PRESS REPORTS OVER THE PAST YEAR HAVE FOCUSED ON "NEW RUSSIAN" SPENDING HABITS AND CONSPICUOUS CONSUMPTION, INCLUDING TRAVEL IN AN OPULENT STYLE TO NEW YORK, LONDON AND PARIS. A NOTABLE ARTICLE THIS SUMMER REPORTED THAT WEALTHY MUSCOVITES WERE ORDERING NUMEROUS 50O DOLLAR BOTTLES OF CHAMPAGNE FOR TAKE-OUT AT THE NEWLY-OPENED "MAXIM'S OF PARIS" IN THE REFURBISHED "HOTEL NATSIONAL." WHILE SUCH HABITS DO EXIST AT THE BUSINESS CLASS'S UPPER END (PARTICULARLY ON ITS CRIMINAL FRINGE), NOT ALL OF THE RUSSIA'S ENTREPRENEURS WEAR THE ITALIAN FASHION AND DRIVE THE GERMAN CARS, SO CLOSELY AND JEALOUSLY ASSOCIATED WITH "NEW RUSSIANS."
16. ENTREPRENEURIAL ACTIVITY ALLOWED AVERAGE REAL INCOMES AND HOUSEHOLD CONSUMPTION TO INCREASE IN 1993 AND 1994, EVEN AS REAL WAGES DECLINED PRECIPITOUSLY IN THE SAME PERIOD. IN A WIDESPREAD PRACTICE, BLUE- AND WHITE-COLLAR WORKERS AT FACTORIES AND RESEARCH INSTITUTES HAVE STARTED BUSINESSES WHILE CONTINUING (NOMINALLY) TO HOLD DOWN THEIR OLD JOBS IN ORDER TO RETAIN BENEFITS AND HOUSING. FREQUENTLY SUCH BUSINESSES OPERATE UNDER THE ROOF OF THE FORMER STATE FIRM, PAY RENT TO THE ENTERPRISE, AND PROVIDE WORK TO MANY OF THE FIRM'S EMPLOYEES. OFTEN, SUCH BUSINESSES PROVIDE THE MAJORITY OF THE FAMILY'S INCOME. ALTHOUGH WE HAVE YET TO SEE HARD FIGURES FOR AVERAGE INCOME IN THE ENTREPRENEURIAL GROUP DESCRIBED HERE, WE BELIEVE THAT IT IS FAR ABOVE AVERAGE (ALLOWING FOR DACHA BUILDING AND PURCHASES OF HIGH-END AUDIO-VISUAL EQUIPMENT, WASHING MACHINES, VACUUM CLEANERS ETC.), BUT NOT HIGH ENOUGH TO PERMIT BLOWING HUGE SUMS AT CASINO GAMING TABLES.
17. A GOOD EXAMPLE OF THE GAP BETWEEN PERCEPTION AND REALITY IS IN THE BANKING AND FINANCE SECTOR. THE BROAD PERCEPTION THAT BANKERS AND OTHER FINANCIERS ARE ALL FLAMBOYANTLY WEALTHY ONLY SCRATCHES THE SURFACE OF THE MOST HIGH-PROFILE MOSCOW FINANCIAL INSTITUTIONS. THE REALITY IS MUCH MORE COMPLEX, PARTICULARLY IN THE SECURITIES INDUSTRY, WHERE MANY OF EVEN THE MOST SUCCESSFUL STARTED FROM SCRATCH WHEN THE SECURITIES MARKET WAS BORN IN 1993, LABORED LONG DAYS IN GRUNGY OFFICES, AND TRAVELED EXTENSIVELY UNDER DIFFICULT CONDITIONS, VISITING COMPANIES IN RUSSIA'S REGIONS. IN MOST CASES, THE ONLY THING IMPRESSIVE ABOUT THEIR OFFICES IS THE SOPHISTICATION AND INTENSIVENESS OF THE SECURITY MEASURES INTENDED TO KEEP CRIMINALS AT BAY. SOME, BUT NOT ALL, IN THE SECURITIES COMMUNITY ARE BEGINNING TO REALIZE THE FRUITS OF THESE LABORS.
----------------------------------------------- EXPLAINING THE BUSINESS EQUALS "MAFIA" IMAGE... -----------------------------------------------
18. THE BELIEF THAT "NEW RUSSIANS" (AND BY EXTENSION ALL RUSSIAN BUSINESS PEOPLE) ARE CROOKED STEMS FROM A VARIETY OF CAUSES AND BELIEFS. A KEY ELEMENT OF THE GENERAL IMPRESSION WAS THE RAPID APPEARANCE IN 1991-93 (FIRST IN RUSSIA AND SHORTLY THEREAFTER IN MAJOR WESTERN CAPITALS) OF CASH-LADEN RUSSIAN "NOVEAUX RICHES" WHO COULD AFFORD ROLLS-ROYCE AUTOMOBILES AND HOMES IN LONDON, MONACO AND NEW YORK. MANY IN THIS FIRST WAVE OF "NEW RUSSIANS" TOOK ADVANTAGE OF IMBALANCES BETWEEN STILL-CONTROLLED DOMESTIC COMMODITY PRICES AND WORLD MARKET PRICES. THEY MANAGED SEMI-LEGALLY OR ILLEGALLY TO BUY COMMODITIES IN GREAT VOLUMES AT DOMESTIC PRICES AND TO RESELL THEM ABROAD AT WORLD PRICES. THAT THIS GROUP PARADED ITS WEALTH, ACTING CRASSLY, WEARING GAUDY CLOTHING AND EMBARKING ON A REAL ESTATE SPENDING SPREE, FED THE IMPRESSION THAT "BUSINESS PEOPLE" RECEIVED ILL-GOTTEN GAINS AND CONSTITUTED A "MAFIA." THESE NEW RICH CONTINUE TO CUT A HIGH PROFILE IN MOSCOW AND OTHER CAPITALS, BUT THEYRE VASTLY OUTNUMBERED BY THE MORE WORKADAY COMMERCIAL CLASS.
19. ANOTHER IMPORTANT FACTOR IS THE GROUP OF CULTURAL BELIEFS AND PREJUDICES MENTIONED ABOVE, WHICH LEAD RUSSIAN SOCIETY (PARTICULARLY TRADITIONAL CULTURAL ELITES) TO HOLD BUSINESS IN VERY LOW ESTEEM. TO A SIGNIFICANT GROUP IN SOCIETY, ALL BUSINESS PEOPLE ARE, BY DEFINITION, CRIMINALS. THE FACT THAT MANY BELIEVE THAT THE PRIVATIZATION PROCESS WAS "FIXED" BY CORRUPT INSIDERS EXACERBATES THIS PERCEPTION. THE GOR'S CURRENT LOANS-FOR-SHARES PROGRAMS, WHICH MANY VIEW AS IS TILTED TOWARDS INSIDERS SO AS TO TRANSFER PRIME ASSETS TO THEM AT ROCK BOTTOM PRICES, IS LIKELY TO REINFORCE NEGATIVE ASSUMPTIONS ABOUT THE NEXUS BETWEEN PRIVATIZATION AND THE BUSINESS COMMUNITY.
20. FURTHER, GIVEN THE UNDERDEVELOPED STATB OF THE LEGAL AND REGULATORY INFRASTRUCTURE FOR BUSINESS, IT IS DIFFICULT TO DO BUSINESS IN RUSSIA AND NOT VIOLATE SOME LAW OR REGULATION. FOR INSTANCE, THOSE WHO WERE IN GREY OR BLACK MARKET BUSINESS IN THE SOVIET PERIOD WERE CERTAINLY BREAKING LAWS (MANY OF THEM SERVED JAIL SENTENCES). WHEN THEY LEGALIZED THEIR OPERATIONS DURING PERESTROYKA OR AFTER 1991, PARTS OF SOCIETY CONTINUED TO VIEW THEM AS CRIMINALS. ONE EXAMPLE: IN A MEDIUM-SIZED CITY, AN ECONOMIC OFFICIAL IDENTIFIED AS CRIMINAL THE OWNER OF A LEADING RETAIL TRADING OPERATION, WHO HAD BEEN ELECTED TO THE REGIONAL LEGISLATURE, SIMPLY BECAUSE HE HAD SOMEHOW COME UP "FROM UNDERGROUND." IT WAS UNCLEAR WHETHER THIS PARTICULAR ALLEGATION HAD ANY MERIT, BUT NO DOUBT MANY "OLD TRADERS," ACCUSTOMED TO OPERATING OUTSIDE OF SOCIETY'S NORMS ARE CONTENT TO CONTINUE DOING SO IN POST-COMMUNIST RUSSIA.
21. A MORE UNIVERSAL PROBLEM IS THE ABSENCE OF BOTH EFFECTIVE COMMERCIAL LAWS AND REGULATIONS, AND ENFORCEMENT MECHANISMS FOR THE LAWS THAT DO EXIST. IN PARTICULAR, THE SYSTEM IS UNABLE TO RESOLVE MANY COMMERCIAL DISPUTES. COMMERCIAL LAWS HAVE BEEN WORKING THEIR WAY THROUGH THE LEGISLATIVE SYSTEM, BUT ARE UNLIKELY TO HAVE MUCH IMPACT IN THE NEAR TERM. THE FIRST PART OF THE NEW CIVIL CODE BECAME LAW LAST YEAR; THE SECOND WAS PASSED BY THE OUTGOING DUMA ON THE LAST SESSION, BUT STILL AWAITS APPROVAL BY THE PARLIAMENT'S UPPER HOUSE.
22. YET ANOTHER FACTOR THAT COMPLICATES THE CRIMINALITY ISSUE IS THE PUNITIVE NATURE OF THE CURRENT TAX STRUCTURE. ANYONE WHO TRIES TO PLAY BY THE RULES HAS A VERY DIFFICULT TIME OPERATING PROFITABLY (A BUSINESS'S TAX BILL CAN EXCEED 100 PERCENT OF PROFITS).
23. A FINAL CONSIDERATION IS THE PAYMENT OF "PROTECTION." IN AN ENVIRONMENT WHERE THE POLICE ARE OFTEN UNABLE TO CARRY OUT THEIR MANDATED FUNCTIONS, MANY BUSINESS OWNERS PAY PROTECTION MONEY TO ORGANIZED CRIME. IT IS NOT CLEAR THAT THE FACT OF SUCH PAYMENTS NECESSARILY MEANS THE BUSINESSES THEMSELVES ARE CRIMINAL OR ARE UNDER "MAFIA" CONTROL; OR WHETHER THEY ARE COOPERATING WITH CRIMINALS ONLY TO THE DEGREE REQUIRED TO REMAIN IN BUSINESS.
----------------------------------------- ...BUT NOT TO EXPLAIN THE MAFIA
AWAY:
CRIME AND CORRUPTION ARE REAL PROBLEMS
-----------------------------------------
24. SOME OF THE CRIMINAL REPUTATION OF THE EMERGING RUSSIAN BUSINESS CLASS -- AND THE UNDERWORLD THAT FEEDS ON THE BUSINESS COMMUNITY'S RELATIVE WEALTH -- IS WELL DESERVED. THAT RUSSIAN BANKERS ARE MURDERED IN A GANGLAND STYLE ON AM ALMOST WEEKLY BASIS IS PART OF THE HARD-EDGED REALITY OF COMMERCIAL LIFE HERE. IN THE ROUGH, LARGELY UNREGULATED BUSINESS ENVIRONMENT, COMMITTED LAWBREAKERS THRIVE ALONG WITH THOSE WHO ONLY BREAK THE LAW BECAUSE THERE IS NO ALTERNATIVE. AND OF COURSE THERE ARE VERY HIGH TAXES TO BE AVOIDED -- PROBABLY THE MOST FREQUENT TYPE OF LAW-BREAKING ENGAGED IN BY GENERALLY LEGITIMATE BUSINESS PEOPLE. THE FOREGOING ARE PART OF THE ENVIRONMENT FOR EMERGING RUSSIAN BUSINESSES, BUT SHOULD NOT BE CONFUSED AS BEING CENTRAL TO THE EXISTENCE (AND PURPOSE) OF THE ENTIRE BUSINESS CLASS.
------------------------------------------------------- WHO ARE THEY? YOUNG, TECHNOCRATS AND THE WELL-CONNECTED -------------------------------------------------------
25. THE DOMINANT CHARACTERISTIC OF THE BUSINESS CLASS IS ITS YOUTH. OWNERS AND OPERATORS OF KIOSKS AND OTHER SMALL BUSINESSES TEND TO BE UNDER 35. SOME OF THE BIG FISH IN THE BANKING AND FINANCE SECTORS ARE UNDER 30 AND FEW ARE OVER 40. ATTITUDES TOWARD BUSINESS AND THE MARKET ECONOMY ARE MOST POSITIVE AMONG THE UNDER-25 STUDENT GENERATION. THERE ARE NOTABLE EXCEPTIONS -- EYE-SURGEON AND PERENNIAL POLITICAL CAHDIDATE, SVYATOSLAV FEDOROV COMES IMMEDIATELY TO MIND -- BUT THEY ARE RARE. IN SURVEYS, NEARLY ONE IN FIVE TWENTY- SOMETHING RUSSIANS EXPRESS INTEREST IN STARTING THEIR OWN BUSINESS, VERSUS ONE IN TEN BETWEEN 30 AND 50 YEARS OF AGE.
26. IN TERMS OF FORMATIVE INFLUENCES, A SIGNIFICANT PERCENTAGE OF THE RUSSIAN ENTREPRENEURIAL CLASS RECEIVED THEIR EDUCATIONS OR EARLY WORK EXPERIENCE IN THE SOVIET COMMUNIST PARTY OR RELATED INSTITUTIONS. FURTHER, A WESTERNER WORKING ON A TECHNICAL ASSISTANCE PROJECT IN A SIBERIAN OBLAST TOLD ECONOFF THAT THE MANY OF THE MOST INNOVATIVE MANAGERS IN THE REGION HAD STARTED AS KOMSOMOL ACTIVISTS. WHILE HE WAS REFERRING TO THE PRIVATIZED STATE SECTOR, THE SAME GENERAL IDEA CAN BE APPLIED TO THE BUSINESS CLASS THROUGHOUT RUSSIA.
27. ANOTHER VERY COMMON CHARACTERISTIC OF THE ENTREPRENEURIAL CLASS IS A TECHNICAL OR SCIENTIFIC EDUCATION. FOR EXAMPLE, MANY LEADING RUSSIAN BANKERS ARE GRADUATES OF THE MOSCOW APPLIED MATHEMATICS INSTITUTE. SOME, FROM A SLIGHTLY OLDER AGE GROUP, ALSO HAVE WORK EXPERIENCE IN A TECHNICAL CAPACITY AT AN INDUSTRIAL ENTERPRISE OR INSTITUTE, OFTEN IN THE DEFENSE SECTOR. THIS TENDENCY DOES NOT NECESSARILY MEAN THAT THE SCIENTIFIC/TECHNICAL BACKGROUND CONFERRED SPECIALIZED KNOWLEDGE NEEDED TO SUCCEED IN BUSINESS. THE SOVIET SYSTEM DID, HOWEVER, TRY TO ATTRACT THE MOST TALENTED TO INDUSTRIAL CAREERS. FURTHER, UNLIKE FIELDS LIKE ECONOMICS OR THE LIBERAL ARTS, WHICH WERE CLOUDED BY IDEOLOGICAL DOGMA, SCIENCES AND TECHNOLOGY WERE TAUGHT STRAIGHTFORWARDLY, GIVING SUCH INDIVIDUALS QUANTITATIVE, AND IN MANY CASES, COMPUTER SKILLS USEFUL IN BUSINESS AND FINANCE.
---------------------------------------------- NOT ALL CROOKED NOR RICH, BUT A BUSINESS ELITE ----------------------------------------------
28. THE EMERGING RUSSIAN BUSINESS OR COMMERCIAL CLASS (ALONG WITH RUSSIA'S FORMER STATE ENTERPRISE MANAGERS - - A GROUP WITH WHOM IT IS GRADUALLY STARTING TO OVERLAP) WILL PROVIDE THIS COUNTRY'S MANAGERIAL AND ENTREPRENEURIAL ELITE FOR YEARS TO COME. THESE ARE NOT MERELY A FEW WEALTHY CROOKS WHO ARE SKIMMING THE CREAM OFF THE RUSSIAN ECONOMY, BUT AN INCREASINGLY BROAD- BASED SOCIAL GROUP WHICH WILL FORM PART OF TWENTY-FIRST CENTURY RUSSIAN SOCIETY. THE BUSINESS CLASS IS ALREADY STARTING TO FORM INSTITUTIONS, SUCH AS NATIONAL AND REGIONAL CHAMBERS OF COMMERCE AND THE RUSSIAN BUSINESS ROUNDTABLE, AND IS PLAYING A MORE ACTIVE ROLE IN POLITICS AND SOCIETY. FOR EXAMPLE, THE ROUNDTABLE, WHICH DRAWS HEAVILY ON THE NEW BUSINESS CLASS, IS PRESSING FOR TOUGHER ANTI-CRIME MEASURES. BUSINESS NEWSPAPERS AND JOURNALS ARE INCREASINGLY SOPHISTICATED (AND SLICK). LARGER, BETTER-OFF COMPANIES ARE FOUNDING THEIR OWN BUSINESS EDUCATION PROGRAMS OR ARE SUPPORTING TO INDEPENDENT BUSINESS SCHOOLS. ONE EXAMPLE IS A WELL-RESPECTED PROGRAM IN THE ECONOMICS FACULTY AT MOSCOW STATE UNIVERSITY; ANOTHER IS A PRIVATE BUSINESS AND FINANCE ACADEMY FOUNDED BY A REGIONAL BANK NEAR ITS HEADQUARTERS.
---------------------------------------------------- COMMENT: TREND TOWARD
ENTREPRENEURSHIP DOES NOT MEAN ECONOMY IS INCREASINGLY CRIMINAL
----------------------------------------------------
29. IT IS ALSO NOTABLE THAT THIS TREND AWAY FROM EMPLOYMENT IN LARGE ENTERPRISES TOWARD INCREASING SELF- EMPLOYMENT AND ENTREPRENEURSHIP REFLECTS WHAT IS HAPPENING IN MORE DEVELOPED ECONOMIES. THE DIFFERENCE IS THAT IN THE U.S. AND ELSEWHERE THE TREND HAS BEEN EMERGING OVER A GENERATION OR LONGER WHILE IN RUSSIA IT HAS HAPPENED IN A FEW TURBULENT YEARS. THIS TENDENCY HAS IMPORTANT IMPLICATIONS FOR RUSSIAN SOCIAL POLICY IN THE COMING YEARS. MANY SOCIAL SERVICES IN RUSSIA ARE STILL PROVIDED AT THE ENTERPRISE LEVEL, ALTHOUGH THE DYNAMIC HAS BEEN THAT MUNICIPALITIES ARE INCREASINGLY TAKING OVER THIS FUNCTION. IF SMALLER, ENTREPRENEURIAL BUSINESSES CREATE MOST OF THE NEW JOBS IN RUSSIA IN COMING YEARS, THE STATE WILL NEED TO ACCELERATE THE TRANSFER OF SOCIAL SERVICES IN ORDER TO PROVIDE FOR A MORE SCATTERED WORKFORCE.
30. FINALLY, WHILE IT IS IMPORTANT NOT TO UNDERESTIMATE THE VERY SERIOUS PROBLEM OF CRIMINALIZATION IN RUSSIA'S ECONOMY, IT IS ALSO IMPORTANT NOT TO CONFUSE LEGITIMATE BUSINESS PEOPLE COPING WITH A DIFFICULT BUSINESS CLIMATE WITH CAREER CRIMINALS. THIS CONFUSION IS COMMON IN RUSSIA FOR THE REASONS DISCUSSED ABOVE AND ALSO BECAUSE NEW MONEY HERE, AS IN THE U.S., TENDS TO BE FLAMBOYANT. IN THE U.S., PEOPLE ASSUME THAT A YOUNG PERSON DRIVING AN EXPENSIVE CAR AND WEARING DESIGNER CLOTHES IS IN ONE OF A HANDFUL OF HIGH-PROFILE PROFESSIONS, SUCH AS SPORTS, ENTERTAINMENT, COMPUTERS OR INVESTMENT BANKING; THE IMPULSE IN RUSSIA IS TO ATTACH THE "MAFIA" TAG. THIS IS PARTICULARLY UNFORTUNATE WHEN REFERRING TO BOLD YOUNG RUSSIAN ENTREPRENEURS WHO ARE TAKING CHANCES, CREATING BUSINESSES AND JOBS, AND OTHERWISE ENGAGING IN THE VERY ACTIVITIES MOST NECESSARY TO CREATE A MODERN RUSSIAN ECONOMY.