Politics & Policy

Putin’S Gamble

Where Russia is headed.

Why has Vladimir Putin risked international opprobrium (including jeopardizing the foreign direct investment Russia’s economy so desperately needs) in sanctioning the weekend arrest of Mikhail Khodorkovsky, the CEO of YUKOS, one of Russia’s most-profitable oil firms?

The first gamble is that the arrest will pay handsome dividends for the pro-Kremlin “United Russia” party in the December parliamentary elections. With disapproval ratings of more than 70 percent, the oligarchs are a tempting target and cracking down on Russia’s wealthiest man helps to reinforce the populist credentials of the current government.

Khodorkovsky was also the leading opponent against efforts undertaken by the Kremlin to institute a system of “managed pluralism” in Russia, particularly in his efforts to fund alternative political movements such as YABLOKO and the Communist party. Now, however, the opposition parties and candidates who have taken campaign contributions from Khodorkovsky are placed in the unenviable position of having to justify their association with a figure now accused of tax fraud and evasion. Conveniently, the investigation into these allegations is scheduled to last through December 30. Even if Khodorkovsky is cleared of all charges, it will be too late to affect the outcome of the elections.

The first gamble appears to be paying off. Putin’s popularity has not suffered (the recent Ekho Moskvy poll showing Khodorkovsky gaining more votes in a presidential contest with Putin has to be seen as highly suspect, given that the radio station is funded largely by Khodorkovsky’s business interests).

The second gamble is that the arrest will not affect large-scale foreign investment in Russia or Russia’s relations with the West. For the past year, Putin and members of his circle have delivered a clear and consistent message to the Western business community that their investments will be safeguarded as long as no attempt is made to interfere in Russian domestic politics; this message was reiterated last week when Putin met with the heads of Russia’s leading investment banks.

Putin is taking a page from the Chinese playbook. His assumption is that Western businessmen seeking to make a profit in the Russian market will be even less willing to become involved in local politics for fear of jeopardizing their position. Ironically, Putin seems to believe that allowing Western firms to acquire significant stakes in Russian conglomerates increases the likelihood that business will stay out of the political arena. This certainly appears to be the calculation in approving the sale of a large stake of the Tyumen Oil Company (TNK) to BP–and indicates that Putin, in approving the sale, received such assurances from the BP hierarchy.

So far, the fallout appears to be limited to op-ed writers lambasting the Putin administration. During his visit to Russia this past weekend, Israeli Prime Minister Ariel Sharon described Putin as a “true friend of Israel.” Sergei Mironov, the chairman of the Federation Council, said in Washington that he did not believe that the arrest would have any impact on continuing U.S.-Russia strategic cooperation.

The final gamble is that the “oligarchs” can be decapitated from their leadership positions without damaging the corporations they have created. All revolutions inevitably devour their children, and Russia’s transition to capitalism is no exception.

The Kremlin has no desire to destroy a successful entity like YUKOS, a key player in implementing Russia’s energy strategy. No, the assumption is that a new generation of efficient and skilled Russian managers can continue to operate Russia’s new firms without impacting production or profitability–without seeking to become involved in politics.

The results of the 1990’s privatization of Russian assets cannot be easily reversed, not without throwing the entire Russian economy into chaos. Mironov, speaking at the Carnegie Endowment, delivered what he termed an “official statement,” that “there would be no revision of privatization.” What the Kremlin can do, however, is redistribute the access to Russia’s corporate wealth.

Putin wants technocrats in charge of Russia’s firm–people capable of improving efficiency, increasing their contributions to the state treasury, and attracting foreign investment and technology. He has no ideological objection to these people being well rewarded (in material terms) for their efforts. But the bargain is clear–one can make money in Russia, but that wealth is not to be used to engage in politics.

Putin has a clear vision for the future of Russian society–”state capitalism” married with a “controlled democracy.” This arrest confirms that this is the direction Russia is moving in.

Nikolas K. Gvosdev is editor of In the National Interest and a senior fellow at the Nixon Center.

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