Russia in the Rear View Mirror

The current, brutal Russian invasion of Ukraine sent me back to a presentation I gave before a subcommittee of the Foreign Relations Committee on ways to assist Russia after the formal breakup of the Soviet Union in December 1991. Senator Joseph Biden headed that committee. The date of my speech was April 9, 1992. My focus was on helping the emerging class of Russian farmers in my role of director of a joint venture that included the magazine “Novii Fermer” that was based on content from Rodale’s “New Farm” and “Organic Gardening.” I was a Group VP at Rodale at the time.

Some background. This joint venture was the brainchild of Robert Rodale, then Chairman and CEO of the Company. He died in a car accident in Moscow on September 20, 1990, the morning after he signed the joint venture agreement. The head of the Russian team, a translator and driver were also killed. I had left early that morning for Germany and didn’t learn of Mr. Rodale’s death until many hours later. I returned to the U.S. for Mr. Rodale’s funeral and then went to Russia to mourn our friends.

This wasn’t the best time for a business venture what with the Soviet Union dissolving and a coup attempt on August 1991 with Boris Yeltsin climbing aboard a tank in Moscow to convince the commanders to turn their guns away from the Russian White House. This might have been Yeltsin’s finest hour before he eventually handed over the reins of government to Vladimir Putin. Nonetheless, our joint venture partners were eager to throw off the Soviet yoke and get on with their plans for a new Russia.

As I told the Senate committee, we were not naïve about the enterprise. We considered our investment to be long-term. Though we fully expected to make a profit in five years or so, we had not been disheartened by the calamitous years we had spent in that troubled land. One reason was that we were tied to no particular bureaucracy in Moscow. We took our message about right to land, market and food directly to the people.

I mentioned to the committee that I had had dinner with Yevgeny Yevteshenko, poet and politician, who put his finger on the central Russian paradox: “Russia is the richest beggar you will ever meet.” He had said on many occasions: “We don’t want your money. We want your knowledge and technical assistance.”

In the session I referred to an earlier interview I had with the New York Times in which I provided some perspective on the rationale for the joint venture: “A nation that cannot feed itself, that is losing 40% of its crop in the field and in transportation, that is in poor health because of poor nutrition, can only be saved by a massive restructuring and privatization of its land.” This statement was based on research conducted with 100,000 readers of “Novii Fermer.”

As did other speakers, I supported a Russian version of the “G.I.” Bill that would provide support for the more than a million Russian troops that remained in various countries of the collapsed Soviet Union, providing housing and land for farming in Russia. This issue was never really addressed and in some respects is still hanging fire.

What was most interesting and surprising to me at the Senate hearing was the impressive numbers of American corporations, charities and financial institutions that were eager to help Russia become self-sufficient and a full, flourishing member of the community of nations. There were warnings. Alfred Friendly Jr, author of “Ecocide in the USSR” said Russians were “poisoning themselves, their kids, their land, their air and their water.”

Some of the organizations that addressed the committee included: The American Council of Teachers of Russian, Americares, Sister Cities International, U.S. Chamber of Commerce, American Jewish Committee, Children’s Television Workshop, National Resources Defense Council, and Westinghouse Electric Corp.

I recently re-read all the prepared statements and detected no jingoism or naivete in the remarks. As Michael C. Brainerd of the Citizens Exchange Council, New York said: “The elite of the Communist Party, an elite of less than 5%, controlled not only every governmental authority, but also every amateur soccer team.”

Dan E. Davidson, Executive Director of the American Council of Teachers of Russian and wary of inherent cultural and racial dangers related to the breakup of the Soviet Union, warned: “Unless more of the people of the Soviet Union are brought out of their long isolation from the modern democratic world, they will remain vulnerable to some future nativist that will feed on the inevitable hardships of the current transition. The United States would once again risk becoming the external enemy.”

This theme was echoed during the four days of testimony. There was a consistent corporate, financial and educational view that imagined the potential dangers if Russia and the newly independent countries were not part of the global economy and culture. A number of speakers suggested that American people were far ahead of the government in understanding this historical moment.

In my prepared statement I mentioned Russian novelist Leo Tolstoy who worried more than a century ago about the roots of poverty in Moscow and wrote “What Then Must We Do.” Tolstoy’s famous phrase, “Moscow neither sows nor reaps, but always has its wealth in heaps,” is a classic indictment of a system in place before the Bolsheviks came to power.

At the close of my remarks Senator Biden said he didn’t believe the current administration (of President George H.W. Bush) had a foreign policy regarding Russia. According to my prepared remarks, I agreed with Biden but don’t recall the specifics. I think there was fear in the administration that, if America helped Russia, the country would become a competitor on the nuclear front and more.

Biden suggested that it would seem to make more sense to have a plan to help Russia become self-sufficient rather than sending leftover rations from Desert Storm. Apparently, America did deliver seventy-five tons of military rations to Moscow and St. Petersburg in December 1991 and the Russians were very appreciative. There was some speculation that the lack of strategic aid from the U.S. was a factor in Gorbachev losing power.

No doubt Russia was a tough market to enter at this time. Boris Yeltsin’s program of “economic shock therapy” and radical market-oriented changes came at the heavy price of super-inflation, leading to a financial crisis. The Russian GDP continued to drop despite the country having an abundance of natural resources and a well-educated population.

Reforms were rushed and banks and commercial law had difficulty keeping up. Russia continued its efforts to make the economy more productive and consumer-facing. Moscow was all in on privatization of property. Unfortunately, most of the revenue from the sale of state-owned properties found its way to the club of oligarchs and criminals. The Russian mafia reportedly has taken billions out of the country.

That said, McDonalds opened its first restaurant in Moscow in 1990, adding hundreds more over the next three decades before suspending operations in most of them after Russia’s recent invasion of Ukraine. Advice from the “Harvard Business Review” thirty years ago was prescient in suggesting only certain business models would work in a place going through turmoil from “perestroika” or restructuring.

The HBR correctly anticipated the Russian business climate well into the future. “Much has been written about the crowded restaurant McDonald’s restaurant in Moscow — and little about what is most significant about it. This is not just an imaginative deal between one restaurant chain and some lucky Russian potato farmers. The joint venture is succeeding because its terms have been tailored to the merging facts of the Soviet political economy.”

The HBR wrote that businesses interested in investing in Russia has to bet on the eventual success of what “perestroika” has unleashed, “a liberal market economy that will span a generation.”

That bet apparently paid off. Before Russia’s invasion of Ukraine more than a thousand international companies were doing business in Russia. Yale University’s Chief Executive Leadership Institute keeps a running count of international business activities in Russia. This list seems to change by the day as pressure on companies to exit the Russian market grows at a fast clip, given the savagery Russian forces in Ukraine have displayed and the war crimes they have committed.

The Leadership Institute has noted at the time of this piece, of the 1,000-plus international companies doing business in Russia, more than 750 firms have curtailed operations to some degree. The number seems to be increasing as news of Russian atrocities in Ukraine become public and international sentiment is turning against companies that remain in Russia.

Approximately 250 companies are “Digging In,” earning an F grade from the Yale group. They include International Paper, Tenneco, Lacoste and a large assortment of companies from India and China, largely in the energy business. Koch Industries, that has a large investment in glass factories and other businesses, initially signaled they were also digging in Russia but decided to leave in recent days.

There are currently about 143 companies that are “Buying Time,” in Russia, perhaps waiting for war in Ukraine to end in the near term, which doesn’t seem likely. Some of of these firms, including Abbot, Bayer, Pfizer and others, seem to be taking advantage of loopholes in international sanctions agreements that permit companies to distribute products for health purposes.

A large number from this group, including Credit Suisse, Danone, P&G, Marriott, Mars and Microsoft, are generally stopping new investments and apparently hoping to ride out the international pressure.

The largest number of companies in the Yale study — about 364 — have suspended sales or, in some cases, all operations. These include: 3M, Alphabet, Amazon, Amex, Apple, Budweiser (the Czech Rep. arm), Coca-Cola, Conde Nast, Dell, Qualcomm, Starbucks, and others. This is expected to have profound implications for the Russian consumers accustomed to these products and services. For example, Papa John’s, Dunkin Donuts, Starbucks and others indicate they will also suspend or halt corporate support of their franchises, impacting consumers and franchise holders.

An equally impressive list of companies has decided to halt engagement in Russia or exit the country completely. A partial list includes: Alcoa, American Airlines, Air Products, Deloitte, Go Daddy, Heineken, Krispy Kreme, Nokia, and Shell. Some companies, such as the UK’s J. Sainsbury, plan to remove all products from Russia.

It is really quite extraordinary how Western brands, technologies, and consumer goods have penetrated the Russian market over the last thirty years, becoming a vital part of consumer consumption patterns. As the Harvard Business Review wrote, it would take international companies a few decades to develop business and marketing plans appropriate for the Russian state. That seems to have happened, at least to a degree. But the HBR review could not have anticipated strategies for businesses caught in a pariah nation.

In a recent “Fortune” magazine piece, Yale University’s Professor Sonnenfeld provides some perspective on the willingness of some international brands to foster good will and relations by paying employees during this war-time pause. He thinks it admirable but something of a “cognitive time warp, a fall back to the utopia of the bygone 1990’s with its ‘perestroika’ and the spirit of globalization.” In the professor’s opinion this was when Pepsi, Coke and Starbucks and other Western symbols were the commercial bridge linking East and West, a world that no longer exits. Perhaps my associates and I at “Novii Fermer,” full of optimism and hope for an independent, West-facing Russia, were caught in this “cognitive time warp” in 1992.

Sonnenfeld has a point. Thirty years of global investment in Russia has done little or nothing to tame the country’s brutal expansionism. The professor reminds us that, as with Hitler, who redirected products of domestic R&D to his advantage, Putin has used international largesse to line his own pockets and fan his ambitions for a new Russian empire. The notion of constructive engagement with Russia via joint ventures and the like have proven they often don’t work to advance democracy and a spirit of détente. Sonnenfeld boldly calls out Western companies that have not exited Russia. He goes farther, suggesting that by paying Russia $850 million daily for natural gas “Europe is funding its own invasion.” Other have suggested up to 20 percent of these funds should be held back, with proper judicial scrutiny, to fund the rebuilding of Ukraine. That chorus appears to be getting louder.

Putin’s pathological fantasy to reconstruct the Soviet Union will set the Russian economy back decades. There can be no more fantasies about Russia’s intention. The country should pay a generational price for its madness and savagery.

One of the Senate speakers warned in 1992 that, if we were not careful, fascism could return to Russia. America and the world were careful and generous in the extreme and fascism still returned, paid for in part by the millions of misused joint venture funds from the West.

We should not make that mistake again.