Putin and the Oligarchs

THE KHODORKOVSKY AFFAIR

In mid-September, Russian President Vladimir Putin announced plans for a radical overhaul of his country's political system, with the goal of centralizing power in the Kremlin. Acting in the wake of the hostage crisis in Beslan, during which Chechen separatists killed hundreds of children, Putin claimed that his power grab was necessary to help Russia win its own war on terrorism. Whatever his motivations, the move represents a major step backward for Russian democracy.

Putin's recent actions may be the most drastic of his tenure so far, but they were hardly the first signs of his willingness to deploy the power of the Russian state for his own purposes. A year earlier, he had Mikhail Khodorkovsky, the head of the oil group Yukos and one of the world's richest men, arrested and thrown in jail on charges of fraud and tax evasion-a move widely interpreted as a declaration of war against the so-called oligarchs, who have amassed phenomenal wealth and power since the collapse of the Soviet Union in 1991. A key question now is whether Khodorkovsky's arrest is the forerunner of what will happen to many of his business colleagues.

The Khodorkovsky affair has been a shock for those who had come to believe in the "new Russia." During the previous dozen years, Russians had rejected the Communist Party and the Soviet Union's command economy. To the applause of most of the outside world, Russian and foreign economic advisers drew up an elaborate program for the privatization of industry, housing, and land. In an attempt at "people's capitalism," virtually every Russian was issued a voucher good for shares in a soon-to-be-private enterprise. Stock markets sprouted almost everywhere, while industrial ministries gave way to privately owned, Russia-based multinational corporations.

The largest of these corporations were producers of petroleum, natural gas, or metal that had previously been controlled by a Soviet industrial ministry. Their new executives became dazzlingly wealthy almost overnight. In May 2004, the Russian edition of Forbes identified 36 of these oligarchs as being worth at least $1 billion. Khodorkovsky topped the list with an estimated net worth of $15 billion.