ASHINGTON — In the predawn Siberian darkness five days
ago, agents of the Russian security agency stormed the private jet of
Russia's richest man. Mikhail Khodorkovsky, the chief executive and
principal owner of Russia's largest oil company, Yukos, was arrested and
charged with tax evasion, fraud, forgery and embezzlement.
Mr. Khodorkovsky now awaits his fate in a Moscow prison, where
prosecutors can hold him for up to two months while they decide whether to
pursue a trial. But his arrest has already raised profound questions for
post-Soviet Russia. It has exposed the complex and deep divisions within
the elite and the public alike about the nature of state control over the
economy, the role of big business in politics and the influence of
personal wealth in what still is a poor society.
As regards the charges against Mr. Khodorkovsky: it is likely that in
the 1990's he broke some laws. But in the chaotic Russian economy of the
time, when the state was privatizing its assets on a grand scale, no large
business in Russia was "clean" — and the larger the company, the greater
the chance it committed violations. For example, full payment of corporate
taxes amounted to well more than 100 percent of most businesses' profits.
Tax evasion was the only strategy that allowed an entrepreneur to pay
salaries and invest in his business.
Yet the choice of Yukos, among dozens of equally unsavory candidates,
as the scapegoat for the misdeeds of the 1990's makes little sense. In the
past five years Yukos has traveled the furthest of any post-Soviet
industrial giant from the mores and practices of the previous decade. In
1999 Yukos became the first major Russian oil company to release its
quarterly results in accordance with international accounting standards.
Independent directors are a majority on the company's board.
When Mr. Khodorkovsky took over the company in 1996, Yukos suffered
from the same problems that were hobbling the rest of Russia's energy
sector: with costs mounting and oil output declining, the company was on
the brink of bankruptcy. Yet by last year, Yukos accounted for 18 percent
of Russia's total oil production, pumping an average of 1.4 million
barrels a day. Helped by higher oil prices, the company had enough cash to
become the first Russian oil company to pay dividends to its nearly 60,000
shareholders.
This generosity has extended to the public as well. Yukos's and Mr.
Khodorkovsky's personal donations are beyond parallel in post-Soviet
history. Yukos gave $45 million to charity in 2002. When the billionaire
investor and speculator George Soros decided last year to end a decade of
charitable giving in Russia, Yukos contributed $1.15 million to the
Eurasia Foundation for the support of small-business and community
development.
In March 2000, Yukos started a nationwide program called "Pokolenie.ru"
(or "Generation.ru") to provide Internet access to Russian high school
teachers and students. Pokolenie.ru equips centers where teachers can
acquire Internet skills to pass on to their students. Their travel, room,
and board are paid by Yukos. By last spring, 56,600 Russian educators had
completed the course.
This hard work has increased Yukos's profits and Mr. Khodorkovsky's
enormous personal fortune. But it profits Russia as well. Alas, Yukos has
adapted too fast for the slowly changing system. Born out of decaying
Soviet socialism and with corrupt party functionaries as its midwives,
Russian capitalism continues to be bound to the state by the myriad of
"deals," outdated regulations and nefarious connections between
businessmen and government officials.
The idea persists: private business must still and always remain in the
government's good graces. After three-quarters of a century of limitless
power, many in the largely Soviet-era Russian senior bureaucracy are
incapable of accepting an economic system in which property and wealth are
not directly conferred, withdrawn or at least controlled by the state.
"If we don't like you, how can you be rich?" That is the message that
the state bureaucracy intends to send with Mr. Khodorkovsky's arrest.
Other oligarchs, as well as hundreds of thousands of owners of smaller
businesses, must take heed.
Among other "transgressions," Yukos broke a cardinal rule of the
bureaucratic game: it openly contributed to the main opposition political
parties to advance its interests and shape the laws. (The accepted
practice would have been to ignore the laws and bribe those who write and
enforce them.) In a country where long-term planning — economic,
financial, and political — has been all but eliminated by 400 years of
brutal authoritarianism and totalitarian ownership of the economy, Yukos
dared to plan for decades ahead without consulting state ministers and
committee chairmen.
Thus the Yukos affair is not simply a law enforcement matter, as
President Vladimir Putin has insisted. It is a major battle between two
economic cultures: what Russian analysts have labeled "great-power
statist" versus the "liberal-oligarchic."
Although hardly perfect, in the last five years the liberal-oligarchic
system has nevertheless proved more adaptable. It has fostered fiscal
discipline, low inflation, lower corporate and income taxes, the extension
of private property rights, a decline of bureaucratic interference, the
continuing privatization of state assets, and improvements in corporate
governance and transparency.
By contrast, the great power-statist culture, which is most prominent
among federal and local elected authorities and bureaucrats, seeks to
increase the government's control over the economy and, inevitably, civil
society. Added to this constituency in the last three years have been many
retired and active secret service officers who under Mr. Putin came to
occupy an unprecedented number of executive positions in government.
The statists need a decisive victory over not just a giant private
conglomerate but a symbol of a more open, rapidly modernizing Russian
capitalism. As the best known Russian company inside and outside the
country, Yukos fits the bill.
No one knows how far they will take their campaign against economic
vitality. They are likely to stop short of wholesale renationalization of
firms. But new policies may include a "redistribution" of the privatized
economy, with key industrial sectors and the most profitable large
companies reverting to state control or being taken away from the current
owners and given to more "loyal" entrepreneurs.
Conversely, the defeat of the statists may encourage the further
emergence of the economy and civil society from under the state's shadow;
a judiciary more willing to stand up to the Kremlin; the swift passage of
key structural liberal reforms; and the establishment of a statute of
limitations on charges arising from the privatizations of the 1990's. If
passed, such a law will put an end to bureaucratic blackmail.
Finally confident in their property rights, Russian entrepreneurs would
be encouraged to spend less on bribing elected and government officials
and more on investments in their enterprises and charitable projects. New
laws on lobbying, campaign finance and charitable contributions would
permit Russian business to advance openly its interests in Russian
politics.
Mr. Putin cannot long avoid making a choice between these two visions
of Russia. He may not be swayed by the surprisingly vigorous criticism in
the Russian press of Mr. Khodorkovsky's arrest. But perhaps the reported
resignation in protest of his chief of staff, Alexander Voloshin, will
give Mr. Putin pause.
As in any country, the interests of Russia's industrial leaders may not
always and in every instance coincide with society's. But by winning the
right to promote those interests, the oligarchs can help to advance the
cause of Russian democracy.
Leon Aron, director of Russian studies at the American Enterprise
Institute, is author of "Yeltstin: A Revolutionary
Life."
