Sunday, May 25, 2014

Why it's Risky to Trade with Putin's Russia: An Application of Jane Jacobs' "Systems of Survival"

I spent the 1990s teaching economics at a business school in Moscow. Our students were graduates of FizTech, Mekh-Mat, MIFI—the whole alphabet soup of science and technology schools that had fed the Soviet military-industrial establishment. These young men and women had degrees in things like “laser weapons platform design” that weren’t in much demand in Boris Yeltsin’s new Russia. Now they wanted to become financial analysts, accountants, and business IT specialists.

The students were incredibly bright and had great quantitative skills, but there were ideas in our American-style MBA curriculum that many of them found hard to grasp. Not my subject, economics. None of them had ever had an econ course before, but they ate up equations and models like breakfast cereal. Instead, the hardest thing for some of them to grasp was the idea that business could be something other than a zero-sum game.

The zero-sum mentality

Our Russian students had been brought up in a system where the central question, at least in dealing with strangers, was the quintessentially Russian “кто-кого?” Who is going to get the best of whom? The question reflects a belief that every human interaction with outsiders necessarily has a winner and a loser. The idea that arms-length business dealings with people to whom you owe no prior duty of loyalty could have mutual benefits was new. Some students caught on, some did not.

Attempts at trade in which one party has a кто-кого mentality and the other is looking for mutual gains are fraught with risk. For the party with the zero-sum mindset, the risk is that of missing out on genuine opportunities for mutual gain. For the party looking for mutual gain, the risk is that the benefits promised in return may not materialize . . .>>>Read more

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