Mikhail Khodorkovsky

Background

Mikhail Khodorkovsky was a modern Russian industrialist who ran the successful Yukos oil company before he was sent to prison for tax evasion and fraud. He was born on June 26, 1963 in Communist Russia.  He studied in Moscow at  the Mendeleyev Chemistry Institute (UK Reuters). In the late 1980’s he became a member the Sverdlovsk Komsomol district committee.  Many top members of the Communist Youth League were registered to this committee and provided him with many useful contacts for his upcoming business ventures (Sakwa p.32). After the Soviet Union fell in 1991, many state resources were privatized.  In 1996, the government privatized Yukos and Khodorkovsky bought a majority interest in the company (Khodorkovsky Center). He built the company into a major world competitor with revenues of US $46.1 billion from 2000 to 2003. Then suddenly, on October 25, 2003, he was arrested at gunpoint on charges of tax evasion and fraud (Time Line).

Supporters say he is Russia’s most famous political prisoner, arrested to send a signal to other businessmen over dissent.

Opponents say he simply lost a battle for influence because he did not see how the political climate had changed. Critics also say he was one of Russia’s most aggressive oligarchs — businessmen with immense wealth and influence — and Western media have ignored his past (UK Reuters).

In 2003 and 2004 Yukos was required to pay a series of taxes. The total burden amounted to a $42.2 billion, which Yukos could not pay.  Yukos’ main production unit, Yuganskneftegaz, was auctioned off by the Russian government to pay the taxes.  In 2005, Khodorkovsky was found guilty of tax evasion and fraud.  He was sentenced to 9 years imprisonment. (Timeline) Khodorkovsky has always been politically involved and his arrest is likely to be for political reasons.  Since his arrest he has written numerous articles that have been published in full or cited in part by many newspapers around the world.  His followers keep a web site called the Khodorkovsky Center. Khodorkovsky continues to write about his trial as well as Russian and World politics from his jail cell.

This blog post refers, mostly, to three essays he wrote while in prison: A Turn to the Left, Generation M, and Last Words. In these essays Khodorkovsky criticizes the current Russian government and discusses his own vision in general and specific terms. My intention is to expose the reader to Khodorkovsky’s political philosophy.  First I describe his vision of freedom and liberalism, then I describe his vision of state paternalism and interventionism.  Finally I analyze his political vision as a whole in order to expose the compromise that arises when he reconciles his two visions.  In my view, Khodorkovsky has brilliant insights into the nature of liberalism, but unfortunately his own paternalistic and interventionist vision of the Russian State undermines and leaves little room for liberalism.

Freedom and Liberalism

At times, especially in his essay, Last Words, Khodorkovsky sounds like an Ayn Rand hero standing up for the sovereignty of the individual and the importance of the mind in regard to human prosperity. In his essays, Khodorkovsky takes the reader back to the fall of communism and the hope and excitement that was felt by the Russians as the fresh air of freedom blew through holes in the Berlin wall.

In 1990 and 1991, when everyone was becoming aware that the soviet system had lost its relevance and was no longer viable, the whole country dreamed of being free. Everyone dreamed of having the right to be one’s own person, to be able to think, speak, read, see and listen, even to go abroad. They dreamed of not having to attend Party or political meetings every week, or having to work on communal vegetable gardens, or having to account for every action to the head of their block. (A Turn to the Left 1)

I remember too, the end of the last decade and the beginning of the present, current one. By then I was 35. We were building the best oil company in Russia. We were putting up sports complexes and cultural centres, laying roads, and resurveying and developing dozens of new fields; we started development of the East Siberian reserves and were introducing new technologies (Last Words).

We lived on this hope (Last Words).

Khodorkovsky, now in jail is the first to admit that the dawn of freedom never really came.  He says, “(t)he responsibility for why this hope was not realized all the way…probably lies on our entire generation, myself included” (Last Words). Khodorkovsky says the bureaucracy is responsible for stifling the opportunity for freedom to flourish. He blames both the people who passively go along with the leaders and those who purposefully drive the actions of the bureaucracy:

I am ashamed to see how certain persons – in the past, respected by me – are attempting to justify unchecked bureaucratic behavior and lawlessness. They exchange their reputation for a life of ease, privileges and sops.

Those who started this shameful case, – Biryukov, Karimov and others, – have contemptuously called us “entrepreneurs”, regarding us as low-lifes, capable of anything just to protect our prosperity and avoid prison. The years have passed. So who are the low-lifes now? Who is it that have lied, tortured, and taken hostages, all for the sake of money and out of cowardice before their bosses? And you opponents? What do you believe in? That the bosses are always right? Do you believe in money? In the impunity of “the system” (Last Words)?

Khodorkovsky criticizes the Russian system for not protecting private property. In neglecting this responsibility intelligent and creative people are either absorbed into the anonymous bureaucracy or leave the country to fulfill their dreams elsewhere.  These people, who would otherwise blaze new trails in the various fields of human endeavor, are stopped short because they fear punishment and loss of property under arbitrary laws.  Khodorkovsky’s liberal philosophy connects the protection of rights to the protection of the thinking mind.  He shows how the destruction rights, primarily property rights, leads to brain drain:

A state that destroys its best companies, which are ready to become global champions; a country that holds its own citizens in contempt, trusting only the bureaucracy and the special services – is a sick state.

A country that tolerates a situation where the Siloviki bureaucracy holds tens and even hundreds of thousands of talented entrepreneurs, managers, and ordinary people in jail in its own interests, instead of and together with criminals, – this is a sick country.

Even though they are enshrined in the law, rights are not protected by the courts…Should it come as a surprise to anyone then that thinking people do not aspire to self-realisation here, in Russia?

Let us ask ourselves: what must be going through the head of the entrepreneur, the high-level organiser of production, or simply any ordinary educated, creative person, looking today at our trial…? The obvious conclusion a thinking person can make is chilling in its stark simplicity: the Siloviki bureaucracy can do anything. There is no right of private property ownership. A person who collides with “the system” has no rights whatsoever (Last Words).

In order to develop a vibrant economy, Khodorkovsky says that political and social conditions must allow for the realization of human ability and creative labor.  This realization can be accomplished by the protection of rights by fair and comprehensible laws and independent courts to enforce the laws.  According to Khodorkovsky, it takes more than just a few privileged elites to create a decent society.

Objectively standing in first place among the prerequisites for economic development is the human ability for creative labor, and that means – the political and social conditions allowing for the realization of this ability (A Turn to the Left 3) …

(W)hat the country needs is not one Korolev, and not one Sakharov under the protective wing of the all-powerful Beria and his million-strong armed host, but hundreds of thousands of “Korolevs” and “Sakharovs”, under the protection of fair and comprehensible laws and independent courts, which will give these laws life (Last Words).

According to Khodorkovsky’s liberal philosophy, Russian’s need to be governed by consistent and comprehensible laws that protect private property.  These social conditions allow the “human ability for creative labor” to be realized, which is the “prerequisite for economic development’ that Russian’s want so badly.

The Interventionist State

Khodorkovsky specifically discusses paternalism in his essays, but he does not directly mention interventionism. While paternalism can be an attribute of an interventionist state, the interventionist state refers mainly to the economic and social regulations that are part of Khodorkovsky’s policy.

Again Khodorkovsky takes the reader back, this time to the actual events and thoughts that occurred as Russians faced the world after the fall of communism.

But by the mid-1990s it had become evident that the miracle of democracy was not working – freedom did not bring us happiness. Why did people who were neither known for their brains or education make millions while academicians and heroes, pilots and cosmonauts found themselves living below the poverty line? Doesn’t that indicate that Soviet Socialism which had been simultaneously so blessed and so maligned had not been so bad after all (A Turn to the Left Part 1)?

Life was still bad in Russia after the fall of Communism and many people looked back in longing at least for parts of the old regime.  Opinion polls in Russia show that the overwhelming majority of the country think the government should provide them with material goods and services.

97 percent of Russians are in favor of free education; 93 percent feel that pensions must not fall below a level providing for a minimum standard of living; and 91 percent are claiming that savings people made before the reforms should be restored. At the same time, 81 percent want a return to the direct election of governors…(A Turn to the Left Part 1)?

Khodorkovsky thinks the government must implement these demands in order to gain the confidence of the Russian people.  Khodorkovsky describes this type of government as, “state paternalism and democracy, freedom and justice together” (A Turn to the Left Part 1)  He suggests that the Russian Government show the Russian people “once again that Russia is our common country which thinks and cares about those who live in it and to which they are also responsible” (A Turn to the Left Part 1).

And this will be achieved principally by qualitative changes of state and social policy principles, the revival of democratic methods of management of the country, including state paternalism as an instrument of solidarity of the state with the people, as an acknowledgement of the fact that the state and the economy exist for the needs of the people.

[This includes the] development of a system of social welfare that is historically and psychologically traditional for Russia, including free high-quality medical care and quality compulsory secondary education for 100% of the population, free higher education for 50% of young people, and guaranteed provision in full of the social benefits that existed earlier or their real money equivalent (A Turn to the Left Part 2).

Khodorkovsky also wants to modernize Russia.  He wants all the wealth and prosperity of the West to become a reality in Russia.  In his Final Words, after explaining how a country of obedient bureaucrats destroyed the dream of freedom, he asks the question:

Who is going to modernise the economy? Prosecutors? Policemen? Chekists? We already tried such a modernization – it did not work (Final Words).

In Generation M, Khodorkovsky, specifies that innovative people without the “parasitically-distributive mindset” should implement the modernization plan.  He refers to this governing class of people as Generation M and they are:

…professional innovators, including – owners and managers of small and medium private companies created “from scratch”, with tangible results of work in the innovational sphere…

…scientists and engineers…who received an education in the USSR…and have not yet lost all hope of realizing themselves in the Motherland.

…(the) rather broad strata of the humanitarian intelligentsia…including, first of all, – real teachers and journalists (Generation M).

Presumably the best and brightest would rise to power in Russia and lead the country in a positive direction. Khodorkovsky suggests that these people be entrusted to govern law enforcement, foreign policy, economic and social issues:

(T)he President would be the moral leader, the guarantor of the country’s unity, the commander-in-chief, the direct supervisor of law enforcement agencies and the center forming foreign policy. And the whole range of economic and social issues should rest with the government, formed by the State Duma and responsible to Parliament for the results of its work. (A Turn to the Left Part 2)

As Khodorkovsky looks over the next few decades, he envisions the state increasing its role as economic regulator in national and international affairs. Khodorkovsky recommends that Generation M allocate capital to the most beneficial sectors and regions in Russia as well as regulate the economy in accordance with key international players. He admits that these regulations would reduce market efficiency but new opportunities for underdogs to enter the field would form the foundation for the future. In The Turn to the Left, Khodorkovsky proposes a series of measures designed to regulate the economy, which include:

A qualitative strengthening of the role of states as regulators in the economy…(A Turn to the Left Part 3).

A bringing of regulatory systems into accord with the demands of a global economy and the equilibrium of its key players…in point of fact laying the foundation for a world economic government…(A Turn to the Left Part 3).

An intensification of the factual control of states over the largest corporations, including legislative regulation and even partial nationalization…(A Turn to the Left Part 3).

…restrictions on the order of the movement of capitals, goods and labor between large economic zones (regions), to prevent the possibility of unexpected catastrophic fluctuations (A Turn to the Left Part 3).

An inevitable – in consequence of this – reduction in the market efficiency and flexibility of such structures. A creation thereby of new opportunities for small and medium-sized business, and this means – a base for a future (A Turn to the Left Part 3).

(D)evelopment of the necessary technical infrastructure – initially at least within technological parks; formation of venture funds with a share of state-funded capital to ensure the attractiveness of investments in priority sectors…(A Turn to the Left Part 2).

(F)ormation of a system of public and public-private grants for education and research; systematic protection and encouragement of innovative activity by creative and enterprising young people as state policy (A Turn to the Left Part 2).

Since Khordorkovsky focusses mainly on economic issues, his opinions on specific social issues are unclear. However, since he believes the State Duma should be in charge of social issues, it is clear that he intends for Generation M to intervene in social issues as well (A Turn to the Left Part 2). As an example Khodorkovsky says in response to the fact that people are leaving Russia in droves, the program to fight depopulation should be “direct financial stimulation for reproduction” in areas of the country where Generation M thinks population should increase (A Turn to the Left Part 2).

The Compromise Between Liberalism and Interventionism

Khodorkovsky sees the contraction between the liberal principle of individual rights and the binding baggage accompanying interventionism.  However, he does not see this as an obstacle. Instead he attempts to combine the two by compromise.  Khodorkovsky takes the compromise to its logical end, the slow destruction of liberalism and individual rights.  In the statement below Khodorkovsky says that liberalism tried, failed and is now irrelevant at best.

Yes, democracy is a hindrance to the realization of an ideal liberal model in which“everyone is for himself”; yes, the electorate will demand to have a part of the oil wealth that fell from heaven, used for the needs of those who, because of their health, education,age, or other reasons, are unable to achieve their own personal success in a modern society without its (society’s) help (A Turn to the Left Part 2).

We have the full moral and expert right to state that 30 years of the dominance of libertarian ideas have come to an end. Yes, at the beginning of the 1980s to power in the US and Great Britain came leaders …who saw that real socialism was becoming flagrantly uncompetitive economically, politically and socially (A Turn to the Left Part 3).

Neo-socialism has come up to the threshold of contemporaneity. In the nearest future, Keynes is going to be more in demand than Friedman and Hayek. The tangible hands of states and inter-state alliance – more than the invisible hand of the market (A Turn to the Left Part 3).

Khodorkovsky uses the word democracy a few times, but it is not entirely clear what he means by the word. Since he does not define Democracy, it is difficult to pin down. When he says democracy is a hindrance to the liberal ideal, he is assuming the actual definition of democracy: majority rule and if the majority wants to violate the rights of the minority, they just vote for it.  Democracy in this sense is a hindrance to all political models, not just liberalism. As we shall see, Khodorkovsky does not have democracy in mind when it comes to economic planning.  He limits democracy to the base demands of paternalism.

Kordorkovsky establishes the fact that paternalism hinders the ideal liberal model but he does not fully explain how. Paternalism in some varieties does not by itself hinder man’s ability to think and act to acquire and keep property. Hayek explains in “The Road to Serfdom” that society can function, and even be better off, with some paternalistic measures (Hayek 156). While some property is taken in taxes, the liberal ideal is violated as such. But as long as taxes are not excessive, he continues to think and act and pursue his dreams, because this intervention does not subsidize or hinder any specific person or group.

In my view, the problem with paternalism is moral, not economic. Paternalism is part of the ideological package that contains the foundation of statism.  As we unwrap the package we discover that the acceptance of paternalism in politics follows from the acceptance of an old moral idea.  The idea that “we are our brother’s keeper”. Politically, this moral idea leads to the notion that the “state and the economy exist for the needs of the people” (A Turn to the Left Part 2). Further inside the package, we find  a government that should subsidize social activities and industries it thinks are best for society as whole.  In the end, the acceptance of paternalism on moral grounds sanctions a government that regulates, controls and suppresses behavior through the initiation of physical force: based on whether or not the behavior is determined to be anti-social, for example, excessively profiting from the production of oil.  This type of intervention targets specific people and sectors, hindering man’s ability to make long term plans based on his own judgement.

Khodorkovsky’s neo-socialism takes full advantage of the ideological package that sneaks in with the seemingly harmless paternalism.  In my view he sees the evolution of “state paternalism and democracy” into a centrally planned economy as inevitable.   His series of essays, A Turn to the Left, give plenty of evidence to support this conclusion, including his seven-step, twelve-year program which states that Russia should develop the following structure for its economy:

40% – “knowledge economy”

40% – oil, gas, metal, licensed production

20% – agriculture, including processing and trade (A Turn to the Left Part 2).

For further evidence, examine his “12 theses of perestroika”, in which he describes the policies supported by the ideological shift he envisions.   Khodorkovsky sees as prudent, “an intensification of the factual control of states over the largest corporations, including legislative regulation and even partial nationalization”.(Left 3)  It is difficult to deny his leaning toward central planning.

According to Mises, interventionists like Khodorkovsky are:

…prepared to tolerate the supremacy of the consumers only as far as it brings about a result of which they themselves approve.  As soon as something happens in the economy that any of the various bureaucratic institutions does not like or that arouses the anger of a pressure group, people clamor for new interventions, controls and restrictions.(Mises 859)

When the economy is centrally planned, and the plan is static, there is no room for plans that do not match the goals of the central plan.  If an entrepreneur thinks it more profitable to use resources for developing industry X, it means there are less resources available for Khodorkovsky’s desire to have, for example,  a 40% “knowledge based economy”.  It also means that someone might have a better use for resources. This, in effect, would undermine public confidence in Khodorkovsky’s plan. Would Khodorkovsky tolerate industry X, and to what extent?

While a static plan would be easier for Generation M to work with, it is impossible.  Since no one is omniscient, not even Generation M, it must be realized that even the most thoroughly thought out plans will be insufficient and modifications large and small will be part of any plan.  How does Generation M plan to modify the central plan without making the people feel as if the “bureaucracy can do anything” it wants (Last Words).  How can they constantly reallocate resources to the appropriate places in order to implement the changing plans without crushing the longterm plans of the citizens who found their place within the previous plan?  How can they protect the property rights of citizens who own resources that are needed for the new plan?   How can the law remain “fair and comprehensible” when people and resources are pulled, this way and that, based on the decisions of Generation  M?

As the resources required to accomplish the plan of Generation M grow and or change, the realm in which a person can think and act to acquire and keep property becomes uncertain.    Uncertainty discourages long-term thinking and planning which are required for the production life-sustaining values.  After all, what goals and desires may the thinking man peruse so as to not to harm or take resources away from the plan set forth by Generation M?    It is anyones guess.  At this point the rule of law, which is so vital to any society, becomes void in the face of arbitrary power.  When the law can not be counted on to provide security for a person’s actions and property, the thinking mind can no longer function on the level required for building a peaceful and prosperous society.

It is easy to say 2 + 4 = 5.  In the same way, Khodorkovsky attempts to defend neo-socialism based on the idea that freedom and private property can be preserved by a purposefully interventionist government.  In his world, Generation M, the best and brightest, only interfere where it is necessary and according to the demands of the people themselves. Everything else is left to the free people. In this case, how does Generation M decide what aspects of life will be planned for the Russian?  If it is through democratic vote, can a government act on the advice of the general population?  What if the people ask for something that harms themselves or other people?  How does Generation M follow the Swiss model and be – “honest, moderate and neat” (A Turn to the Left Part 1)?   How do they maintain consistent and predictable laws as new resources are created and the demands for limited resources change? How does Khodorkovsky’s version of  “state paternalism and democracy” differ from full blow statism?  If it is different, how does Generation M draw the line between “state paternalism and democracy” and statism?

Conclusion

When the law and force keep a man within the bounds of justice, they impose nothing upon him but a mere negation.  They only oblige him to abstain from doing harm.  They violate neither his personality, his liberty, nor his property.  They only guard the personality, the liberty, the property.  They hold themselves on the defensive; they defend the equal right of all.

…[W]hen the law, through the medium of its necessary agent — force — imposes a form of labor, a method or a subject of instruction, a creed, or a worship, it is no longer negative; it acts positively upon men. It substitutes the will of the legislator for their own will, the initiative of the legislator for their own initiative. They have no need to consult, to compare, or to foresee; the law does all that for them.  The intellect is for them a useless encumbrance; they cease to be men; they lose their personality, their liberty, their property.

Quote of Frederic Bastiat from his book, The Law, which was published in 1850.

Khodorkovsky has the vision to know what appeals to people when he says,  “They are watching with the hope that Russia will after all become a country of freedom and of the law…”(Last Words).  Then he offers to Russia a new ruling class called Generation M that will come into power, privatize state resources (A Turn to the Left Part 1) and then proceed to nationalize them (A Turn to the Left Part 3).

In the end, Khodorkovsky offers his audience and the Russian people no real alternative.   The alternative he offers is one between the obviously corrupt statist government now in power and a new set of statist plans which can not be realized as envisioned and will result in a new set of elites with same old arbitrary power.

In Generation M, Khodorkovsky says, “The modernizers of Russia can be people only of a creational, and not a parasitically-distributive, mindset.”  He also criticizes the current government for encouraging the rise of the parasitically-distributive mindset and the destruction of the creative mind (Generation M).  Unfortunately he is not able to see that a centrally planned, paternalistic state breeds a non-thinking, obedient, entitled and parasitic-distributive mindset.  The quality of the central plan is of no importance in this regard.

It is a tragedy that a seemingly great entrepreneur is a prisoner and at the mercy of an arbitrary power.  It is my hope that he is released and given the freedom to pursue his dreams with the rest of his life.  In my view, he is the typical victim of an interventionist government.  Force is inevitably used against innocent citizens in order allocate and reallocate resources.   As an advocate for interventionism Khodorkovsky is, indeed,  partially responsible for his own imprisonment.

Bibliography

Reuters, http://uk.reuters.com/article/idUKLDE6310C920100406)]

Khodorkovsky Center, http://www.khodorkovskycenter.com/history-background/yukos-affair

Last Words, Khodorkovsky, http://www.lantosfoundation.org/news/PDFs/MikhailFinalRemarks11-2-2010.pdf

A Turn to the Left, Part 1, Khodorkovsky, http://www.old.khodorkovsky.info/docs/mbk_left.pdf

A Turn to the Left, Part 2, Khodorkovsky,  http://www.khodorkovskycenter.com/sites/khodorkovskycenter.com/files/pdfs/left-turn-2-11-nov-2005.pdf

A Turn to the Left, Part 3, Khodorkovsky,  http://www.khodorkovskycenter.com/sites/khodorkovskycenter.com/files/pdfs/turn-to-the-left-3.pdf

Generation M, Khodorkovsky,  http://www.khodorkovskycenter.com/sites/khodorkovskycenter.com/files/2009%2009%2030%20%20GenerationM1%20EN%20(MBK’s%20op-ed%20translation).pdf

Mises, Ludwig von, Human Action: A Treatise on Economics. Liberty Fund, 2007.

Hayek, F.A., The Road to Surfdom: The Definitive Edition. The University of Chicago Press, 2007.

Sakwa, Richard, The Quality of Freedom. Oxford University Press, 2009.