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Tuesday, November 16, 2010

Business owners as a remedy to heal Russian societal divisions

Following the most recent congressional election the American nation is appallingly polarized. The G.O.P. is goading President Obama to “change course” and desperately wants to make him a “one-term president.” In Russia, a socio-economic rift has been tearing the fabric of Russian society already for two decades, with the mainstream parties and the opposition lambasting one another as “thieves and traitors.” Our two countries seem to be both living now in a time of deep-rooted divisions. But are these divisions of the same nature and equally insurmountable?

Looking at the election results in the U.S. I’m shocked at what a division in society exists. There are two sides of the American culture at the moment. One supports the Obama administration that wants to make a more integrated and inclusive society; those people are very much interested in work with the rest of the world, they are open-minded and very often quite liberal in their view of life. I would call them a progressive side of the American culture.

Opposing this is what I would call a conservative side. And, in my opinion, the division between these two has never been greater in the history of the United States. This is neither a North/South division nor ‘red’ states vs. ‘blue’ ones; this is about progressing into the 21st century or retrenching in order to hold onto past gains from the 20th century. It’s about the attitude of US citizens to our role in the world.

The two sides do not understand one another and can hardly collaborate politically or civilly to get things done any more. So I anticipate a very difficult two years for the American president to get new legislation passed.

When I think about this division in American society it troubles me greatly, and I also think about the division in Russian society and culture. But here the division is of a very different nature. This is more of a generational issue.

Russia, a commodity economy for a thousand years, has developed a certain socio-economic, demographic and geopolitical structure. That’s all very understandable, but I think equally understandable are the systemic barriers that this structure has erected, making it difficult to now create a modern, 21st century innovation economy. Historically, there has been a focus on short-term profit-taking, trading, high concentration of wealth in select hands and monopolization of industries.

The historical part of society that has underpinned this structure now lives side by side with another, very different side of Russian society, which are young progressive entrepreneurial innovators desperately trying to develop Russia into a modern-day global mover and shaker, using the power of brains and the power of intelligence in creating new solutions to global problems through technology.

I’m not saying these two groups in Russian society are necessarily fighting and creating a paralysis as in the United States, but they are very different. There’s nothing wrong with this cultural division; this is a difficult but normal transition Russia is going through on its way from a commodity economy to a modern innovation economy. The key challenge, however, is to ultimately find a middle ground.

In Marchmont we see our audience as business leaders, serial entrepreneurs and innovators. Why business leaders? Because it’s critical that this segment of society, the owners of industry, really have an ability to work between both sides of Russia’s culture. It’s the people who privatized and built industrial companies that now play the critical role in Russia’s development over the next 20 years; these are today’s Russian industrial drivers.

These individuals, now in their 40’s and 50’s, face a crossroads. In order to really make the final transition for Russia into a modern innovation economy the owners of industrial entities across the country, from the top oligarchs whose names you all know down to individual proprietary family-owned industrial businesses in each of Russia’s provinces, need to invest in modernization. Where do they stand?

If Russia’s industrial and manufacturing owners want to be competitive in a global economy and want Russia to be prepared for the WTO entry, they need to invest in themselves. If they do so, that will create a fantastic domestic market for new innovations. This in itself would give hope to young innovators and students and scientists that not only can their ideas be applied into a global market but they can and must be firstly applied within the Russian market and then exported—as is done in all other innovation economies. This will also make it more profitable for business angels to support innovation products.

The situation is a clear choice for me to see. If business owners decide not to invest in themselves, it will continue to restrict this innovation market in Russia. If they do decide to invest in themselves, it will rapidly accelerate Russia’s drive to being a real innovation economy.

The owners of industrial companies manufacturing and selling their products domestically and globally now have the future of this country in their hands; they have the power to support this innovation drive, thus bridging the generational societal gap that still exists. The older generation, people who have made their lives in the commodity economy, cannot change their mentality overnight.

I believe that the majority of our audience in Marchmont would agree with me, and I think that many of today’s business owners simply need to be encouraged and properly motivated with rational tax policies to initiate this process. Hopefully, the Skolkovo innovation city will start to create a new generation of laws and resulting success stories to show the way.

I’m optimistic about Russia

Returning to my own home country, the United States… Unfortunately, I’m not very optimistic. I think we’re in for a very difficult period and we’ll have to wait and see what happens in two year’s time with the next presidential election.

The divisions in American society tend to become greater every day, and I don’t think they will be resolved until we have leadership in the United States which fully understands the root-cause of the divisions and begins an effort to forge a new vision for the U.S. in the 21st century.

As far as Russia, I’m much more optimistic. I see signs every day that owners of companies are investing in themselves and supporting the development of innovation clusters through the creation of business angel clubs, new infrastructure, programs supported by the federal government including the Russian Venture Company, Rusnano and Skolkovo.

I think all these programs are now creating a critical mass of support moving Russia forward towards real long-term modernization. Unlike America I think the different sides in Russia will eventually converge creating a strong momentum pushing Russia forward.


  1. It looks like you really have a heart for Russia. I guess you're right talking about generational societal estrangement and the two sides' future convergence; I would put it differently, though: it's imminent convergence of the younger generation with what will have left alive of the older one in a few decades. (Maybe no one will have left.)

    But I wonder if you really believe the business owners starting to "invest in themselves" is a magic key to the innovation door. Russian tycoons do invest; some in soccer clubs overseas, some in extravagant orgies at French resorts. But is this investing in innovation? Hardly...

    And don't forget about Russia's inherent urge for abuse of positions that give access to easy and big money. You mention "a thousand years of Russia's commodity economy"; that's true but it's also a thousand years of stealing at all levels of society. Serfs stole from their masters; those masters from their masters higher above in the hierarchy; and up and up to the top government level. Only tsars had no need to steal--they owned everything being stolen anywhere down below.

    And look at what's going on here today. Magnitsky spotted $230 million worth of thefts at Hermitage Capital clients in Moscow and even named the thieves by names (remember, those allegedly are Russian police officers)--and where do we stand now with the appalling case? Magnitsky arrested, tormented to death behind bars; their tormentors promoted and rewarded. No justice has been done so far; no money stolen from the Russian people retrieved.

    Another case, a more recent one. A Transneft minority shareholder is accusing Russia's oil transportation monopoly, documents in hand, of misappropriating a staggering $4 billion when building the first stage of the ambitious East Siberia - Pacific (VSTO) oil pipeline. Remember, we are talking about a 100% government-owned firm. The abuse of managerial positions in the company allegedly occurred two years; only now, following the shareholder's astonishing posting in his blog revealing the magnitude of stealing, is Russia's Audit Chamber signaling any interest in the case wishing to "check the data."

    A total of $4,23 billion in only two instances... How many more we have no idea about... Just imagine what a breakthrough we would have now, if the amount had been an investment in Russian infrastructure and R&D, not this flagrant misappropriation. Lots of alleged thieves have gotten fabulously richer but no R&D has been finnaced from the amount.

    And I guess it's more widespread than we can fathom. Can we talk about any "innovation drive into the 21st century" with such an upsetting legacy? Well, we can, in fact, but I doubt this will happen during our lifetime.

    But it's still great you're an optimist. One plus another one plus another hundred can make a power.

  2. I agree. But for corruption Russia could have propelled itself to a much more decent step on the world's economic 'ladder' years ago. Look at its auto leviathan, AvtoVAZ; it has taken years of mismanagement, abuse, horrible economic losses and overall public frustration to realize that an international presence is now the only way of keeping the entire city of Togliatti afloat. But for the Renault-Nissan Alliance the colossus would have sunk long ago. To think that the Alliance could have been barred in its decision for thieves to keep their sinecure troubles me greatly. Hopefully they won't put the spanner in the works of the investor...

    AvtoVAZ had years of favorable tax and other climate to start putting up at least SOME money into R&D to make itself more competitive and less ridicule. Two new models to join the age-old 'classics'--just two in decades!! An impressive result...

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