Russian Modernization – Biggest Hoax in History?

By Walter Derzko

Russian President Dmitriy Medvedev is on a critical mission. Russia is in real economic trouble and the Russian President knows it.

Russia’s economic Achilles heel is oil and gas or more precisely, an economy that lacks any serious diversification to speak of. To its detriment, it’s totally dependent on tax revenue from natural resources such as oil and gas. The Russian government has extended itself so much, that according to the Russian Ministry of Finance, it needs world oil prices to be at or above $100 per barrel for the next several years, just to break even and to start running a budget surplus again. Oil at $50 to $70 a barrel is a recipe for national bankruptcy, just like we saw when the Soviet Union fell apart twenty years ago. The Soviet Union showed that it could not survive on $30 to $50 a barrel oil, which it appears was manipulated by unnamed US government officials, according to the book: The Oil Card -Global Economic Warfare in the 21st Century by James R. Norman.

Russia needs to encourage investment in modernization, economic diversification and innovation from the West, hoping to clone the success of Silicon Valley by funding a similar project just outside of
Moscow. That was the purpose of Medvedev’s trip to America just before the G8 and G20 Summits in Toronto. The Medvedev delegation was warmly greeted in Silicon Valley, by California Governor Arnold Schwarzenegger, at Stanford University and in Washington by US President Barack Obama. In his press conference, President Obama was quoted as wholeheartedly endorsing Medvedev’s plan. Yet just two days later, this positive image of a trusted Russian partner was shattered by allegations that 11 Russian spies had been working behind the scenes in America for the past decade trying to influence US policy-making and high-ranking people. One Russian web site claims that the spies were working for the oligarchs and not the government. Not to be outdone, Ukraine announced its own spy scandal; a Russian national was arrested in the Crimea and charged with spying for China.

But the big issue is: why should Western businesspeople risk investing in Russia, when ordinary Russians, as well as the Russian business elite don’t trust the integrity of their own system, ranging from government and judicial corruption to “raiders” that in a hostile fashion, takeover many successful Western and Russian-owned business ventures.  One political analyst, Stanislav Belkovskiy, claims that the Russian elite intends to use “modernization” to embezzle funds (Ekho Moskvy  Feb. 1, 2010) stating: “… the Russian ruling elite does not intend to carry out any modernization, it intends to use the term exclusively for its own opportunistic purposes.” Clarifying, he adds: “For the ruling elite of contemporary Russia, modernization is a way to withdraw billions of dollars from the budget for various projects of different degrees of adventurism and to embezzle these billions.” An even more candid state of affairs is revealed in a recent survey conducted by the Swiss financial group UBS. They polled 25 Russian entrepreneurs - the business elite whose fortunes range between $100 million and $500 million. Looking forward, do these people have confidence in the Russian economy and in Medvedev’s modernization program?

The findings are quite disturbing.

·               A significant part of Russia’s big business elite - the successful entrepreneurs - have suitcases packed and are ready to leave, and change their place of residence, at any moment.  Some businessmen even admit this in public.

·               Rich Russians do not see their children’s future in Russia.

·               Many entrepreneurs have already left, establishing permanent residences in Europe. According to various estimates, between 300,000 and 400,000 Russian entrepreneur ex-pats now live in London, England. They have practically stopped doing business. One can describe them as rich pensioners, living off their “estates”.

·               84% of big Russian businessmen keep their money in banks outside of Russia.  Cyprus, Switzerland and the Virgin Islands seem to be the favourite trusted locations.

Will Western modernization dollars go down a black hole, never to be seen again? Ordinary Russians seem to think so.

According to the results of an opinion poll conducted by Levada Centre in May 2010, most ordinary Russians have a rather negative perception of Russian businessmen.  Of those polled, 51% believe that Russian businessmen are driven by greed, 49% say that they are inclined towards all sorts of cheating and manipulation, 40% add that Russian businessmen are unscrupulous in their business dealings. And according to 26% of the people polled, Russian businessmen do not want to work honestly.

According to the respondents, there are 10 times fewer honest and decent capitalists in Russia than in the West.  And finally, only 7% believe that Russian businessmen can demonstrate generosity, honour and an inclination towards philanthropy.

Not a particularly convincing argument for Western investment in Russian modernization.
Walter (Wolodymyr) Derzko is a Senior Fellow at the Strategic Innovation Lab (sLab), Ontario College of Art & Design, and a lecturer in the MA program in Strategic Foresight and Innovation, OCAD, Toronto.