Oligarchs and Kleptocrats: Russian Business through Western eyes
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Senior Associate, Bedell Cristin, Singapore
Academic studies on the social effects of risk have examined how risk impacts on corporations. The perception of risk spawns behavioral responses, which in turn have secondary impacts on business, including stigmatization, loss of sales, regulatory constraints, litigation and investor flight. This is relevant to Russia because Western perceptions of Russian business are predominantly concerned with risk. Whenever Russian business is discussed in Western media, the reportage is tinctured with fear and threat. Russian business is ascribed with notions of corruption, criminality or dark political intent. Russia is seen as a risk.
Academic studies on the social effects of risk have examined how risk impacts on corporations. The perception of risk spawns behavioral responses, which in turn have secondary impacts on business, including stigmatization, loss of sales, regulatory constraints, litigation and investor flight [1].
This is relevant to Russia because Western perceptions of Russian business are predominantly concerned with risk. Whenever Russian business is discussed in Western media, the reportage is tinctured with fear and threat. Russian business is ascribed with notions of corruption, criminality or dark political intent. Russia is seen as a risk.
These narratives about Russia frame and restrict how lawyers can do business with Russians, whether in terms of enhanced due diligence requirements, owing to the higher level of perceived risk, whether in terms of reduced deal activity, owing to the higher capital costs or regulatory hurdles arising from these risk perceptions, or in terms of Western sanctions, that set the transactions limits.
However, the popular view of Russian commerce as a risk or threat is usually without merit. Western narratives about Russian commercial activity are founded on value judgments rather than factual analysis, as an extensive research for a Russian legal journal has shown [2]. Russians are astute international investors, who create new business and turn around failing enterprises. Russian entrepreneurs create value.
Russian investors are either portrayed as sinister magnates with political connections, or as corrupt tycoons with criminal associations. In short, Russian investors are oligarchs or kleptocrats.
However, the negative narratives are so widespread that we have to ask whether they have any real basis in fact. If not, then why do these narratives persist? What is the effect of these narratives? What purpose do these narratives serve?
It is important to consider narratives, because they show how Russia is framed in the west. Narratives shape behavior, and they are useful in revealing perspective biases, economic interests and wider cultural values. Narratives are important in understanding Western approaches to Russia. As one historian noted, narratives “are highly charged in social, political and cultural significance. They are crucial in making sense of the post-Soviet historiographical space.” [3]
The perception of risk
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In order to understand why these narratives about Russian business are constructed, we need to understand how these risks are perceived.
Western narratives about Russian business follow a familiar pattern. Russian investors are either portrayed as sinister magnates with political connections, or as corrupt tycoons with criminal associations. In short, Russian investors are oligarchs or kleptocrats.
But what is an oligarch? An oligarch is a member of an oligarchy, a form of government where power is exerted by a small group. By using this term, business is implicitly linked to power and governance. The use of this label is political in scope and intent.
This term is used extensively in Western media. For example, a search of the website of The Guardian revealed that there were 96,000 occurrences of the term oligarch. Of these results, 38,000 (or 40%) of all incidences also involved the term Russian.
The results are more telling when looked at comparatively. For example, The Guardian makes 1,660 references to “Russian oligarch” but only 7 references to “American oligarch” and 2 references to “British oligarch”. Conversely, there are 177 references to “British entrepreneur”, 108 references to “American entrepreneur” but only 48 references to “Russian entrepreneur”. Clearly, in the Western media, Russians are oligarchs but rarely entrepreneurs, and oligarchy is linked to nationality.
In the Western media, Russians are oligarchs but rarely entrepreneurs, and oligarchy is linked to nationality.
As an alternative to portraying Russians as oligarchs, Russian investors are defined as kleptocrats. A kleptocracy is the rule by thieves, and by using this term, Russian investors are clearly being labeled criminals. This seems like an astonishing position to maintain, and yet leading Western publications disseminate this view. For instance, an article in Time magazine recently asserted that “instead of the national interest guiding Russia’s actions, they are now guided by money, specifically the criminal acquisition of money.” [4]
Equally concerning is the frequency with which the term kleptocrat is used. For example, an article in Foreign Affairs noted how, for the American “House banking committee chairman James Leach, Russia was ‘the world’s most virulent kleptocracy’.” [5] One can almost forgive politicians for hyperbole, but more disconcerting is that the label is also used by supposedly objective financial publications. For example, a recent article in the Financial Times ran with the headline “Britain must hold Russia’s kleptocratic elite to account” [6], the Economist featured a review, critical of Russia, of a book entitled “Putin’s Kleptocracy: Who Owns Russia?” and Fortune magazine published a recent article entitled “Why you shouldn’t invest in the Russian kleptocracy” [7].
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The effect of these narratives is that Russians are reduced to typologies. As one academic notes, “the West’s representational strategies engage in reductionist practices in which the diversity and difference of the other is transduced into a limited typology or set of essential characteristics.” [8] Essentially, Russian investors are reduced to oligarchs and kleptocrats.
These typologies have a wider effect on Russian foreign investment. One research paper observed that Russians had issues investing overseas given that there are problems with creating “a positive and attractive image of Russian business abroad [due to] the extendedly created politicized typologies of Russian multinationals.” [9] Another report noted that Russian investors face “a strong degree of suspicion in most parts of Eastern Europe and in the developed world…[even though] Russian investors have frequently transformed bankrupt enterprises into thriving companies and are regarded as effective owners and employers.” [10]
The social construction of risk
It is clear that the West constructs negative typologies of Russian investors, but are these typologies valid? Are Russians really different, or are they treated differently?
The question of whether these narratives are valid is a question of fact, but an article in the American journal Foreign Affairs suggests that common narratives about Russian business misconstrue the facts. In considering negative views about Russian investors, the writers asked whether they really have stripped assets from the companies they acquired in privatization rather than investing in them? Their answer was no, because “the audited financial statements of these companies suggest that their assets have grown dramatically, especially since 1998.” Not only had the performance of individual Russian companies improved, but the overall “data on Russia’s growth, macroeconomic stability, income inequality and corporate finances…suggest there is a large gap between the overwhelmingly negative assessments of the country and the facts.” [11]
By portraying Russian business as somehow different, as a risk, as inherently corrupt, Western media is constructing false typologies and engaging in double-standards.
It therefore seems that the negative typologies are unmerited, but does this suggest that Russians are treated differently? One way of assessing this is to see whether similar narratives can be constructed about the West. If so, then this would be clear evidence of bias, given that Western investors are rarely defined as oligarchs or kleptocrats.
If we consider the question of oligarchy, Foreign Affairs suggests that Russians are treated differently, observing that “Russia’s big business is certainly dominated by a few tycoons, but in this respect, Russia is a typical developing capitalist economy.” In fact, if we dig deeper, we can see that Western nations have oligarchical characteristics. For instance, a recent study in the American Political Science Association found that the US was effectively an oligarchy. Writing for this journal, the academics observed that US politics was dominated by a small business elite and that popular opinion played a peripheral role in policymaking, observing that as “policymaking is dominated by powerful business organizations and a small number of affluent Americans, and then America’s claims to being a democratic society are seriously threatened.” [12]
And, if we consider the question of crime, we can see that Western countries have a poor record. Taking the UK as an example, its recent commercial history is peppered with corporate corruption, with notable examples being the BCCI, Guinness, Polly Peck, Barings and BAE scandals. Furthermore, in 2009, a parliamentary expenses scandal revealed the widespread misuse of public funds by politicians, resulting in multiple resignations and criminal convictions against many Members of Parliament.
In addition, some academics have expressed concern with wider patterns of corporate transparency in the West. For example, a recent study looked at international compliance with corporate transparency standards. The results were surprising, as “despite their regular pronouncements to the contrary, rich, developed countries are delinquent in enforcing the rules on corporate transparency, doing significantly worse than developing countries, and three times worse than the oft-reviled tax havens.” [13] In fact, some of the worst offenders are US states such as Delaware. It is no coincidence that a recent New York Times opinion piece was entitled ‘Delaware, Den of Thieves?’ [14] .
It is clear from the above examples that there is nothing unique to Russia. But, by portraying Russian business as somehow different, as a risk, as inherently corrupt, Western media is constructing false typologies and engaging in double-standards. Western media endows the deficiencies of its own commercial practices onto a prefabricated idea of the Russian investor.
***
Narratives about Russian business are socially constructed and lead to the manufacture of false typologies about Russians. In effect, Western media is effectively operating with an orientalist discourse towards Russians, whereby the idea of Russian business is created in the West and an industry arises devoted to the manufacture of representations of this constructed other.
What we find is that genuine knowledge about Russian business is not relayed by the West, but instead typologies are constructed which perpetuate and legitimate popular attitudes towards Russians. Russian investors are portrayed as a risk, as somehow different, and this impacts on the ability of Russians to conduct business. in the West, and for Western businesses to transact with Russians.
1. Kasperson, Renn, Slovic, Brown, Emel, Goble, Kasperson, and Ratick, Samuel, The Social Amplification of Risk: A Conceptual Framework, Risk Analysis, Vol. 8, No. 2, 1988
2. Wilson, The Role of Offshore Jurisdictions in Russia, Russian Law Journal, Vol. III, Issue 2, 2015
3. Sanders, Under Western Eyes: how meta-narrative shapes our perception of Russia, The Institute for Human Sciences, Vienna
4. Time, Killer Business in Russia, Feb 12, 2015
5. Shleifer and Treisman, A Normal Country, Foreign Affairs, March 2004
6. Financial Times, Britain must hold Russia’s kleptocratic elite to account, January 30, 2015
7. Fortune, Why you shouldn’t invest in the Russian kleptocracy, January 22, 2015
8. Westwood, International business and management studies as an orientalist discourse, Critical Perspectives on International Business, Vol. 2, No. 2, 2006
9. Koroliuk and Rudenko, Russian Multinationals FDI Outflows Geography: the Emerging Dominance of Greater Europe, 67(1) European Researcher, 2014
10. Settles, International Investment Activities of Russian Corporations
11. Shleifer and Treisman, op-cit
12. Gilens and Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, Perspectives on Politics, American Political Science Association, Vol. 12, No. 3, September 2014
13. Findley, Nielson and Sharman, Global Shell Games, Griffith University Centre for Governance and Public Policy
14. New York Times, Delaware, Den of Thieves? November 1, 2013
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