Experts discuss Russian issues

by Kathleen McDermott | 8/8/00 5:00am

Experts in Russian politics, law, and international business gathered Saturday morning in the Rockefeller Center to discuss the past, present and future of business in Russia.

The panel discussion, entitled "Doing Business in Modern-Day Russia," was sponsored by the Dartmouth Lawyers' Association, and featured Tobi Gati, a former Assistant Secretary of State, David Slade '76, a lawyer specializing in Russian business, Dennis Whelan, former professor in the Russian Department and Brad Woodhouse '85, an international businessman with extensive experience in Russia.

Gati outlined the interplay between Russia's political history and its current economic situation, while Woodhouse chronicled Russia's changing economy during his time in Russia. Slade and Whelan detailed issues they had faced as foreign lawyers practicing in Russia.

Gati added that Russia's history is a series of efforts to oppose order, leading at times to chaos and at other times to a powerful, controlling central government.

After the fall of the Soviet Union and the years of the Yeltsin presidency, Vladimir Putin now leads the country.

Gati described Putin's leadership so far as promoting reform. His economic team includes many progressive strategists, leading to the passage of laws Yeltsin had discussed for years. Putin has also promoted foreign investment in Russia and has fought against corrupt Russian oligarchs.

Yet, the country is still seen as unpredictable and unfair to foreigners, especially those looking to make large-scale investments.

Gati said as a result, many have chosen to wait and see if tax reforms will be carried out and how stable the political system will be in the future. Russia still must deal with many issues, in banking, legal and political matters before it is seen as a stable investment.

Turning to the reality of the Russian economy, Slade commented on the difficulties of doing business in Russia, describing it as "no cakewalk."

He compared Russia to a big, rotting onion, the outer crust representing the remnants of Soviet power, with the new power elite lying just beneath, followed by the oligarchs, and deep inside, "the mass of ordinary Russians yearning for leadership and a better life." Foreigners wishing to do business in Russia must penetrate these rancid, retrenched layers first, Slade said.

One major problem Slade sees with Russian businessmen is a lack of commitment, he said. For example, after Slade spent an entire year helping close a deal, the director of the company walk off dissatisfied, refusing to sign the final papers.

Foreigners -- from private companies to national governments and multinational organizations -- exacerbated the delicate economic situation in Russia in the past by looking like they were "falling over themselves to lend money," Slade said.

Multilateral organizations such as the IMF and World Bank lent huge sums of money to Russia under conditions of reform, only to continue lending money when reforms were not made, Slade said.

He said Russia's current economic situation is like a house of cards propped up by high world oil prices, and until there is more structural reforms, conditions will not improve.

Woodhouse, the third panelist, has seen many changes in Russia's economy since his first stay in 1983 as part of a foreign study program.

In 1983, the only business opportunities for him were on the black market, where he made significant cash selling his possessions, Woodhouse said.

In the summer of 1991, he returned to Russia, tucked away in his hotel room on the edge of town as the Soviet Union fell. He worked on the "gray market," selling business directories in Moscow.

In 1992 and 1993 he worked in an export/import bank and helped put together loan deals just as Russia was beginning to expand.

Now, as the economy has moved from public to private ownership, the legal document has became increasingly important, Woodhouse said.

Woodhouse remains optimistic about Russia's domestic future. "Russia has rebounded many times before," Woodhouse said. While a student at Dartmouth in the early 1980s, he never couldn't have even imagined discussing a free market economy in Russia, he said.

Whelan, through his experience as a lawyer in Russia, has observed many differences between American and Russian corporations.

The system in Russia often breed what, from an American perspective, may be termed crime, Whelan said.

Almost everything in Russia requires a license, and flexibility in interpreting licensing regulations translates into a "crimogenic society" a very close "revolving door" between government and business, Whelan said, adding that many feel one who tries to follow the laws cannot do business profitably in Russia.

However, Russia's legal system has turned out many anti-corporate decisions, showing that corruption in government is not as rampant as one might suspect, Whelan said.

Questions from the audience followed the panelists' presentations and focused on the role of corruption in the Russian business world.

The question of what is corruption does not have a clear-cut answer and varies from society to society, Gati pointed out, and just because something isn't 'legal' doesn't necessary make it any more morally offensive than some 'legal' acts.

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