Left Turn 2
// Mikhail Khodorkovsky, exclusively for Kommersant
My article “Left Turn” elicited broad discussion, in the course of which several questions of paramount importance were raised and require immediate response.
1. Are there modern, competent opposition forces in Russia today with leftist or left-liberal views?
2. What is the practical economic program of the “left turn”?
3. Does the country have sufficient potential manpower to ensure a left turn and the realization of its political and economic program?
And finally:
4. Prisoner Khodorkovsky and comrade, do you really think that a change of power in Russia will ease your lot?
That question, whether explicit or implied, has rained down on me from the right-liberal circles that unexpectedly provided the Vladimir Putin regime with its main ideological support. I will begin by answering that last (in every sense of the word) question.
Nightmare 2008
It is pleasant to think that tens and hundreds of Russian politicians and administrators dream of becoming president in 2008. Controlling Gazprom, Rosneft, arms exports and the three main national television channels all at one time. Making billions of dollars, holding receptions in the Kremlin, Petergof and Strelnya, going hunting with the president of France, fishing with the president of the United States, and after that you can boast about it on television and sleep easy. At least until the end of the constitutional term of your presidency. And longer still. That is a reflection of the parasitic thinking of the Russian political elite in our days. The only issue that really concerns that elite is how to get something tangible out of the country called Russia. The question “What did you do for Russia?” is not worth asking.
Personally, Russia has given me a lot. In the 1970s and 1980s, it gave me an education I can be proud of. In the 1990s, it made me the richest (according to Forbes) person from the former USSR. In this decade, my property was taken away and I was imprisoned, giving me the opportunity to receive a second education, this time human and humane. And I can say that the people who are getting ready to run Russia in two and a half or three years will have to understand that their parasitic approach is not working any more, because the country is no longer competitive and the reserves of endurance laid up in the Soviet Union have run out.
Thus, by 2008, the Russian Federation will come up against a set of objective problems – and I emphasize that they are objective problems, which exist regardless of our willingness to think about them: a deterioration of the national infrastructure that will threaten a systemic technical catastrophe; a demographic crisis; the shrinking of the population of the country by almost 1 million persons per year will lead, among other things, to the Chinese population of a number of regions in Siberia and the Far East (which consists mainly of illegal immigrants) will be almost equal in number with the Russian population; citizens of the People's Republic of China will dominate various sectors of the Far Eastern economy, from wholesale trading to new investment projects in raw materials; the paralysis of a number of sectors in heavy industry, especially aircraft construction, manufacturing outfitting and the construction of agricultural equipment, which will lead to the loss of about 3 million jobs, in addition to the negative effects on the structure of the economy;
a systemic crisis in the defense industry and the hi-tech sector that is emerging from it and now consuming the remains of Soviet design developments and attempting to absorb the third wave of Western technology but that has long ago lost its any understanding of independent creative development;
the transition from the cessation of rejuvenation of science to its physical extinction; basic science no longer uses personnel under 30, which makes its existence a chronicle of narrowly declared death;
the practical loss of control by Moscow over the domestic situation in the North Caucasus, especially Chechnya and Dagestan, were the activity of Wahabis and other extremist is rising sharply; the crisis in the Caucasus is connected to a considerable extent with the unprecedented unemployment ad the absence of any development program in the North Caucasus; the whole of the participation of the federal center in the fate of the region amounts to periodic financial handouts that are stolen on the spot, inciting a battle between state-criminal clans to steal every last budgetary ruble;
the collapse of the Russian Armed Forces, which today do not represent the modern army of Russia but a disintegrating piece of the forces of the long non-existent state of the USSR;
the paralysis of the security system, which has been put out to pasture, busy providing cover and engaging in other particular forms of economic activity, and unable to solve the real problems in the blazing Caucasus or in other regions of Russia; no one even talks about the law enforcement system stopping the monstrous illegal immigration in the East of the country.
Those aren't all the problems either. Do you still want into the Kremlin, dear successors to Putin?
A new social elite should take over the country when Putin leaves (at the legal time, not a day sooner and not an hour later), one that comprehend power as long-term and maybe ignoble (at first) construction and not as wholesale division and redistribution. In that elite, the dominant question will not be “What do you need that for?” We don't need that, kind sirs, the country does. Otherwise it will ever become a modern developed and respected state, but more likely fall apart within our generation, and we, citizens of Russia, cannot reconcile ourselves to the ruin of our state, and we don't want to and we don't plan to.
But, to solve the terrible problems listed and one not listed here, a traditional mobilization of the people is needed. And not penal mobilization but creative mobilization, using the intellectual resources of the tens of millions of our fellow countrymen based on a single national idea. The people are used to the authorities being endless far from them, that they are not answerable for anything, that the so-called elites needn't give a damn about them but they should again feel that Russia is our common country that thinks about and cares for everyone who lives in it and for which they are answerable. That leads first of all to qualitative changes in state and social policy, a rebirth of democratic methods of ruling the country, including state paternalism as an instrument for the unification of the state and people, as an acknowledgment of the fact that the state and economy exist for the people.
Yes, democracy prohibits the implementation of the ideal liberal model of everyone for himself. Yes, the voter will demand a concession of part of the oil riches falling from heaven for the use of those who, because of their health, education, age or other reasons cannot attain personal success by themselves in modern society without its (society's) help.
That is why a left turn is also necessary. To breach the pathological, existential alienation between the elites and the people, the authorities and those they rule. And not, as some theoreticians of “Putin's stability” suggest, so that the opposition, winning the parliamentary elections, would let Khodorkovsky out of prison. Without a breach of that alienation, no single national idea is possible, and without a national idea, there will be no salvation and rebirth of the country. If someone doesn't like the word “left,” let him find another word. The essence of the turn does not change because of it.
In addition, a left turn is unavoidable because a new “left” cycle in Russian national politics started long ago.
And none of the trick that are used to stop it from showing itself, or the rapidly multiplying attempts at propagandistic (election campaign) stimulation will accomplish anything except long-term separation of the state and people. The sooner the leftist energy has the chance to come to the surface and take on its share of responsibility for the present and future of Russia, the more constructive and less dangerous it will be. If the current ruling elite is democratically transformed, we will have a peaceful transfer of power. If they delay it, and all the more so provoke the less responsible part of the elite to an extremist scenario in hopes of justifying their authoritarianism, the consequences for the country will be regrettable and absolutely unpredictable, and stability, industrial development and a worthy place in the world can be forgotten for a long time to come.
Program 2020
The political and economic program of the future ruling elite of Russia (that program can be called social or social-liberal and it will be accurate, although only partially) covers 12 years. That is a sensible term for its implementation. There is no need to think of 12 years as three presidential terms. The program can be effectively implemented only with a change in the Russian state and political model, specifically with the transition to a presidential-parliamentary republic. Where the president is the moral leader, the guarantor of the unity of the country, the supreme commander-in-chief, the immediate head of the security agencies and the center of the formation of domestic policy. The entire complex of economic and social issues will be handled by the administration formed by the State Duma and responsible to the parliament for the results of its work.
In addition, a rebirth of genuine federalism is necessary, a transition to the election of regional heads and members of the Russian senate, creation of genuine local self-government with all the necessary authority and means, including financial. Only then will we have a responsible regional elite that will be interested in long-term regional development, the “cultivation” of its territory. The bureaucrat sent by the Kremlin to a region to feed off it (and to feed his high-placed comrades off of it) by definition doesn't give a damn about long-term development. Moreover, only under federalism, the understandable and interconnected distribution of rights and responsibilities, will we able to reach agreements with “problem” regions, mainly the national republics, to neutralize growing or emerging separatism.
The goals of this program, which can be reached in their basic form by 2020, are as follows:
1. Increase the population of Russia to 220-230 million, which will allow Eastern Siberia and the Far East to be assimilated by the forces of the Russian people and avoid a partition of the country from the Chinese influence on the Eastern regions. The program to counter depopulation should propose first the establishment by the state of understandable strategic guideposts for new generations and, second, direct financial incentives for childbearing that would at least guarantee the minimum living standard for every newborn (which would cist about $10 billion per year).
2. Achieving the following structure in the national economy:
40 percent “economy of knowledge”
40 percent oil, gas, metal, licensed production
20 percent agriculture, including processing and trade.
The transition from the economy of the oil pipeline to the economy of knowledge will permit the GDP in Russia to be increased by three and a half to four times, to $4-5 trillion. I will note that the size of the GDP is cited here only as an indicator, not as the ultimate goal of development. Reaching those goals entails, in part, the establishment of an effective system of special economic zones for hi-tech production; development (establishment) of the necessary modern technical infrastructure – at first at least in technical parks; the formation of venture funds with a share of state capital to ensure the attractiveness of investment in priority areas; formation of a system of state and state-and private grants for education and research, systemic protection and encouragement for the innovative activities of creative young people and entrepreneurship on the level of state policy.
3. Preservation of the territory of Russia and strengthening of its present borders, including the indirect implementation of significant investment programs in Eastern Siberia and the Far East. Reaching this goal entails the establishment of large-scale centers of business activity in the Asian part of Russia. The volume of investment programs, which could be financed either as by private capital or as part of a mechanism for private-state partnership, will reach $200 billion in the course of 10-15 years.
4. The establishment of new armed forces in Russia, practically from zero. We can no longer live with the leftovers from an army of a long gone, as I said above, state. The volume of startup investment in the establishment of a new army is about $50 billion.
5. Restoration of systematic education and basic science as a system for the reproduction of intellectual potential of the nation. Russia cannot live on imported scientific achievements and not only because of national pride. If we don't have our own strong science, we not only cannot establish an economy of knowledge, but we will lose the best young brains. They will go to the West (and not only the West. India, the modern world center of offshore programming, will take them into its wide embrace.) Without the intellectual potential of the future generations, there will be no rebirth of Russia, much less a Russian breakthrough. Such a program will require the attraction of two and a half to three times more financing for basic science than today's level.
6. Cardinal modernization of the national communal infrastructure and the establishment of new transport communications – roads and railroads – mainly in the east and south of the country. That will require about $80 billion in investments, both state and private, in the course of ten years.
7. The establishment of a historical and mental tradition of Russia system of social protection, including high-quality free medical service, and high-quality, mandatory basic education for all the population and free higher education for half the young people, the guaranteed replacement of social benefit granted earlier or their actual monetary equivalent.
Implementation of the program will require about $400 billion in state investment and about $500 billion in private investment. The latter will be easier to attract. It will reach the country just as soon as the obviously ineffective phantom “vertical of power” is removed, full-blooded federalism is restored and a responsible elite appears that is ready to take on responsibility and give guarantees. The state investment is harder. Where to get it?
Three Sources
1. Changes in the rules for the use of income from raw materials. The Kremlin forecasts Central Bank reserves for 2008 at $300 billion. That is $140-billion growth in three years. The Stabilization Fund as already accumulated $50 billion. It will accumulate another $100 billion in three years with a small change in the cutoff price. Thus the state has $60-70 billion in free resources per year. Resources that can and should be used for investment in the economy proper.
2. Legitimization of privatization – through a special compensatory tax – will bring about $30 billion into the federal budget and extra-budgetary targeted funds.
3. Additional budget revenue that arises from changes rates of economic growth. Growth at 12-15 percent per year, which is completely attainable with changes to the structure of the economy and the model of its management, will bring additional annual revenue on the level of $20 billion into the federal budget.
Thus, there are enough financial sources to guarantee the necessary level of investment on the part of the state as well.
Legitimization of Privatization
It cannot be said that the privatization of the 1990s was absolutely economically ineffective. Yes, many of the largest enterprises in Russia were sold for symbolic prices. But it shouldn't be forgotten that the main goal of that privatization was not the rapid engorgement of the budget from the sale of those objects, but the establishment of the institution of effective ownership. The task was completely fulfilled.
I remember what YUKOS was like when I entered it in 1996. And the company was in relatively satisfactory condition in comparison with the other state oil giant. Nonetheless, oil production was falling by 15 percent per year, debts to contractors amounted to about $3 billion, salary payment was six months behind and employees were either grumbling unheard or complaining loudly, the stealing at every turn was frightful. When I left YUKOS (in 2003), salaries had reached 30,000 rubles per month, there were no delays in pay and tax payments on all levels reached $3.5-4 billion per year, and that was when oil cost $27-30 per barrel, and not $60 as now. That is, thanks to that same privatization, real management was established, which simply did not exist in the era of the “red directors.”
Nonetheless, privatization was ineffective politically and socially. Because more than 90 percent of the Russian people did not think that it was just. That means that the results of privatization were not acknowledged by our fellow countrymen and, in those circumstances, permanent and unceasing redistribution of property is unavoidable.
I suggest, instead of reinventing the wheel, using a highly successful method for legitimizing privatization that was used by the British Labourites (Tony Blair's cabinet) at the end of the 1990s with infrastructure companies privatized in the 1980s. They imposed a so-called tax on non-core income from favorable market conditions. The size of the tax in our circumstances could be the actual annual turnover that the company had in the year of its privatization. To account for funds stolen by the directors at the time through front companies, the volume of production has to be multiplied by the market prices, thus not being deceived by the absolutely useless Russian-standard accounting. I know how to do that. I, like many others, had to dig through mountains of the criminal schemes that inundated the economy from 1993 to 1995. That parameter clearly reflects the condition of the company in the period of privatization and takes into consideration all parameters determining the capitalization at the time: world prices for raw materials, the quality of the management, the level of political risk in Russia, etc.
In other words, everyone who wants to take the question of the legitimacy (justice) of his large industrial property should pay a tax in the size of the company's turnover at the time of its privatization to a special target fund (for example, the fund for the stimulation of the birthrate, from which benefits are paid for newborns). With the payment of that tax, the owner receives a “safe conduct letter” from the state and society and his property is considered legal and honest.
Legitimization should be the result of a conscious pact between the state and owners and big business. Business that intends to live and work in Russia for a long time should make that pact guided by the immutable principle that it is better to give up part today than everything tomorrow. A one-time tax plan and its simple accounting give the legitimization procedure transparency and exclude corruption and selective application of normative acts in the process.
By my preliminary calculations, the quality of which is limited by the conditions of a common cell and he prison zone, legitimization of privatization will bring in $30-35 billion within three or four years.
Opening the Floodgates
My critics say that there is no personnel in the country to undertake massive transformation. In the process of reforms, everything will fail or be stolen.
I disagree completely. Representatives of the current ruling elite will be judged separately. I have the experience of building Russia's largest corporation, YUKOS. And that company was raised from its late-Soviet ruin to the level of a world giant with $40-billion capitalization first of all thanks to personnel policy.
In all areas we chose:
a) the best;
b) when possible, the young (up to age 35).
If we, like the Kremlin today, had relied on the abilities of job seekers who would toady up to the boss, YUKOS would have long ago ceased to exist. All that has to be done is to develop personnel selection criteria. There has always been talent in Russia, there still is and it will remain in excess! The Kremlin selects people by the federal criterion of complete loyalty and manageability, and that is why the result is the ineffectiveness of that archaic “vertical.” Incompetent people cannot be completely manageable – that is the destiny of the incompetent and self-seeking. If the floodgates of vertical social mobility were opened and we hired the smartest, most educated and, therefore, most ambitious, those problems with professionalism would not arise. I am touched by the discussion in Kremlin circles about personnel: we have no specialists, we are suffering, we are dying, but we still won't let anybody into our circle, we will die but we won't let professionals in from outside our Koffeeklatsch! The result is there for all to compare. YUKOS from 1995 to 2003 and today's Kremlin. So don't be afraid. The personnel is here and it always will be. We will bring in new generations for real collaboration and those generations will build the Russia of the future. And those people of the future will not steal from themselves.
If there is a time to fear that they are about to steal something, no movement forward, no investment, no development can be possible.
Modernization as Salvation
The current political elite in Russia is looking for its salvation in the refusal to modernize and attempts, as one story in the days of Brezhnev went, to rock the broken down car in the dead end to make it look like its moving. “Where are we now?” No answer. The people keep quiet.
I'm not arguing: for many bureaucrats and those who live off the sales of prestigious raw materials, it is a good lifestyle. For the next three or four years, until the alarm clock goes off, and it is time to leave for the beaches of the still hurricane-free Maldives.
But for Russia, a real modernization project is necessary. Without it, the country will simple not survive the new century. It won't be able to meet the objective historical challenges. The outline of that project is already visible. There, just beyond the left turn.
Mikhail Khodorkovsky, private person YaG 14/10
All the Article in Russian as of Nov. 11, 2005
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