#6 - JRL 7269
Moscow Times
July 29, 2003
The Yukos Affair and Putin's 2nd Term
By Sergei Markov
Sergei Markov is director of the Institute of Political Studies and chairman of the Civic Committee on Foreign Affairs. He contributed this comment to The Moscow Times.

The battle for Putin's second presidential term has already begun. Political commentators have long predicted such a battle, but it seems we got the timing wrong. We thought it would commence only after the presidential election in March 2004, and that Putin would not let things get out of hand before that date so as not to impede his victory. At the earliest, we predicted the possibility of a skirmish occurring in the period between parliamentary and presidential elections, if United Russia were to flop in the State Duma elections.

The battle for Putin's second term is both over the program and the team that will implement that program; and it is also about who will succeed Putin. The president himself has no wish to violate the Constitution and stay on for a third term.

Today, there are two main bureaucratic groups. The most oft-used monikers for these two groups are the Family and the St. Petersburgers. These monikers, however, shed light only on the origin of the groups, while obscuring the nature of their differences. It would be more accurate to call these groups the business-oriented and the state-oriented parts of the bureaucracy. These labels encapsulate the difference in aims, ties and style of the two groups. Siloviki and businessmen such as Rosneft CEO Sergei Bogdanchikov are part of one of these groups, but not the central part. In the Yukos affair, war strategy is dictated not by the silovik executors but by statesmen with their own vision of the country's future.

Most visible is the battle involving Yukos CEO Mikhail Khodorkovsky. Over the past few months, a myth has built up about Khodorkovsky's strategic plans -- formed with the active involvement of Khodorkovsky himself. According to this myth, Khodorkovsky will control a majority in the next Duma by sponsoring single-mandate candidates and through his people in Yabloko, the Union of Right Forces and the Communist Party. There will be a shift to a de facto parliamentary republic (the Constitution contains the foundations for such a shift). And then Khodorkovsky will become prime minister. A variation on this is that he will not join the government but control it, building up his political base and winning the presidential election in 2008. This is a myth and nothing more, because for Khodorkovsky it is much better and preferable to be the universally respected CEO of one of the largest corporations in the world than to be a prime minister, under fire from all sides. However, the myth persists and its proponents can cite numerous facts to back up their theory.

The group close to the president, which expected that its ideas would become the basis of Putin's second-term program and that they themselves would make up the core of his team (which in 2008 would become the next president's team), has tried to nip the scenario of "Khodorkovsky's political rise" in the bud. These people, like most of us, witnessed the period of de facto oligarch rule and the little good it did the country. In their view, they did not initiate the conflict, but rather Khodorkovsky breached the rules of the game between the state and big business that were established in 2000. Those who consider themselves defenders of the state's interests saw in Khodorkovsky's activities the desire of the oligarchs to regain power.

In the conflict, the issue of big business' role in Russia has come to the forefront. And here there are certain contradictions.

Written all over the Yukos affair is the bureaucracy's desire not to allow other big Russian corporations to follow in the footsteps of the Tyumen Oil Co., which in essence sold its business to BP. The high-profile (and long planned) flight of Roman Abramovich's capital from the country also served to spur the state-oriented part of the bureaucracy into action.

From this perspective, Khodorkovsky's attempts to garner support from the West (as Vladimir Gusinsky tried to do before him) will not help him and, in fact, only exacerbate things. In order to reduce the pressure, Khodorkovsky should seek to resolve his problems at home.

Second, there are objective contradictions in Putin's relations with big business, and the president has yet to take a firm position one way or the other. He has on a number of occasions pointed out that big business stifles competition, has an interest in state institutions remaining weak and corrupt and generally behaves in an unpatriotic manner. However, if Russia wants to be able to compete in the global economy, then major corporations will have to take the lead. It is also worth noting that major corporations are in the vanguard regarding corporate management and putting tax and labor issues on a more legal footing.

Business has now appealed to the president to sign a social contract. This is a clear sign of the weakness of business. Its weakness lies not in seeking compromise, but in failing to see that such a contract has long existed. The problem is that business has systematically violated it. The transformation of society was able to take place on the basis of such a social contract. A decade or so ago, the population agreed to state property being transferred into private hands for a song, on the understanding that the private owners would be more effective. In other words, property was put into private hands on the condition that private owners would do a better job of developing the economy than the Communists and their command economy. And if business thinks that it can do what it likes with its money and is under no obligation to society, this is a violation of the social contract.

Breaching this contract is the main reason for private property's lack of political legitimacy in Russia. And lack of legal legitimacy, in the final analysis, is a consequence of this. In the chaotic conditions of the Yeltsin era, there was no one to remind business of its obligations. However, as Russia's statehood and bureaucracy have been restored, such politicians have emerged. Thus, Putin treats the pressure his bureaucracy puts on big business with understanding. Paradoxically, Yukos has gone further than others toward accepting the social contract, by demonstrating greater social responsibility.

But, the president cannot fail to realize that handing complete power to the siloviki is dangerous -- after all, the country needs economic development not repression. Also, it is understood that reviewing the results of privatization would lead to a major political war for control of assets, which would seriously undermine stability -- the main achievement of the Putin era.

The solution is for business to acknowledge its responsibilities to the country rather than complaining to the president about the behavior of the siloviki (he can see perfectly well for himself) or signing a non-aggression pact with the siloviki (only business needs this). The president will not support those businessmen who insist on being socially irresponsible but undoubtedly will help those captains of industry who develop the economy for the good of the country.

Everyone is now concerned with how the crisis will be resolved. Central to any solution is to ensure that no one emerges as outright winner. Victory for the siloviki would be dangerous because if Yukos falls, hundreds of interregional, regional and local companies will go the same way. However, the authorities will never admit that they are wrong and that an oligarch is right -- they have backed down once too often in the not-too-distant past. But both sides in the conflict are escalating the crisis. Therefore, it will take the collective efforts of the government, presidential administration, and other business and bureaucratic groups for the sides to come to some kind of weak compromise, although the root causes of the crisis will not be excised. And this means that other conflicts will be inevitable.

Those roots causes are: ongoing uncertainty over Putin's second-term team and program; the gradual growth in the influence of those whom Putin brought to power and their demands for better positions and more resources; the absence of a fundamental social contract recognized and adhered to by a majority of the population and the main elite groups; private property's lack of political and legal legitimacy; the huge gulf between the law and actual business practice; and the lack of clarity regarding the big business' role and development.

For the optimists, I would add: Without crises there can be no development. Let's hope that these problems will be resolved swiftly and painlessly.