Loot Turned Legitimate
By David Ignatius
Tuesday, November 4, 2003; Page A25
"Capital is time," observed one of my economics professors nearly 30 years ago, and I have been trying ever since to understand what he meant by that cryptic remark. Now, watching the unfolding fiasco in Russia over control of the Yukos oil company, I begin to understand.
Are the Yukos shares owned by Russian oligarch Mikhail Khodorkovsky private "capital," which Russian President Vladimir Putin has unfairly seized? Or are they "loot" that Khodorkovsky grabbed in shady privatization deals during the 1990s, which Putin is reclaiming for the rightful owners, the Russian people?
The cynical, and correct, answer is that it depends on how long Khodorkovsky has held his shares. If they have acquired a sufficient patina of age, he's a capitalist. He may have acquired his property by dubious means, but that's the case with many large fortunes around the world. At some point, it becomes irrelevant. Khodorkovsky resigned as Yukos CEO yesterday, but does that mean he had it legitimately in the first place?
Russia's problem now is the sharp disagreement on whether Khodorkovsky and his fellow oligarchs have held their property long enough for it to have passed from "loot" to "capital."
The international financial community, which has been well stroked by Khodorkovsky, certainly regards him as a capitalist. In that spirit, Western commentators have denounced his arrest and the seizure of his Yukos shares as an arbitrary abuse of power. Some fear that Putin's assault on the oligarchs' capital presages a return to communist-style authoritarian rule.
But polls suggest that the Russian people, by contrast, still view Khodorkovsky and other oligarchs as thieves who made off with much of the nation's mineral wealth during the chaos of the mid-1990s. Because Khodorkovsky and many of the oligarchs are Jews, this public resentment has a dangerous tone of anti-Semitism, which makes Putin's political attack all the more worrisome.
The standard answer to such problems is to let the law decide. But whose law should prevail? Russian prosecutors are building a case against Khodorkovsky and his associates for what they claim is embezzlement, theft and tax evasion. That case will be rejected by Khodorkovsky's supporters, who regard the prosecution as politically biased. In any event, recovering assets will be difficult, as much of Khodorkovsky's $8 billion fortune is now said to be held in a network of offshore accounts. It could take years of international litigation to establish who owns what -- let alone return those assets to Russia.
"Khodorkovsky is a symbol of what's good and bad in Russia," says J. Robinson West, the chairman of the Washington consulting firm PFC Energy. "He accomplished a lot of good things, and his PR machine would have you believe that he represents progress and transparency. But to a lot of Russians, he remains a symbol of corruption."
In the global economy, declaring war on capital tends to be self-defeating. The capitalists go somewhere else, where their money is welcome. That's what has been happening in Russia as Putin implicitly challenges ownership of the country's new private companies. According to Time magazine, the investigation of Yukos has helped trigger the flight of $7.7 billion from Russia in the past four months, compared with the $3.7 billion net inflow in this year's second quarter.
Putin's move has also chilled potential investment in Yukos by two U.S. oil giants, ExxonMobil and ChevronTexaco. The latter company was well along in discussions of an offer to buy up to 40 percent of Yukos when Khodorkovsky was arrested Oct. 25. Now ChevronTexaco has grown warier -- recognizing that it may be years before the ownership structure of Yukos is clarified.
What the Russian leader needs is a deal with the oligarchs like the one he sought when he took power in 2000 -- an agreement that guarantees the legal framework for ownership of assets in the new Russia. Putin thought he had made just that deal three years ago when he allowed the oligarchs to keep their wealth if they agreed to stay away from politics. That's the agreement that Russia's richest man defied by funding his own political machine to challenge Putin. And yesterday's announcement suggested that Khodorkovsky might prefer to be Russian president someday than to remain as Yukos CEO.
Capital is time, as my professor said. And the time has come for Russia to accept the oligarchs as capitalists and provide a solid legal framework for their companies.
Khodorkovsky and his capitalist friends can give Russia the financial growth and stability it needs. Indeed, that's what was happening -- until the Yukos putsch, its stock market was among the world's best performers this year. Putin, for his part, is politically strong enough to overcome Russia's latent anti-Semitism and grant the oligarchs the legitimacy they need. That sounds like a deal that's in everyone's interest.
© 2003 The Washington Post Company