A Fistful of Rubles
By Jim Rogers
Russia's version of a free-market economy follows the wild-west
model. call it outlaw capitalism. To do business, you'll need hired
thugs and an ak-47.
I was in Russia's Manezh shopping center, near the
Kremlin, when a bomb exploded. One person was
killed, and more than 30 were injured. The story
made headlines back in the U.S. Yet I couldn't help
but notice that news of the blast was of little interest
in Vladivostok, Khabarovsk, Svobodny, and
Ulan-Ude. Politicians in Moscow may worry about
the International Monetary Fund or the loss of
Chechnya, but these are not matters that concern
the Russians who live outside of Moscow.
This is the paradox of Russia today. Since the fall of Communism and
breakup of the Soviet Union, Russia itself has become a fragmented country.
Very little now holds it together. Certainly not the economy. Between 1990
and 1996, Russia's gross domestic product fell by a full third. It grew slightly
in 1997, but that proved only a brief reprieve. The following year brought the
devaluation of the ruble. Russia's traditional trade surplus has continued to
contract, largely because of soft international commodity prices -- brought
on, ironically, by its own dumping of commodities on world markets.
President Boris Yeltsin has introduced many changes and reforms, but
Russia's economy still lacks many of the basic things it needs to prosper.
These include tangibles such as improved telecommunications and new
factories, but they also include legal and other systems that enable the
accumulation and protection of capital in a way that benefits society.
Many of the improvements have been made only on the surface. There are
new shops, but few new distribution centers. There are new restaurants, but
few new farm implements. The Kremlin got a face-lift, but there isn't one
soundly run commercial bank in the entire country.
The telephone and electric services are erratic. Most roads are barely
passable. You can't drink the tap water, and there is little or no indoor
plumbing in any of Russia's villages or towns. Except for Moscow and a few
other showcases, there are weeds, rust, peeling paint, and crumbling cement
everywhere you look. Buildings that would be declared derelict by inspectors
in any second- or first-world country are still in use here. Even in the fanciest
hotels, there is rarely soap, towels, or toilet paper. (Tip: If you plan to visit
Russia in the near future, bring your own toilet seat.)
The fall of Communism gave Russians the freedom to become rich after
centuries of enslavement. For now, though, the reality is that a great many are
poor. Officially, unemployment stands at 12 percent, but I'd say it's actually
closer to the 25 percent level that occurred during the Great Depression in
the U.S. The New York Times recently estimated that as many as 40 million
Russians live on less than $30 a month.
And yet in many Russian cities, a new breed of wealth has been born, one
that has feasted off the collapse of the Soviet Union. Many of the nouveau
riche were once the managers of state-owned enterprises under Communism.
As the USSR collapsed, these people grabbed factories, inventories, and
stockpiles of raw materials that they had controlled, and then sold everything
to the West in a gigantic fire sale. They made hundreds of millions of dollars,
which they have since stored safely away in Swiss bank accounts.
With their authority enforced by hired bodyguards and paid troops, these
former Communist managers run their old enterprises as they see fit and
proclaim themselves emperors. I'm reminded of the cattle and land barons
who once ruled the American West, building empires for themselves while
those in their service went hungry. The major difference is that these new
Russians own and operate refineries, aluminum plants, vast agricultural
operations, oil fields, and factories.
Not surprisingly, these newly wealthy Russians have been erecting enormous
monuments to themselves. In Krasnoyarsk, a local politician has just
completed the largest house built in the city in more than 100 years.
Having simply taken their holdings by force, few Russian bosses feel much of
an incentive to improve, modernize, or keep up with the latest technological
developments. I visited an aluminum plant, a vodka factory, and a place that
produced fur coats. In each case, the facility was inefficiently run, and the
quality of the goods produced was low. In the days of Soviet Union, the
attitude was the same: If the boots were poorly stitched or the bucket had a
hole in it, a Russian or Pole would have to make do. It's a mentality that, for
decades to come, will cripple Russia's attempt to capture a share of the
world's market.
You might be thinking that a Western competitor could simply walk in, start a
business, sell a better product, and make a small fortune. But that just doesn't
happen. Chances are the Westerner would be taxed into bankruptcy,
vandalized until he went broke, or simply killed. On this frontier, the only law
is that of the AK-47. It's a capitalism of sorts but an outlaw capitalism at
best.
I got an inkling of this when I visited the city of Chita. On my first day there,
while I was dining in the restaurant at the Panama City Hotel, one of the local
honchos -- in the States we'd call them mobsters -- asked me how I had
been able to travel so far in Russia without paying a bribe.
"How do you know we haven't paid anyone off?" I answered.
"We know from our connections along your path that you haven't," he said.
After this exchange, I made sure that this man and I became bosom buddies.
At the end of a rather boisterous evening, he told me to let him know if
anyone bothered me on my trip. "We'll have them killed," he said. "That goes
for the next city, too. You won't have any problems there, either." I didn't
doubt him.
For a while, I was concerned my car might be stolen. But autos are one form
of capital that Russians have learned how to safeguard. Secure parking lots
with barbed wire and armed attendants have sprung up in every town.
Another way that Russians safeguard their wealth is to set up shop across the
border. The city of Ulan Bator, the capital of Mongolia, has become a major
beneficiary of this trend. Ulan Bator has a genuine infrastructure. Recently, it
was wired with fiber-optic cable. I was able to connect to the Internet from
my hotel room, something I couldn't do anywhere in Russia.
It has finally bubbled to the surface in the Western press that much of the
Western aid sent to help Russia rebuild has been stolen by those to whom it
was entrusted. The reports of rampant theft by the oligarchs and chief
mobsters are causing widespread public resentment. Russia has sacrificed
everything -- its empire, its currency, its reputation -- to enrich a few. For
Russia itself to survive and prosper, either as a whole or in various bits and
pieces, the politicians who run the country will have to obey the simplest of
economic laws: There can be no real gains in an economy until stewardship is
taken seriously and investments are put into true productive capacities. Until
then, Russia will remain a third- world country. Capital has its own laws, laws
as inexorable as those of gravity. And until Russia comes to respect capital
and provide for its safety and nourishment, capital won't come to its aid.
Intelligent capital doesn't aid thieves and outlaws.
Senior contributing editor Jim Rogers is on a three-year trip to research
the state of the world at the turn of the millennium. Updates are
available at www.jimrogers.com. |
