Masha Gessen - The Man Without a Face

Illarionov was very much seduced. For years he had thought that Russian economic reforms were being carried out in a misguided and possibly even harmful manner, but he had been helpless to affect policy. Now he would have unfettered access to the head of state, who seemed genuinely interested in what he had to say—and not at all put off by his communication style. Like most people, when Illarionov encountered traits in others that he himself lacked, he was inclined to interpret them as manifestations of some sort of outstanding ability. Speaking to me eleven years after his appointment, Illarionov insisted that Putin was “an extraordinary person,” and cited as primary evidence his ability to control his emotions. Plenty of evidence to the contrary had accumulated by this point, including several instances of Putin losing his temper in public. But as someone constitutionally incapable of keeping his opinions to himself, Illarionov continued to be impressed by Putin’s ability simply to “turn off” the talk of Chechnya—and even, it seems, by Putin’s flattened affect. At base, Illarionov had a difficult time imagining he might be systematically deceived—which is exactly what allowed him to be deceived for a rather long time.

Illarionov and the other economists in Putin’s inner circle sent a strong signal to the U.S. press by their very presence. But most of all, American journalists seemed to miss the essence of the Putin story because some of their most important sources were missing—or willfully ignoring—the story. Big business was happy with Putin. The economy had been growing steadily since hitting a low point in 1998, when the ruble dropped so far that domestic production, inefficient as it was, finally became profitable. By the early 2000s, oil prices began rising, but not yet so much as to render domestic industry irrelevant (this would happen later). This was starting to yield some handsome results for investors who had entered the Russian market when it hit bottom.

A KEY FIGURE among these investors was William Browder, grandson of a former head of the Communist Party USA, and his Russian wife. Browder was a true ideologue: he had come to Russia to build capitalism. He fervently believed that by making money for his investors, he was creating a bright capitalist future for a country it was his legacy to love.

Browder’s investment strategy was straightforward and effective. He would buy a small but significant stake in a large company, such as the gas monopoly or an oil giant, conduct an investigation that inevitably exposed corporate malfeasance, and then launch a drive to reform the company. Corruption was pervasive and fairly easy to expose. Most large corporations were conglomerates of companies privatized within the last three to five years, with managers working at cross-purposes, often openly hostile to the new owners. So-called red directors had been stealing from their employers under the Soviets and saw no reason to stop; some of the new owners took a rape-and-pillage approach to their property. Browder’s revelations met with various levels of resistance, but more often than not he was able to effect at least some changes. As a result, the value of stocks, which had invariably been purchased at rock-bottom prices, rose exponentially.

The new administration took an active interest in Browder’s investigations. More than a few times his people were summoned to the Kremlin, where their PowerPoint presentations never failed to make an impression. Browder was certain he was on a roll. Every time he was able to secure another court or oversight-agency decision that would force another Russian company to pay a bit more attention to the law, a cheer would roll across the ostentatiously named Hermitage Fund offices. “The esprit de corps was like no other office that you’ve ever had,” he told me wistfully years later, “because it’s very rare that you could make money and do good at the same time.” At its peak, the fund, which had started with $25 million worth of investments, had $4.5 billion invested in the Russian economy, making it the largest foreign investor in the country. Such was the extent of Browder’s faith in his own strategy and in the country that even when Russia’s richest man was arrested— especially when Russia’s richest man was arrested—Browder let out one of his cheers: to him it indicated that the new president would stop at nothing to establish law and order.

THE RICHEST MAN in Russia was on tour. Mikhail Khodorkovsky, born in 1963, shared a key character trait with both Illarionov and Browder, one that made all three men extremely different from Putin and vulnerable to him: their behavior was driven by ideas. Khodorkovsky’s parents, two Moscow engineers who spent their entire careers working at a measuring-instruments factory, had chosen to keep their own political skepticism from their only son. Theirs was a common dilemma: Speak your mind about the Soviet Union and risk making your child miserable with the constant need for doublethink and doublespeak, or aim to raise a contented conformist. The results of their efforts, however, far exceeded their expectations: they managed to rear a fervent Communist and Soviet patriot, a member of a species that had seemed all but extinct. After getting his degree in chemical engineering, Mikhail Khodorkovsky opted to work at the Komsomol committee. He had no hidden agenda, but in the middle to late 1980s this career choice positioned him well to take advantage of quasi-official and often extralegal opportunities to dabble in business. Before he was out of his mid-twenties, Khodorkovsky had tried his hand at trade, importing personal computers to the Soviet Union, and, more significant, at finance, devising ways to squeeze cash out of the Soviet planned-economy noncash behemoth. He served as an economic adviser to Yeltsin’s first government when Russia was still part of the USSR. During the failed August 1991 coup, he was on the barricades in front of the Russian White House, physically helping to defend his government.

By the early 1990s, in other words, the former Komsomol functionary had been completely reformed. He and his friend and business partner, a former software engineer named Leonid Nevzlin, authored a book-length capitalist manifesto titled Man with a Ruble . “Lenin aimed to annihilate the wealthy and wealth itself—and created a regime that outlawed the very possibility of becoming wealthy,” they wrote, exposing the ideology Khodorkovsky had once pledged to uphold. “Those who wanted to make more money were equated with common criminals. It is time to stop living according to Lenin! Our guiding light is Profit, acquired in a strictly legal way. Our lord is His Majesty Money, for it is only He who can lead us to wealth as the norm in life. It is time to abandon Utopia and give yourself over to Business, which will make you rich!” By the time the book was published in 1992, Khodorkovsky had his own bank and, like other new entrepreneurs, was buying up privatization vouchers, aiming to take control of several formerly state-owned companies.

In 1995–1996 the Russian government asked the country’s richest men for loans, leveraging controlling shares in Russia’s biggest companies—which, according to the arrangement, they would be keeping once the government, predictably, defaulted on the loans. As a result, Khodorkovsky came into possession of Yukos, a newly created oil conglomerate with reserves among the largest in the world.

His next change of heart came in 1998. The financial crisis that year put Khodorkovsky’s bank out of business. The oil company was in dire straits: the price of oil on the world’s markets was $8 a barrel but Yukos’s outmoded equipment placed the cost of producing one barrel at $12. The company had no cash to pay its hundreds of thousands of employees. “I would go to our oil rigs,” Khodorkovsky wrote more than ten years later, “and people would not even yell at me. They were not going on strike: they were understanding. It’s just that they were fainting from hunger. Especially the young people who had small children and did not have their own vegetable garden. And the hospitals—before then, we used to buy medication, we would send people to be treated elsewhere if they needed it, but now we did not have the money. But the worst thing was these understanding faces. People were just saying, ‘We never expected anything good. We are just grateful you came here to talk to us. We’ll be patient.’”