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Freed Russian oligarch leaves a wrecked country behind

After 10 years in a Russian prison, Mikhail Khodorkovsky walks free with an official pardon, but the former tycoon will find Russia little changed in fundamental terms from the oily post-Soviet republic it was in 2003: A resource-cursed economy in which a venal and often corrupt elite in Moscow rule over a largely impoverished and dwindling population in a vast and remote hinterland.

Several weeks before he was arrested in October 2003 and charged with tax evasion, I interviewed Mr. Khodorkovsky, the former boss of Yukos, the oil company. Even then, aware of the threat to his freedom, he was keen to set out his political vision for Russia – something like America, a free-wheeling libertarian capitalist society which he contrasted with the authoritarian system being constructed by his political enemies in the Kremlin, which he dubbed somewhat politely "the Singapore model."

No one today would insult Singapore by comparing the clockwork Asian city state with the kleptocratic chaos of Russia as erected under the rule of President Vladimir Putin. Yet in a telling remark, Mr. Khodorkovsky revealed the great failing of Russian society. He observed that what most Russians would vote for, if given the choice, is democratic socialism, something Scandinavian. He then said: "What the public wants is not supported by anyone among the elites, because everybody understands: It doesn't work in Russia." In other words, politics is to be decided by those who have influence, whether it is money, power or something more sinister – the hideous legacy of the Tsars, the police-infected bureaucracy of the Kremlin.

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To be fair to Mr. Khodorkovsky, he did try. He built up his business by founding a bank, Menatep, which amassed an oil empire during the dubious privatizations under President Boris Yeltsin. Initially, he was ruthless in diluting minority shareholders and he aggressively used tax avoidance techniques to shelter his profits. But somewhere along the way, he decided to become a caped crusader for democracy, funding education and civil society movements as well as political opponents of President Putin. It was the latter, not his business activities, that caused offence.

You could not blame Mr. Khodorkovsky if he chose to quit Russia and allow his nemesis to play Father Christmas in the artificial snow of Sochi during the world's most expensive Olympic Games. Mr. Khodorkovsky would not be alone; capital flight from Russia has become so acute that even the President complains about it. Hundreds of billions, and their dubious owners, have flown out of Russia to foreign tax havens. One of them is Cyprus, where the offshore Russian accounts recently acquired notoriety when the country's banking system was rescued in an EU bailout package. The deposed oligarch could mingle with countless numbers of his fellow citizens in London, New York or the more pleasant climate of the south of France.

Understandable – but a shame. Russia is in deep trouble. The country desperately needs investment in infrastructure. The economy is still in hock to oil and gas prices. Commodities account for 70 per cent of export revenues, a third of GDP and half of the growth in the economy since 2000. Russia is a one-trick pony, hobbled by gangsters intent on smuggling it, in the back of a van, across the nearest border.

Crime, often instigated by high-ranking officials, deters foreign investors, but it is also the drain of people that holds back Russia, The population shrinks by 0.5 per cent per year, a consequence of the low birth rate, itself evidence of the chronic insecurity experienced by Russian women, and a high death rate. Public health is poor, due to alcoholism, heroin addiction and an AIDS epidemic.

It is no surprise that the wealthy choose to flee to somewhere safer. During his incarceration, Mr. Khodorkovsky may have reflected on some of this. If he remains convinced that the answer to Russia's problems is not pandering to the political and business elites, he might have something to contribute to Russia's future.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More


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