#11 - JRL 7263
Russia Journal
July 24, 2003
For the love of oligarchs
By Ajay Goyal

Russians hate their oligarchs. The dozen or so people connected with the regime of former President Boris Yeltsin who divided all the natural resources, industry and wealth of Russia among themselves have not done anything to earn the love and respect of their fellow citizens. Many remain criminally disposed, laundering money abroad at every available opportunity, while others have already abandoned Russia and adopted new homelands. And, while they may be despised locally, they are doted upon abroad.

Ordinary Russians hate them for a variety of reasons, but the primary one is that they did not want the wealth of their country to end up in the hands of a coterie just as sinister as the upper echelons of the Communist Party. The Russian revolution against the communist apparatus failed, and the inheritors of the latter sneer at the Russian population each day by flaunting its ill-gotten wealth.

A very few do seem to have acted professionally to build value in their companies. Yukos CEO Mikhail Khodorkovsky — currently on the outs with the Kremlin — is the first that comes to mind. While the acquisition of his wealth may have been through inappropriate methods to say the least (his partner Platon Lebedev is being charged with embezzlement and fraud, and other Yukos personnel with murder — albeit, admittedly, because of political reasons), he has set himself apart as a genuinely respected businessman. However, this does not explain the extent to which the Western press is bending over backward trying to paint him as some kind of martyr, whose downfall will lead to collapse of Russia and its capitalist market system.

Unlike Russians, who largely and rightly blame the Yeltsin crony capitalists for their misery, foreigners engaged in Russian business are infatuated with oligarchs. Foreign media people — the favorite PR targets of oligarchs in a caviar-and-champagne-dinner image-machine that costs as much as $100 million each year — are in a panic. Khodorkovsky is the third oligarch to have been targeted by prosecutors (Boris Berezovsky and Vladimir Gusinsky are already licking their wounds in exile in the United Kingdom and United States). Roman Abramovich, having tried his hand at local politics, has stopped flying foreign reporters in on private planes to write how much the reindeer population of Chukotka has increased since he became the region's governor. Instead, he has bought a London football club for $250 million and is said to be building a new fitness center in his sprawling $20 million London estate — where he clearly has plans to stay.

The fates of most foreigners linked to Russian business — especially those of lawyers, accountants, auditors, brokers and analysts at investment firms — unfold under an oligarchic shadow. They live on crumbs thrown at them by the oligarchs, and their involvement with the mainstream of the Russian economy and Russian society as a whole is rather limited. Many foreign business associations exist only to lobby the interests of their member companies with Russia's miniscule stratum of super-rich or helping them enter high society in the West. Much of the accounting, auditing and legal imports, thrive on servicing the oligarchs and their unending appetite for gangster-style hostile takeovers, flimsy court cases, tax evasion and money laundering schemes — and, of course, the search for respectability to be able to get Western credits and buyers for unloading their loot. It is no wonder, then, that hysteria over the Prosecutor General's attack on Yukos is much more widespread among foreigners than ordinary Russians.

The oligarchs, who rarely allow a major multinational to enter the country for fear of competition, have hampered genuine direct investment into Russian industry. Yet, slowly, thanks to the reformist and business-friendly laws drafted by President Vladimir Putin's government, many foreign corporations have managed to build industrial bases in Russia. Their businesses foster the economic lives of a majority of the population and not just the addition of extra zeros to the personal assets of a dozen.

Self-starting Russian entrepreneurs have only the monopolies controlled by these oligarchs standing in their way, with taxes and government burdens on the decline.

At the same time, it is disturbing how, with such ease and without any resistance, Russian prosecutors can still drag anyone through prisons and destroy a business with impunity — this system, too, is a gift of the same bandit-capitalism whose products and participants these oligarchs are.

Foreign reporters in Russia largely limit themselves to criticizing the Russian government over Chechnya, human rights and suppression of free speech and see the oligarchs as avatars of all that is holy. Most of the expatriate press corps (especially its more-vocal contingent) sees the end of Russia as coming into view whenever an oligarch runs afoul of the Kremlin.

But no worries — Khodorkovsky's troubles will most likely soon be over, and he will be able to go back to taking care of his foreign serfs. The loyal service put in by many of them will not go unnoticed.

What is the bane of Russia is a boon for most foreign businesses. The corporations and holding companies of the oligarchs — who gobble up industries, land and resources without ever paying anything for it — are monopolistic, anti-competitive giants that stand in the way of the creation of new businesses, direct foreign investment, liberalization of economy and availability of competitive and quality products in the market.

Worries that the Yukos affair will somehow lead to the death of the "new Russia" are totally misplaced hysteria. The Russian economy has its troubles, and oligarchs are one of them. There is nothing good they can do for the country in the long run, and nothing they can do for anybody else other than paying the bills for foreign reporters and businesspeople.

When in doubt about Russia, ask the Russians — and they will tell you what is really good or bad for them.