Russians Play Chess, the West are Playing Monopoly

One of the perks of being a Nomad is you get to meet interesting and diverse people everywhere you go, and hear and see what they think about current events which offer a different point of view. We may not realize it, but we are in the midst of some huge shifts in world politics and geo-dominance. The world is changing around us at a speed never before seen. I like to stop sometimes and ask people from different backgrounds what they think of things that are happening in the US and the West in general, that impact all of us. The responses are always insightful and give food for thought, given we in the West don’t always think through the consequences of our actions, policies and sometimes in-action, to the rest of the world. This is both irresponsible and dangerous given we have created a global economy that we have been the engine to for over half a century.

This weekend I had brunch with a senior Russian diplomat in Brussels. It was a social affair and given I didn’t ask his permission to blog about our conversation he shall remain nameless. The discussion was very interesting and it was a breath of fresh air to hear about how things have evolved in Russia and the former Soviet states, as well as to learn about the continued challenges the region and its people face. And in case you were wondering there was no vodka involved, just good tea. But what was really intriguing was when I asked the question ‘What do Russians think about President Obama and his Administration?’

The first thing the diplomat did was praise the President’s efforts in boosting the relationship between the two countries. The second was praise even more intensely the position the President has taken on the controversial missile defense system the previous Administration had coveted, his wife and daughter joining in on the praise here. This last point the diplomat said has earned the genuine respect and friendship of the Russian people, a victory of the hearts and minds, so to speak. I’m not sure we realize how much damage was done to the relationship with Russia under President Bush, and perhaps we don’t care. But we should. They still have influence - militarily, economically and geo-politically - across a third of the world, and they could hold the key to avoiding military conflict with the likes of Iran, North Korea and even Venezuela.

And here is an important point about the negative feelings Russians had for our former President – none of it is personal. I’m learning that foreigners generally don’t make it personal the way we do in our country, especially the US media that has lost its role as an objective reporter of news. They take a very pragmatic look at Leaders and judge them by what they say and what they do. Its that simple. The diplomat was not disrespectful to President Bush in our conversation, nor was he a biased supporter of President Obama. In fact, he gave credit where credit was due and was explicit about past and current failures by US administrations. He simply conveyed the impression both men left on the Russian people through their actions and words. They leave the judging to history.

So having concluded the sniff test on President Obama as being generally ‘positive’, I continued to press the diplomat on other areas and how he sees things developing over the coming months and years. Here are some summary points from what he shared with me that I thought were very interesting and provide some food for thought:

·    A weak dollar and low US interest rates are hurting everyone and the Administration’s current financial policy is deemed a failure. US exports may rise given the weak dollar, but ultimately a shift to the Euro will hurt the US, the UK and developing countries like Russia, China, India and Brazil. A weak U.S. dollar and low U.S. interest rates have led to "massive speculation" that was inflating asset bubbles around the world. It has created unavoidable risks for the economic recovery, especially in emerging economies like Russia and China. The impact on global asset prices and encouraging speculation in stock and property markets is a serious threat to the stability we all want to achieve;

·    US spending is ironic to the Russians who see the efforts by Congress to revive the US economy through heavy spending, stimulus plans and increased taxes as taking a page from the communist playbook (this was a quote, not my words) that just don’t work. Basic message here is you can’t spend your way out of a recession and 10% unemployment, you need sound economic policy to stimulate private enterprise. It felt strange to hear a career Russian diplomat preach free enterprise to me;

·    Generation Y is doing its thing in Russia. Entrepreneurship, much like in the West, is just plain trendy and ‘cool’ over there, and the government and wealthy individuals are encouraging the youth to get out and make it happen. And they are. Russian government policy is being adapted to support this effort and the diplomat’s view was that this push for creating businesses and the innovation that comes with it will impact generations to come a la Bill Gates and Richard Branson. Time will tell;

·    The Diplomat had just returned from a mission to Baku, the capital of Azerbaijan. It had been 4 years since his last visit and he described how the city had transformed itself into a very modern and clean city worth a visit. The Azerbaijan economy is fueled by their vast gas and oil reserves that are under development, and controlled by the State. The oil sits so close to the surface that the oil wells they use all over the country are fairly miniature structures compared to what we see in Russia, Saudi Arabia or even Texas and Oklahoma, where the oil is much deeper in the ground. The diplomat described how families have bought single oil wells and erected them in their back yard to get in on the boom, selling their oil to brokers and making a great living. Everywhere you go you see these single small wells that are the height of a raised SUV, privately owned by whoever owns the land. So far the government turns a blind eye to this ‘theft’ as the new wealth being created has helped transform Baku and the country from the sorry state it was before;

·    Taxes. Russia’s personal income tax rate is 13% until you earn over €600,000 a year when the rate drops to 2%. Think about this for a moment – the more you make the smaller that percentage becomes. There is a logic to it and the Russians find the current US and UK push to increase personal income tax once you breech a certain threshold as out of date and disruptive to the aim of creating a better society. The UK tax rate for anyone earning over £250,000 will jump up to 50% from 34% in April 2010, and similar steps are happening in the US for anyone making over $250,000 a year. The diplomat’s questions to me where: 1) who decided these thresholds? 2) what are they based on i.e. is someone making $250,000 a year really wealthy compared to someone make $150,000? and 3) should you not be decreasing the tax rate to encourage investment, productivity and job creation? Needless to say I had no good answer and was embarrassed for Gordon Brown, Alistair Darling, Nancy Pelosi, Harry Reid and President Obama with whom I respectfully disagree on the topic of taxation;

·    Climate change was an interesting topic. There was not much of a view on this the way you get in the West, but its not because Russians are not concerned about the wellbeing of the Earth and the need for us to all be more socially responsible, they just take a more pragmatic view that building their economy and raising their standard of living is a much bigger priority to driving a green agenda. At least for now.

·    One thing the diplomat shared with me that was interesting is the continued importance oil and natural gas will play in what really goes on behind politics, the economy, and conflict around the world. He describes climate control, healthcare and other social agenda items as smoke screens to what is really going on behind the scenes. I came away thinking we in the US really haven’t grasped the significance of oil on our society as fundamental to our survival, quality of life and development. Don’t get me wrong, there should be a move away from dependence on foreign oil and finding viable alternative sources of energy (and I don’t mean wind, bio or solar which are not viable yet), but somewhere we have put the cart before the horse by suggesting that oil, gas, coal and even nuclear are all bad because they are ‘dirty’. Okay fine, they are dirty and we should find clean alternatives, but lets not jump ship until we have another ship to jump to. The Russians get this, why don’t we?

Overall it was a truly satisfying 3 hours of great conversation supported by great food and great company. Of course we didn’t discuss some of the challenges Russia and the region face, especially around freedom, law, rights and crime, so one would have to take a total look at Russia before determining how 'on par' they are with the West. Having said that, a recent investment report has placed Russia ahead of Turkey and Lebanon from a risk and stability perspective. I couldn’t help coming away feeling a bit concerned with how the Russians are playing the Great Game with the West. I once read an Op-Ed in the Wall Street that said the Russians are playing chess while we (Americans) are playing monopoly. Those words eerily ring true this cold evening back in Edinburgh.