Staff Writer Nadia Popova interviewed Mikhail Khodorkovsky, the jailed former CEO of Yukos, via an exchange of written questions submitted through his lawyers on Sept. 5, 2008. Below is an edited transcript.
The Moscow Times: Russia has lost billions of dollars in foreign investment since Prime Minister Vladimir Putin's public attack on Mechel in late July and the war with Georgia over South Ossetia in August. What will the government have to do to win back foreign investors?
MIKHAIL KHODORKOVSKY: Investors worry most about uncertainty. From my own experience, I know that people will make the worst assumptions if you fail to explain what is happening. That is why restoring trust has to begin with regular, detailed explanations of [the government's] position. This is now taking place.
The second necessary step is to honestly and openly set out the rules of the game, regardless of whether people are going to like the rules or not. Actions in concrete cases have to be explained in reference to a set of rules that applies evenly to everybody.
Finally, you have to begin the laborious task of consolidating these rules on an institutional basis, which is the guarantee of their stability. There's no other way. Any other kind of market is open season for adventurers and crooks, which is absolutely not in Russia's interests.
As for South Ossetia, I want to take this opportunity to express my deep condolences to all those who have suffered and whose relatives and close ones perished in those days, which were full of sadness for our country as well.
With regard to foreign investment, I think that money is not the most important thing for Russia today - there is more than enough of it. What is important is knowledge, markets and cooperation. We want to build a post-industrial economy based on innovation, which means based on the opportunities provided by participation in global scientific, industrial and trade activities. This is why the level of trust from foreign investors, the investment climate as a whole and investment dynamics are so important. Foreign investment is just a method for harmonizing interests and sharing risks.
MT: After its outstanding performance over the last few years, the Russian economy is beginning to be plagued by some of the problems created by this same impressive growth. What is the most effective way of tackling inflation? How effective is monetary policy or methods like those used earlier in the year, when the prices were frozen on certain staple items?
MK: I am convinced that monetary methods alone are insufficient to fight inflation. We can't afford the slowing of economic growth that inevitably results, as we need this growth to solve our social and infrastructure problems.
Russia's economy doesn't operate on a reserve system, which is why monetary policy is far from the most ideal instrument. The stress should now be put on increasing labor productivity by improving the quality of management and broadening the use of modern technology. Besides, in both the private and public sectors there is a huge body of pseudo-employed people in the country that is a product of our level of corruption and bureaucracy. I am talking about several million able-bodied people. No one is arguing that a careful monetary policy is unnecessary, but there are also other solutions.
MT: Russia's oil industry, the gold mine of the country's economy, has faced problems; production is falling. How would you suggest tackling the problem?
MK: The fall in oil output is absolutely artificial. Back in 2002, at a meeting on energy policy, I suggested that we should aim at a production level of 10 million barrels per day (for land-based drilling) and stick to this level for 15-20 years. I believed, and still believe, that given Russia's on-shore reserves and the efficiency of its infrastructure (extracting and transportation), this is the best solution. For the realization of any long-term investment project, however, what is needed most is confidence that there will be stable rules to the game.
As for the oil price, I think $70 a barrel, considering the current dollar level, is the price at which modern technologies enable us to gradually replace hydrocarbons with other energy sources. But the decision is a political one, as every startup energy project in the history of modern civilization has required major investment. But this [investment] is necessary now; there is no time to wait.
MT: Do you see any recent positive tendencies in the Russian economy?
MK: I have to be happy about the growth in industrial production. At the same time, the discrepancy between the real structure of the economy and the desired innovation-based economy remains, which is lamentable and dangerous.
MT: In your articles "Left Turn" and "Left Turn-2," you spell out some socialist ideas, but at the same time stress that Russia is a European country. How do you go about, to paraphrase the old joke, introducing socialist ideas to ensure that Communism doesn't return? In what direction should Russia move politically? Whose experience should we look at?
MK: Leftist ideas and the Communistic Party of the Soviet Union are two different things. The Party represented a totalitarian approach to managing the state, including the management of the economy. European social democracy is, first of all, democratic management of a country and an economy with significant levels of public ownership.
For Russia, with its enormous territory and difficult climate conditions, the need to guarantee support for commonly accepted principles like the right to life, education and health care, requires a higher level of state expenditure. This share has to grow at first, as it is necessary to create public infrastructure. But it should then fall as the economy experiences general growth.
As for fighting the ghost of totalitarianism, what is very important is the strict separation of the different branches of power, a free press and other civil society institutions, including local government. The experience of the Scandinavian countries and Canada may be relevant here.
MT: How do you see U.S.-Russian relations changing after the presidential elections in the United States? Will the South Ossetia conflict dramatically change relations between the two countries?
MK: I very much hope that we will not cast each other in the role of Evil Empire. It would be a counterproductive farce in the conditions of today's rapidly globalizing world. As for South Ossetia, it's evident that [Georgian President Mikhail] Saakashvili, counting on the support of the West, decided to launch a military venture without the sanction of the United States and overestimated the chances of gaining backing for this outrage.
It's important to understand that President [Dmitry] Medvedev had no other choice given situations on Aug. 8 and Aug. 26, and made the only possible decision.
The coming change of presidential administration in the United States and the gradual building of the team holding power in Russia offer a great chance at a fresh start.
The Moscow Times: Russia has lost billions of dollars in foreign investment since Prime Minister Vladimir Putin's public attack on Mechel in late July and the war with Georgia over South Ossetia in August. What will the government have to do to win back foreign investors?
MIKHAIL KHODORKOVSKY: Investors worry most about uncertainty. From my own experience, I know that people will make the worst assumptions if you fail to explain what is happening. That is why restoring trust has to begin with regular, detailed explanations of [the government's] position. This is now taking place.
The second necessary step is to honestly and openly set out the rules of the game, regardless of whether people are going to like the rules or not. Actions in concrete cases have to be explained in reference to a set of rules that applies evenly to everybody.
Finally, you have to begin the laborious task of consolidating these rules on an institutional basis, which is the guarantee of their stability. There's no other way. Any other kind of market is open season for adventurers and crooks, which is absolutely not in Russia's interests.
As for South Ossetia, I want to take this opportunity to express my deep condolences to all those who have suffered and whose relatives and close ones perished in those days, which were full of sadness for our country as well.
With regard to foreign investment, I think that money is not the most important thing for Russia today - there is more than enough of it. What is important is knowledge, markets and cooperation. We want to build a post-industrial economy based on innovation, which means based on the opportunities provided by participation in global scientific, industrial and trade activities. This is why the level of trust from foreign investors, the investment climate as a whole and investment dynamics are so important. Foreign investment is just a method for harmonizing interests and sharing risks.
MT: After its outstanding performance over the last few years, the Russian economy is beginning to be plagued by some of the problems created by this same impressive growth. What is the most effective way of tackling inflation? How effective is monetary policy or methods like those used earlier in the year, when the prices were frozen on certain staple items?
MK: I am convinced that monetary methods alone are insufficient to fight inflation. We can't afford the slowing of economic growth that inevitably results, as we need this growth to solve our social and infrastructure problems.
Russia's economy doesn't operate on a reserve system, which is why monetary policy is far from the most ideal instrument. The stress should now be put on increasing labor productivity by improving the quality of management and broadening the use of modern technology. Besides, in both the private and public sectors there is a huge body of pseudo-employed people in the country that is a product of our level of corruption and bureaucracy. I am talking about several million able-bodied people. No one is arguing that a careful monetary policy is unnecessary, but there are also other solutions.
MT: Russia's oil industry, the gold mine of the country's economy, has faced problems; production is falling. How would you suggest tackling the problem?
MK: The fall in oil output is absolutely artificial. Back in 2002, at a meeting on energy policy, I suggested that we should aim at a production level of 10 million barrels per day (for land-based drilling) and stick to this level for 15-20 years. I believed, and still believe, that given Russia's on-shore reserves and the efficiency of its infrastructure (extracting and transportation), this is the best solution. For the realization of any long-term investment project, however, what is needed most is confidence that there will be stable rules to the game.
As for the oil price, I think $70 a barrel, considering the current dollar level, is the price at which modern technologies enable us to gradually replace hydrocarbons with other energy sources. But the decision is a political one, as every startup energy project in the history of modern civilization has required major investment. But this [investment] is necessary now; there is no time to wait.
MT: Do you see any recent positive tendencies in the Russian economy?
MK: I have to be happy about the growth in industrial production. At the same time, the discrepancy between the real structure of the economy and the desired innovation-based economy remains, which is lamentable and dangerous.
MT: In your articles "Left Turn" and "Left Turn-2," you spell out some socialist ideas, but at the same time stress that Russia is a European country. How do you go about, to paraphrase the old joke, introducing socialist ideas to ensure that Communism doesn't return? In what direction should Russia move politically? Whose experience should we look at?
MK: Leftist ideas and the Communistic Party of the Soviet Union are two different things. The Party represented a totalitarian approach to managing the state, including the management of the economy. European social democracy is, first of all, democratic management of a country and an economy with significant levels of public ownership.
For Russia, with its enormous territory and difficult climate conditions, the need to guarantee support for commonly accepted principles like the right to life, education and health care, requires a higher level of state expenditure. This share has to grow at first, as it is necessary to create public infrastructure. But it should then fall as the economy experiences general growth.
As for fighting the ghost of totalitarianism, what is very important is the strict separation of the different branches of power, a free press and other civil society institutions, including local government. The experience of the Scandinavian countries and Canada may be relevant here.
MT: How do you see U.S.-Russian relations changing after the presidential elections in the United States? Will the South Ossetia conflict dramatically change relations between the two countries?
MK: I very much hope that we will not cast each other in the role of Evil Empire. It would be a counterproductive farce in the conditions of today's rapidly globalizing world. As for South Ossetia, it's evident that [Georgian President Mikhail] Saakashvili, counting on the support of the West, decided to launch a military venture without the sanction of the United States and overestimated the chances of gaining backing for this outrage.
It's important to understand that President [Dmitry] Medvedev had no other choice given situations on Aug. 8 and Aug. 26, and made the only possible decision.
The coming change of presidential administration in the United States and the gradual building of the team holding power in Russia offer a great chance at a fresh start.