Crude World (30 page)

At the outset of 2003 Mikhail Khodorkovsky was the largest shareholder of Yukos and the wealthiest oilman in Russia—even richer than Alekperov. Unlike Alekperov, who could not respond quickly enough to the Kremlin’s wishes, Khodorkovsky had his own ideas. Khodorkovsky’s motives were not entirely noble—he was upset by Putin’s desire to collect more corporate taxes and reduce the clout of oligarchs like himself. After acquiring a chunk of Russia’s oil reserves, Khodorkovsky was now using his wealth to fund a chunk of the opposition. But Putin was gutting the courts, the media and the opposition, so Khodorkovsky was also genuinely concerned about Russia’s democracy. He had amassed a fortune in his early thirties by taking risks that went his way, so his challenge to Putin was just the latest gamble that he expected to turn out well.

Khodorkovsky was also challenging Putin in another way: he had opened talks with Exxon to sell a large slice of Yukos to the American firm. This was a provocation, because Putin did not want an American oil company to own the largest Russian oil company. Putin’s concern was understandable. When a Chinese firm tried to buy Unocal, an American oil company, the outcry in Congress was immediate; the sale did not go through. So it wasn’t a great surprise that when Khodorkovsky’s private jet landed at a Siberian airstrip one day, paramilitary officers stormed aboard and arrested him. Hauled back to Moscow, Khodorkovsky was accused of tax evasion and fraud. In court appearances, he sat in a cage.

My visit to Moscow coincided with his trial, so I met his lawyer, Anton Drel, at one of the mansions that had not yet been seized from
the jailed billionaire. As we sipped tea under stained-glass windows that seemed right for a cathedral rather than a home, Drel described the trial as an emblem of Russia’s undemocratic course. Even Drel’s office had been raided several times. His jailhouse consultations with Khodorkovsky were assumed to be bugged. Drel and his client silently exchanged notes that they scribbled over after reading. “Like in the movies,” Drel said.

The case was hopeless, partly because Khodorkovsky, like any businessman of that era, deserved to be convicted—though for other crimes. Under the post-Communist rule of Boris Yeltsin, lawlessness pervaded business transactions as the government sought to break apart the Communist-era state-dominated economy. Instead of having transparent privatizations, state assets were stolen or stripped by managers and entrepreneurs who had the nerve or connections or assassins to get what they sought. The new generation of billionaires became more powerful than the state, whose belongings they carted away like a museum’s unprotected valuables. Yegor Gaidar, an architect of this economic shock therapy, acknowledged when we talked in Moscow that the fire sale of state assets, particularly oil and gas holdings, created a class of oligarchs who ruled the economy and the state. “To some degree they regarded themselves as the real government of Russia, and to some degree they were the real government,” Gaidar said. “They could easily dismiss ministers and nominate people who would be loyal to them.”

The chaos of the early Yeltsin years had begun to abate by the time Putin came to power in 2000; the government was regaining its clout. Putin put the reaccumulation of state power into overdrive. Instead of independent businessmen running away with the gems of the economy, allies of the Kremlin did so. Putin’s message to the Yeltsin-era oligarchs, transmitted in a variety of ways, including the prosecution of Khodorkovsky, was as sharp as a winter gust in St. Petersburg: even if you own every share and every paper clip of your company, you must follow my orders or lose everything. Vagit Alekperov had gotten the message: that is why, when I sat in his office, Putin’s eyes also bore down on me.

Khodorkovsky is serving his jail sentence in Siberia, and the oil fields he once controlled are in the possession of a state-owned firm. The merging of oil power and state power was so thorough that in 2008, when Putin was obliged to hand over the office of the president after his second term—he sidestepped into the post of prime minister—he selected Dmitry Medvedev, whom several years earlier he had selected as the board chairman of Gazprom, the vast state-owned oil and gas firm.

The renaissance narrative pivots around the idea that oil and Putin were responsible for Russia’s economic rise. Annual growth exceeded 6 percent during his presidency, and once-bankrupt Russia even set up sovereign wealth funds to save some of the oil bounty for future generations. But there is an alternative narrative, which is that Russia’s economy should have performed even better than it did, that oil and Putin were a hindrance. And this alternative narrative was proven correct as Russia’s economy, which seemed so fat and invincible when oil prices were skyrocketing, staggered under the blow of fallen oil prices in late 2008.

As Michael McFaul and Kathryn Stoner-Weiss, Russia experts, have noted, between 1999 and 2006 Russia’s growth rate, impressive in isolation, was only ninth fastest among the fifteen post-Soviet states. When the Soviet Union fell apart, its successor states went into an economic free fall that halted after each government initiated emergency reforms, as all did. Russia, like every other country in the former Soviet Union, was experiencing economic growth before Putin came to power. “Putin arrived on the scene at a good time in Russia’s economic cycle, and got even luckier as oil prices rose worldwide,” McFaul wrote with Stoner-Weiss. They noted that Russia’s standings in corruption and public health surveys worsened under Putin. Russia’s fate rested once again upon a fickle resource sector that had functioned, in the Soviet era, as a trap door; once oil prices receded from nearly $150 a barrel, as they would, the country would find itself with a crippled economy and a brittle autocracy. “The strengthening of institutions of accountability—a real opposition party, genuinely independent media,
a court system not beholden to Kremlin control—would have helped tame corruption and secure property rights and would thereby have encouraged more investment and growth,” McFaul and Stoner-Weiss wrote. Not long afterward, when oil prices fell below $100 a barrel, the Russian stock market plummeted along with the value of the ruble, and the once-mighty government surplus, along with one of the sovereign wealth funds, were greatly depleted to support the faltering economy. Russia’s megarich took a cold bath, with Moscow dropping below New York as the billionaire capital of the world. Even Putin’s popularity began to shrink. A rash of street protests broke out—and were quashed.

As Russia suffers the blows of falling prices and declining output, McFaul and Stoner-Weiss worried that it could become another Angola, led by hard men who care more about controlling crude-oil money than providing good governance. An extreme outcome of that sort is not certain, thankfully, but McFaul, who in 2009 was appointed to President Obama’s National Security Council, was not alone in seeing an unfortunate future. His conclusion was shared by Andrei Illarionov. A year after our encounter, which ended at the Prague restaurant, Illarionov turned on Putin and resigned. “The state has become, essentially, a corporate enterprise that the nominal owners, Russian citizens, no longer control,” he wrote. “There are other countries like this: Libya and Venezuela, Angola and Chad, Iran and Saudi Arabia. Russia is one of them now. It is a historical dead end.”

The addictions of Hugo Chávez, president of Venezuela, are regularly in full view. On his television show,
Aló Presidente
, Chávez sips espresso from a white porcelain cup, and because the program can last from morning until night, with Chávez talking and singing and crying and joking and taking phone calls from Fidel Castro, the nation watches him drink cup after cup. Quite famously, the paratrooper-turned-president is wired on caffeine. That’s not his only craving. In the halls of American power, Chávez is known as a leftist who appeared at the United Nations a day after President George W. Bush and proclaimed, crossing himself and sniffing the air, “The devil came here yesterday, and it still smells of sulfur.” In his disobedience of political etiquette, Chávez acts with intended provocation. His defiance extends to the realm of economic strategies, because he is trying to overturn the dismal conventions of third-world resource management.

If, in the last century, you watched in dismay as oil profits were stolen or wasted, you might have been hopeful when Chávez was elected president and vowed to use resource wealth to help the needy. Though Venezuela has the world’s seventh-largest reserves, most of its 26 million citizens are exceedingly poor. The enclaves of wealth in Caracas are surrounded by coils of angry slums. It is a classic example of what economist Joseph Stiglitz calls “rich countries with poor people.” Chávez’s desire for a fairer economic order was not new, because radical and well-meaning leaders across the globe had tried to make oil
a blessing. Nigeria had had one or two presidents who preferred reform to looting, and even Huey Long tried to spread the oil wealth in Louisiana. But Louisiana remains one of the poorest states in America, and Nigeria is, well, Nigeria. I went to Venezuela to see whether Chávez could perform the magic that had eluded so many others, and my first stop was the barrio of Gramoven, where a new paradigm of resource management was being built.

Gramoven, at first glance, seems a model for little more than world-class squalor. Its crowded streets are lined with bare-essentials shops selling everything from sacks of flour to used shoelaces. Young men linger on corners in the way of the unemployed, swapping rumors about jobs that are hard to find. There is a wariness in their eyes, on the lookout for not just work but danger, because on these unkind streets even the jobless are mugged. Other hazards include manhole covers that have been stolen, which means that if you do not watch your step, you can disappear into a black hole. In a general sense, Gramoven is a black hole of poverty from which few escape.

A supporter with a placard of Hugo Chávez, president of Venezuela

Gramoven was hosting a vision of the future that went by the awkward name of Fabricio Ojeda Nucleus of Endogenous Development. The “nucleus,” located on a side street near the barrio’s heart, consisted of three main brick buildings the size of low-slung dance halls. One building housed a medical clinic, while the others held cooperatives that produced shoes and clothes. The well-tended complex covered just sixteen acres and had, at its center, a small amphitheater for meetings and performances; off to one side were an organic garden and a sports field. This nucleus was a model for Chávez’s effort to plow oil money into social development. There were plans for hundreds like it across Venezuela, and not only did the funding come from oil, but the state-owned oil company managed everything. At the time I visited in 2005, the nucleus had received more than $7 million from Petróleos de Venezuela S.A., and a PDVSA manager, wearing a company badge, helped run the place. It was a showcase of sorts, because Chávez had broadcast an
Aló Presidente
episode from it, and its visitors included Harry Belafonte, Danny Glover and Cornel West.

The shoe cooperative, suffused with the aromas of leather and glue, was brightly lit and freshly painted. Its sewing and cutting machines were not crammed together, as they might be in a typical sweatshop. The pace of work was not hectic when I visited, and perhaps because of that, the output was a modest six hundred pairs of shoes a day. The measured rate of production did not translate into high quality, unfortunately. The workers were new to shoemaking and most of their output went to Cuba, which cannot afford to be picky, or was distributed at discount prices to poor families in the barrio. Oswaldo Quintero, one of the associates, as workers called themselves, explained that the 140 members of the cooperative voted on their pay (about $190 a month) and hours (two six-hour shifts a day). Quintero, who was forty years old, a former taxi driver and the father of five children, had an Everyman look, with a slight potbelly, a two-day stubble and short legs. His blue overalls were smeared in shoe polish. He savored his new life because he didn’t need to drive around the city for twelve or fourteen hours a day, six days a week, risking robbery or carjacking every minute.