John RapleyJohn Rapley
SHARES IN the Russian oil giant, Yukos, plunged this week when some of its foreign creditors announced they were pressing it for payments. The demand added to government pressures on Yukos to pay back-taxes. Late last week, bailiffs showed up at the company's offices to serve notice that asset seizure could begin as early as today.
This latest chapter in the Yukos saga illustrates a power struggle between the Kremlin and Russia's tycoons. The impact this conflict might have on the country's political and economic landscape remains to be seen.
A DEGREE OF CONTROL
By the time the Soviet state collapsed in 1991, it had achieved a degree of control over the economy that no other state would ever rival. Virtually every facet of economic life in the Soviet Union was managed, ultimately, by a Moscow bureaucrat. So when Boris Yeltsin broke up the apparatus of central planning, it was inevitable that bureaucrats would manage the process to their advantage. When it came to the privatisation of public firms, Soviet-era managers were able to assume ownership of companies they had previously run for the state.
Thus was born the Russian oligarch: the super-rich tycoon whose wealth enabled him to exercise tremendous leverage over the politics of Russia's new democracy. But while the oligarchs joined the elite club of the planet's billionaires, conditions for most Russians worsened. Throughout the 1990s inflation eroded real incomes and the quality of social services offered by a once-generous but now imploding state declined precipitously.
Not surprisingly, the resultant chasm between haves and have-nots provoked a torrent of resentment among ordinary Russians. In recent times the president, Vladimir Putin, has capitalised on this anger. He imprisoned Yukos boss Mikhail Khodorkovsky late last year on fraud charges.
Political observers worried that the real reason Putin went after Khodorkovsky was that he was a political threat to the president. To liberal analysts, a pattern was emerging: Mr. Putin had already clamped down on the press and re-centralised power in Moscow after a decade in which provincial governors had asserted their authority. If he was now turning on the oligarchs, it suggested he had imperial ambitions. He seemed to want to restore the strong Russian state of old.
RESPECT PROPERTY
Foreign investors were anxious that the government was encroaching on the market and would not respect property rights. But Mr. Putins move on the oligarchs was very popular with ordinary Russians, who gave him a resounding mandate in his re-election earlier this year.
Markets are still regarding developments in Moscow warily. The government says it does not want to drive Yukos into bankruptcy. It may, however, like to force its owners to relinquish their shares so as to settle their tax bills. Indeed, London's Financial Times reported this week that Mr. Khodorkovsky might give up his shares in the company nearly half of all stock to help it meet its debt and tax obligations and thereby stave off bankruptcy.
The pessimistic interpretation of these events would be that President Putin embodies a sentiment, widespread in Russia, which remains distrustful of capitalism. Channelling the envy against a capitalist class to which Russians are unaccustomed, he is disciplining the market and restoring the strong state that dominates Russia's history.
DEMOCRACY AND CAPITALISM SUFFER
The optimistic view sees things differently. When political and economic power is concentrated in a small number of hands, as it was during the days of Boris Yeltsin, both democracy and capitalism can suffer. Democracy suffers because of the inordinate power the oligarchs wield over politicians. Capitalism suffers because the oligarchs can preserve monopolies and frustrate the entry of new players into the economy. Thus, some observers are saying that what Mr. Putin really wants to do is adapt the Chinese model to Russia: market liberalisation under the guidance of a strong state, which is needed to preserve social stability in times of painful change. It is noteworthy that in other respects, the Russian government still betrays a market-friendly leaning.
As for foreign investors, the odds are they will resign themselves to the strong state. In a time of tightened supply, Russia's vast oil reserves are too attractive for the energy giants to pass up. They may hold their noses, but they will probably continue wading into Russian waters.
John Rapley is a Senior Lecturer in the Department of Government, UWI, Mona.
