I don’t want people to think I’m busting on Joe Nocera of the New York Times – that’s not my intention at all – but I feel like I have to say something about his column, “Russian Justice.” It’s yet another in a long line of pieces written by Western reporters criticizing the Putin administration for throwing “businessman” Mikhail Khodorkovsky in jail on trumped-up charges as part of an ongoing power play.
These Western critics are absolutely right to jump down Putin’s throat for using prisons and cops (to say nothing of assassinations) as weapons to deal with unwelcome political challenges. Putin has behaved like a tinpot dictator and this over-the-top thuggery should definitely be condemned.
But I’m getting tired of reading about how Mikhail Khodorkovsky, the former chief of the oil company Yukos and the bank, Menatep, is some kind of martyr to free capitalism. Western reporters always introduce Khodorkovsky by mentioning his “murky” activities in the mid-nineties, activities that may have been legally questionable, but were “emblematic of the times” and “part of the Wild West atmopshere of the Yeltsin era.” This has become a self-justifying cliche and I think those American reporters who didn’t live there don’t really understand what they’re saying when they write these things.
Here’s how Nocera put it:
The founder of Yukos, the country’s best-run oil producer, Khodorkovsky undoubtedly played fast and loose in building the company in the early 1990s.
The plutocrats had no problem with that. But then Khodorkovsky did two things that made him intolerable. He began transforming Yukos into a legitimate company that played by the rules of Western capitalism.
On the part about transforming Yukos into a legitimate company … I have no comment on that, at least not today. But Nocera, in describing how Khodorkovsky played “fast and loose” in building Yukos, leaves out one important detail: he stole the fucking company!
Khodorkovsky acquired his controlling stake in Yukos via the “loans-for shares” privatization auctions in the mid-nineties. In those auctions, the Russian state essentially sold off stakes in giant government-owned industrial companies in exchange for cash, the ostensible object being twofold: raise money for the cash-strapped state and also speed up the transformation from a Soviet command economy to a capitalist system.
But Khodorkovsky didn’t do much to add cash to the state’s coffers, because he got the money to buy Yukos from … the Russian government! In those days the Russian Central Bank farmed out some of its operations to private banks. As part of that policy, Menatep ended up holding billions in state funds that were meant to be distributed for government actions, like for instance the prosecution of a war in Chechnya. A state audit eventually found that some $4.4 billion in Russian government money was never returned to the state by Menatep. And a research paper by the Harvard Business School concluded that Menatep was many billions in debt to the the Russian state when it made its winning bid for a controlling stake in Yukos for the preposterously low price of $350 million.
Even better, Khodorkosky got his buddies in the Yeltsin administration to allow Menatep to administer the Yukos auction; it naturally excluded its rivals from bidding on the stake, making the Yukos auction a one-horse race. As the late Paul Klebnikov of Forbes put it:
Khodorkovsky’s Bank Menatep was put in charge of processing the bids in the Yukos auction. The winner turned out to be a company controlled by … Khodorkovsky and his partners. A rival bid by three big Russian banks, which offered more money than Khodorkovsky’s outfit, was disqualified on technical grounds.
The $350 million that Khodorkovsky and his partners paid for control of 78% of Yukos was quite the bargain. It implied a value for the whole company of $450 million. When the shares began trading less than two years later, Yukos’ market capitalization was $9 billion. Today the market cap is closer to $15 billion.
Thus Khodorkovsky not only got his stake in Yukos with other peoples’ money, he did so through a rigged auction that left him bidding on one of the biggest companies in the world with no rivals, for a ridiculously low price.
All of which makes passages like this one written by Nocera, describing Khodorkovsky’s later detention/repression at the hands of Putin, seem more absurd:
Yukos was taken from Khodorkovsky and the shareholders in a bogus transaction, and handed to Rosneft, a more pliable oil company run by executives aligned with Putin’s cronies. Khodorkovsky and Lebedev, his longtime business partner, were arrested, convicted of trumped-up tax fraud charges and sentenced to eight years in prison that began in 2003.
Putin is definitely a thug and he should be condemned for using these tactics. But making Khodorkovsky out to be a symbol of fair business practice doesn’t make sense either. This isn’t about ideology. To quote Goodfellas, this is all “real greaseball shit.” Khodorkovsky was an ex-Komsomol insider communist hack who was handed a huge company by his thug pals, but when his gang asked him to toe the line and his Don, Vladimir Putin, asked him to do a service, he balked and went solo. So they took back his cheese and threw him in jail. That’s all that went on here. It sucks for him, and it’s not a particularly great sign for the future of Russian business, but the whole nnarrative falls pretty far short of lofty terms like “injustice.”