Ben Judah - Fragile Empire - How Russia Fell in and Out of Love With Vladimir Putin

In the 140-page research paper that bears his name, at least 16 pages are lifted verbatim from the 1978 American textbook Strategic Planning and Policy by William King and David Cleland. Putin’s thesis, entitled ‘The Strategic Planning of Regional Resources and the Formation of Market Relations’, may not be original research, but this point hardly matters in trying to understand his thinking. It is the clearest statement of his economic intentions before assuming power – one to which he has remained remarkably consistent. Putin’s text argues:

Mineral and raw material resources represent the most important potential for the economic developments of the country… In the 21st century, at least in its first half, the Russian economy will preserve its traditional orientation towards raw materials… Given its effective use, the resource potential will become one of the most important pre-conditions for Russia’s entry into the world economy. 11

The dissertation suggests that this is not to be achieved using the free-market alone but with state guidance: ‘The development of the extracting complex should be regulated by the state using purely market methods; yet the state has the right to regulate the process of their development and use, acting in the interests of society as a whole.’ 12Russia should commit to: ‘comprehensive state support and the creation of large financial–industrial corporations which span several industries [focusing] on the resource-extracting enterprises, which should [then] compete as equals with the transnational corporations of the West’. 13Essentially, the argument Putin puts forward is that:

• Russia will remain a resource-driven economy but a free-market one.

• The state must support the creation of giant raw materials corporations.

• These corporations will compete on the free market with the West.

• These corporations must act in the interests of Russia as a whole.

• Russian capitalism will be raw materials driven and guided by the state.

It represents a crude vision for the Russian economy. ‘Putin has an X axis and a Y axis,’ says Sergei Aleksashenko, the former deputy head of the Russian central bank. ‘You can plot how he will react to a given threat. He operates – even if you don’t agree with them – by values and principles.’ The cardinal of these, is that when challenged by men empowered by gigantic assets, be they TV channels or oil companies, Putin has lashed out and confiscated them. This is how he puts it:

One should never fear such threats. It’s like with a dog, you know. A dog senses when somebody is afraid of it, and bites. If you become jittery, they will think they are stronger. Only one thing works in such circumstances – to go on the offensive. 14

To become truly president, Putin had to rob Berezovsky. To become the undisputed master of Moscow, he had to destroy Russia’s richest man. Standing in his way, trying to pull the country in another direction, was Mikhail Khodorkovsky, and he had more oil than Norway. 15The battle with Gusinsky and Berezovsky determined that Putin, and not businessmen, was the master of TV. The clash with Khodorkovsky determined who had the final say over oil.

Putin believed that booming crude oil should be heavily taxed to fund state power and that whoever pumped it out should follow his orders. Khodorkovsky did not agree and tried to block the Kremlin’s plans to fund a strong state by ‘lobbying’.

When the oligarch refused to back down, the two fought. This struggle finalized the shape of the post-Soviet state. It was a battle over who really controlled Russia’s resources. It decided whether the unexpected 2000s oil boom would fuel the power of the state or private corporations. Khodorkovsky was the greatest of the oligarchs and he had wanted to set the political tone for Russia. He had wanted to be as influential as Putin. But it was Putin who became Khodorkovsky, taking his hydrocarbons and throwing him into a Siberian prison colony, into a zone where sometimes thieves’ law prevails, or sometimes no law at all.

Khodorkovsky was never a dissident. He was intelligent, ambitious and, yes, ruthless, whilst being at the same time somewhat temperamental to the point of being volatile. Always something of an actor, more than a commander, in the end someone foolish despite his superior, mocking grin. But he was never a dissident.

He came from the other side of Russia. The half-Jewish Khodorkovsky was from the Moscow lower middle class. He dreamed of being a captain of industry, of being the boss. Putin’s breaks had come because he was loyal and calculating; Khodorkovsky always got lucky as the gambler. Putin could go on one knee and say something he didn’t believe, because these were only tactics; Khodorkovsky would never do this, because what mattered to him was his pride. Putin had clung to his superiors; Khodorkovsky had never held back from risk.

In the late 1980s, he was not distributing copies of The Gulag Archipelago but a leading agitator at his university in the Komsomol, the communist youth league that fed the party with recruits. This organization was so unpopular that polls showed it was loathed by Soviet youth more than the party, the KGB or even the emerging neo-fascist street thugs. ‘I know now my parents always hated the Soviet state,’ remembered Khodorkovsky, but he did not think twice about being part of an organization that photographed ‘refusnik’ Jews outside their synagogue for the authorities. 16

The collapse of the Soviet Union was the collapse of authority. This meant the crumbling of state power over its own property rights. Khodorkovsky was smart. He understood this. The party youth were encouraged to experiment with ‘self-financing’ business, in the name of market socialism. So, Khodorkovsky opened a small cafe that was one of thousands of Komsomol businesses popping up across Russia. Yet all around them, the bureaucratic eyes that looked after those assets in the name of the people, were starting to look elsewhere. Just as Khodorkovsky was experimenting with business, the party apparatchiks felt this anaemia of authority, especially over what they ran in the name of the state, realizing that if they were quick they could make off with it before the bureaucratic doors slammed shut.

As administration itself imploded, Vladimir Putin picked up the phone in Dresden and was informed – ‘Moscow is silent.’ The USSR had not been hit by a nuclear strike but ‘Soviet institutions were victimized by the organizational equivalent of a colossal ‘bank run’, to quote the political scientist Steven Solnick. 17As it dawned on Putin that the country was gripped by ‘the paralysis of power’, the cadres at the other end of the telephone were rushing to claim as many assets as they could.

At the last all-Union Komsomol meeting in 1990 there was such chaos that they forgot to sing the Soviet national anthem. The brightest people in Komsomol were not there. Together with their superiors, they were turning the state assets they had access to into private assets. Khodorkovsky was one of those men stealing little bits of the state. As more and more officials sensed impending doom, this star cadet was given the privilege by the party, with backing from the highest level, to turn the ‘non-cash’ that was a hypothetical accounting unit between state enterprises, into ‘cash’ that could be used in real life. They gave him the right to create a bank and the right to create money out of nothing in a country where almost 50 per cent were about to be plunged into poverty. Many said he was the ‘party’s experimental capitalist’, others that he had a relationship with the KGB. By now, the failed 1991 coup had turned the ‘bureaucratic bank run’ into a stampede. The last two treasurers of the Communist Party mysteriously fell from windows, as the cash and gold they administered ran out the door. There was speculation, which Khodorkovsky has denied, that he knew where it had gone.