Russia: back to the future

April 14, 2015

On April 13th Mikhail Khodorkovsky spoke at Stanford University at a seminar entitled “Russia: Back to the future”. The event was hosted by the Center on Democracy, Development and the Rule of Law.

Ladies and gentlemen, Stanford teachers and students,

It is a particular honor for me to speak here in Palo Alto, inasmuch as people here are creating the future every day.  I have no doubt that my country too will soon stop living in the past and will start moving towards success and prosperity.

For starters let me tell you a bit about myself.

In the Western press they usually call me an oil tycoon, because at the moment of arrest in 2003 I was the head of YUKOS.  This was the most efficient and transparent oil company in Russia.  Its market capitalization was valued at $35 bln., we were planning a merger with Chevron Texaco, and were getting ready to create the biggest oil company in the world.

However, YUKOS was far from being first business, nor was it my only one.  I started my first project, which would be called a “start-up” today, way back in 1987.  It had a frightfully Soviet sounding name:  the Center for Inter-sectoral scientific-technical programs.

You’re going to laugh, but our business was in some ways a lot like what Michael Dell was doing in his early days.  We bought components, assembled computers out of them, installed an operating system, taught them to “talk” to a printer, and sold them to Soviet enterprises, whose directors wanted to have the latest toy in their office.

At the beginning, a dollar invested in a computer returned 7-10 dollars in profit.

This wasn’t a bad business, but it was clear that soon there would be serious players coming into the market and that we’d no longer be able to sell at such a markup.  And that’s exactly what happened.

After a year, we took the money we’d earned and opened ourselves a commercial bank.

All in all, my partners and I created four businesses that surpassed the billion mark.  Eight billionaires and dozens of millionaires grew out of my companies.  To the best of my knowledge, some of them have been successful in the world internet business and have even ended up not far at all from where we are right now.

We were creating companies in a wide range of industries.  The «Siberian internet-company» was for a long time one of the biggest systems integrators in Russia.  «Gazeta.ru» became one of the first internet-publications and remains to this day one of the most widely read Russian mass information media.

In 1999, we began funding non-profit projects in the field of education and to engage in overcoming digital divide.  This is how «Open Russia» and the «Federation of Internet Education» appeared.  50 thsd. Russian schoolteachers went through our professional retraining courses.  They learned how to teach their subjects using the internet.  We helped bring the internet into schools.  Our dream was that any Russian schoolchild, even in the most faraway region, could get access to this worldwide repository of information.

But subsequently, as you all know, these plans were interrupted, and I was deprived of liberty for 10 years.

 

Time travel

When I was coming out of prison, I wanted to see another country.  One expects the future to bring not only technological progress, but social progress as well.  One wants to see not only ipads, iphones, and social networks, but also how these technologies are making people more free, more open, more confident in the future, and more independent.

Unfortunately, the feeling I got was completely different.

It was in some ways reminiscent of what the main hero of the «Back To The Future» trilogy felt when he found himself in the alternative Hill Valley of 1985.  The Russia of 2015 is being ruled singlehandedly by a cynical and unprincipled Biff Tannen surrounded by a group of kleptocrats.  And the inhabitants, while realizing what is happening, don’t have anything with which to counter the massed propaganda and the police and criminality that are often indistinguishable from one another.

Russia could have become a completely different place if it had not turned off from the trajectory that it had started moving along in the last decade of the previous century.  If our country had continued moving in the direction of an open society, political competition, a real fight against corruption, and equality before the law.

The period of reforms of the 1990s was indeed hard.  It has become customary to utter curses at those years and to frighten people with warnings about their return.  But it was precisely in this period that Russia’s economy was rebuilt and started growing at a headlong pace.  At the end of the 90s and the beginning of the 2000s, per capita GDP increased on average by 7% per year, while the size of the middle class got to be as much as 30% of the population.

A part of the citizens associated this period of prosperity with the person of Putin.  It’s easy to understand why:  independent television had been destroyed, while on state television he was portrayed as a superhero.  You got the impression that the money had begun to flow into the country exclusively thanks to his supernatural abilities.

This is a rather tragic fact, because he used the credit of trust that had been earned by completely different people in order to turn the country’s development around in a totally opposite direction.

Many opponents of the regime said, on the contrary, that the reason for the economic growth had to do exclusively with the rise in oil prices.

The role of the oil-and-gas sector is big, but it’s clearly not enough to call Russia a petro-state.  In that same Saudi Arabia, oil-and-gas export comprises 50% of GDP.  In Russia it’s a mere 10% of GDP, calculated at purchasing power parity.  All the rest of the value is created by millions of citizens, employed in other industries, who are being told that they’ve had their civil rights taken away because they’re being fed by the state oil-and-gas companies.

The economic boom of the 2000s, which in Russia is only partially explained by the rise in oil prices, would have been impossible without the reforms of the 90s, without the new class of entrepreneurs who were creating entire new industries from scratch:  retail, banks, automobile manufacturing, telecommunications, media.  Our internet companies became the biggest in Europe.  Russia doubled the production of oil and started exporting wheat, even though only recently the USSR had been forced to bring grain in from the USA and Canada.

Putin is still in place today, as are the oil-and-gas incomes, but there’s no more economic growth.  On the contrary, a decline has begun.

In 2004-2008, Russia was getting on average $306 bln. in export incomes.  And in 2010-2014 — $490 bln.  That’s 60% more.  This while the rates of economic growth had fallen nearly three times — from 7% to 2.5%.  In 2014 there was an outright decline in GDP, even though export incomes remained at the same level — $490 bln per year.  This was and still is a huge number — it’s $15 bln. more than Russia got in total throughout all six years of Yeltsin’s rule.

So why have export incomes stopped turning into economic growth then?  This is the inevitable result of the destruction of freedom and the liquidation of normal democratic institutions.

The authorities had taught society to detest business that’s independent of the state.  But until 2011, hope still remained that this was temporary.  In 2010-2011 it became clear that Putin wasn’t planning on going anywhere.  That there wasn’t going to be any political competition and independent judiciary in Russia.  That nobody wanted to recognize the contribution that entrepreneurs had made to improving the lives of the citizens.

Not having received recognition and respect, having lost all hope for understandable and transparent rules of the game, entrepreneurs began to abandon Russia.  In 2003-2008, capital flight comprised a mere $10 bln.  In 2010-2014 it was $383 bln.  A nearly 40-fold increase.  Business started fleeing from Russia.  And also running away with it is the entrepreneurial spirit, competition, and respect for the consumer.  And at the end of the day — material prosperity as well.

In 2015 Russia can expect a decline in GDP.  Even those economists who are loyal to the Kremlin are forecasting that 10 years of no growth lie ahead.

The citizens of Russia won’t see good roads, universities, hospitals, and polyclinics.  Hundreds of thousands more people are going to be unlawfully convicted or will become victims of arbitrary rule.

Russia is paying for the loss of freedom and for the destruction of democratic institutions with the lives of the soldiers and volunteers who are dying in the Ukraine.

After all, Putin has realized that the state capitalism he has created is no longer capable of ensuring growth.  States of such a type were always created only for war.  And this war had to be started in order to justify the existence of the current system.

The internal enemy represented by independent business has been destroyed.  An external enemy was needed to mobilize the masses around the kleptocracy.

 

Back to the future

The Russia we dream of seeing is completely different.  It is a country of clean streets, successful, smiling, self-confident people, who have a job they love and who don’t have to struggle for existence day in and day out.

A country where, if you obey the law, you need not be afraid of anybody — not a prosecutor, not a judge, not the governor, not the president.  Not even the president of Chechnya.  Where every citizen who obeys the law will feel himself far more confident than a president who violates the law.

A country with an independent judiciary and an influential parliament, where the citizens themselves determine the future at honest elections.  Where the real power isn’t in Moscow, but in each and every municipality.

A country where the state has no choice but to respect people’s rights and international obligations, and not engage in pillaging and plundering beyond the confines of the country and protecting criminals inside.

A country from which capital isn’t fleeing, talented people aren’t fleeing, but on the contrary, one that attracts enterprising people from all over the world.  Where the only criterion in business is how good you are at what you do.  If you’re talented and not afraid of work, then you’ll certainly achieve success, irrespective of how close your friendship with the president is.

Good schools, hospitals, and roads will appear only when every person who has power and money conferred on them will know that if he doesn’t do his job well, someone else will take his place.  Voters will choose another candidate, consumers — another producer.  This is called political and economic competition, and many countries have learned how to use it for the benefit of society.  Russia is no different in this regard.  Our country was developing and growing rich thanks to the competition of the 1990s-2000s, and now that competition has been destroyed it’s getting poor.

Political competition is the only chance to turn the state around to face the people.  Only if there are several more or less equal forces vying for power is each individual vote going be important, because it will be able to tip the balance in favor of the one or the other-

But even if you do lose the competition, this won’t mean it’s the end for you — the state and society guarantee still you a decent life.

And that’s our program.

Besides a program, you need people who believe it can be carried out and who are prepared to act, tens of thousands of people, those who aren’t yet 40.  They’re the ones who are going to have to build what is now destroyed.

In Russia there’s a multitude of people who share our vision.  This is at a minimum that 16% of society which even during a time of post-imperial hysteria had the courage to speak about the annexation of Crimea as an ill-considered and irrational step, a violation of international law that led to international isolation and a decline in the standard of living.

This is the 30% of society that comes out in favor of a modern, democratic path of development for the country, for separation of powers, for their regular replacement, against self-isolation, and for an open Russia.

– it is important that both the program and the people prepared to carry it out be known to our fellow citizens, that they believe that these people can make their lives better

I hope they’ll be able to show a democratic alternative to the regime at the elections, and we’re going to help them.

We often hear talk about how the opposition in Russia doesn’t stand a chance, that this is just an impossible dream.

The entire history of humanity was made precisely by those who dreamed.  If we recall the great Americans  —  Thomas, Jefferson, or, let us say, Martin Luther King — their dreams also seemed impossible, but they believed, and in the end they turned out to have been right.

The same can also be said about the Soviet dissidents.  Their contemporaries also considered many of them to be naïve dreamers.

So how can you bring dreams to life?  By waving a magic wand?  With the help of a time machine?  No, every inhabitant of Russia who dreams of turning his country back to the future is going to have to take some kind of action.  The regular efforts of even a small group of active citizens are enough for changes to come.

We never know what can become the catalyst for these changes.  For example, an African-American woman refuses to move to the back of the bus.  Or several people who come out on the central square of the city.

The regime will fall as the result of internal problems and civil disobedience.

For now it is most visible in the form of capital flight, brain drain, and a decline in entrepreneurial activity, i.e. on the individual level.  But the process is going to deepen.  People will gradually realize that the only thing conformism will lead to is un-freedom, poverty, and loss of self-dignity.

– after the regime falls, we’re going to need to quickly bring the country out from isolation in the practical sense.  And this means people, capital, technologies.  It is precisely for this reason that it’s important for us that people here know those who are going to have to build the Russia of the future after the regime change

This is the reason why I’m here.  You are the leaders of today’s technological world.  Much of what has already changed our life and will continue to change it going forward is being created right here.  For modern youth, this is Mecca, which not everybody has been to, but everybody expects miracles to come from here.

This is a great honor and a great responsibility.  Your example shapes not only the technological future.

If you believe in democracy and openness – the leading-edge youth of the whole world dreams of democracy and openness.

If you let yourselves be pulled along on a leash by authoritarian regimes for the sake of money, youth the world over becomes a little bit more cynical.

If you help overcome barriers established by not very smart politicians – the world becomes a brighter place,

If you help establish these barriers – darkness descends on entire countries.

We in Russia believe – you aren’t going to start helping our authoritarian regime suffocate the opposition, you’re not going to start passing them information and technologies that help record our conversations in the net, break into correspondence, or set up barriers, you’re not going to start creating the illusion that all is well with the help of window-dressing projects and on the contrary are going to help us to bring people the truth, to self-organize on top of the established prohibitions.

I believe that those of you who have left Russia in order to bring their ideas to life here will at some moment return and help your country deal with the legacy left by this regime, but for now I wish you luck over here.

I see all of you as friends and colleagues with whom we’d like to build the future of all of humanity together.

Thank you.

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