by Val M Karren
“Have a seat. I guess we all got hungry at the same time.” Andrew offered an empty plastic patio chair.
“Naaah, I actually came to talk shop with you,” I replied taking the chair.
“About what then?” Richard queried.
“I have to put together a thesis for the term. I figured the two of you were probably the ones with the best oversight in the entire city about the reforms happening,” I was embellishing in sarcasm but speaking the truth at the same time.
“Oh, so you’ve chosen the light study courses!” Andrew replied with a stuttering chuckle.
“The never-ending rabbit hole of economic reform…,” was Richard’s reaction.
The thuggish character from behind the service counter called to Andrew to collect his hot pizza with an indescribable indifference.
“Well we certainly shouldn’t talk shop on an empty stomach,” Andrew remarked standing to collect his prize. “Would you join us for a slice or two?”
“I would be honored.” We continued our misplaced formality in the middle of the draughty, whitewashed fluorescent-lit pizza palace.
After a few triangles of soggy crust and hot cheese had been inhaled, Andrew sat back in his patio chair and made a dry comment: “That pizza crust was about as thin and soggy as the cover that this pizza joint presents for their other activities, wouldn’t you say?” and with that threw his napkin onto the empty platter.
“Yes, I don’t think that those Mercedes parked out front are the delivery boys’…,” Richard commented leering out the window to the makeshift parking lot. “So, what can we help you with, Peter?”
“Having trouble finding real data about companies that have already been sold to private investors, or entrepreneurs, or in general about new private start-ups. You being the local bankers I thought you could point me in the right direction. What can you recommend?” I asked.
“Don’t believe any of the data! That’s what we recommend. Nobody is reporting their real incomes and profits. On paper, every private company in Russia is failing.” Richard stated emphatically.
“That doesn’t add up,” I muttered scratching my chin.
“Exactly. Somebody is making money somehow and then turning that into something else and then taking over a factory and then selling the goods abroad and keeping the profits for himself and not reinvesting. Where the seed money is coming from and where the profits are going, as two economists in a shady pizza joint, we have our suspicions, but nobody is talking about that,” Richard speculated.
“Foreign investors?” I postulated.
“Yes, but it hardly accounts for half of the shadow deals going around,” Andrew stated.
“Funny money then. Off the books. Black money?” I concluded with a question mark.
“Yes, from one source or another,” Andrew confirmed.
“My advice for a thesis is to keep it local and keep it narrow. Use local sources and examples. Otherwise, you will get lost in data that you won’t know is true or not. Nobody knows what’s going on. It’s a huge mess on the national level. But if you stay focused on local efforts and start-up enterprises you might be able to put something interesting together, maybe even academic if you can cite your sources from interviews and whatnot,” Richard counseled.
“OK, I can chew on that for a while,” I replied
“Are you talking about the crust… or the advice?” Andrew remarked and we all laughed aloud in our common pizza poverty.
“So, what’s the World Bank’s role in all this? You can’t decide who owns assets can you?” I asked in a different vein.
“No of course not. We are more or less consulting the lawmakers about what type of transparency and governance the World Bank needs in order to extend loans and credits. The rest is up to them to bring those elements in an application. The biggest problem with this is that even though the rules are more or less acceptable, every Tom, Dick, and Harry thinks he can run a successful business, but there is no track record, no assets to mortgage for a loan, no contracts for production, no guarantee the lent money could ever be repaid or recovered. So, in the end, we are very conservative and very creative. It’s really the question of ‘which comes first: the chicken or the egg?’ It’s not a traditional lending market,” Richard explained.
“So, what are the new local banks doing?” I asked again.
“Well, perhaps that’s a discussion for another time in another venue,” Richard commented as he cautiously looked around the empty pizzeria indicating that it would not be prudent to go into such discussions in places where the walls have ears . . . and guns.
“Have you maybe heard of the local privatization auctions being held in Nizhniy?” Andrew asked.
“No. How does that work?” my curiosity was peaked.
“The local government is auctioning off small businesses, like grocery stores, restaurants and retail shops in the cities. They simply sell to the highest bidders. Sometimes the workers get together and buy it, sometimes an investor buys it up and keeps everybody working there. It’s been going on now for about two years. They haven’t auctioned the factories yet in this way, as that’s a bit more complex, but they are planning to do it in the next phase. Yegor Gaidar, Yeltsin’s economics guru, is a real fan of the process. The World Bank has been assisting via-via with that locally. Perhaps we could get you close enough to the auction process to give you a taste of the action,” Andrew suggested.
Del was in fine form after dinner, and seemed to have forgotten about any prudence and was venting his frustrations.
“It’s true, Peter. Yes, it’s true. Everything is on hold. Getting needed financing in this day and age in Russia has become nearly impossible in the last six months, and nobody has the liquidity in a currency that is worth its weight in paper. The laws are changing so quickly that nobody dares take collateral except in the form of cold hard cash parked in a numbered Swiss bank account. With new reforms and new laws coming out every three months it just keeps everything frozen. Why agree today when in just a few months the terms could be all the better? And those with the influence over the timing of the policies, they know what is coming and when, so they just stall with the expectation that they will simply take over our projects and ideas as the restrictions on foreign owners continue to pile up.”
“Are there no regulations from even the Soviet period that help to stabilize the situation?” I appealed.
“Maybe, but nobody believes they will be in place in three more months. Everything is shifting, it’s all on sandy ground. Nobody can put down a foundation in sandy soil,” he explained in his cowboy common sense.
“So how are the newer local businesses going forward?” I inquired.
“Well, the types running the new private businesses with success are those that don't rely on their financing to be above board, come with standard interest rates, or even from a bank…and they certainly don’t rely on local lawmen to enforce their contracts,” Del explained.
“Are you referring then to trust and a hand shake, or do you mean breaking the knees of those who break an agreement?” The situation was starting to become clear to me.
“Broken knees, arson, intimidation of family members and the likes,” Del confirmed, “The biggest risk right now is that the groups that are starting out this way, taking the spoils while the sheriff has his hands tied, is that once they get strong enough and the dust all settles, these same criminals will control so much that it will be impossible to separate their lawful, legitimate money from the shadow money made in the illegal activities. They’ll have their own built in money laundering facilities in their business groups. It will be impossible to untangle them all when the laws catch up with the business men.”
“Well, as we all know, it’s the businessmen who run the politicians in any country,” I blurted skeptically, “So the laws will rarely catch up to the businessmen.”
“Are you familiar with the current situation where the criminal gangs are hiring local bureaucrats to con
sult them, as well as sort out disputes about territory and product control?” Del asked me straight faced.
“What? Are you joking?” my jaw dropped, “How does that all work?”
“Well, the criminal groups have figured out that they can go on fighting each other and all wind up dead, or they can coordinate their efforts to build their own specific criminal enterprises and fight the government together. So, they actually have a pool of money that everybody contributes to, that goes to pay the politicians to sort out their disagreements so that it doesn’t come to cutting each other’s throats,” Del said dryly.
I sat with nothing more to say. I stared at him with a blank face from across the room.
“It’s true, kid.” Del continued to lay it all out for me, “The gangs will simply latch onto a competent entrepreneur and make him their slave. If anybody shows a bit of talent for making a bit of money, they’ll bleed him dry like leeches. If he refuses he is shot in a back alley, his car is bombed, his wife is kidnapped, his mother raped and murdered. Much of their own infighting now is about whose businessman is whose. So, they hire a local official to decide for them who gets to exploit which sectors. The government man then makes sure that laws and regulations support his decisions that benefit the gangs. They call this guy ‘the roof’ or ‘krisha’ in Russian.”
“How deep do you suppose it all goes?" I asked Del, referring to the political corruption.
“Well Peter, I think you might be looking at it with just a touch of naivete. We Americans, in general, have a simple view of the world and how it ought to be; Never tell a lie, Honest Abe, Checks & Balances. That’s unique in the world outside the USA except in countries like England and France. Hell, even Spain and Portugal were fascist dictatorships up until maybe twenty years ago! People do what they have to do just to get by in most of the world. The system is stacked against them and so they find a work around. Power in Moscow is used in a totally different way than in Washington. For them, it’s the perks of the job. We’re the ones who call it corruption when we can’t figure it all out and get a share of it. That’s the way it’s been for a very long time and four years of reforms ain’t gonna pull it out of the gutter. The whole culture runs this way.”
“Doesn’t this frustrate you as a business man?” I complained.
“Sure does, but it’s not my money, and they want me to play by ‘the rules.’ I tell them how we could get it done and then they tell me something else. So, I do what they want. Listen, I’m being paid so much money that I’ll never have to work again when I’m done here. They’ve got me in the golden handcuffs right now, so I’ll do what they want and how they want, but I tell it to them as it is. They make the decisions.” Del explained in his own defense
“Fair enough,” I snorted
9. Midterm
Professor Dashkova was very pleased with the results with the first attempt at the Russian language assessment exam from the Moscow State University. We had a few months to go before June’s final exams, but I had already passed with just the minimum score on the practice round held during the midterm period. It could only get better, in theory.
“Mr. Turner, If you pass with a higher score in June, you could go to study in Moscow in September instead of here in Nizhniy,” Lyudmila said proudly.
“I am very satisfied to stay here in Nizhniy. I’ve seen Moscow and I am not too interested to go live there,” I remarked modestly.
“Young man, if you are invited to study in Moscow, you cannot refuse it! It’s the honor that all the students are hoping to achieve. The best of the best study in Moscow,” Lyudmila pressed.
“I understand, Professor, but I am busy with projects here in Nizhniy and wouldn’t want to give those up,” I insisted.
“I am so amazed at your dedication to your studies. Our Russian students are never as serious as you and don’t apply themselves to make so much progress. It would be a shame if you did not go to Moscow if you can,” she pleaded.
“Thanks again, but I speak Russian now like a Nizhniy local, with Ukrainian parents, and they’ll only laugh at my accent in Moscow like they did last summer! Moscovites are rather snobbish that way,” I accentuated it by putting on a high-pitched whine like a Muscovite.
“Yes, you are correct, but it should not stop you. And that’s that,” Lyudmila closed up her binder and rested her folded hands over the cover of her portfolio and wouldn't discuss the matter any further. If it was up to her I would be in Moscow already.
Valentina Petrovna was brought up to speed on my midterm scores and also gave me compliments for the quality of my studies and test results. What was more surprising is that now she would only speak Russian with me!
“I also have a note from the American library that you spend too much time there, Peter. Olga is concerned that you are not healthy and are not being social,” Valentina sounded like a doctor diagnosing a patient.
“Is that all she said? That I don’t seem to have friends? That’s funny,” I chuckled.
“This Saturday night, there is a student event at The Monastery, a local night club, I assume you know of it, which is held every quarter by the owner for the students after their exams. If you show your student card entrance is free. You are required to attend!” Valentina ordered.
Just then Hans walked past the open door of Valentina Petrovna’s office who I hadn’t seen for about a month during my self-internment at the research library.
“Outstanding, Valentina Petrovna, thanks! I’ll sleep over at Hans’s Saturday night. He lives close. I promise to have some fun!” and with that, I darted from her office to catch Hans before he disappeared. The mood in the office was festive, almost jolly as the exams were all but over for the most of us. Relief was palpable in the halls.
My final mid-term evaluation was with Dean Karamzin in his office on Friday afternoon to review the direction and progress of the article that he was demanding in June from me. I explained in depth to the Dean what I had been reading about and documenting.
“The evidence is damning. The documentation is fuzzy and misleading and the effects that these deals are having on the government’s budgets are dramatic! Industries that the central government once controlled and funded the country with have been sold off to sketchy groups with no track record in the industries, in fact some didn’t exist weeks before the sales. Company assets have been systematically stripped and sold to the highest bidders and the directors of the new companies have disappeared with the proceeds from those sales! No more taxes, no more export duties, no more jobs. The government sold the companies for a song and a dance, in several instances for about ten percent of their market value, and now no tax revenues and lot of unemployed people needing assistance. It’s like the companies just evaporated into thin air after selling their equipment and infrastructures. It’s been one huge liquidation and carpet bagging exercise for those who pushed the sales through.”
The Dean mulled over this information with a surprised look.
“And then there are the banks!” I was ready to continue my monologue. The Dean stopped me.
“You found all this documentation in my library?” was his first puzzled question.
“Uhhh, yes. Why? Is this a problem?” I asked like a mouse caught in a trap, with cheese in its mouth.
“A problem? No! This is wonderful that our library has this information!” he exclaimed. “You know I don’t believe many people use the database because we don’t speak English well enough. But to have you extract this information in an academic way from our library is a great step forward for the university! Mr. Turner this is outstanding news,” the Dean said solemnly with excitement.
I continued to explain my hope for the paper, but the Dean interrupted my monologue.
“Mr. Turner, I would like you to now focus on the local effects of the corrupt privatization activities instead of continuing to research this on the national level. We need to produce something that has a direct local effect and leave Moscow to sort out Mo
scow’s problems.”
“But Moscow’s problems, Moscow’s abuses will have a bad long-term effect on Nizhniy as well and people need to know the country is being robbed blind!” I protested.
“We will survive to face those problems in the future I am sure. We survived Brezhnev, didn’t we? I will arrange a number of interviews with my contacts in the city and in the Nizhegorodskiy leadership for your questions and proposals about how to stop this from happening here. I want to have concrete academically researched policy proposals that we as the university can publish to push this agenda forward,” he instructed.
“That’s going to be difficult because the mention of Nizhniy Novgorod in the articles really is minimal up until now, except to praise Nemtsov for his support of privatization efforts,” I explained.
“And that is why you need to do your local research,” The Dean was adamant.
We paused and looked at each other intently. The wheels were spinning in both of our heads. We had caught a thought wave together and we watched it break. I broke the silence and spoke rapidly before he changed his mind.
“Through the six or seven case studies of the biggest swindles there was always a small start …and always through a deception…whether harmful or not, undeclared money becomes the seed of a banking or industrial empire. So, somebody earned some decent seed money working in the black market, and then they buy some party hacks who are now leftover civil servants from the Soviet period, who have no personal prospects for the future, who wouldn’t know what to do with a smelting factory in the wider world, but they do know what to do with two hundred fifty million dollars between the four of them! Then somehow, no big mystery, Yeltsin has given the businessman a franchise or he becomes, low and behold, a deputy prime minister making decisions that have HUGE conflicts of interest - in their own favour of course, and then move their money to Switzerland out of the hands of any future regulators, or the next mafioso who takes the office after he is sunning himself in Cyprus.