Putin

There was no general sympathy for Khodorkovsky among his fellow businessmen, some of whom now quickly prepared to leave the country before their turn came. And of course the masses greeted the news with a sardonic grin. A few members of the dissident intelligentsia like Andrei Sakharov’s widow, Elena Bonner, spoke out in defense of Khodorkovsky, considering him a political prisoner because the law had been selectively used as an instrument of repression against him and sharply condemning Amnesty International for not coming to his aid. Others, like Boris Kagarlitsky in his book Back in the USSR, took a more jaundiced view: “It was exactly because the directors of Yukos did not differ from the tenants of the Kremlin that the ruling clique considered them to be really dangerous. And therefore took stringent measures. Khodorkovsky is a political prisoner only in the medieval sense, as when great lords and princes were jailed in the Bastille or the Tower of London after failed plots.”

A rising tide of oil prices had lifted all boats, Khodorkovsky’s, Putin’s, Russia’s. Putin of course deserves no credit for the price rise, though before a battle Napoleon would say, “I know all my generals are good, but tell me which are the lucky ones.” And by arresting Khodorkovsky and incorporating most of Yukos into state-controlled Rosneft, Putin did assure a torrent of revenue for the state, some portion of which was well used and wisely saved, though billions of course were “reprivatized.”

The figures are impressive. Thirty percent of the country lived in poverty in 1999, only 13 percent by 2008, the end of Putin’s second term. Real incomes rose 140 percent and GDP per capita went from $5,951 in 1999 to $20,276 in 2008. The dollar value of the Russian stock market in 2000 was $74 billion and by 2006 it was $1 trillion. For the first time in its history Russia had a middle class.

At this point Putin was still taking the sound advice of his economics minister, Alexei Kudrin, who had pushed hard for a sovereign wealth fund as protection from any future calamity. Even Khodorkovsky writing from prison had said: “Putin is probably not a liberal or a democrat, but he is more liberal and more democratic than seventy percent of the population.”

Showing a surplus, Russia was paying its bills and its debts. In fact, the five years between Khodorkovsky’s arrest in 2003 and 2008 were very good years indeed for Putin, buoyed as they were by the rising price of oil, which on July 11, 2008, peaked at an all-time high of $147.27. Putin had control of gas, oil, and television, which for him meant control of Russia. Pipsqueak dissident intellectuals would be allowed a few newspapers, a radio station, the Internet, none of which was widespread or powerful enough to make much of a difference. Putin had been reelected in 2004 with some 71 percent of the vote, a figure that reflected his control of the airwaves and his genuine popularity, not to mention the self-interest of those prospering under his rule.

At the time of Putin’s reelection, the state depended on the sale of gas and oil for 30 percent of its revenues. By 2013 that percentage would rise to 41 percent. It was clear to all that Russia was too beholden to oil. There had been no choice but to use what you had at hand when the task was to stabilize the country and revitalize the economy. Essentially that had been achieved in Putin’s first term, ending in 2004. With his domestic rivals safely disposed of, that would have been the ideal moment for Putin to take stock and make changes, to begin the only solution for Russia’s long-term viability—a diversification of the economy.

In 1999, before he was president, Putin published an article, “Russia on the Threshold,” in which he criticized the Soviet system’s “excessive emphasis on the development of the commodities sector and defense industry.” Writing some ten years later, future president Dmitri Medvedev took a more emotional tone when speaking of Russia’s “humiliating dependence on raw materials.” Medvedev, whatever his weakness, was adept at stating the questions of the day in plain, clear Russian, unlike Putin, who went from abstract bureaucratese to vulgar street lingo without skipping a beat. “Should a primitive economy based on raw materials and endemic corruption accompany us into the future?” asked Medvedev. The answer to that question was obviously no, and the answer to the eternal Russian question of What is to be done? was also simple—diversify. But how, into what? Use Russia’s highly educated population to make the high-value-added smart products that are the great wealth creators of the early twenty-first century.