Blog: Dave LeggettThe state of Russia

Dave Leggett | 11 December 2010

Businesses are mainly concerned with profitability and growth. There's nothing wrong with that, of course, but there is also an element of responsibility that comes with large scale and international operations.

And I'm not so much talking about the usual CSR, codes of ethics and the platitudes that most companies go in for buried in their annual reports and mission statements. I'm talking about the serious stuff, the nuts and bolts, the jobs created, trade, the impacts on local economies. There is, in pursuing the company's long-term goals, protecting investments, also a wider interest in working with local politicians and organisations that will impact the development of the economy in which your firm has a stake.

It is also useful to understand how things are developing and how things can be influenced for the good of all stakeholders. And business leaders naturally interface with government. It's perhaps a broader interpretation of how capitalism can work in everyone's interests: the corporation as part social institution, part of the fabric of society.

Car firms can have a particularly big role in terms of providing employment, directly and indirectly. Car plants are A Big Deal. Think of 'Fordism', of mass car production going hand-in-hand with the rise of mass markets and consumerism in the last century. And think of the impact on society of the car, of the freedom of movement, the lifestyle changes (overwhelmingly positive) that have come with it. 

I was thinking about some of that while reading a right riveting article about Russia in this week's Economist. Ford of Europe's chief Stephen Odell told me last month how pleased he is to see the Russian market turning around. He was quite upbeat about it, and understandably so. Ford has made a major investment at St Petersburg and a Russian car market showing signs of life after the collapse of the past two years is, clearly, positive news.

But what is really going on underneath in Russia? Is it – by 'it' I mean its economy, political structures, Russian society - developing in the right direction or not? Anyone with a stake in the place should take note of some concerns being expressed and I recommend a read of the Economist article, because it describes how the current Russian economic and political system has developed and how it has come to operate.

What are these concerns? Well, the reported Wikileaks stuff about the connections between the Russian state and organised crime is a major part of it. The suggestion is that corruption and organised crime is becoming much more serious, violent, ruthless even, brazen and also more endemic across Russia. Not only that, but the Economist article suggests there are big structural problems building for the Russian economy – lack of investment by its private sector, a rapidly growing public sector, a blurred line between the state and 'private entrepreneurs' being awarded big contracts – which is helping create the conditions under which corruption and the influence of the criminal gangs grows. And, it is further suggested, some of Russia's leaders are a part of this new system and therefore unlikely to change it.

I have heard many stories about business corruption in Russia over the years, but the article surprised me. I thought things were at least moving in the right direction on that front, with just the occasional backward step, but that may have been a bit optimistic. International corporations with major investments in Russia should be considering how things are looking, how Russia will be shaping up in five years' time and they should perhaps be engaging in constructive dialogue with enlightened Russians who share some of these concerns.

A broken down Russia is not in anyone's interests. Some of the worst scenarios now being banded about are potentially bad news for future profits, too. Western firms need to take note, assess the risks and frame relations with local partners, municipal authorities and other relevant actors accordingly. Dumping seventy-odd years of Soviet-style Communism was never going to be easy.

“...growing numbers of the elite feel that the present political and economic model has been exhausted and the country is fast approaching a dead end.”      

Economist article: Frost at the core (may require subscription)


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