By Mary Caraccioli
If you don’t have time to sleep, then St. Petersburg in May is where you want to be. When you have 20 hours of daylight you can cram a lot into a day. Meetings with multinational executives, educators, entrepreneurs, a little site seeing, the ballet and a late dinner somehow all fit into one day. I was lucky enough to get assigned to Russia in May of 2008. The trip would count as the international residency portion of the MBA program I was in at Drexel University. Once the trip was announced, I knew what it would mean for me, double duty, as a student and a journalist. There was no way I could travel to what Churchill described as “a riddle wrapped in a mystery inside an enigma,” and not do a story on it. So before I packed a bag or researched the hotel, I worked the phones to find a Russian film crew.
The long days are actually called the White Nights in Russia. One of my 20-hour blocks of daylight was spent with Sasha and Sergei, a Russian film crew. Two fellow cohorts, Lt. Tim Alexander and Kevin Seifert volunteered to help me coordinate the shoot that would result in a half hour television show. From soldiers, to software gurus, to outspoken economists we found great interviews all around the city. By the 18th hour some clear trends had emerged.
Commodities rule: Russia’s economy is built on the stuff you pull from the ground. Oil, natural gas and metals have created eye-popping wealth in Russia. Thoughtful observers in Russia believe the nation may have too much of a good thing. Economist Dr. Vadim Volkov told me “ it’s a paradox, if you have too much money you can also destroy the economy because it stimulates inflation because there is too much money, money supply and prices go up.” It is not just inflation that concerns Dr. Volkov, the quality of economic growth matters. If the only industries that flourish in Russia are commodities and related technologies, the nation’s long-term outlook will be bleak, a breadth of economic activity is needed to create a strong dynamic economy. It’s called a resource curse. The economist’s concern about the curse would play out even sooner than he imagined. The abundance of resources priced so richly in the spring and summer, would fall to earth in the fall and winter.
No angels: There is a new class of entrepreneurs working in the tech sector and they are concentrated in St. Petersburg. While their products and services and relationships with Europe are giving the Silicon Valley a run for its money, these companies are still treated like non-profits by the government. There is no angel or venture cash for them, only government grants and the revenue they generate on their own. The oil riches had made those grants plentiful. But as those funds dry up, many are concerned that investment in technology will also dissipate. There are other challenges for the tech sector. Small companies are feeling the squeeze of the infamous Russian bureaucracy. Nicolay Vasiliev, Sales Director at Prompt, a software company, told me “This is a difficult market due to the regulatory constraints… Every business needs to go through huge paperwork procedures. Larger companies can handle that. Smaller ones don’t have the budget or the know-how to fill out the scores of forms, nor do they know who to communicate with in the bureaucracy.”
Bigger is best: If an industry matters to Russia, and oil and gas matter, it must be a giant conglomerate with strong ties to the government. Gazprom is the poster child of big business in Russia. It is everywhere and its leaders have been interchangeable with the heads of government. President Medvedev was the former top boss at Gazprom and the former Prime Minister took his place, leaving a vacancy for Vladmir Putin to fill. The cozy relatonship is not an accident. Russia believes its national security (and as we found out this summer with the invasion of Georgia) and foreign policy are closely tied to its commodity resources.
Bubble alert: One of the clear indications that a bust in any market is eminent is the cocky self-assuredness you hear from the true believers, that nothing can bring down the current bull market. I heard it from tech investors in the 1990s, from house flippers a few years ago, and from a Russian stockbroker in May.
The bullishness for brokers like Alexander Dushkin was not for small tech start-ups; it was for the super-cap oil and gas conglomerates and the companies that serve them. When asked: Could stocks be in a bubble? – he laughed at the idea. “There is only one place for stocks to go,” he said. “And that is up.” He quickly reminded me of the famous line uttered by Gordon Gekko in the movie Wall Street. “Greed,” he said with his thick Russian accent, “is good.”
World Class Matters: While in St. Petersburg the Zenit St. Petersburg Soccer club won the UEFA (Union of European Football Associations) Cup Championship. Many of our LeBow contingent watched the win over Glasgow at local watering holes. It didn’t take long for us to make friends with locals who were quick to share their passion for the home team and a match well played. At the ballet a few nights later, the same buzz. The athletes and artists on stage were a source of great pride for Russians. The discipline of both the dancers and the soccer players took them to the level of world class. That was something so many Russians, whom I spent time with, appreciated and admired. They believe, as I do, that you can do anything if you are willing to do whatever it takes to make it happen. This trait, however, was more apparent with younger people, than with the older generation.
Relationships Matter More: Russia and the U.S. have an uneasy history but Russians and Americans have an uncommon bond. When we sit with each other we are forced to accept that our way is not the only way or even the best way. One of my cohorts spent hours with the head of the technology center of St. Petersburg. He walked away from the trip with a new friend and a potential business partner. Americans who want to do business with Russia need such partners. You cannot go it alone here. Professor Alexander Yanchevsky of the Vlerick Leuven Gent Management School told me “its difficult for Russians who know the culture and who are a part of the culture (to understand the business processes). For foreigners it is even more difficult to understand because of the local bureaucracy and the cultural differences. You definitely want a partner if you want to do business here.”
Nation’s such as Russia need to be visited, to be understood. Reading the history in books and the policy papers is not enough. Russia is a place where you have to feel the energy of the people to get a sense of where they are assigning their passion, enthusiasm and fear. What are they talking about in the cafes and in the taxicabs?
My time was spent with entrepreneurs, economists, stockbrokers and soccer fans. These Russians felt a sense of arrival. This, they felt, was their time. The entrepreneurs had embraced innovation and had disdain for their father’s bureaucracy. The economists feared that an over-abundance of wealth created by the vast oil and natural gas reserves, could be more dangerous than waiting in line for bread. The stockbroker believed bubbles never burst and the soccer fans believed in miracles and got one.
Moments are meant to be savored, because they pass. The Russia that I witnessed in May of 2008 has been rocked by the global recession. In a matter of months the strut of the oligarchs disappeared. A crash in prices of all asset classes, and most notably commodities has hit Russia very hard. I don’t know what has become of the stock broker, the technical hub is still there, but can the lucrative government grants continue with Oil at $40 a barrel, not $140 a barrel? A stable Russia is in America’s and Europe’s interests. As the globe weathers the economic storm, this is no time to turn away from Russia. It is an opportunity to work together and to bolster our relationship. – Mary Caraccioli
One Response to “First Person: My Russia”
May 21st, 2009 at 9:25 am
Hi! I came across this post searching for personal experiences with LeBow. I am doing my MBA there now and this post gave me a good idea of what to look forward to for the International Residency next year.