Russia – You Can Check in but Not Many Check Out

I’m continually amazed at the naiveté of most Americans about Russia.  I spent four years living and working in the Russian FarEast (where we could see Alaska and, presumably, Sarah Palin).  First in Vladivostok (home to the Russian Pacific Fleet) and then a bit north in Khabarovsk (home to headquarters for the Far Eastern Military District).

Russian connections

It’s a long story but I was fortunate to be there during a particularly historic time – shortly after the dissolution of the Soviet Union.  It’s hard to believe it was 26 years ago when Yeltsin stood on a tank and defied a military coup. A remarkable turn of events in light of the previous 75 years of totalitarianism.

As a typical American and survivor of the ‘Cold War’, I was thrilled to welcome Russia to the democratic fold.  As well as to acquaint them with capitalism.  We were ready to teach them a thing or two about making money.

It took all of us (or at least those who remained from the original 100 volunteers after a year), to realize that they didn’t want our advice.  The command economy was firmly entrenched after 75 years and no one was bucking the system.  In fact, the most financially successful Russians learned to profit from it.

A case in point:  my American partner and I tried mightily to find solid business opportunities in the Russian FarEast.  A South Korean acquaintance happen to point out that the materials used in the production of cable insulation in Russia was carcinogenic.  Furthermore, it was much more expensive.

We immediately scheduled a meeting with the ‘CEO’ (the plant had recently been ‘privatized’ and shares were reportedly owned by the workers).  We spent three months researching and talking with engineers, line workers, and anyone else connected with the process.   We even arranged for a shipment of the latest South Korean substitute to be used in their manufacturing.

Their response was unsettling – they preferred their own brand (shipped from Novosibirsk) because it did not produce an odor.  We were astounded.  There was scientific proof of its harmful effects (no other country in the world used this compound – it was, in effect, banned)  and it was exorbitant in comparison to the South Korean alternative.   One day, we were pulled aside by the Chief Engineer who wanted to meet with us at a local hotel.  Of course, there was a small payment involved.

The answer was so Russian – the son-in-law of the Director was one of the key suppliers in the country.  No amount of rational argument would have swayed his father-in-law to do what was best for his workers. Both the kickbacks and, presumably, his daughter’s economic well-fare were at stake.

So, after 3 months of negotiations, we were privy to the mystery – that is, self-interest.  And, that is what drives Russian business decisions to this day.  A tangled web of wannabe oligarchs who depend upon the well compensated tax authorities as well as their equally enriched contacts in the FSB (the latest version of the KGB).

This cabal of tangled contacts enjoys a long institutional memory.  A foreign investor may succeed or fail but their ‘dossier’ will endure.  Like the Roach Motel, they may check in – but they rarely check out.  Trump’s inner circle should take note.