#11 - JRL 7276
Moscow Times
August 4, 2003
Khodorkovsky Only Played by the Rules
By Matt Bivens
"Everyone will have equal opportunity in this undertaking." Boris Yeltsin in 1992, announcing the post-Soviet privatization programs.
That was the original plan. When President Yeltsin announced his privatization program 11 years ago this month, the goal was to create "millions of owners rather than a handful of millionaires."
The Soviet state had owned everything, from village bakeries to vast diamond mines. The small-change items, like the bakeries, were now to be sold or given to locals. As to the valuable larger concerns, Yeltsin said, they would be divvied up between every man, woman and child. His privatization chief, Anatoly Chubais, elaborated: Each citizen would soon receive a voucher, and though it had a nominal face-value of about $30 at then-plummeting-like-a-stone exchange rates, it could very quickly be worth the value of two Volga automobiles.
That was what they said. What they did was this: The government sold off the lemons of industry via vouchers, while real wealth -- from oil fields to telephone companies -- was held back, to be divvied up among friends.
Yukos, to take a timely example, was then Russia's second-largest oil company, and 78 percent of it was sold at an "auction": The Kremlin asked Mikhail Khodorkovsky's Bank Menatep to organize the auction; Menatep threw out a high bid and declared itself the winner with a low bid. It paid $309.1 million, for 2 percent of the world's known oil reserves.
This was not some minor betrayal. Consider some illustrative, if highly unscientific, math. A recent audit of Gazprom's reserves suggested the company should be worth at least $50 billion. Had Gazprom been divided equally among the nation's 148 million people back in the 1990s, one Gazprom share per voucher; and had the stock value risen to reflect the company's value; then each voucher could have been worth $340. For a family of three, that would have been $1,020 in stock. In one company. In a country where millions of families live on less than that in a year.
Imagine if the other crown jewels were also taken private like that: the oil companies, aluminum smelters, nickel mines, telephone companies, diamond mines, gold mines. Had they been privatized via the simple and equitable voucher scheme, today a booming trade in their shares would be driving a vibrant, healthy stock market. Managers of those companies -- the executives doing the work -- could be earning honest salaries in the millions of dollars. Russian citizens would have long had access to capital for anything, from consumer spending to starting their own businesses. The world would be looking at them today with envy and respect. There would be no Communists, only a proud and united economic derzhava.
Instead, a well-connected handful took it all. Today 17 men are dollar billionaires in Russia, and every one of them owes their success to having gamed a corrupt system to seize existing Soviet-built property.
That most certainly includes Khodorkovsky, the man of the hour. He recently gave an interview to Business Week magazine that included this exchange:
Q: Did you do anything back in the 1990s that you should not have done?
A: I played according to the rules of that time.
Q: Were there any rules at that time?
A: Of course, there were some. Of course, those rules could have been better. Then we could have avoided some current problems.
To put it mildly.
Matt Bivens, a former editor of The Moscow Times, writes the Daily Outrage for The Nation magazine[www.thenation.com].
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