Russia is Losing Touch with Modernity The Causes and Effects of the Break-Up of Yukos

Posted in Russia | 09-Aug-04 | Author: Peter Robejsek

Imprisoned former head of the Yukos oil company Mikhail Khodorkovsky (L) arrives at the courthouse in Moscow.
Imprisoned former head of the Yukos oil company Mikhail Khodorkovsky (L) arrives at the courthouse in Moscow.
Russia and the pitfall of modernization

Yugankneftegas, the core production subsidiary of Yukos(responsible for 2/3 of Yukos’s production) is to be put up for sale. After chief executive Mikhail Chodorkowskij attempted to expand his economic power into the political arena last year and instead landed in prison, the company that he built up is to be dispossessed. Western Observers consider this to be an act of arbitration and warn of the danger of losing investor confidence. These critics are right, but they nevertheless do not understand the true nature of the conflict.

The 1990s were marked by the hope of a leap of reform in Russia and a quick opening-up of relations to the west. Many believed that western democratic institutions, investment and know-how were all that was necessary to achieve this. However, what has really happened? Western companies draw on the raw materials and exploit the economic weaknesses of the country for the purpose of establishing dominant positions in Russia. The key areas of the Russian economy are controlled by a dozen entrepreneurs. They put all of their economic strength into gaining political influence. For these entrepreneurs, democracy means the freedom to buy political power.

Being bestowed with raw materials is both a salvation and a curse for Russia. Russia is the largest exporter of natural gas in the world and the second largest exporter of crude oil. Oil and gas bring foreign currency and are responsible for budget surpluses, but they also diminish the pressure to modernize. The value of the national currency is being raised by the influx of foreign currency, thus making imported goods cheaper and placing Russia’s manufacturing industry (because it is less competitive) at a disadvantage. Under these circumstances, it would be fatal if political might were to bow to economic logic (profit-seeking endeavors of domestic and foreign investors) and the state would limit itself to performing general governmental tasks. Since Russia does not have a capitalistic and civic past, it is not compatible to a service-society: It would just languish as an additional source for raw materials for the west.

President Vladimir Putin - what does he really aim at ?
President Vladimir Putin - what does he really aim at ?
Resignation to becoming “westernized”

In order for Russia to retain what is left of its independence, political power must prevail over economic power. Vladimir Putin respects this (natural philosophy) of power and defends the primacy of political power against aggressive Russian tycoons. However, political supremacy hinders Russia’s economic development – a dead end. While Putin attempts to consolidate his and Russia’s power at the present level, he is silently resigned to the westernization that is closing the gap. In the present situation, he can hardly do anything else. The economic emphases were and remain raw materials and heavy industry (mining, steel), defense and agriculture. Russia relies upon the traditional sectors of its economy. It has become more structurally developed but on the whole, Russia lags behind.

What will the future bring? The state will have the upper hand over the strategic areas of the oil and gas industries and will carry out industrial policy with the help of regulations and energy prices. The low price of natural gas as well as the low price of electricity favor the antiquated sectors of the economy. The existing economic structures are preserved. This complete development was predictable.

Large but weak

Given that oil and natural gas will remain the backbone of Russia’s economy in the future, it will become even more important to know who has control over them: The state or oligarchs, Russia or foreign powers. The disagreement with the US regarding the Caspian region will intensify. In Siberia, Russia will be challenged by the Chinese economic infiltration with its thirsty economy. In addition, Russia’s desire for self assertion will force it to practice an offensive foreign policy. Yet Moscow cannot finance this. Political exploitation of its own unpredictability (rule of chaos) will continue to be the precondition for Russian political power in the future. The west cannot file away the question of the challenge of Russian security policy.