Russia sanctions itself further

Not content with denying themselves the pleasures of French cheese and Norwegian salmon at prevailing (i.e. non-smuggled) market rates, the Russian government has now decided its citizenry doesn’t want to go on holiday to Turkey:

“Some things are more important than beaches, the sea and all-inclusive holidays,” anchorman Dmitry Kiselyov boomed in his influential weekly news round-up on state television.”

Such as the egos of politicians.

It’s the second popular destination to be banned in under a month. Flights to Egypt were halted in early November, following a terror attack on a plane full of Russian tourists.

When Egypt’s beaches became inaccessible, many Russians were re-directed to the Turkish coast.

And with the collapse of the rouble making Asia beyond the reach of most Russians, the number of holiday destinations from which they can pick is dwindling rapidly.

Still, people here seem broadly resigned to what has happened – even supportive.

“I think it’s the right response. Turkey has shown it’s a traitor,” said Andrei, taking a cigarette break from work, out in the snow.

Was Andrei planning on going to Turkey, then?  If not, his words are somewhat cheap.

Scheduled flights to Turkey are still running and the embassy stresses that Russian tourists are welcome. A spokesman said there were no plans to introduce visa requirements for Russians, despite Moscow doing that for Turks.

That’s because the Turks understood what Joan Robinson meant when she said “if your trading partner throws rocks into his harbor, that is no reason to throw rocks into your own”.

But any travel agencies caught selling Turkish tours have been warned they face sanctions.

Russia’s Federal Tourism Agency argues the ban will have a “hugely positive” impact on domestic tourism.

Well, yes.  The foreign travel policies of the USSR were also a great boon for domestic tourism too.  Just not from the point of view of the tourist.

Its head sees Russians opting for “staycations”, injecting their holiday funds into the local economy instead.

Opting to stay at home in the face of a ban on doing otherwise?  Some option.

They point to a lack of hotel capacity in Russia and poor infrastructure: “Patriotic” resort choices don’t generally offer the quality those who holiday abroad have grown used to.

No shit.

So travel agencies are offering them European destinations like Spain and Greece as alternatives – as well as Thailand and Vietnam.

Good luck with that Schengen visa process, folks!  Or the 13-hour flight plus a Thai baht which has doubled in value against the rouble in the past 2 years.

The business sanctions could hit Turkey much harder, albeit again at considerable expense to Russia:

Russia has announced a package of economic sanctions against Turkey over the shooting down of a Russian jet on the Syrian border on Tuesday.

A decree signed by President Vladimir Putin (in Russian) covers imports from Turkey, the work of Turkish companies in Russia and any Turkish nationals working for Russian companies.

A lot of the construction work in Russia – shopping centres, housing complexes, infrastructure – is carried out by Turkish companies, who exploit the fact that they can mobilise a sizeable, cheap workforce of their own countrymen to Russian cities which lack local expertise and manpower.  In short, Turkish companies have filled a gap in the market left open by Russians who either cannot do the work, or cannot do it at a competitive price*.  If these companies and their workers are now going to be booted out of Russia, future building works in that country are going to become very expensive or cancelled altogether.  I wonder how those Russians who have placed deposits on apartments in partially-completed developments being built by Turks feel right now?  Holidays destinations are probably the last thing on their minds.

*This reminds me of a joke, which I heard told by a young Russian man to answer a question some foreigners had put to him as to why it was so hard to do business in his country, and goes as follows.

A Russian city needs a bridge built, and so puts out a call for tender to three construction firms: German, Turkish, and Russian.  The Germans say they will build the bridge in 1 year and it will cost $20m.  The Turks say they will build the bridge in 2 years for $10m.  The Russians say they will build the bridge in 2 years for $50m.  The Head of Public Works in the city stares goggle-eyed at the Russian proposal, and brings in the company president to explain:

“How come your proposal is so high?” he asks.

The president of the Russian construction company smiles and says “$20m for me, $20m for you, and we’ll get the Turks to do it for $10m!”

Incentives matter, so best not ignore them.

A story was doing the rounds last week that was drawing praise and admiration from various quarters:

The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.

The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.

If it’s a publicity stunt, it’s a costly one. Mr. Price, who started the Seattle-based credit-card payment processing firm in 2004 at the age of 19, said he would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year.

Those doing the praising were generally of a left-wing bent, and some went so far as to say this was a vision of the future and an example for other firms to follow.  Me, I’m not so sure, and I think Mr Price’s company is going to run into trouble over this at some point.

Now I’ll start by saying that Mr Price is perfectly within his rights to distribute his own salary among the workforce in such a manner.  And as I understand he is the owner, hell he can pay them $1m per year to watch TV for all I care.  I just don’t think he’s thought through the implications.  There are several problems which I think will arise, all of them to do with incentives.

The paychecks of about 70 employees will grow, with 30 ultimately doubling their salaries, according to Ryan Pirkle, a company spokesman. The average salary at Gravity is $48,000 a year.

His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.

Firstly, if the lowest paid clerk is now on $70,000 per year there is almost no incentive for anyone to grow professionally by taking on more responsibility, tackling harder tasks, volunteering for the shit jobs, and putting in additional hours to increase their own value within the company.  If the clerk is on $70k, why would somebody from the middle-ranks with marketable skills and a higher education apply themselves if they were on similar wedge, or work extra hard just to earn $80k when by loafing he can earn $70k?  Better to take it easy and spend more time with the family.  And this will be made worse by the plan being phased in over 3 years.  Who is going to be interested in the new night manager role now the main incentive to take the crap hours is gone?  This will be felt even more keenly in sales: how much effort is the junior salesman going to put in now he’s on $70k per year?

Secondly:

Hayley Vogt, a 24-year-old communications coordinator at Gravity who earns $45,000, said, “I’m completely blown away right now.” She said she has worried about covering rent increases and a recent emergency room bill.

“Everyone is talking about this $15 minimum wage in Seattle and it’s nice to work someplace where someone is actually doing something about it and not just talking about it,” she said.

From the above quotation I think it is safe to assume that Hayley Vogt will never leave Gravity of her own free will because she is now paid 55% above market rate for being a communications coordinator.  Nobody above her is going to leave either, so it is an equally fair assumption that as long as Gravity exists, Ms Vogt – currently 24 – will be a communications coordinator.  So by the time she’s 40, Ms Vogt will still be a communications coordinator.  Do you see the problem here?  She’s undergone no professional growth.  She can’t be promoted internally because her superiors – also being paid well over market rate – will hang onto their jobs for all they’re worth.  So if Gravity goes tits-up in the future, Ms Vogt will find herself on the job market not only facing a severe cut in her income but also competing against people much younger from whom she cannot differentiate herself in any meaningful way.  For those on the lower rungs doing jobs which don’t require much skill or training, and thus youth, energy, and flexibility are major selling points, this could be a problem.

Of course, many people doing those kind of jobs aren’t looking for a career anyway, they just want to pay the bills.  Which brings me onto the third problem: with nobody leaving, how do you get rid of the underperformers?  Normally these people would leave because, having been passed over for promotion and higher pay for a few years running, want to try their luck somewhere else.  Now Mr Price is stuck with them.

Finally, how does Mr Price intend to bring new talent into the company?  Nobody is leaving, so that means only newly created positions will bring outsiders in.  Aside from not being a very healthy environment for any company, this creates an additional problem.  If a new position is created and advertised, every store clerk within 200 miles is going to apply for the job if it pays $70k per year.  Having an avalanche of CVs hit your desk is not helpful. When I worked in Dubai we advertised for an assistant accountant position and put an advert up somewhere.  Even though we were a small, unknown company we were receiving CVs by the thousand, mostly from Indians.  The problem was almost all the CVs were from labourers, forklift drivers, and other unskilled workers chancing their arm having seen a “big” salary (and indoor work) on offer.  Sifting through them all, trying to identify who was genuinely interested in the position and had the matching skills was a hopeless task.  Gravity Payments is going to find themselves with a similar problem: how many of the tens of thousands of CVs they will receive are from people who aren’t motivated solely by the incredible pay and couldn’t care less about the actual job?  And even those who are qualified, are they confident they will secure a suitable candidate from a shortlist all of whom are overwhelmingly motivated by the pay above everything else (and know they can likely loaf once they get in)?  HR departments in major oil companies will recognise this problem.

Despite his obvious success in business thus far, having set up Gravity Payments at he impressively young age of 19, I can’t help think Mr Price is still a bit wet behind the ears:

“Is anyone else freaking out right now?” Mr. Price asked after the clapping and whooping died down into a few moments of stunned silence. “I’m kind of freaking out.”

Whilst I might be persuaded that executive pay is too high in the US and the disparity between the lowest and highest paid is too wide in some companies, progressive pay scales are used and market rates adhered to for good reasons which might not be immediately obvious.  As Tim Worstall is fond of telling us, incentives matter.  Mr Price might end up learning this the hard way.

Visiting Russia just got Harder

I missed this, but late last year Russia introduced compulsory fingerprinting for all foreign visitors:

Russia’s President Vladimir Putin has ordered fingerprinting of foreigners as part of the processing of visas to enter the country.

The decree, signed by Putin, explained that the move hopes to help the application of law enforcement, tackle illegal immigration and prevent terror attacks.

Decree…hopes…terror attacks.  Hmmm.  How many terror attacks within Russia have been carried out by foreigners?  And when I hear the word “decree”, why is it that I immediately think of this store?

“It is expected that biometric data will be collected mainly at the visa centers, which would make it possible to avoid long queues at the Russian diplomatic missions where, as you know, people come not only to get a visa but to resolve many other issues as well,” Yevgeny Ivanov, head of the consular department of the Russian Foreign Ministry, said.

Introducing new bureaucratic hoops will make it possible to avoid long queues?   More on that later.

The move comes after the Foreign Ministry proposed to introduce biometric data for foreigners entering Russia, in response to the EU’s proposed plan to take fingerprints of all Russians wishing to enter the Schengen area in Europe from 2015.

This is half the problem with Russian immigration laws: most of them are retaliatory.  Now I’m the last person to defend western immigration requirements, and the UK’s are as dumbassed as anywhere’s, but deciding to introduce additional hurdles for visitors to Russia in response to EU proposals is simply stupid.  Putin may not have noticed but his currency collapsed recently and the Russian economy – so dependent on imports – is in the shit.  One of the best ways to bring in hard currency is to get tourists to come and swap their Euros, Dollars, and Pounds for Rubles, and this will be much easier to do with a weak domestic currency.  Erecting barriers to make the entry of those tourists harder makes no sense whatsoever, but then Russians appear content with being poorer and less well-fed in return for being able to engage in ineffectual political posturing.

I heard about this new requirement because a British friend of mine is currently going through the visa application process, and had to go to the Russian embassy in person to get fingerprinted.  The agent advised that delays of up to an hour could be expected (so much for avoiding long queues), only when he got near the front of the queue the whole system packed up and he was told “to come back tomorrow”.  So far, so Russian.  Fortunately he lives in London and so this was easy enough, but anyone coming from say Manchester and visiting one of the two centres – located in Edinburgh and London – would have had to buy another train ticket or book a hotel, and take another day off work.

And this is where Russia is going badly wrong.  There are a handful of people who want to visit Russia, and they will go through this pantomime one way or the other.  But Russia loses out on the speculative tourists who plan to go “somewhere” and then look at their options.  A few years back another friend thought about going to St. Petersburg for a weekend and asked me what was involved.  By the time I had gotten halfway through the letter of invitation, the agent, the $100-$200 fee, the form-filling, the requirement to have a hotel booking, the registration on arrival, and the rest of it, he’d already said “Nah, forget it, I’ll go somewhere else” (and the fee has gone up since the fingerprint requirement came in).  So much of European travel is people looking for quick, easy breaks.  When people have a choice of Tallinn, Riga, Vilnius, Prague, Bratislava, Budapest, Krakow and a dozens of smaller cities in Eastern Europe that they can visit without a visa, why would anyone who wasn’t specifically interested in Russia go there?  The Ukrainians figured this out back in 2005, and allowed EU citizens to enter the country visa free, thus adding Kiev to the list of cities above.  Perhaps more importantly, it meant Europeans could visit Ukraine’s prime holiday area in Crimea much more easily, and that played a large part in my decision to go there in the summer of that year.  Only now Europeans wishing to visit Crimea need a Russian visa, which can’t have done much for the visitor numbers.

So of all those people considering a trip to Russia, how many will decide it’s simply not worth the bother, especially if the price ends up including a return train fare, a hotel in London, and two days off work?  My guess is a lot.  Putin’s decree has made it as costly and as much effort just to obtain a Russian visa as it is to take an actual holiday to a neighbouring country which offers better service at cheaper rates to begin with.

Somebody, somewhere, obviously thinks this is smart.

Beware of a Man in Search of a Legacy

Historical legacies are interesting things, offering as they do a chicken and egg situation.  Was Napoleon motivated foremost to secure his name in history and his deeds merely the methods he used to do it?  Or did he simply fancy taking charge of France and conquer large swathes of Europe by deploying astonishing military skill, and the legacy simply resulted from his actions?  I’m more inclined to believe the latter.  Not that great historical figures don’t have enormous egos and are unaware of the significance of their actions, but I don’t believe Peter the Great thought “if I want to be remembered in history I’ll have to do something big” and then after weighing up various options decided upon building a new capital and developing a Russian navy as the way to go about it.  No, I think he decided on building a new capital and turning Russia into a European-facing naval power and his legacy resulted from this decision.

Of course, the only people who succeeded in creating a legacy were those whose actions were both successful and significant.  History is littered with those who had grand ideas that never came off, and others whose actions changed little in the grand scheme of things.  What we hear even less of, thankfully, are those who, longing for a place in the history books, decided to create a legacy and then based their actions around this goal.  How do we know such people existed?  Because they’re still with us.

I remember during the New Labour years in the UK, people were always on about Blair’s legacy.  I think that’s the first time I was politically aware enough to see that somebody’s policies are being driven by what he wants people to say about him in the future, rather than what he actually believes.  Education Education Education was one mantra, that came to nothing.  Whatever the state of British education now, Tony Blair isn’t going to be remembered for playing any significant part in it.  Insofar as he has a legacy, it is one of a disastrous war in Iraq.  Those who supported the war don’t think he has a legacy at all.

Barack Obama is another modern politician in desperate search of a legacy, hoping to go down in history for something other than his skin colour.  He may well achieve it with Obamacare when the bills finally start coming in, although not for the reasons he thinks.  But that’s not enough: ill-advised peace talks with Iran and muddled overtures towards Cuba have followed, as Obama seeks a geopolitical issue on which to hang his hat in the history books.  Both are bound to fail.

Those who actively seek a legacy, rather than simply let it follow their actions, are doomed to fail largely because they lack the conviction to see their decisions through.  Historical legacies are not the results of popularity contests, in fact usually they’re the complete opposite.  Just ask Genghis Khan.  Those who succeed in pulling off great historical feats (both good and bad) do so from a position of absolute determination and self-belief in their actions, and will see them through regardless of the setbacks, or die in the attempt.  And the actions themselves are normally bold, brutal, and unprecedented.  This is in contrast to the modern politician seeking a legacy, who will be uncertain even on which path to take to achieve it, let alone the required actions.  At the first sign of trouble – an unkind editorial, an unfavourable opinion poll – most of them will backtrack and seek another way.  Abraham Lincoln didn’t suffer from this.  They also don’t think big enough: legacies are made by actions which affect millions for generations, permanently changing a country or continent, not tinkering with health policies or lobbing a few Tomahawks.

It is probably a good thing that today’s world doesn’t readily allow the actions that bring about the sort of legacies historical figures have left, given that most of them involved death and destruction on an industrial scale.  But the problem of those seeking a legacy, rather than simply doing their job, remains.  This brings me onto the current state of Russia under Vladimir Putin.

There is no doubt that Putin was very good for Russia in the early years: young, fit, and sober he was probably the best leader Russia has ever seen, although I should add that the bar is set extraordinarily low.  Russia in the ’90s was a terrible place, and Putin provided much needed stability and a reining-in of the oligarchs and gangsterism that plagued the country.  How much of this was down to him personally is debatable, but under his reign the currency stabilised, the economy grew, violence declined, and living standards rose as a new middle class of moderately wealthy Russians appeared.  The decade between 2000 and 2010 probably represented the best period Russia has ever seen (although again, the bar is set astonishingly low) and Putin deserves considerable credit for presiding over it.  Given what Russians lived through in the USSR and its aftermath it is not difficult to see why Putin was, and remains, so popular with his people.

Now we can argue that Putin should have done more, but I don’t take that view.  What he had achieved up until around 2006-7 had surpassed all expectations, and I don’t think anything more should have been asked or expected of the man.  That’s not to say there was not an awful lot left to do in Russia: there was.  It is to say that Putin was not the man to do it.

There are limits to what people can do in office, and that is often driven by time.  A two-term president in the US is usually in charge of a very tired administration in the final couple of years, regardless of how good they’ve been beforehand.  Even New Labour’s supporters were glad to see the back of Tony Blair after 10 years as Prime Minister; Margaret Thatcher left Downing Street a tired shadow of the vibrant woman who had entered almost 12 years previously; and despite the economic boom and rise in living standards Australia enjoyed under 11 years of John Howard, the population felt they were in need of a change when they kicked him out.  The optimum period in office for a leader in a modern democracy is approximately 7-8 years, after which their administration is plagued by various scandals, stumbling policies, tired rhetoric, and a population that has gotten tired of seeing the same damned face on the TV every night and could use a change.  Even the Soviet leaders eventually departed, unable to fulfill any more promises or bring about change in the way they could when they first took over.  With the exception of Stalin, few missed them.

By this measure, Putin’s time was up around 2007.  Having taken over as President in 2000, he was required to step down in 2008 when his two-term limit had expired.  This would have been a good time to usher in a protégé and retire from politics, having achieved so much and leaving the country in far better shape than he found it.  He would have been universally admired both at home and abroad, and gone down in history as a truly good, if not great, Russian leader.

But unfortunately, he was having none of it.  With the idea of amending the constitution to allow him to remain President floating around in the final years of his second term, he sidestepped the issue by installing a puppet President in Dmitry Medvedev, and slotted effortlessly into the Prime Minister’s role transferring his previous authority to his new office until it was time to return to his old job four years later.  Starting around 2006, buoyed by high oil prices that had brought enormous wealth to him and his friends and unprecedented wealth to many ordinary Russians, Putin started to strut his stuff at home and abroad.  A new wave of Russian nationalism took hold, taking the form of increased anti-western rhetoric, a re-positioning of Russia as the victim of foreign exploitation, and a desire to get more involved in global affairs in order to protect Russia’s perceived interests.  It was during this era that the Russian government intervened in several major oil and gas projects operated by western oil companies, citing legal or environmental irregularities as justification for bringing them back under state control.  At the same time, Russia decided the operatorship of the giant Shtokman project in the Barents Sea would remain with Gazprom, the state-owned energy giant.  In September 2007 I wrote that the policy of resource nationalism that Russia had pursued the previous summer could one day be seen as a turning point in the country’s development, the time at which the Russian leadership decided that the production of oil and gas by state-owned behemoths in an otherwise unreformed economy was the route to future prosperity.

For a while it was looking good for Russia.  The country was rocked by, but ultimately survived, the global financial crisis thanks to an oil price that quickly rebounded after an initial tumble.  But crucially, once he’d decided to remain in power, Putin failed to reform the economy beyond the Soviet-era export of natural resources, primarily oil and gas.  As I said earlier, given everything Putin had done to stabilise Russia I don’t think the onus was on him personally to reform the economy: such a daunting task would have had to fall to somebody else.  But by staying on, unless he was willing to double-down on his efforts and likely expend whatever energy and political capital he had, such a reform was postponed indefinitely.

It is not just the case that Russia is too dependent on oil and gas exports, it is that it is almost impossible for individuals to develop and grow a profitable business unless they are well connected to a rich and powerful entity in the locality.  For all practical purposes, this means being pals with the mayor or FSB of the local town, or the bigger politicians in the larger cities.  Otherwise, your business simply won’t be allowed to develop.  It is no surprise that most Russian towns feature one giant shopping mall owned by a local bigwig who also owns a nightclub and a few restaurants, with another one or possibly two smaller “empires” making up the bulk of the remaining local business portfolio.  If an enterprising but unconnected person decided to develop a small patch of land beside the river and turn it into a waterside restaurant, and by some miracle obtained the permits to get it up and running, within days of turning a profit (or even before) he would lose his business.  He would be forced out: either by a never-ending stream of regulatory authorities ranging from fire safety to health inspectors, all of whom would demand a cut of the proceeds to “allow” him to stay open; or simply by a gang of thugs working on behalf of a local bigwig who fancies co-opting the business (now that somebody else has done all the hard work) into his own empire.  In my discussions with Russians, this is something which is absolutely beyond dispute: the number of parasites that descend on private, independent businesses makes running a successful enterprise near-impossible.  In Russia, you may run a business only with the approval of the local power chiefs, and tribute must be paid.

This situation is a product of the enormous bureaucracies that govern Russian business life, coupled with the corruption that infests almost every corner of them.  Overhauling this is a mammoth task, and in all likelihood impossible.  But that doesn’t mean it shouldn’t be tried, and the starting point would be to strengthen the country’s institutions – particularly the courts and justice system, and insisting that governmental authorities everywhere follow the rule of law.  However, that would require giving them independence and devolving centralised state power over a much wider area, and neither the Kremlin nor the regional powers were prepared to do this.  Like a lot of leaders who have enjoyed unopposed power a while, Putin began to see himself as indispensable.  Far from state institutions being granted more devolved authority and independence, Putin centralised Russia’s powers further, notably around himself.

Further convinced of his own indispensability, in no small part due to genuine feelings of support for the idea from the Russian population backed by crushing election victories, Putin became yet more assertive in his dealings with the rest of the world, determined to restore what Russians consider to be their rightful place in global affairs, with himself in the role of saviour of the nation.  Somewhere along the way, Putin seems to have sniffed an opportunity of one day being held in the same esteem as Peter the Great, Katherine the Great, and maybe even old Joe Stalin.  Sometime after 2012, the ageing Putin perhaps thought time was running out for him to establish such a legacy, and so stepped up his efforts.  Confused mumbo-jumbo regarding Imperialist Russia and Soviet history underpinned much of his foreign policy, with vague ideas about manifest destiny thrown in for good measure.  Having trampled all potential domestic opposition and removed any dissenting voices from within his own circle, Putin fell into the trap of all long-serving authoritarians: he started believing his own bullshit, hearing nothing but rapturous applause every time he spoke.  So when the opportunity to reclaim Crimea for Russia presented itself, Putin moved quickly to take it.

Now regardless whether you believe the Russian claims that the annexation of Crimea was necessary to prevent the Americans establishing a base there, the fact is that in 2006-7 and again in 2010-12 Putin faced the choice of either reforming the economy by overhauling the state institutions and rooting out corruption, or improving Russia’s position with regards global affairs and its near-abroad with himself as the figurehead of Russia’s resurgence.  It is almost beyond question that doing both was impossible, and completely beyond dispute that he chose the latter.  In my view, he did so for two reasons: it was much easier for him, coming more naturally; and he thought this was the best route to establish himself in the history books alongside other great Russian leaders.

With that choice, any hope that the Russian economy could free itself from local strongmen and the national giants was lost.  The government remained dependent on a high oil price to balance its budget, while the rest of the economy remained unreformed, unreconstructed, and hopelessly inefficient.  As a result, Russia in 2014 found itself still heavily dependent on imports and produced little of value domestically: even the foreign car assembly plants set up in western Russia are dependent on imported parts, for which they must pay in Euros.

So long as the oil price remained high, none of this really mattered.  But with its collapse, and the western-imposed sanctions, the Russian economy has nosedived.  This article by Tim Worstall explains just how grim things are looking for Russia, but does not tell the whole story.  The middle-class consumer boom which took place in Russia over the last decade was driven mainly by personal debt: people borrowing from banks or credit card companies.  With the real prospect of incomes drying up and jobs being lost, a lot of households are going to struggle.  But what makes it worse is that credit in Roubles was being offered at interest rates of around 15-20% but consumers had the option of taking loans in Euros or USD which only attracted interest rates of 5-10%.  Many Russians took the latter option, and now face paying household debts in Euros or USD at a time when their Rouble salaries are worth half what they were.  Even those who borrowed in Roubles haven’t escaped: according to my Russian friends, banks are “renegotiating” the interest rates with their customers, which means higher monthly repayments.  Coupled with the rapidly increasing price of food (not helped one jot by Putin’s ban on imported products), we could see many households going into bankruptcy for the first time since 1998.  And this is before one considers the effect of the Rouble’s decline on the country’s main employers.  The head of Renault-Nissan in Russia recently came out and said manufacturing in the country is facing a bloodbath.

What will happen next is anyone’s guess, but a return to the grinding poverty and economic instability of the 1990s is looking increasingly likely.  Putin remains as popular as ever, having successfully dumped the nation’s economic woes squarely at the feet of the United States and European Union.  But as the economic reality starts to sink in, and increasing numbers of people with no jobs go hungry, issues such as political leadership and the inequality between the elites and the rest are going to become more pronounced.  Even if the Kremlin successfully manages to deflect the questions by piling on the anti-western rhetoric, this will not solve the underlying economic problems.

The trouble now is that it is too late.  The economy cannot be reformed with the sanctions still in place and the Rouble so weak, and so they have no choice but to ride it out until the oil price rises again, which on current forecasts could be a while.  Russians are facing the very realistic possibility of returning to the 1990s: empty shelves already line supermarkets, companies running package holidays abroad are going bankrupt by the dozen leaving local vacations as the only affordable option, and photos on Facebook show mass crowds buying TVs, video cameras, Ikea furniture, and other household items they don’t need in an effort to swap Roubles for something with a chance of retaining some value.  If this keeps up, it may be fair to ask exactly what progress has been made in Russia in the past 20 years.

Putin had the option of stepping down in 2008, his job well done, and handing over to a successor.  He chose not to, and instead opted to pursue what he hoped would become his legacy, which would be underpinned by the self-development of Russia’s vast hydrocarbon reserves.

The worst part is they didn’t even get that right.  The last major oil and gas development in Russia was the Shell-built Sakhalin II LNG project, which started up in 2008.  The Gazprom-led Shtokman development ground to a halt amid spiralling costs and disagreements between the partners.  Rosneft has been in the news mainly for its deals with BP, its appropriation of Yukos and Bashneft, and its staggering corporate debt rather than concrete development plans bearing fruit.  Umpteen grand announcements ranging from Nigerian gas deals and far-east LNG plants to Arctic developments and Chinese pipelines have come to nothing (or remain stuck on such details as pricing).  As of 2014, Russia remains as unpredictable, risky, and dangerous for an oil company – even a Russian one – to do business as it was in the 1990s.  For a country that picked hydrocarbon development as the sole political-economic strategy in lieu of reforming the economy and engaging with the west, this is a shockingly poor performance.

So what of Putin’s legacy?  If Russia hangs onto Crimea, which it probably will, it might warrant a note in a history book somewhere (offered as much prominence as Khrushchev’s transfer of the peninsula in 1954, which few knew about until recently).  But it’s hardly the stuff to warrant a mention alongside Katherine the Great or Ivan the Terrible.  As I said at the beginning of this post, the modern-day politician (of which Putin is one, no matter how much he wishes he belonged to another era) just doesn’t think big enough to create a proper legacy.  In the grand scheme of things, the annexation of Crimea is mere fiddling, and expensively at that.

The irony is that if he had stood down in 2008, he would have left a legacy of quite some merit.  Had he decided to stay and expended his considerable political capital in ramming through the economic and institutional reforms Russia so desperately needs, he would have created a legacy even greater (albeit one that carried a lot more risk of failure).  Instead it is looking increasingly likely that his early work will be completely undone, and his legacy will be one of having progressed Russia precisely nowhere since he took over, having gone the full circle from crisis-ridden poverty to stable wealth and back to crisis-ridden poverty in just 15 years.  Putin’s is a story more suited to Africa than Russia, with a legacy more akin to Robert Mugabe than Peter the Great.  What a terrible waste.  What a terrible shame.

Tough Times for Ronald in Russia

I was once told a story by an American who found himself working in Russia in the early 1990s.  He had met a fellow American who was involved with the opening of McDonald’s in Moscow, and the latter was finding things rather frustrating, particularly when trying to introduce western standards of customer service to the staff.  Apparently, he told one of the Russia servers to greet the customers and offer a smile, which prompted the following response:

“Why?  We’re the ones with all the burgers.”

It seems that almost 25 years later some Russians still haven’t worked out the basic relationship between business and customer as far as McDonald’s is concerned:

Russia’s consumer watchdog has announced unscheduled checks on McDonald’s restaurants across Russia as part of a probe into food standards.

The move comes after watchdog Rospotrebnadzor temporarily shut four McDonald’s restaurants in Moscow.

The actions come amid rising tensions and sanctions between Russia and the West over the crisis in the Ukraine.

The regulator denied the checks were politically motivated. McDonald’s said “top quality” food was its priority.

The regulatory agency said: “There are complaints about the quality and safety of the products in fast food restaurant chain McDonald’s.”

BBC Moscow correspondent Steve Rosenberg said: “The suspicion is that because McDonald’s is one of the symbols of America, that’s why it’s encountering problems now.”

Russian MPs have also called for checks on other US fast-food brands, including Burger King and KFC, he said.

“It does seem, if not the public, then the people in power, are losing their appetite for American fast food,” he added.

The primary beneficiary of McDonald’s in Russia are those Russians wishing to purchase its products, who number in the millions.  (This point was driven home to me once when somebody in Sakhalin asked me, in all seriousness, to bring him a Big Mac meal from Moscow when I returned from a business trip.  The flight is 9 hours.)

The secondary beneficiary of McDonald’s in Russia are the Russian owners (it is a franchise), managers, employees, and suppliers whose income derives from its operations.  As somebody with a greater grasp of economics than a Russian policymaker points out:

“It’s an extraordinary decision, because McDonald’s is the great symbol of the West, but at the same time they’ve set up the most extraordinary network of suppliers in Russia to keep the whole system going.

“There are now something like 300 McDonald’s across the country, and they’ve got an enormous network of people providing them with potatoes, and beef, and everything that goes into the product… In fact, it’s going to hit an enormous number of people inside Russia.”

I am quite certain that those who have ordered these closures have no idea of the impact that this will have on ordinary Russians (and even if they did, they wouldn’t care) and genuinely think that Americans are making billions of dollars as the only beneficiaries of McDonald’s operations in Russia.

To find such economic ignorance you’d really have to go to…well, Russia.  25 years ago.  Plus ça change.

The False Start of Electric Cars

I have noticed that there is considerable optimism in some quarters about the future of electric cars, and many people are pointing to Norway as a sign that the internal combustion engine may be on the way out:

Norway may seem like an odd place for electric cars to thrive, but the 1,493 Tesla Model S new registrations last month set a new single-model sales record. That’s more than sales of the two next-best selling models, the Volkswagen Golf and Nissan Leaf, combined. In fact, so far this year, the Tesla Model S is the best-selling car in a cold country that has quickly warmed to electric vehicles.

Only when you look a bit closer you find the underlying reason as to why Norwegians have taken to the Tesla in such numbers:

Unlike many European countries, where electric cars carry a huge price premium, there is no import tax or 25% VAT tax on [electric vehicles] in Norway. 

And that reason is the government has, through taxation (particularly import taxes, which are a function of horsepower), made the price of ordinary cars artificially high. From Wikipedia:

As an example, by early 2013 the price of the top selling Nissan Leaf is 240,690 krone (around US$42,500) while the purchase price of the 1.3-lt Volkswagen Golf is 238,000 Krone (about US$42,000).[9] Electric vehicles are also exempt from the annual road tax, all public parking fees, and toll payments, as well as being able to use bus lanes.

Plus what gets left out of the purchasing figures in Norway is how many of these cars are bought by government departments for whom image is more important than value for money.

Personally, I am of the belief that the uptake of electric vehicles in Norway doesn’t tell us anything about the future viability of electric cars.  When you look at the development of the motorcar in the US between the wars, the boom was driven by an overwhelming desire of individuals to move around freely and independently, and the car companies rushed to meet that demand whilst the oil companies competed with one another to build the infrastructure to support it.  I can’t think of anything further from this situation than a government taxing the hell out of something and shoving a population in the direction of their chosen product.  Would Norwegians be buying Teslas if ordinary cars were reasonably priced?  According to this Reuter’s article, Norway’s electric cars require an annual public subsidy of up to $8,200.  This is the future?

What we have here is a government picking a winner, and this rarely ends well.  The underlying assumption is that everyone driving electric cars is a desirable end, and I’m not convinced this has been proven.  Norway registered about 11,000 electrical vehicles in 2013, which might make Oslo’s air a bit cleaner and the streets quieter, but is in no way indicative of what might arise should even half of Norway’s 5m inhabitants eventually switch to electric cars.  11,000 electric cars quietly charging themselves off the grid at night won’t make much difference, but 2.5m of them?  You’re going to need a lot more power stations to cope with that sort of demand, and although Norway currently produces around 96% of its electricity using hydroelectric power it is far from certain that they would not need conventional power stations to meet the increased requirements.  In any case, it is somewhat unlikely that other countries, should they choose to emulate Norway in this regard, would be able to meet the increased demands using renewable energy sources.

In fact, the whole drive to use electric cars seems at odds with campaigns by Green organisations and politicians who are constantly nagging us to save negligible amounts of energy by unplugging phone chargers and not using TVs on standby mode.  I think when most people talk of electric cars, they think charging them is simply a matter of plugging them into a grid which is already in place, and I suppose this is true while their numbers remain small.  But an increase in just one order of magnitude – let alone two or three – is going to require a complete overhaul of the electricity generation infrastructure in a manner which is going to render unplugging phone chargers even more negligible than it is now.

Just where is this additional power going to come from?  Wind is a non-starter, suffering from the same physical limitations the Dutch faced on their windmills a couple of hundred years ago.  Tidal sounds great, except it is mind-bogglingly expensive to construct and maintain, and wrecks the local environment. Wave power suffers from the difficulty of converting uneven, irregular reciprocal motion into rotary motion and the fact that any wave powerful enough to be of any use is likely to have a big brother in the vicinity which will destroy any device used to harness its power.  Solar has potential, but the technology is likely a few decades away yet.  In 40+ years time I can envisage an efficient system whereby solar power is used to generate energy which is stored in cells, and converted to electricity in cars which is then used to power a motor.  But even with huge leaps in solar technology I don’t think we’ll ever be in a situation where:

Solar > electricity > battery > motor

is an improvement over:

Petrol > engine

either in terms of efficiency or overall effect on the global environment.  Not even close.  As I say, perhaps this might work:

Solar > energy cell > electricity> motor

with the energy cells being instantly replaceable, but until then I think this whole electric car concept is dead in the water.

Aside from the economics, the enormous appeal of the motor car is its flexibility, a large part of which it is its near-permanent availability.  The electric car, as currently envisaged, does away with this as it is unavailable for several hours while it charges.  Unless one can predict exactly when the car will be used and for how long then it won’t be much use, and although in theory this sounds ideal for regular commuting the shortcomings of such a system quickly become clear.

Even those who use their cars mainly for commuting also use them for unplanned or irregular trips, e.g. at weekends or in emergencies.  The non-availability of an expensive asset will become an issue to even the most organised of citizens, and some might even keep an ordinary car as a spare.  And supposing you hit traffic on the way to work?  You can switch off the car and conserve your battery, but let’s hope you don’t live anywhere too hot or too cold (like Norway!) otherwise it’s not going to be very comfortable.  One of the beauties of the internal combustion engine is the waste heat means even the crappest of crap cars is warm; people don’t realise how damned cold a car would be without the engine pumping out heat, and to generate the equivalent amount of heat from a battery will eat into the range considerably.  According to this calculator driving with an outside temperature of 21°C with no heater gives you a range of 283 miles; drop the temperature to zero and put the heater on and you’re at 234 miles, a reduction of 17% (and 27% with the smaller 60kWh battery).  And that’s for a new car, that reduction will increase only as the battery and heating elements start to wear.  You could find yourself thinking you’ve got enough juice to get to where you want to, and then hit traffic and find your destination is outside your range.  The advantage of the internal combustion engine is that they burn little fuel when the vehicle is stationary yet keep you warm with no additional fuel cost.

The limited range isn’t actually the issue, as petrol cars also have a limited range.  The problem is the charging time, which renders the vehicle unavailable for several hours.  If you run low on petrol, you spend 5 minutes filling up and you’re on your way again.  Anyone who relies on an electric car to complete a journey within 20-30% of the maximum range is going to have to be very well organised – which most people aren’t, particularly when it comes to travelling by car – and have luck on their side as well.  The whole concept on which the current breed of electric cars is based will collapse as soon as there are more than a handful of stories of people being caught out miles from home – children in the back, howling – and having to wait at a charging station for hours before being able to continue the journey start to appear on the internet.  Until electric cars can overcome this issue, perhaps by using instantly replaceable energy cells instead of recharging, I don’t think they’re going to make even a dent in the supremacy of the internal combustion engine.

Whatever the Norwegians think they’re doing, game-changing it ain’t.  I give it a year or two before we start seeing news reports of electric cars found abandoned by their owners between Bergen and Stavanger due to a flat battery and a desire to sleep somewhere warm that night.

Expect Trouble Over Nigeria’s Removal Of Fuel Subsidies

Fortunately Boko Haram never made good on their threat to bomb Lagos, which had the authorities send hoardes of security personnel onto the streets and our security department sending telling us to stay out of nightclubs on New Year’s Eve.

This, however, is expected to affect us severely:

The Nigerian authorities have announced the start of a controversial plan to scrap fuel subsidies – which is expected to push up petrol prices.

The government has spent more than $8bn (£5.2bn) on the subsidies in the past year and says it will use some of the money to improve infrastructure.

Labour unions have called for “mass protests”.

Many Nigerians regard cheap fuel as the only benefit they get from the nation’s oil wealth.

Now most people would stop here and derive a formula by which plenty of crude equals cheap petrol, as is the case in Kuwait, for example.  But they’d be wrong, for reasons the BBC points out:

Nigeria is Africa’s biggest oil producer but most of the available 2 million barrels per day are exported in an unrefined state.

The country lacks refineries and infrastructure so has to import refined products such as petrol, which is expensive.

What the BBC hasn’t pointed out is that successive Nigerian governments, or at least the individuals that comprise them, have deliberately let the country’s refineries slip into disrepair and failed to upgrade them because the importation of fuel provides a vehicle by which money from the state coffers can be transferred to individuals.  These scams can be complex, but often they are no more sophisticated than mis-stating the cargo on a bill of lading.  An importer exaggerates what he has brought in on the paperwork, collects the subsidy from the government, and that paid on the fictional volume is pure profit.  Nice work if you can get it, and sadly for Nigeria’s finances it looks as though an awful lot of people can.  It isn’t just one or two individuals getting in on the action here, it is likely to be hundreds of departments, authorities, or plain criminal gangs and thousands of individuals benefit.  At a cost to 170m Nigerians, of course.

But that’s not all.

Nigerians are heavy users of fuel, not just for cars but to power generators that many households and businesses use to cope with the country’s erratic electricity supply.

The other thing the BBC does not tell us is that successive Nigerian governments, or at least the individuals that comprise them, have deliberately let the country’s power stations slip into disrepair and failed to upgrade them (do you see a pattern here?) because forcing the entire population to buy an (imported) generator run on imported fuel from which a hefty profit is drawn makes those same individuals very rich.  Okay, 170m ordinary Nigerians suffer as a consequence, but who are they to deny functionaries with handy family connections the opportunity to cruise the streets of Lagos in a Porsche Cayenne?

Nigeria’s two main labour organisations, the Trades Union Congress and the Nigerian Labour Congress, issued a joint statement condemning the move.

“We alert the populace to begin immediate mobilisation towards the D-Day for the commencement of strikes, street demonstrations and mass protests across the country,” the statement said.

“This promises to be a long drawn battle; we know it is beginning, but we do not know its end or when it will end.”

“We are confident the Nigerian people will triumph,” it said.

No, I am quite confident that whatever happens the Nigerian people will get shafted, as usual.  Now subsidising a staple product to keep a population happy is a stupid policy, be it for petrol, bread, rice, domestic gas, or anything else.  It distorts the market, generates perverse incentives, is inefficient, and costs the government an increasing amount each year which eventually becomes unaffordable.  Then when they try to remove the subsidy, they’re faced with a revolution.  It was the removal of bread subsidies in Egypt and elsewhere that was partly responsible for the Arab Spring in 2011.  What starts off as a bung to keep a population content soon becomes a permanent entitlement, and too few of the recipients are comfortable enough around the pages of an economics textbook to understand that it was a rotten idea from the beginning.

But I can see the Unions’ point here, even though I believe their concern for the common Nigerian is about as sincere as that professed by Nigeria’s politicians, or politicians of any nationality for that matter.  Far too many of Nigeria’s multiple layers of government are run for the benefit of the individuals which comprise them, and as a result – or perhaps as part of the same disease? – the rest of the country expects their share of the loot as well.  Thus any policy, initiative, project, or scam which transfers government resources into the pockets of individuals is seen as fair game by all, and the objective is to maximise the stream of revenues or benefits which flows in your direction.  The idea that government revenues are a limited resource to be divided carefully amongst competing interests and spent wisely for the good of the whole country is as alien to Nigeria as okadas are to Oslo.

The truth is that the ordinary Nigerian is going to be clobbered by the inevitable jump in fuel prices, whilst the myriad other scams and fraudulent schemes perpertuated by those in power continue unabated.  Even though the Nigerian government is doing the right thing in removing the subsidy, it needs to come as part of a package of far more serious reforms.  Otherwise, the people, fired up and driven on by the Unions, are not going to be a happy bunch.

This could well get serious.

Why Some Countries are Poor

“Why do some places prosper and thrive while others just suck?”, asks P.J. O’Rourke at the start of Eat the Rich, “It’s not a matter of brains.  No part of the earth (with the possible exception of Brentwood) is dumber than Beverly Hills, and the residents are wading in gravy.  In Russia, meanwhile, where chess is a spectator sport, they’re boiling stones for soup.”

By the end of his book you’ll be laughing a lot, but his conclusions are somewhat vague.  Although he identifies the mechanisms by which some countries are either doing pretty well or doing very badly, he doesn’t ever quite manage to answer his own question.  Which is fine, because the book is a hoot.  But here’s my take on things.

Having done a lot of observing people, lots of people, in different countries on three continents all going about their daily lives, I reckon the success or otherwise of a country depends pretty much entirely on the ability of any two people of that country picked an random to trust one each other.

When I have seen populations being an awful lot poorer than they should be, which adequately describes most of the places in which I have worked except for Kuwait where people were an awful lot wealthier than they should be, the lack of trust is evident.  Here’s an example.

When I was living on Sakhalin, my wife was working in a brand new hotel located bang in the middle of Yuzhno-Sakhalinsk, the regional capital.  The hotel was owned by three local gentlemen who had made their fortunes, using fair means or foul, in Sakhalin’s lucrative fishing industry.  Attempting to diversify their portfolio, they decided to go into the hotel business.  The diversity idea was sound enough, but they didn’t know much about hotels.  The top floor, which offered lovely views of the mountains behind the town and a terrace to boot, was earmarked to be used for storage.  The bar was going to be in the basement.  Somebody talked some sense into them and the bar ended up being located on the top floor, but if anyone wonders why the windows are so small given there is so much worth seeing from them, that’s why.  The hotel was built by a Chinese outfit to a pretty decent standard, and it’s fair to say the initial phase of the project looked to have gone all right.  Some ripples were felt when the hotel management company hired to run and staff the place went bankrupt, and shortly afterwards franchise talks with the Ramada chain fell through (I suspect when it dawned on the Russians that franchise agreements don’t involve parent groups doing something for nothing and presenting your books for frequent inspection is part of the deal), but generally things got off to a good start.

Unsurprisingly, things were not to last.  Had the Russians been sensible they’d have stuck a management company in charge, given them an expected rate of return, and turned their attentions to other ventures.  Instead, typically, they decided that heading a fish mafia had given them all the experience needed to run a supposedly international standard hotel and started getting involved in the day-to-day activities.  First they decided they didn’t need so many western managers, so they were shuffled off, and one of the Russian’s daughters installed as General Director.  Any management decision, such as whether to pay the waitress three kopeks an hour more, had to be approved by them, and it usually wasn’t.  The General Manager’s job, which after a couple of years was handed to somebody more local, maleable, and cheap consisted of running about doing whatever the owners’ wanted him to do that particular morning.  They sacked the head chef, replacing him with a Russian who had little experience and even less interest.  And so on.  After two years the hotel had failed to maintain the standards reached when it was launched with such fanfare.

But that’s not the point of the story, as the owners would have made buckets of money from a hotel in Yuzhno-Sakhalinsk in the middle of an oil boom.  However, the hotel was only part of the project.  The owners had in their minds an entire complex built in three or four phases, which would eventually comprise the hotel, offices, and a leisure centre complete with swimming pool.  Phase 2 of the project was the construction of an office block adjoining the hotel, and it was well under way when the hotel opened.  Built by the same Chinese company which did the hotel, the office block was nearing completion in late 2007 at a time when office space was at a premium and there were still plenty of western and Russian companies coming into town looking to set up.  My wife, who was in charge of sales, had numerous enquiries as to when the building would be finished and discussions even took place regarding floor space, layouts, etc.  Connected by a corridor to the hotel, this would have been the premium office location in town, and by extension the whole island.  But it was never finished.  Work stopped in late 2007, and when I last went there in October 2011 it was still in exactly the same state – about 95% complete – although starting to deteriorate.  The scaffolding, the shipping containers in the yard around the back, the windows with the polythene protection still on, were all exactly as it had been when work stopped.

What had happened was one of the fishing bosses had decided to bail on the project, for reasons unknown.  What followed were months of squabbling about how much his share was worth, coupled with petty tit-for-tats which did little to improve the experience of the hotel’s customers and staff.  No agreement was reached, and nobody was prepared to put any more money in to finish the building, so it just stood there, uncomplete, deteriorating, and earning nobody anything, for years.

It doesn’t take much to realise that this inability to reach an agreement was monumentally stupid on the parts of all involved.  Now this wouldn’t happen in the US or UK, for two reasons.  Firstly, a Brit or American would compromise.  Despite the reputation Americans have for cut-throat business practices, they will take a hit if it means the overall business venture will progress.  There is no ego, pride, or loss of face at stake if the bigger picture shows everybody winning.  This is not the case in most of the world, where “face” matters.  Anyone who has attempted contract negotiations with a Korean engineering company, for example, will know that for a Korean to concede anything in such a situation is akin to admitting his dick is small and his wife deserves somebody more manly.

But the Russian society which often rewards strong-armed machoism over quiet compromise is not the main reason why Russian business is in such poor shape.  The reason is nobody trusts one another.  In the US or UK, the conundrum with the office block would be solved by the party who wants to leave finding an outside buyer for his share.  With little more than a few pieces of paper and a lawyer or two, his ownership of the project could pass to a complete stranger who would be confident that if the venture made money, he would be rewarded.  Not so in Russia.  No outsider would buy into a project with people who he didn’t know personally, as he would assume – correctly – that as soon as the money was invested he would either be strong-armed out or the others would disappear, never to be seen again.

And this reluctance to trust others in Russia is why the place never develops to its potential.  In the US or UK, if you have a business idea, you can issue bits of paper in return for which random strangers will hand over money to get your idea off the ground.  If you make money, so do they.  This means the income expected in the start-up period is limited only by how many people you can persuade to invest, and this can be up to any number you can think of.  In Russia, who do you get to invest in your new business venture?  Nobody is going to invest in a stranger’s business, as contracts in Russia are meaningless and the courts as bent as the Moskva river south of the Kremlin.  If three people do get together and pool their money, usually each one is looking to rip off the other two out of fear that they will be looking to rip him off.  And most of the time this is not paranoia but an accurate assessment of the true intentions of his new partners.

As a result, the income which can be expected during the start-up of a Russian business is limited to the savings of the sole proprietor, whatever his wife brings in from her day job, and whatever else he can scrape together from deals on the side.  Russians don’t even trust their own families, too many of them including a wayward brother or uncle who is likely to make off with the contents of the safe to fund a weekend of casinos and vodka in Vladivostok.  This is why the Korean Sakhaliners do so much better in business than the ethnic Russians in Yuzhno-Sakhalinsk, much to the disgust of the latter who thought the whole thing was unfair.  The Koreans trust each other within the family, and given their families were large and inter-marriage common, a new business can pull in the efforts and cash of four or five adults rather than some poor sod on his own.  How can a country expect to develop its medium-sized businesses – the backbone of any nation’s economic development – when nobody can be anything other than a sole proprietor?

The same is true of Nigeria.  They trust each other even less than the Russians, which is why any business you see is either owned by a government official or well-connected foreigner, or it’s a bloke in flip-flops walking the streets with a sewing machine on his back.  Or a woman with a baby strapped to her back and 10kgs of bread balanced on her head.  If any Nigerian asked another to invest in his business venture in return for the promise of future dividends, everyone would think he’d gone mental.  Or if the proposed investor actually ponied up the cash, they’d think he was mental.  This utter lack of trust between Nigerians is ever-present in the lives of expats.  Everything must be paid for right now, in person, and in cash.  I’m sure Lagos’ traffic problems would halve overnight if Nigerians didn’t insist on seeing somebody in person at the time of a business transaction.  Even my own employer prefers to have expats sat in traffic for an hour carrying hardcopies of forms between offices rather than trust its employees to send a faithful scan.

Many workers here have an accommodation problem, including all the drivers.  The reason for this is all landlords insist on having one or sometimes two years’ rent paid up front in cash.  Few drivers can afford this, so they ask their employers (i.e. the expats) to loan them the money.  Nobody in their right mind would loan them the money as there is a very high risk – and this has happened – that you’d never see your driver again.  But they do have a problem, because they cannot raise enough for the rent, leaving them with nowhere to live which isn’t three hours from where we all stay.  But I started to wonder why, given that there are dozens and dozens of them in this position, why they didn’t form groups and get somewhere together.  Each one of them seemed only to consider getting a place all on their own, which when you think about it is nuts.  No British student would live on their own, and most people in the UK continue to houseshare for the first 2-3 years after they get their first proper job.  Getting your own place is simply not affordable on a low salary, so you jump in with some others.  I asked my driver why he didn’t gather up a few others, pool their cash, and pay down the first year’s rent.  “I want to live by myself,” he said.  By the tone of his voice he seemed gobsmacked by my suggestion.  I didn’t pursue it, because pointing out that he couldn’t afford to live by himself would have been stating the bleedin’ obvious (they currently all sort of shack up in a day-room on the first floor of the residences).

But I don’t think it’s an aversion to sharing per se which stops them doing the obvious, it is simply that they do not trust each other one iota.  Probably if they gave all their money to one person to pay the landlord, they would never see him again.  Or he would do a deal with the landlord to allow only him to stay there and not the others.  Or he would not tell the landlord about the arrangement at all, and would just move in on his own and lock the door.  Or the landlord would not be comfortable with 3-4 men in his apartment as he could easily be out-muscled, so sharing is probably forbidden anyway.  Or each would worry that one day they’d come home from work and find one of the others has cleared out everyone’s possessions and skidaddled.  Or a combination of all of the above.

Whatever it is, this lack of trust keeps people poor and miserable.  Be it supposedly wealthy hotel owners in Russia or lowly drivers in Nigeria, if people in a country cannot, will not, or do not trust each other whatsoever, that country will not be going very far.  And trust being mainly a cultural thing, changing a country’s fortunes in this respect is going to be near impossible.  I don’t hold out much hope of the office block in Yuzhno-Sakhalinsk being occupied or Lagos’ drivers finding somewhere comfortable to sleep any time soon.