The Russia Conundrum

Official figures record that 4.5 million people left Russia in the two decades following the collapse of the Soviet Union and experts agree that the real number was much higher. A 2016 report revealed the damage this brain drain has inflicted. The majority of those who emigrated to the West were people with potential who felt unable to develop in their homeland – scholars, college students, entrepreneurs and business leaders. The number of independently wealthy émigrés, including former government officials, families of politicians and members of the financial and bureaucratic elite, has escalated since 2000. The reasons they gave for leaving ranged from low salaries and the lack of funding for science and education to the volatile business environment, widespread corruption, fears for personal safety and business assets, the weakness of public institutions, and a lack of confidence in the law enforcement and judicial systems. The exodus, says the report, not only deprives the country of the most active members of society but condemns the remainder to slower development.

A country as richly endowed with human and material resources but with such a level of national poverty as Russia should be achieving 6 to 7 per cent growth rates. All that is needed is a commitment to legality and business integrity for Russia to attain Canadian standards of living within a decade. Two centuries ago, Mikhail Speransky explained to Tsar Alexander how the deadweight of Russia’s autocratic past could be thrown off and the door opened to a better future. He drew up plans for freely elected local councils, a national parliament and a remarkable draft constitution guaranteeing civil rights and the separation of powers, an end to the police state and freedom of the press. But Alexander refused, and in the third decade of President Vladimir Putin’s rule, the prospects for political reform and economic modernisation are still remote. Trust between Russia and Western governments is at an all-time low. This is bad for the wellbeing of the Russian people, and the safeguarding of their human rights. It tarnishes Russia’s attractiveness as a destination for Western investment. And it carries the risk of political mistakes and gambits that may lead to conflict. As a business leader, I am acutely aware of the way Putin’s leadership stifles economic prosperity. But it is more than that. It has a noxious effect on the moral welfare of the country. It stifles our nation’s present, our people and our future.

As for meaningful economic change, several obstacles stand in the way. The first is domestic investment. Not only is a lot of state expenditure unproductive, the authorities also withhold investment essential for modernising the economy. Apart from the banal purposes of theft and self-enrichment, the rationale for this policy is to accumulate reserves and avoid dependence on Western countries.

Second, Western sanctions, imposed in response to Putin’s military and sabotage activities abroad, had already restricted the flow of investment and technologies into Russia, even before the increased measures enacted after Putin’s invasion of Ukraine. The involvement of high-level foreign professionals and entrepreneurs in the economy has been reduced almost to zero by the international isolation of Russia after February 2022 and a large part of the Kremlin’s aforementioned financial reserves has been frozen. This situation is unlikely to undergo radical change, for no one wants to strengthen a Kremlin autarchy prone to exporting violence.

Finally, there is the question of Russia’s institutions and the rule of law. The state under Putin continues to demonstrate its high-handed attitude to private property and the decisions of international courts. Its own parliament, courts and other institutions are not independent. Russia today is simply not a good place to invest your energy, acumen and capital. Regular scandals erupt in the form of corruption, money laundering and even violent crimes – explosions, poisonings, murders.

By now, everyone should understand that the Kremlin sees the economy as a tool of politics. Simply put, one can achieve and hold on to economic success in Putin’s Russia only by agreeing to engage in corruption or by becoming an agent of Kremlin policies. This is what Western investors should keep in mind. The Washington-based think tank, the Atlantic Council, wrote in 2020 that ‘a “state–criminal partnership” developed in Russia, in which the shadow financial services market was monopolized by the SEB/FSB under the leadership of current FSB Director Alexander Bortnikov. Since then, SEB [the FSB’s Economic Security Service] employees control the entire chain, from schemes for withdrawing money from the budget to cashing out these funds and laundering them abroad.’