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Jamestown Foundation
Eurasia Daily Monitor, Volume 1, Issue 44
www.jamestown.org
2 July 2004
BUSINESS INFLUENCE AND RUSSIAN FOREIGN POLICY
By Peter Rutland

From June 24 to 26, a group of specialists gathered in Zurich at the Center for Security Studies, Swiss Federal Technology Institute, to discuss the role of business in Russian foreign policy.

Russian President Vladimir Putin has stressed that economic strength is key to preserving and enhancing Russia's status as a world power. Economic issues loom large in the Russian foreign policy agenda, and Russian businesses are growing more active, buying up assets abroad, from oil refineries in Ukraine and Lithuania, to gold fields in South Africa, to the Rouge steel plant in Michigan.

Pessimists see business expansion as a sinister new development in the Russian state's efforts to project power over the near and not-so-near abroad, that "what Russia failed to do by tanks it will do by banks," (a phrase attributed to former Deputy Prime Minister Roman Gotsiridze, cited in EDM June 2). Optimists see Russian business expansion as evidence for the power of globalization. It testifies to the integration of Russia into the global economy, with the assumption that Moscow's acceptance of global norms is bound to follow, whether in corporate governance or political democracy.

Two previously popular rosy scenarios for Russia's global economic integration have now been discredited. First, there was the idea that international organizations such as the IMF and WTO could set rules that Russia would have to follow. Second, there was the notion that economic integration would import global "best practices" directly through foreign direct investment or indirectly as Russian companies sought to raise capital through loans and equity sales on international markets. The former vision was dashed by the 1998 financial crash, and the latter by the crackdown on Yukos in 2003.

The conference participants agreed on the important role played by business in Russian foreign policy, but could not identify a clear trend supporting either the optimistic or pessimistic interpretation. Robert Orttung from the American University in Washington DC noted that Russian companies are typically motivated by self-interest rather than national interest when they invest abroad. In many cases these companies are pursuing goals that are contrary to Russian state interests -- such as tax evasion by transferring revenue abroad. Rather than serving as the loyal tool of the Kremlin, business is just as likely to undermine the integrity of Russian foreign policy. Harvard's Carol Saivetz cited the example of the atomic energy ministry lobbying for the completion of the Bushehr reactor in Iran. Is that serving Russian interests, or just those of the ministry?

Bobo Lo from Chatham House in London argued that Russia wants some say over the terms of its integration into the global economy: it wants to be a rule maker and not just a rule taker. Tor Bukkvoll from Norway's Defense Research Institute and Zurich's Andreas Wenger concurred that Russia lacks the sort of tightly integrated foreign policy bureaucracy able to systematically coordinate the activities of Russian business groups. For example, Heiko Pleines of Bremen University reported that Russian steel-makers were not kept informed about anti-dumping talks with the United States. Harvard's Carol Saivetz noted that Western literature on the role of business in foreign policy assumes a stable institutional environment with known actors, neither of which is true in the Russian case.

Graeme Herd, from the Marshall European Center for Security Studies, pointed to the asymmetry in the economic environment that Russia faces across different borders. To the west, Russia must negotiate the complex supra-national bureaucracy of the European Union. To the east, Russia confronts the dynamic and expanding Chinese state. To the south, it has to deal with the fragmented and failed states of the Caucasus, where much of the cross-border trade is in the hands of criminal groups. This makes the task of coordination even more difficult. Herd suggested that the Kremlin would focus on the most crucial issues, such as energy, and leave other business sectors to their own devices.

Margarita Balmaceda, from Harvard's Ukrainian Research Institute, showed how Russia has used energy dependency as a tool to increase leverage over Ukrainian and Belarusian politics -- much more successfully in the former case than in the latter. Russia has also exploited the instability in the Caucasus to advance its economic agenda, with Unified Energy Systems and Gazprom buying up much of the energy infrastructure in Georgia and Armenia. But it is not clear whether this reflects a consistent state policy or just the result of companies seizing opportunities as they arise.

This all leads to the conclusion that sweeping generalizations are premature. Most business decisions seem focused on short-run profits rather than building economic relationships conducive to long run, sustainable development. Although Putin would no doubt like to see business operating as the seamless extension of Russian national interest, this has not yet been realized. The dog is not fully in control of its tail, and sometimes the tail may even wag the dog.