building of a parallel pipeline from Angarsk to Nakhodka, which is favoured by the Japanese and the Russian government, which for strategic reasons does not want to become dependent on China.

It was Khodorkovsky's aggressive business strategies -- and not his alleged commitment to democracy -- that set off the alarm bells in government circles. The Russian government relies heavily on loyal energy companies such as LUKoil and Gazprom, private corporations in which the state has a controlling interest, to fill its budgetary coffers with taxes; to subsidise domestic manufacturers and hard-pressed citizens by providing cheap energy; to gain influence over neighbouring states by buying up pipelines, oil refineries and power plants, and to win friends in Europe, which relies heavily on fuel imports from Russia.
Khodorkovsky's plans -- and achievements -- threatened to break up these cosy relations, which have been the backbone of the country's political economy over the past decade. And in a Russia where the Federal Security Service, successor to the KGB, is clearly ascendant, and where agencies like the US Peace Corps or the office of the AFL-CIO -- the US' largest labour organisation -- in Moscow have been denounced as tools of US imperialism, Khodorkovsky's ambition to develop his own foreign economic policy starts to resemble that of the mythical Icarus, whose wings melted when he flew too close to the sun.

A Russian U-turn?
Did Khodorkovsky really expect Mr Putin to stand by and watch Yukos eclipse the state bureaucracy as the majorplayer on world energy markets? Did he not notice that in every other country that is a major oil exporter, oil is a state-owned monopoly? In the 1990s, US State Department officers used to worry about what happens if Russia “goes bad” -- if the communists or, even worse, some wacky nationalist, got control of a country that was still home to 25,000 rusty nuclear weapons.
With the horrified reaction to Khodorkovsky's arrest in the West, many observers are now arguing that the doomsday scenario has finally arrived: Russia is reverting to its default mode -- a police state in which dissent is not tolerated and power is centralised in a single chain of command. Some even suggest that we should hunker down for a new Cold War, or what Senator John McCain of Arizona has called a “cold peace”.
But these responses are misguided. Mr Putin already has demonstrated that, despite his KGB past and authoritarian domestic politics, he can be a friend to the West, a partner in economic integration and in efforts to control rogue regimes in Iraq and North Korea. Russia is what Russia is, and not what America wants it to be.

The writer is a professor of government at Wesleyan University in Middletown, Connecticut.

Source: The Straits Times
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