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BUSINESS HISTORY
Russian business has always had its roots in strengths and
weaknesses. The best example of a long term weakness has been
textiles, because fabric had to be imported. The obvious strength
from the beginning has been exportable natural resources. Early
on, these were slaves, salt, and furs. Finally they have become oil,
gas, coal, timber, diamonds/precious metals, and raw elements for
industry (zinc, nickel, etc.). The first real agricultural/mechanical
factory production began with beet sugar in the 1820’s. In the
beginning, all enterprise was with the Tsar’s favor and with the
Crown retaining a percentage interest. The first good-sized firms
were those provisioning the Moscow-St. Petersberg railway and the
Crimean War. Weapons were an import business, with most coming
from America until 1900 or so. With the beginning of Russia’s
industrial Revolution in the 1860’s, urban growth meant big surges
in textiles, tobacco, and imported manufacturing equipment. The
1870’s saw, after a 15+ year hiatus, the resumption of railroad
construction with all of its trailers. (*KEY*) The 1880’s saw an
attempted link being made between railroads and agricultural
production AND the introduction of some mechanization/silage, but
this was all for naught because of conflicts with military planning
combined with a lack of long-term capital and real interest. The
1890’s saw major advances in mechanizing and mobilizing an ever-
growing armed force to coincide with railroad growth, as well as
even larger ripple effects from urban growth. (*KEY*) ALL major
railroad components, from rails to locomotives, were imported.
Bridge structures, regardless of size, were wood choc-o-block
except for when spanning rivers. The last 2 decades of the 19th
century also saw the emergence of 2 new kinds of businessmen
who gradually took over the majority of gross business: Jews and
serfs/serf descendents. Growth continued unabated until the
Russo-Japanese War of 1904-5, during which it was decided (due
to many transport problems) to add a second track to much of the
nation’s railroad system AND to complete a railroad link outside of
China between the Chita region and Khabarovsk. This was
completed by 1918, and during this time Russia became the #1
agricultural exporter in the world. The end of the Tsarist business
era closes with those getting rich by provisioning for WW-1.
During the USSR, the only relatively independent business
was small farming between 1922-29 and 1957-1991 (here, about
1/5 acre per family, like Cuba is experimenting with now). In the
20’s and 30’s, foreign businesses lent their expertise to projects like
dam-building and the Ford Motor Company built a tractor factory in
Leningrad (St. Petersberg). The American industrialist Armand
Hammer built a pencil factory, a feat of no small significance. After
weaknesses. The best example of a long term weakness has been
textiles, because fabric had to be imported. The obvious strength
from the beginning has been exportable natural resources. Early
on, these were slaves, salt, and furs. Finally they have become oil,
gas, coal, timber, diamonds/precious metals, and raw elements for
industry (zinc, nickel, etc.). The first real agricultural/mechanical
factory production began with beet sugar in the 1820’s. In the
beginning, all enterprise was with the Tsar’s favor and with the
Crown retaining a percentage interest. The first good-sized firms
were those provisioning the Moscow-St. Petersberg railway and the
Crimean War. Weapons were an import business, with most coming
from America until 1900 or so. With the beginning of Russia’s
industrial Revolution in the 1860’s, urban growth meant big surges
in textiles, tobacco, and imported manufacturing equipment. The
1870’s saw, after a 15+ year hiatus, the resumption of railroad
construction with all of its trailers. (*KEY*) The 1880’s saw an
attempted link being made between railroads and agricultural
production AND the introduction of some mechanization/silage, but
this was all for naught because of conflicts with military planning
combined with a lack of long-term capital and real interest. The
1890’s saw major advances in mechanizing and mobilizing an ever-
growing armed force to coincide with railroad growth, as well as
even larger ripple effects from urban growth. (*KEY*) ALL major
railroad components, from rails to locomotives, were imported.
Bridge structures, regardless of size, were wood choc-o-block
except for when spanning rivers. The last 2 decades of the 19th
century also saw the emergence of 2 new kinds of businessmen
who gradually took over the majority of gross business: Jews and
serfs/serf descendents. Growth continued unabated until the
Russo-Japanese War of 1904-5, during which it was decided (due
to many transport problems) to add a second track to much of the
nation’s railroad system AND to complete a railroad link outside of
China between the Chita region and Khabarovsk. This was
completed by 1918, and during this time Russia became the #1
agricultural exporter in the world. The end of the Tsarist business
era closes with those getting rich by provisioning for WW-1.
During the USSR, the only relatively independent business
was small farming between 1922-29 and 1957-1991 (here, about
1/5 acre per family, like Cuba is experimenting with now). In the
20’s and 30’s, foreign businesses lent their expertise to projects like
dam-building and the Ford Motor Company built a tractor factory in
Leningrad (St. Petersberg). The American industrialist Armand
Hammer built a pencil factory, a feat of no small significance. After
WW-2, a great deal of German plant and equipment was moved to the USSR to
facilitate reconstruction. In the 50’s, the Italian car company FIAT sent auto-
manufacturing technology and that same Armand Hammer began the first major
exporting of raw materials with great success. Towards the end of the USSR, a few
firms like PepsiCo were importing soft drinks and exporting vodka but were
insignificant.
1991-1998 saw lots of short-term business development in : 1. Banking (over
1500 in 1995) 2. Small Business (Rotary-club mom-and-pop, under 25k start-up).
3. Cheap consumer goods either from existing manufacturing sources or new ones
(Gillette, P&G) like gum/candy, cleaning/personal care products, and beverages
(especially beer) 4. Clothing importing via shuttle-trading. This means individual
citizens going abroad, for example to Turkey, and buying/shipping home for re-sale.
5. Electrical goods importing. 6. Small-scale manufacturing importing (usually
under license): packaging, food processing, retrofit machinery for large existing
factories being re-tooled. By 1998, after 2 currency devaluations, 1. (only 10 main
banks left) and 2. practically disappeared. Numbers 4 through 6 reduced in scope
as Asian manufacturers assumed control over them. Throughout the 2000’s,
investment in automobile production has grown in anticipation of an emerging
middle class. The world’s large natural resource harvesters and the international
business community have by this time cut their teeth on huge losses from dealing
with Russian bureaucrats, businessmen, and criminals and though investment
continues, it is with excessive reserve and caution.
Here in the business section is the place to introduce a model for Russian
consumers, as compared to a typical western one. The western one is the profile
of an American football with stripes near the ends. The areas between each stripe
and the nearest point on each end represent the 10% rich and 10% poor. Between
the stripes is the middle class, roughly 80%. The shape is dynamic and flexible.
To make the Russian shape, one must envision a profile of a very tall, thin wall that
tapers to zero thickness at the top; the wall is supported by an immense thick
foundation. At the very top of the wall are Russia’s (total population about
130,000,000) rich: 60 billionaires, 200,000 millionaires, and maybe a million with a
$500,000 or more. That’s about 10 times fewer than in the west %-wise. The rest
of the thin, tapered wall, all the way to the foundation, is the emerging middle class,
with assets between $80,000-500,000, mostly in real estate. The total here is about
7% of the population, or about 9 million. That’s at least 10 times fewer than in the
west, %-wise. The remaining 92 percent are poor and, as well they, like the
immoveable wide and thick foundation of the symbolic wall, completely support the
rich/middle classes. This Russian model hasn’t changed, ever. It is static and rigid.
During Tsarist times, rich=monarchy, aristocracy, landowners, and church. Middle
class=bureaucracy During the USSR, rich = the Party elite, then called the
nomenclatura. Middle class: everyday working Party members. Poverty is
engrained into the Russian mindset, as is wealth for very few. This profile of
Russian consumers means that purchasing power for them is very limited: cheap
consumer goods and not much else….In the West, there is a 50-50 balance of
constitutionally-facilitated order and organized chaos; in Russia it’s more like 95%
order and 5% chaos.
To see visual models of American and Russian consumers, see this page.
facilitate reconstruction. In the 50’s, the Italian car company FIAT sent auto-
manufacturing technology and that same Armand Hammer began the first major
exporting of raw materials with great success. Towards the end of the USSR, a few
firms like PepsiCo were importing soft drinks and exporting vodka but were
insignificant.
1991-1998 saw lots of short-term business development in : 1. Banking (over
1500 in 1995) 2. Small Business (Rotary-club mom-and-pop, under 25k start-up).
3. Cheap consumer goods either from existing manufacturing sources or new ones
(Gillette, P&G) like gum/candy, cleaning/personal care products, and beverages
(especially beer) 4. Clothing importing via shuttle-trading. This means individual
citizens going abroad, for example to Turkey, and buying/shipping home for re-sale.
5. Electrical goods importing. 6. Small-scale manufacturing importing (usually
under license): packaging, food processing, retrofit machinery for large existing
factories being re-tooled. By 1998, after 2 currency devaluations, 1. (only 10 main
banks left) and 2. practically disappeared. Numbers 4 through 6 reduced in scope
as Asian manufacturers assumed control over them. Throughout the 2000’s,
investment in automobile production has grown in anticipation of an emerging
middle class. The world’s large natural resource harvesters and the international
business community have by this time cut their teeth on huge losses from dealing
with Russian bureaucrats, businessmen, and criminals and though investment
continues, it is with excessive reserve and caution.
Here in the business section is the place to introduce a model for Russian
consumers, as compared to a typical western one. The western one is the profile
of an American football with stripes near the ends. The areas between each stripe
and the nearest point on each end represent the 10% rich and 10% poor. Between
the stripes is the middle class, roughly 80%. The shape is dynamic and flexible.
To make the Russian shape, one must envision a profile of a very tall, thin wall that
tapers to zero thickness at the top; the wall is supported by an immense thick
foundation. At the very top of the wall are Russia’s (total population about
130,000,000) rich: 60 billionaires, 200,000 millionaires, and maybe a million with a
$500,000 or more. That’s about 10 times fewer than in the west %-wise. The rest
of the thin, tapered wall, all the way to the foundation, is the emerging middle class,
with assets between $80,000-500,000, mostly in real estate. The total here is about
7% of the population, or about 9 million. That’s at least 10 times fewer than in the
west, %-wise. The remaining 92 percent are poor and, as well they, like the
immoveable wide and thick foundation of the symbolic wall, completely support the
rich/middle classes. This Russian model hasn’t changed, ever. It is static and rigid.
During Tsarist times, rich=monarchy, aristocracy, landowners, and church. Middle
class=bureaucracy During the USSR, rich = the Party elite, then called the
nomenclatura. Middle class: everyday working Party members. Poverty is
engrained into the Russian mindset, as is wealth for very few. This profile of
Russian consumers means that purchasing power for them is very limited: cheap
consumer goods and not much else….In the West, there is a 50-50 balance of
constitutionally-facilitated order and organized chaos; in Russia it’s more like 95%
order and 5% chaos.
To see visual models of American and Russian consumers, see this page.
