Yukos Now, Russia's Economy Later

Just as familiarity breeds contempt, success often spawns complacency. Sadly, that seems to be the case in Russia, where the government has chosen the first period of prolonged economic growth since communism's fall--with the budget in surplus and capital flight seemingly reversed--to re-open the oligarch wars of the 1990's.

Optimists beware: the arrest of Mikhail Khodorkovsky--and the freezing of his shares in oil giant Yukos--will have a profound long-term impact on Russia's economy and on relations between business and government. The Yukos imbroglio will not bring Russia's economy to a screeching halt, because no single company determines the country's fate. But long-term prospects are certain to deteriorate.

The problem is one of trust between the business community and the government, which in recent years had just begun to develop. To put it bluntly, violating that fledgling trust will break the back of Russia's economic upswing.

"Operation Clean Hands"--what some are calling the investigations into Khodorkovsky and his associates--will not increase tax revenue, but only spur growth in the informal economy, as businessmen try to conceal their affairs even more completely from the government. After all, once Russia's richest man can be stripped of his assets at any moment, ordinary Russian businessmen may be forgiven for concluding that operating in the open is risky.