Tuesday, August 11, 2009

Business in Russia

Russia is a hard place to do business. I discovered that firsthand in the early ’90s, when a company I was associated with caught the attention of some of Russia’s new power brokers—military men who suddenly saw their fortunes rise when the Wall fell. A general and his coterie of adjuncts and bodyguards visited the States, and soon after we made arrangements to meet in Moscow.

It was early January and the city was shackled in snow. On the first night we met for a decadent meal at the National Club, trays of food served by a small army of staff in a private room overlooking the Kremlin. As the evening drew on my hosts became more boisterous. The very idea of open markets seemed to intoxicate them, and soon I found myself sharing their excitement as the waiters swirled around our table with yet another course and another bottle, always more, past the point of excess. Smoke from our Cuban cigars glowed in the light from the chandelier. In a surreal way I felt like I was witnessing the rebirth of the country, from an economic backwater to a crazed amalgam of America's Wild West and Industrial Revolution.

We never really got down to business. Not that night or any other. At least not in the way we’re used to doing it in America. We toured factories, traveled to the outskirts of the city to see wide expanses of land available for development, talked in generalities about the “demand” for our products. But all my questions about how we could make things work went unanswered.

My last day in Moscow with the general and his men was spent in a bathhouse. Picture a room fifteen feet long, twenty wide. Fluorescent lights. Walls, floors, benches, and curbs all covered with inch-square, yellowing tiles slick with moisture. Steam curling around a dozen men on the benches, all of us parked on towels and dripping sweat, some of the Russians massaging each other with venik, bundles of leafy oak twigs. Outside, the bitterly cold streets were choked with cars, buses, noxious fumes, and bundled pedestrians hurrying home from work or the market. Inside was hot, then freezing when we dipped into the pool between rounds in the steam room. Later the vodka flowed. Shot glasses clinked together in musical notes. Toasts were made to Russia, to America, and then came a rousing, deep-throated growl as glasses were raised to capitalism and its rivers of money, just dip your cupped hands into the stream and take away liquid gold.

Or so my Russian friends thought.

Nobody seemed to care that my questions outnumbered their answers. What about the basics, the blocking and tackling of business: manufacturing, distribution, finance, marketing? What about letters of credit? Where would the risk of loss pass? How would our agreements be enforced, disputes resolved? Did Russia have uniformly-applied laws, courts above reproach? What were the long-term prospects for a predictable government policy, stable currency, controlled bureaucracy, contained corruption?

“Don’t worry,” my new friends told me, “all of those things will take care of themselves. Have another drink.”

I had another drink, but I didn’t stop worrying.

Now we can look back, and now we know that those things didn’t take care of themselves.
When the Wall crumbled the only people capable of running the country’s banks and exploiting her abundant resources were the same people who had been doing it before: party leaders and apparatchiks aided by military officers and KGB shadow-warriors. Corruption ruled, twisting everything around until communism had morphed into a mercurial cocktail of gunpoint capitalism in which wealth flowed to those willing to do whatever it took to acquire it. Gather assets through force or political power. Bribe officials to ensure favorable treatment: clear supply lines, duty-free exchanges, no regulation of such niceties as worker safety, quality, or accurate weights and measures. Pay off the police to arrest real or potential competitors.

This “primitive accumulation of capital” reached a crescendo before the currency crashed in 1998. Deals were made, many of them with big oil companies from Europe and America, the West ever so hopeful that the economic revolution would end in a hybridized version of capitalism that would be “workable,” as one venture capitalist put it to me. But then, not surprisingly, the agreements were shredded as soon as they lost their luster, once the infrastructure had been developed and the locals figured they could keep the black gold flowing without help. The same unfortunate pattern held true for other “critical” industries.

Subtle shifts came after the currency crash. The dogfight for post-Soviet capital, first won by the oligarchs, eventually turned into a sophisticated reallocation of assets back into the hands of a government controlled by a tight cadre. Guns and bullets gave way to laws, regulations, court orders, and complex legal maneuvers—familiar to Westerners in some ways, but altogether different in others, because in the new Russia the system evolved to fit a desired result: power vested in the Kremlin. The lure of vast riches trapped beneath the permafrost—oil, gold—or locked within the fertile soil of Russia’s famous black earth, chernozem—“more valuable than oil, more precious than gold,” a Russian scientist called it in a more innocent time—had proved too enticing for the state to release its iron grip.

More than fifteen years have passed since that day in the sauna. Fueled by rising oil prices, Russia has long since awakened from her economic slumber. Now, with her reins firmly in the grip of a former secret policeman, she has positioned herself as a petrochemical power broker on the world stage.

And now I have the chance to write about this great country wrapped in the flaming embrace of change. I can step back and observe the double-headed eagle as she gazes down from her high perch as an energy power. I can see the world through the distorted lens of those who successfully made the transition—the bureaucrats, businessmen, politicians, and gangsters who travel the globe in yachts and private jets. I can examine the plight of those who didn’t make it—conscripted soldiers, broken-down babushkas, crime victims, honest policemen lost in this strange new domain. The business opportunity proved to be elusive, but the door had opened onto a place of endless fascination.


  1. Before reading either this blog or "Volk's Game" I had virtually no background knowledge of Russia. Not only did you have the chance to write about the business ethics or lack thereof in Russia but also about the characters of the people. "Business in Russia" was a thorough recap of the gunpoint capitalism that takes place in the novel and in real life. Lastly, you also do well to point out not only who has succeeded and hasn't, but also pinpointing what caused their fates.

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  3. I will always be amazed at the differences in how countries run. Volk's Game and your blogs have really opened my eyes to the corrupt way that Russian deals with its economic problems. To read the book and your blogs turns what could be a history lesson, into a life lesson that makes you want to hear more.

  4. The blog of “Business in Russia” and book “Volk’s Game” has been an eye opening experience in light of crime, politics, and bureaucracy. The ethnic previsions of life in Russia, just as it can be described in America can be rough to say the least. Ignoring the urgency “to take care of business” can have a devastating effect. Citizens will adapt to a new entitlement in survival, led by corruption.
    I also enjoyed the history and background you provide about Russia. I knew very little about the country, but from what I know now it is worth researching more.

  5. If I were to set out on a buisness venture Russia would definitly not be the country I would choose. Although, I definitly agree with you on the fact that Russia is a very facinating place. I really liked that Volk's game and your blog have shown me various aspects of buisness in Russia but more so I enjoyed reading about the characters and imagining what a life in Russia would be like.

  6. Between reading your blog and Volk's Game I could not help thinking of past movies I've seen about Russian politics and criminal activity. To be completely honest I am fascinated learning about the Russian way of life. Volk's Game was gripping and left me wanting more. The sophistication of the Russian criminal world is beyond belief. Volk's Game brought crime in a different perspective, for me, and I really enjoyed reading about it!

  7. After reading Volk's Game and your post about Russian business, I find it pertinent to find out more information about Russia and it's history. The novel is such a gripping and chilling story that lures me into finding out the history and the facts of the country.

    In your post about Russian business you talk about how Russia is "a great country wrapped in the flaming embrace of change." To me, this is just an eye opening experience of culture and an interesting topic to pursue, especially in the sociological aspect. I really see this as a topic worth pursuing. I am glad you wrote these posts and the novels because they open up a world that may have otherwise stayed lost.

  8. I admit, I’m not a fan of violence and bloodshed. I didn’t like your book, but that was before I read the first page. You were a wonderful storyteller in Volk’s Game. After the first page I was hooked. The book was a suspenseful and fast paced journey into the darkness of Russia’s underground world. Like your blog, Business in Russia, you vividly describe life in Russia. I leave your book and blog both entertained and more knowledgeable. Thank you.

  9. Before reading your blog “Business in Russia” and your novel "Volk's Game" I knew nothing about Russia as a country or as a culture. These readings really show how different other counties are and how much American's take for granted. Your writings give great insight to the corruption of not only the government and business in Russia but of the culture itself. I have learned a lot about the history and culture through your writings and they have inspired me to learn more about this very interesting country.

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  11. I thought that your blog regarding "Business in Russia" and your book "Volk's Game" did a great job of opening my eyes to the dark reality of Russia's sophisticated and fascinating world of business, or lack thereof. I also thought that both texts provided a descriptive insight into Russia's intriguing history. "Volk's Game," specifically was exciting, entertaining, and suspenseful to say the least; the story of the Russian gangster proved to be a much different story than of the Italian or Jewish gangster. Your powerful and unique writing style has made reading both your blog and novel a very enjoyable experience.

  12. There is so much that I wasn’t been aware of that you talk about in your novel, “Volk’s Game” and in your blog “Business in Russia.” I did not (and still do not) know a lot about Russia, but you did a wonderful enlightening me on some aspects of Russia. For me, it is hard to imagine a real place that actually works like that and not just a piece of fiction in a novel. In the back of my mind, I think that I am just an American and won’t ever really understand. After reading your book and your blog, I’d like to learn more about Russia and Russia’s business ethics.

  13. Prior to reading your blog and 'Volk's Game', which I thoroughly enjoyed, I didn't really know anything about Russia (except that I love vodka!. The people, the architecture, the land and especially the business seems very fascinating. I was slightly surprised at how much 'Volk's Game' resembled your potential business transactions so many years ago. Knowing the little I do, I certainly can't imagine a life in Russia. I come away from your readings knowing two things; that I definately want to learn more about Russian culture however, I am greatful to live in a small town in Wisconsin. Thank you for sharing your experiences with our class!

  14. With not knowing much about Russia prior to reading Volks Game and both of your blog post, i feel you have enlightend me with a least a bit of knowlege to unerstanding Russia and her people. You provide a wonderful start to understanding a little bit of Russian history and a bit of how business is done. Also, i have read Volks Game and while i understand that it is a work of fiction, there seems to a bit of truth to the reading. I look forward to reading more