Russian tycoons’ deep-rooted ‘investophobia’ harmful to businesses and innovations

These ugly recollections, coupled with nationalistic politicians’ frequent statements calling for a review of the results of Anatoly Chubais’ privatization or, if it comes to the pinch, forcing the “beneficiaries of the privatized Soviet industrial assets” to pay the real market prices for companies that they practically got free-of-charge in the hazy 1990s, have long caused among Russian business owners ‘a specific, deep-rooted psychotic state,’ more popularly known in the business community as ‘investophobia.’ 

The imprisonments of some of the nation’s most influential business leaders for a variety of reasons, forced exiles of the most odious of business owners, increasing calls for their extraditions to face legal prosecutions, and most probably unjustified long imprisonment terms, are only aggravating the already complicated relationships between Russian businesses owners and authorities on one hand, and between both entities and the society, which accuses them of a conspiracy against average citizens, on the other. 

This is why contemporary Russian entrepreneurs see state officials as their main enemy, while the bureaucrats in their turn do not only view, but also often relate to the owners of private enterprises as a ‘dairy cow.’ Indeed, this mutual antagonism has always been, and will likely remain, a key issue in the ‘bad blood mutual antagonism’ between the bureaucrats and businesses. 

This is better illustrated by the public clash between Sergei Polonsky, president of Mirax Group, one of Russia’s biggest elite real-estate properties development corporations, and Vladislav Surkov, the Kremlin’s influential first deputy chief of staff. This fracas can be compared with the useless debates that ensued in a fable, where some blind people were asked to touch the elephant and say what they think it looks like. In the tale, each blind person had his own ‘vision’ of the elephant, depending on the body part he felt. The dispute between Surkov and Polonsky is another proof of the radical differences between the viewpoints on Russian businesses by Russian officials and CEOs. 

Bureaucrats and businesses: a case study on mutual antagonism

Surkov, Polonsky and other highly-respected titans of Russian capitalism were meeting at the request of Delovaya Rossiya not to continue their ongoing mutual antagonism, but for a more important reason. They were to ‘brainstorm’ over the ways and mechanisms of boosting innovations in Russia and the role that the local businesses can play in their implementation.

“Nationalistic politicians’ frequent statements calling for a review of privatization results or forcing beneficiaries of the privatized assets to pay real market prices for companies they got at fractions of their prices in the 1990s have caused ‘investophobia’ among Russian business owners.”

In his introductory speech, Delovaya Rossiya President Boris Titov noted that Russian business executives are ready to participate in the implementation of the Russian president’s favorite ‘brainchild’ project of creating an innovative economy in the country. “I must note that there was no necessity to persuade the owners of non-oil and gas businesses, represented by Delovaya Rossiya, of modernization of the Russian economy. The only problem that currently impedes innovations in the country today is the existing harsh and less business-friendly investment climate.” 

After the traditional introductory speeches by the organizers and VIP guests from the Kremlin and the Russian White House, who had unanimously urged all business executives to invest in domestic innovation projects, Polonsky took the podium. Using the example of Evgeny Chichvarkin, the ex-owner of Evroset, the nation’s largest mobile gadgets retailer now in a self-imposed exile in London, he explained why it is unprofitable today for Russian business owners to invest their hard earned capital in the country’s economy, even on patriotic grounds. 

“Most business owners want to ask a question about today’s relationships between businesses and the authorities, but they are afraid to,” said president Polonsky, one of Russia’s most influential businessmen. “It wasn’t long ago when Chichvarkin was here among us. Today, he is no long with us. Someone, who started his company from scratch and used an innovative approach, is now on a wanted list,” he continued. “Ten days ago he sent a video message to the Russian president from London, but up till now, the Kremlin has not reacted.” 

Polonsky also drew the attention of Surkov and other high-ranking officials present at the meeting to another serious problem worsening the local investment climate. “Innovations need long-term investments spanning between 10-20 years, whereas the ‘planning horizon’ of most Russian businesses currently remain extremely low, ranging, at most, between 2-3 years because local businesses do not fully trust the authorities,” he noted. “This is why about 85% of Russian business owners are sitting on their packed bags in a waiting mode, ready to leave the country at anytime. This sentiment helps explain why no one is willing to invest seriously in capital-intensive innovation projects that require a long time for recouping invested capital in the country.” 

Surkov’s response

Surkov, known for his ability to use tough words in political and economic debates, lived up to his reputation, when communicating with the business owners in the audience in general, and Polonsky, in particular. Calling the debate on the relationships between the authorities and businesses ‘a useless discussion that leads to nowhere,’ and noting that he ‘would not like to look like a hedge priest,’ Surkov gave a harsh detailed response to Polonsky, as he went through each of his accusations, sometimes even pushing the boundaries of socially permissible civility, to attacking the businessman’s personality. “I do not want to make any comments about Chichvarkin, though he seems a bright and interesting person to me,” said Surkov, as he launched his verbal attack at Polonsky. “However, I do not consider Chichvarkin’s business an innovative one.”

Counteracting Polonsky’s other statements, notably, the one referring to over 85% of Russian business owners sitting on their bags in readiness to flee the country on a short notice, Surkov urged the entrepreneurs to ‘unpack their luggage’ and work more efficiently for the benefit of Russia. “You are still sitting on your suitcases, though many of you have become billionaires. Most of you got your enterprises, generating huge revenues, practically for free in the 1990s, today have a free access to the Kremlin and spend leisure times with ministers in dachas. Yet, you are still sitting on your packed bags. What else does the Russian ‘bourgeois class’ need to unpack their suitcases and stay at home”?

The tone of Surkov’s speech became much tougher and his verbal attacks and biting remarks directed at Polonsky became more specific and personal as he unleashed his most caustic criticism. “Wasn’t it you, who said at a party that those, who do not have at least $1bln, should go to [Russian expletive]. “Neither I, nor most people present here today have $1bln, but we are not going to the place that you had sent us to.” Concluding his lengthy speech, Surkov called the unnecessary display of wealth by Russian tycoons ‘an indicator of their levels of poor social culture’ and recommended the new ‘Russian bourgeois capitalists’ to be modest in their behaviors and actions in and outside the country.