The Man Without a Face: The Unlikely Rise of Vladimir Putin (31 page)

ON THE AFTERNOON of February 28, 2000, Illarionov was working in his cluttered office at a tiny think tank he ran in Moscow. Located across Moscow’s Staraya Ploshad (Old Square) from the offices of the presidential administration and less than a kilometer from the Kremlin itself, Illarionov’s Institute of Economic Analysis was as far from power as it could get, considering that Illarionov was still on a first-name basis with most people who had been making economic policy for years. Illarionov was occasionally called in to give a lecture to the policymakers—as he had, for example, on the eve of the 1998 default, warning of the looming disaster—but his counsel seemed to be perceived as an academic exercise. Frustration had been his status quo for years: he had the respect of his powerful peers but no influence on them.

But at four in the afternoon on February 28, less than a month before the presidential election, his phone rang and he was asked to meet with Putin that evening. The meeting lasted three hours. At some point during the meeting, an assistant entered to inform the president-to-be that federal troops had just taken the city of Shatoy in Chechnya. “Putin was so happy,” Illarionov recalled later. “He was gesticulating emotionally, and he was saying, ‘We showed them, we did them in.’ And since I had nothing to lose, I told them everything I thought about the war in Chechnya. I told him I thought Russian troops were committing a crime under his command. And he kept saying that they were all bandits there and that he would rub them out and that he was here to make sure the Russian Federation stayed intact. The words he said to me in private were exactly the same as
what he always said on the topic in public: this was his sincere position. And my sincere position was that it was a crime.” The exchange went on for twenty or thirty minutes, growing more heated. The undiplomatic Illarionov knew exactly how these sorts of exchanges always ended: he would never be invited back, and another avenue of potential influence would be closed to him because, as usual, he, with his passionately held views, did not fit in.

And then something remarkable happened. Putin grew quiet for a second, rearranged his facial expression, erasing all passion from it, and said, “This is it. You and I will not be discussing Chechnya.” For the next two hours, the two men talked about the economy—rather, Putin allowed Illarionov to lecture him. In parting, Putin suggested they meet again the following day. Illarionov immediately committed two more faux pas: he said no, and he cited the reason for his refusal—he was committed to celebrating the anniversary of his American wife’s arrival in Russia, which, because she happened to have moved to Moscow in a leap year, could be celebrated only once every four years. Yet rather than take affront at the refusal, or the reason for it, Putin simply suggested a different date to meet. Illarionov lectured him on economics again, and two weeks after the election, on April 12, 2000, he was appointed the new president’s adviser.

Illarionov was very much seduced. For years he had thought that Russian economic reforms were being carried out in a misguided and possibly even harmful manner, but he had been helpless to affect policy. Now he would have unfettered access to the head of state, who seemed genuinely interested in what he had to say—and not at all put off by his communication style. Like most people, when Illarionov encountered traits in others that he himself lacked, he was inclined to interpret them as manifestations of some sort of outstanding ability. Speaking to me eleven years after his appointment, Illarionov insisted that Putin was “an extraordinary person,” and cited as primary evidence his ability to control his emotions. Plenty of evidence to the contrary had accumulated by this point, including several instances of Putin losing his temper in public. But as someone constitutionally incapable of keeping his opinions to himself, Illarionov continued to be impressed by Putin’s ability simply to “turn off” the talk of Chechnya—and even, it seems, by Putin’s flattened affect. At base, Illarionov had a difficult time imagining he might be systematically deceived—which is exactly what allowed him to be deceived for a rather long time.

Illarionov and the other economists in Putin’s inner circle sent a strong signal to the U.S. press by their very presence. But most of all, American journalists seemed to miss the essence of the Putin story because some of their most important sources were missing—or willfully ignoring—the story. Big business was happy with Putin. The economy had been growing steadily since hitting a low point in 1998, when the ruble dropped so far that domestic production, inefficient as it was, finally became profitable. By the early 2000s, oil prices began rising, but not yet so much as to render domestic industry irrelevant (this would happen later). This was starting to yield some handsome results for investors who had entered the Russian market when it hit bottom.

A KEY FIGURE among these investors was William Browder, grandson of a former head of the Communist Party USA, and his Russian wife. Browder was a true ideologue: he had come to Russia to build capitalism. He fervently believed that by making money for his investors, he was creating a bright capitalist future for a country it was his legacy to love.

Browder’s investment strategy was straightforward and effective. He would buy a small but significant stake in a large company, such
as the gas monopoly or an oil giant, conduct an investigation that inevitably exposed corporate malfeasance, and then launch a drive to reform the company. Corruption was pervasive and fairly easy to expose. Most large corporations were conglomerates of companies privatized within the last three to five years, with managers working at cross-purposes, often openly hostile to the new owners. So-called red directors had been stealing from their employers under the Soviets and saw no reason to stop; some of the new owners took a rape-and-pillage approach to their property. Browder’s revelations met with various levels of resistance, but more often than not he was able to effect at least some changes. As a result, the value of stocks, which had invariably been purchased at rock-bottom prices, rose exponentially.

The new administration took an active interest in Browder’s investigations. More than a few times his people were summoned to the Kremlin, where their PowerPoint presentations never failed to make an impression. Browder was certain he was on a roll. Every time he was able to secure another court or oversight-agency decision that would force another Russian company to pay a bit more attention to the law, a cheer would roll across the ostentatiously named Hermitage Fund offices. “The esprit de corps was like no other office that you’ve ever had,” he told me wistfully years later, “because it’s very rare that you could make money and do good at the same time.” At its peak, the fund, which had started with $25 million worth of investments, had $4.5 billion invested in the Russian economy, making it the largest foreign investor in the country. Such was the extent of Browder’s faith in his own strategy and in the country that even when Russia’s richest man was arrested—
especially
when Russia’s richest man was arrested—Browder let out one of his cheers: to him it indicated that the new president would stop at nothing to establish law and order.

THE RICHEST MAN in Russia was on tour. Mikhail Khodorkovsky, born in 1963, shared a key character trait with both Illarionov and Browder, one that made all three men extremely different from Putin and vulnerable to him: their behavior was driven by ideas. Khodorkovsky’s parents, two Moscow engineers who spent their entire careers working at a measuring-instruments factory, had chosen to keep their own political skepticism from their only son. Theirs was a common dilemma: Speak your mind about the Soviet Union and risk making your child miserable with the constant need for doublethink and doublespeak, or aim to raise a contented conformist. The results of their efforts, however, far exceeded their expectations: they managed to rear a fervent Communist and Soviet patriot, a member of a species that had seemed all but extinct. After getting his degree in chemical engineering, Mikhail Khodorkovsky opted to work at the Komsomol committee. He had no hidden agenda, but in the middle to late 1980s this career choice positioned him well to take advantage of quasi-official and often extralegal opportunities to dabble in business. Before he was out of his mid-twenties, Khodorkovsky had tried his hand at trade, importing personal computers to the Soviet Union, and, more significant, at finance, devising ways to squeeze cash out of the Soviet planned-economy noncash behemoth. He served as an economic adviser to Yeltsin’s first government when Russia was still part of the USSR. During the failed August 1991 coup, he was on the barricades in front of the Russian White House, physically helping to defend his government.

By the early 1990s, in other words, the former Komsomol functionary had been completely reformed. He and his friend and business partner, a former software engineer named Leonid Nevzlin, authored a book-length capitalist manifesto titled
Man with a Ruble
. “Lenin
aimed to annihilate the wealthy and wealth itself—and created a regime that outlawed the very possibility of becoming wealthy,” they wrote, exposing the ideology Khodorkovsky had once pledged to uphold. “Those who wanted to make more money were equated with common criminals. It is time to stop living according to Lenin! Our guiding light is Profit, acquired in a strictly legal way. Our lord is His Majesty Money, for it is only He who can lead us to wealth as the norm in life. It is time to abandon Utopia and give yourself over to Business, which will make you rich!” By the time the book was published in 1992, Khodorkovsky had his own bank and, like other new entrepreneurs, was buying up privatization vouchers, aiming to take control of several formerly state-owned companies.

In 1995–1996 the Russian government asked the country’s richest men for loans, leveraging controlling shares in Russia’s biggest companies—which, according to the arrangement, they would be keeping once the government, predictably, defaulted on the loans. As a result, Khodorkovsky came into possession of Yukos, a newly created oil conglomerate with reserves among the largest in the world.

His next change of heart came in 1998. The financial crisis that year put Khodorkovsky’s bank out of business. The oil company was in dire straits: the price of oil on the world’s markets was $8 a barrel but Yukos’s outmoded equipment placed the cost of producing one barrel at $12. The company had no cash to pay its hundreds of thousands of employees. “I would go to our oil rigs,” Khodorkovsky wrote more than ten years later, “and people would not even yell at me. They were not going on strike: they were understanding. It’s just that they were fainting from hunger. Especially the young people who had small children and did not have their own vegetable garden. And the hospitals—before then, we used to buy medication, we would send people to be treated elsewhere if they needed it, but now we did not have the money. But the worst thing was these understanding faces.
People were just saying, ‘We never expected anything good. We are just grateful you came here to talk to us. We’ll be patient.’”

At the age of thirty-seven, one of Russia’s richest men discovered the concept of social responsibility. In fact, he probably felt he invented it. It turned out that capitalism alone could make people not only rich and happy but also poor, hungry, miserable, and powerless. So Khodorkovsky resolved to build civil society in Russia. “Until that point,” he wrote, “I saw business as a game. It was a game in which you wanted to win but losing was also an option. It was a game in which hundreds of thousands of people came to work in the morning to play with me. And in the evening they would go back to their own lives, which had nothing to do with me.” It was a hugely ambitious goal—but, for one of the handful of men who felt they had created a market economy from scratch, not an absurdly ambitious one.

Khodorkovsky formed a foundation and called it Otkrytaya Rossiya, Open Russia. He funded Internet cafés in the provinces, to get people to learn and to talk to one another. He funded training for journalists all over the country, and he sponsored the most talented television journalists to come study in Moscow for a month. He founded a boarding school for disadvantaged children; following the tragedy in Beslan, several dozen survivors became students there. Before long, he was stepping in where Western foundations and governments were pulling out; Russia was considered a stable democracy now, after all. Some said he was funding more than half of all the nongovernmental organizations in Russia; some said he was funding 80 percent of them. In 2003, Yukos pledged to give $100 million over ten years to the Russian State University for the Humanities, the best liberal arts school in the country—the first time a private company in Russia had contributed a significant amount of money to an educational institution.

Khodorkovsky also became preoccupied with the idea of
transforming his company into a properly managed, transparently governed corporation. He hired McKinsey & Company, the global management consulting giant, to reform the management structure, and PricewaterhouseCoopers, another world giant, to create the accounting structure from scratch. “Before Pricewaterhouse came along, all the Yukos accountants knew how to do was stomp their feet and steal a bit at a time,” Khodorkovsky’s former tax lawyer told me. “They had to be taught everything.” His partners grumbled—Khodorkovsky’s efforts seemed to be misplaced—but he was determined to turn Yukos into the first Russian multinational corporation. To this end, he hired a Washington, D.C.–based public relations firm. “We would set up five interviews in New York, and we would spend the day going from interview to interview,” the consultant who worked with him remembered. “Not many CEOs would spend this kind of time. We got a
Fortune
cover story. He was a poster boy for what people hoped would happen in Russia.” The capitalization of Yukos grew exponentially, owing only in part to the growing price of oil, in part to newly modernized drilling and refining systems, which drastically reduced the cost of production, and in part to the new transparency. Khodorkovsky was the richest man in Russia, clearly on his way to becoming the richest man in the world.