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Russia’s greatest challenge is still to come

Just spent a few days in Moscow.

It’s my third visit here, and each time I find the country intriguing, enlightening, engaging and frustrating.

By way of example, the society is still very rules-based but everyone ignores the rules because no-one enforces them properly.

The traffic is jammed all day on the freeways, and cars dodge and dive between lanes in aggressive manner, ignoring all road markings.

The hotel we stayed with offer everything from robes to rubdowns, but ask for a cappuccino at breakfast and the answers a plain: “no”.

The best way to illustrate the Moscow experience is the restaurant we went to last night.

At the concierge desk, we asked for a table for five.

They said they don’t have one, only a table for four.

We said that’s ok.

They said, you cannot have this table as there are five of you.

The conversation carried on like this for about five minutes until, eventually, the concierge said “OK” and, once past the concierge, the waiter gave us an extra chair for our table of four to accommodate five.

This experience occurred at least once a day during my visit: you arrive somewhere to be told no but, if you believe the answer should be yes, you just stubbornly refuse to accept no until the rules change.

It is this experience that shows that the Russian economy is one where, if they can erode this rules-based rigidity, it could really rock and roll.

However, that is unlikely to happen for many reasons: infrastructure, size, breadth, investment, political structures, financial markets and more; too many to list here but, from this visit, two challenges to Russia’s future stand out more than many others: a complete lack of trust and a culture of corruption.

I hope I am wrong about these two factors and would like anyone to challenge these two factors, but they both appear to be prevalent in my visits to Moscow.

The lack of trust issue I alluded to the first time I visited Moscow.

That time I met the major exchanges – MICEX and RTS – and they told me that, due to the collapse of the financial system years before, no-one trusts each other.  This results in total collateralisation of positions at start of trading, a position untenable in European and American markets.

After all, how can you leverage your positions if you have to show that you have enough collateral to cover them (that’s a joke btw).

This time, the same lack of trust displays itself in Russian society, as illustrated by an article that appeared in the Economist last week.

The article shows that Russia has the largest population of internet users in Europe – yes, some of us think Russia is part of Europe, especially when their grannies come second in our Eurovision song contest – and yet, their internet usage is far more like China’s.

They don’t trust companies to deliver goods and services, and they won’t pay until they see the goods. Hence, Russians order online and pay in cash.  Alongside all this, they don’t like companies if they are unable to complain to a human being, so anyone doing business online has to run a call centre operation to support their online services.

In some ways that seems reasonable to me, although it adds a major layer of cost overhead.

So trust, or lack of it, is a major constraint on the Russian economy.

The second constraint is corruption.

Throughout our trip, we encountered examples of possible corruption from the strange sculptor statue to Peter the Great to the rebuild of the Moskva Hotel.

The statue was originally of Christopher Columbus to celebrate the 500th anniversary of his voyage of discovery of America in 1992 … but no-one wanted it, so the mayor of Moscow agreed to pay for it as he was friends with the sculptor, but only if the sculptor could change it to look a litlle more like Peter.

Peter the Great

Hmmm …

Another rumour locally is that the rebuild of the Moskva Hotel, which is the new Four Seasons Hotel next to Red Square, is all down to money laundering,

The hotel is an exact replica of the original hotel.


Exact in every detail.

For example, an accident meant that the front of the hotel had two designs.  

Stalin was meant to choose which was better, but signed the designs in the middle of the drawings.  

As a result, both facades were incorporated and have been incorporated once again into the new bulid – note that the left side of the hotel differs in design to the right when, originally, they were meant to be symmetrical.

Our guide felt that the rebuild was either due to the old hotel being full of paranoid Stalin bugs in the bedrooms or was purely being rebuilt as part of a money laundering process.

I am not sure if such things are true, but Russia does have an Occupy movement that is protesting the re-election of Vladimir Putin.

Putin’s position is certainly being challenged in several quarters.

Take the Western styled press publication, the Moscow Times.

Delivered for free to my hotel room daily, the newspaper writes honestly about several big issues in Moscow.  Here’s one example that really caught my attention:

Over the past 12 years, Russia has become a full-fledged mafia state. One day, historians will chart its exact structure, but it seems clear that it consists of several large families headed by President Vladimir Putin's close associates and loyal oligarchs. Alongside them, countless crews of siloviki, bureaucrats, gangsters and affiliated businessmen work on their own, their networks varying from local to nationwide.

Another article was noteworthy:

Continued protests in Russia will likely lead to a violent backlash or chaotic changes in the government, according to a new study ordered by former Finance Minister Alexei Kudrin from the same think tank that predicted the street protests months before they began.

I like Moscow with its amazing Metro system and buzz of life.

I don’t like the undercurrents there however, particularly those of corruption and mistrust, rules and rigidity.

These undercurrents damage the system and possibly will never allow Russia to truly achieve its potential.


On the other hand, rules can be changed and society can adapt.

For example, there is an Occupy movement here, protesting about Putin’s re-election.

It built up  a head of steam after the election but, over time, the political protest has fizzled out.

However, it may come back and if the Occupy movement in Moscow ever achieves a breakthrough, its achievement could be similar to Glasnost and Perestroika before.

In other words it, or something like it, could really mean that Russia’s doors are opened for real global competitiveness and integration.

A space worth watching and, just for balance, most countries have corruption and distrust.  It's just more exaggerated in some countries compared to others.

Meanwhile, if you missed the Babushki of Buranovo at the Eurovision, it’s well worth a viewing:

You see, there is a happy side to Russia too.



About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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One comment

  1. Interesting that the Russians just ignore the road markings! Reminds me of some of the major highways across the African continents where lane dividing marking is just ignored and trucks drive on which ever side of the road they fancy!

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