The Rich Are Duty Bound to Fight (10.2003)
Taken from Mikhail Khodorkovsky’s last public statement before his arrest in October 2003 and published in the newspaper Moskovskie Novosti in July 2004.
On Emigration
People often ask me why I don’t just say to hell with it all and leave the country! I’ve thought the question over quite often. I travel abroad a lot. To a great extent I feel quite at ease abroad. And still, I am not at home there. Why, I cannot understand. I care about what is going on in Russia. Of course, I also care about what is going on outside Russia, but not as much.
On ’Justice’
The favorite topic of discussion in our country is whether companies were sold too cheaply or too expensively during privatization and if it was possible to share all those assets honestly.
The answer to the latter question is both yes and no. It was possible because initially, at the time when vouchers were distributed, the property was divided more or less honestly. And yet, it was not possible because to share it honestly people had to understand and realize that shares had value.
There were no such people here 15 years ago, and unfortunately, I think there won’t be many of them in ten, or even twenty years. The main problem is in their heads.
The other question is whether it was cheap or expensive. Today, when Yukos’s value exceeds $30 billion it seems that the $2 billion paid for it at the beginning was too little for such a company.
But then, in mid-98 when the $2 billion that had already been paid for Yukos and when its market value stood at $370 million, nobody said it was sold cheaply.
Nonetheless, what happened then had quite understandable and explicable reasons.
Remember late 1995, the presidential elections were nearing, inflation was rampant, mostly due to the failure of major companies to pay taxes — the oil sector was barely paying anything to the budget at all.
At the same time, enterprises were not paying wages to their workers. Tensions were growing, and dismissing the heads of enterprises was impossible, as this would have created a real threat of a strike.
And this was the situation ahead of the presidential elections. At that moment I met with Mr. Zyuganov in Davos and he told me: “Don’t you worry, Mikhail Borisovich, we respect good managers, and with us [Communists] at the helm you will become director general of some major enterprise.” [Communist Party leader Gennady Zyuganov ran against the incumbent Boris Yeltsin in the 1996 race].
That is how things were when top government officials invited us — thirty of Russia’s leading entrepreneurs — and said: “We have to immediately ensure the receipt of taxes from the largest industrial enterprises, so we are ready to sell those enterprises to you.”
“But, to begin with, most importantly, you must yourself persuade the directors of those enterprises to hand over power to you, in other words, you are to go to them and ask them to let you privatize the given enterprise along with its incumbent director. Secondly, you will have to begin paying taxes immediately. And, thirdly, you will have to pay something for the enterprise.”
Let’s have a look at how things were. Yukos’ debts to the budget for 1996 exceeded $2 billion, while the total debt, including wage arrears and debts to contractors, stood at $3 billion.
Oil output fell from 45 million to 35 million tons per year. Can you imagine what the implications of such a drop in production were for the industry! Another point that should be taken into consideration is that the cost of production was $12 per barrel — pay particular attention to that figure.
We stabilized oil output, but as capital investments continued to decline we introduced rigid cost saving schemes. By 1997 capital investments almost reached earlier levels, while the following year we had to increase capital investments and then came 1998.
1998 brought devaluation for the entire country, but not for the oil sector. For the oil sector it meant a drop in the oil price on world markets to $8.5 per barrel, while the cost of production, as I have already said stood at $12 per barrel at the time. That means you produce oil and pay extra.
Had not it been for the crisis I would never have resorted to the measures that I resorted to, which, honestly speaking, was what helped haul the company out of crisis. I am talking about cutting staff by 30 percent, tens of thousands of people in just one year.
It is not something I am proud of but there was no alternative. The staff, that is 100,000 employees, volunteered to have their salaries slashed by 30 percent. And if you think it was fun, I can assure you it was not.
We were accused of trying to suck out all the deposits and flee, because we were reducing capital investments, laying off staff and restricting output. In 2000 and 2001 we increased capital investments, and in 2002 we reached the level. Today we have managed to reduce costs to $2 per barrel.
Another myth is that oilmen make super-profits, and it would not be a bad idea to take those super-profits away from them, and if we take them away in the form of natural rent, we will all live happily. I would be very happy if we could all be so lucky as to live well doing nothing. But, regretfully, such things happen only in fairy-tales, and we all know that.
In reality such things never happen. In 2002 the oil sector produced and sold oil worth $57 billion. It is all registered in the Central Bank’s financial statements. Taxes and duties paid — $21 billion; transportation costs — $9 billion; production, processing and distribution costs — $15 billion; capital investments — $10 billion; dividends — $2 billion.
What shall we cross out? It goes without saying that taxes and duties should remain, since they make up natural rent. I would be glad to exclude transportation. As I keep on saying, if we reduced transportation costs by building new pipelines it would be great.
Cost of production here is one of the lowest in the world, as is the cost of processing, whereas distribution costs are quite high, though that is understandable for such a large country as Russia.
As regards capital investments, we could stop making them if we did not want to produce more oil and develop new deposits.
As for dividends, here is the $2 billion everyone is after. But who will invest money in the oil industry if we don’t pay dividends?
The oil industry has to pay up to $5 billion per year in dividends. If it fails to pay, no one will give money to finance capital investments. Stealing that money is not likely to make anyone rich.
Divide this 2, 3 or even 5 billion between 140 million residents, and what will be the result? $3- $5 per month. That’s it. Meanwhile, the taxes paid by Yukos in 1998 amounted to 8 billion rubles, 127 billion in 2002, and the company will pay even more in 2003.
On Prospects
Unfortunately, the much-talked-of plan of doubling the GDP at the expense of the natural resources industries is not feasible. We could make $500 billion to $600 billion per year on the basis of old large-scale industry.
Yet, doubling growth this way is out of the question. Today we have some $400 billion. Is it a lot or a little? By 2010 the US economy will grow to 1.5 trillion, China’s — to nearly 11 trillion. Russia’s economy will be less than 10 percent of China’s.
Where do we get the money from? It may be hard to believe it, but money is in the heads of the people. In modern society raw materials decrease steadily in value, as modern technologies make it possible to reach the same results by consuming less and less raw materials.
Products are being made by people with brains; that is why we will face problems with jobs — everyone needs people with brains and nobody needs those who cannot work with their heads.
They are being substituted with robots, machines. That is the problem, because the main value today is produced by 2-3 percent of the population, referred to as the “creative minority”.
In the US they account for 7 percent of the population and for some 5 percent on average across the globe. We fail to support those people; we do not educate them properly, do not recognize them, and as a result, they either leave the country or stay in the shadows.
Each person on such a level makes $300,000 to $1 million per year with their productive capability. In other words, by losing a young man with brains, considering that in the modern world a business career is approximately 30 years, we lose $30 million at once.
What should we do if we want them to stay? Without educating them one cannot help them build a career. The second point is Russia’s integration in the world economy, because even the most talented person will not be able to fulfill their potential if there is no modern industry, no modern means of communication, modern exchange of ideas.
And finally we need to make sure that these people want to live in Russia, because if they don’t, they can easily leave because the demand for such people is tremendous across the globe.
On Conditions
What is necessary to make these people want to live in Russia? You might find this funny, but they need democracy, because these are people who don’t want to feel uncomfortable when talking to the police, these are people who want to watch whatever it is they want to watch on television, and not a single channel, they want to read the newspaper they like, and they want society to offer them the right to take part in that society, to choose the people they want to be governed by.
If they don’t get that opportunity, then only a small part of them will stay, while the rest will say, “Well, you can live however you like, but we’re going to England, America, Germany, New Zealand…” There are many countries in the world that offer these opportunities. And this is not the problem of these people, this is our problem as a Russian society.
On Conflicts of Interest
I understand quite clearly how government interests differ, if we understand the government as an official-bureaucratic apparatus on the one hand, and the interests of the business class and civil society on the other. The official-bureaucratic apparatus in its nature aims towards spreading and reproducing its power over as wide a sphere as possible. It depends on its civil servants, funded by the state budget, to ensure its own re-election. The interests of the people and of business aim at building a highly effective economy. How can this conflict be solved?
Only through elections. Yukos as a company does not and cannot have political aims. My shareholders would never allow this. About 30 percent of our employees would vote for the communists. A large part of our workforce are workers, not employees. That is why the company does not have any political aims, any factions. What I do as an individual — helping SPS and Yabloko — is my personal right. My personal money. My personal time. It has nothing to do with the company.
What is the essence of the social and civic responsibility of big business? To find the answer, we must separate the social responsibility of business from the social and civic responsibility of the people who work in business. These are not the same thing.
In my view, big business can solve one important problem — producing a mass product at a minimal price with maximum effect. Only in that case will the product be truly cheap and truly a mass product.
It’s clear that a politician and a businessman have completely different purposes. A director of a major company has a very simple purpose: maximum effectiveness. And the people he works with must share this demand. Everyone else must leave. Any mayor, even in the tiniest town, solves a different problem. He cannot lose a single person, even if that person does not suit him from an economic point of view. Moreover, he cannot and should not allow, during the development of a democratic society, for everyone in his city to think alike. On the other hand, it is in the best interests of a director of a major company that everyone inside the corporation think alike. Because it is a corporate culture that allows the company to produce a product the cheapest way possible. That is why the issues dealt with by big business and civil society are diametrically opposite. But does that mean that big business should not take any part in politics?
This is impossible, taking into account that big business intersects with political issues one way or another. Take, for example, the building of an oil pipeline to China. I believe this issue should not be delegated exclusively on a government level — it’s pure business. But politicians nonetheless raised the issue on a government level for reasons that are quite clear. Can I, as a company director, and not just as a person, calmly watch as politicians decide to route the pipeline 5,000 kilometers to Nakhodka? When I and my specialists know for certain that a pipeline to Nakhodka will be unprofitable, and the government as well as society will have to finance the oil production? Should I be silent in this situation? I believe that in this case a purely political decision cannot be made.
On Big Business
Using methods that violate the chief aims that big business was made for and that violate the laws of the government is inadmissible for a business. For a very simple reason: big business functions based on existing laws, even if they are wrong. Acting outside the law destroys the business, and limits the access a population has to products and services. This brings with it implications that are destructive for a contemporary civilized society. Other methods — like civilized lobbying, which are, in my view absolutely admissible, in the nation’s parliament — are precisely the point where the different interests of the groups should meet. In my view, this is a cornerstone of democracy — the possibility for any influence or interest group to demonstrate its point of view in front of a democratically elected body that will make the final decision.
On People in Big Business
Now, about another aspect of big business. The people — the shareholders, the managers, and the employees of the company. Some people say that they should have nothing to do with the political process, or their involvement should be limited. I was derided after saying that a part of our shareholders support the communist party. I believe that the mudslingers were certainly not from a democratic society.
Every person, every citizen of a country, regardless of who he is by profession, not only can, but must take part in the political process. Because if he doesn’t, that means he is giving someone else the right to decide how he should live his life. That someone else is not always a worthy person or organization. That is why an independent involvement in the political process is not only acceptable, but preferable for everyone, including major businessmen, employees, and company shareholders.
On Choice and Responsibility
Our country has a history of serfdom and slavery. A very brief interval ended recently. And, unfortunately, the psychology of society is the psychology of serfdom. In this situation, the responsibility of successful businessmen (regardless of whether it’s small business or big business) is to support the democratic process, regardless of its potential problems. This is the moral duty of these people — a duty to their own children to take part in this process. In our country it is easy to take away a hired worker’s job, to stifle him. But if someone has the money, or the social position, or the courage to fight this, then he is simply obligated to fight.
Regrettably, we still do not have any institutes of civil society, when this function could have been handed over to political parties and public organizations. For a society like ours, with a history like Russia’s, this is normal. We have to understand this, but we also have to struggle to change this. First of all, through education — preparing the future generation. We must say that we have a choice — not between civil society and business, but between business and authoritarianism. This isn’t a perfect alternative, because business only recently walked around in maroon suits and even today doesn’t appear very appealing. Still, we have a real choice: between people in military uniform and a civil society.
Our strength is pretty much equal. And the problem is not that one side has military uniforms and weapons while the other side has nothing. The problem is the mentality.
