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.