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

The Komsomol disappeared. What it had owned did not. This made Khodorkovsky rich; he grew richer still by trading in computers and bootlegging counterfeit cognac. They said that he and his friends, most of them Jews, traded in much, much more. The year Putin returned to St Petersburg a depressed lieutenant colonel and the father of two small girls, uncertain how he was going to pay for them, Khodorkovsky was in love with this new world. He had learnt how to live in a country where everyone else was drowning. Nothing expressed his pleasure in the new Russia more than his 1993 manifesto called Man With A Ruble , which crowed: ‘Our idol is his financial majesty the capital.’ 18

Khodorkovsky was never a man like Sakharov, the anti-Soviet dissident. He did not grow up in opposition to the system that created Putin but was one of its architects. Khodorkovsky was one of the oligarchs who did more to discredit liberal and Western-looking politics in the country than all the propaganda that came afterwards. He is one of the culprits of the historic failure of Russian liberalism. This man was an insider at the heart of the Yeltsin regime, the advisor to the Russian prime minister in 1991, the deputy minister for fuel and energy in 1993, a regular guest in the Kremlin – whilst Putin was a provincial official. Looking back after it had all gone wrong, he remembered the 1990s:

Into this chasm, through media and bureaucratic channels, they pumped pretty liberal ideas about reality, manipulating information. By the way, it was in the 90s when the concept of the all-powerful Political Technologist first arose — a person who is supposed to be able to make up for the absence of real politics in one or another area with clever ‘virtual’ throwaway products. 19

Khodorkovsky was speaking with experience when he spoke of political technologists. It was he who had first employed Vladislav Surkov, the greatest of them all. He discovered this cynic in velvet trousers, who became Kremlin deputy chief of staff and Putin’s key ‘controller’ of domestic politics, creating fake parties, rigging elections and screaming at Duma deputies to vote this way or that in his office. Surkov was working for him as a bodyguard, when Khodorkovsky recognized he had a talent. Together they would put the first advert on Soviet TV.

This kind of politics was not atypical, and is not considered a travesty. What Khodorkovsky is loathed for is that he was on the inside of the infamous ‘loans for shares’ deal. This was the rigged auction that sold much of Russia’s oil, gas and mining infrastructure to Yeltsin’s 1996 backers – not mere companies but gigantic Soviet mega-complexes built by armies of geologists, slaves and ‘heroes of labour’.

Khodorkovsky was one of those swindlers. For a mere $350 million he got the Yuganskneftegaz complex in western Siberia, with proven oil reserves far larger than Mexico, Angola or Norway. Just two years later his stake would be worth twenty times more than he had put up for it. To the rest of the country this auction was considered a crime.

This discredited ‘democrats’ in Russian eyes. It tainted the liberalism that the oligarchy claimed for its own. This made it all too easy to vilify ‘democracy’ itself. That the tycoons had abused their access to a desperate, sick president of a weak state so that they could privatize the nation’s mineral wealth at a fraction of its real value, became one of the main propaganda points of the Putin regime. Much later, Khodorkovsky would come to see that ‘my sinful self’, a leader in that alliance of giant money and the neoliberal reformers, had lost society. He wrote in one bilious open letter on ‘Russians liberals’:

They lied to 90 per cent of the people when they generously promised that a privatization voucher would buy two cars. Sure, an enterprising player on the financial market with access to private information and with the ability to analyse this information could turn a privatization voucher into as many as ten cars. But the promise was that everyone would be able to do it. 20

They kept their eyes shut to Russia’s social conditions, while conducting privatization and ignoring its negative social consequences, coyly calling it painless, honest and fair. It’s well known what people think of that ‘great’ privatization now. 21…

The election campaign of 1995–96 showed that the Russian people had already rejected liberal government. As one of the 1996 presidential campaign’s major sponsors, I, of all people, should remember quite well what a monstrous effort it took to make the Russian people ‘choose with their hearts’. 22

But by the time he had grasped this, it was already much too late. The oligarchs and the liberal politicians had not only come to be seen as heartless, but incompetent too. It is not as though the young tycoon had acted like he understood what ‘a monstrous effort’ it was at the time – or maybe, we should just presume, he understood all along.

Two years after Khodorkovsky and his gang grabbed those immense oil fields that became the core of Yukos oil company, Russia itself went bankrupt. The country defaulted, the currency was devalued and the savings of the middle class decimated. The night before the default, nobody thought of informing the millions of financial victims, but Khodorkovsky was in the White House, being briefed on what shape the decree would take. Once it was all over for him, he could see the mistakes of his own Yeltsin elite with crystal clarity. He wrote:

They didn’t force themselves to think of the catastrophic consequences of the devaluation of Sberbank [Russia’s largest, state-owned savings bank] deposits. Then, it would have been possible to come up with a very simple solution — by securing deposits through government bonds that could be paid back by taxes on capital gains (or for example stocks in Russia’s best companies transferred to private ownership). But the powerful liberals didn’t want to waste their precious time; they didn’t want to exercise their grey matter. 23

Did he push for that plan on the night he was there in the White House? Neither Khodorkovsky nor any of the Yukos executives were acting with a social conscience in 1998. The moment that the default struck they moved funds offshore and threatened to dilute the value of the company’s shares to zero if minority shareholders would not sell at the price they wanted. A truckload of important financial documents ended up at the bottom of a river.

This behaviour left his company notorious. Yukos was a by-word in business circles for atrocious corporate governance. In 1998 Khodorkovsky was seen as the moral equal of the other oligarchs – little better even than Berezovsky. The company had huge debts and he the reputation of a card sharp. In 1998 someone murdered the mayor of Nefteyugansk, the oil town by the Yukos fields, on Khodorkovsky’s birthday. There is a Russian mafia tradition to deliver a birthday ‘gift’ to the person who commissions a kill. Khodorkovsky was immediately suspected. But was someone trying to frame him, as the oligarch’s men claimed, with the murder in fact the work of local Chechen bandits?

The months after the crash left Khodorkovsky with two stark options. The first was to do nothing and live off the cash from exporting Yukos’s oil, but with the barrel trading at its lowest value in decades, this did not seem too attractive to an enormously ambitious man. The second option was to turn to PR, convince shareholders and investors he was reinventing his company, improving his production techniques and driving up its share price and thus his fortune. He chose the second option. The insight that had struck him was that his company was undervalued simply because it was a Russian company. So much oil would be valued at as much as ten, maybe twenty times more, if it were a Western company. This is where the drive to change Yukos began.