Russian Economic Reform


Pepsi’s love of Putin is good or bad for economic reform?

Published on October 23 2011
Posted by: jeff

Indra Nooyi, the chairman and CEO of “PepsiCo”, was clearly impressed with the performance of Vladimir Putin at a meeting of the Foreign Investment Advisory Council (FIAC) last week, saying that he “was on top of every issue” and “knew the facts”. George Buckly, CEO of 3M, said: “Mr. Putin was very impressive, strong and intelligent. He is extraordinarily well informed.”  And they were not the only ones who were impressed: consider the words of James Turley, chairman of “Ernst & Young”:

But, are the very positive assessments of such people positive indicators for the Russian economy and positive indicators for economic reform?

I am very doubtful.

Over the years I have participated in many groups and meetings considering Australian economic reform – particularly in taxation and anti-monopoly policy – which contained academics and very senior businesspeople (some of were who heads or former heads of Australia’s biggest companies).

While many very successful businesspeople are highly educated, in my view, they generally do not have what it takes to be good economic reformers. Success in understanding problems and devising solutions in the limited markets in which any company ultimately operates is much easier than successfully addressing problems that involve whole societies; and this is true at the technical level, the sales or marketing level, and in the area of personnel management. There is also the issue of what drives such “leaders”: do they get personal satisfaction from achieving goals that can be specifically measured with data, or do they get more satisfaction from putting in place the underlying conceptual conditions that allow humans to function at their best.  

Both Nooyi and Turley, at least, seem to be essentially sales orientated and goal achieving business-types rather than concepts people. And, because they do not live in Russia they have little incentive to think much about the overall reform process.

Indeed, significant changes on organizations and societies – for better or worse – are often NOT driven by practical individuals who are “on top of every issue” and “know the facts”. 

Milovan Djilas, the Yugoslav politician, wrote of Vyacheslav Molotov and Josef Stalin: “Molotov with his relativism, with his gift for detailed daily routine, and Stalin, with his fanatical dogmatism and, at the same time, broader horizons, his driving quest for further, future possibilities, these two ideally complemented one another. … And though, in view of his greater versatility and penetration, Stalin claims the principle role in transforming a backward Russia into a modern industrial imperial power, it would be wrong to underestimate Molotov’s role, especially as the practical executive.”

Another — happier — example is the partnership of Kemal Ataturk and Ismet Inonu, with the latter acting as the practical executive.

The more nuanced approach of practical people working together with conceptual people to get results was highlighted by the reporting a Russian Union of Industrialists and Entrenpreneurs (RUIE) meeting two weeks ago, which heard presentations by the academic leaders of the Strategy2020 project – rector of Higher School of Economics, Yaroslav Kuzminov, and the rector of the Academy of National Economy, Vladimir Mau.

According to one reporter for a radio station: “All agreed that they spoke about things, with which it is difficult to argue – but these were presentations of economists, and with all deep respect to them, were theoretical.”

Yet, at the same time, the President of the RUIE, Alexander Shokhin was quick to urge businesspeople to make comments and suggestions for inclusion in the final Strategy2020 report (an interim report was delivered to the government in August and the final report is due in December) and to express the hope that it not end up disappearing into some “bureaucratic trap”. 

The “theoretical” ideas of the academics are clearly being appreciated. Most sensible businesspeople understand – if even reluctantly – that academic input is needed; and vice-versa.

Returning to the thoughts of Milovan Djilas about individuals complementing each other, I think that Russia would have been better-off with Medvedev as President and Putin as Prime Minister rather than the reverse. Putin’s “detail-orientated approach to leadership” (so highly praised by Indra Nooyi) was suitable for the presidency for a time after the chaotic Yeltsin years, but now something different is needed. An ideas man is needed at the top, and he/she needs a practical executive officer.

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