Archive for June, 2010

Laughter at the Kremlin

Tuesday, June 29th, 2010

Boris Reznik, a parliamentarian from Russia’s ruling party, has a take on the spy saga now unfolding in the U.S.: “Why are you causing this scandal?” he says, chuckling. “Watch out, or we’ll arrest all your spies here in Moscow! You guys have more of them here.”

Aside from the unfortunate timing of the event—coming just on the heels of Dmitry Medvedev’s honeymoon in the U.S. and at the G-8 summit—the roundup of the supposed Russian spy ring, known as The Illegals, has become some kind of strange American joke in Moscow. “It’s kind of unclear, and kind of stupid, and looks a bit like what we had here with that rock,” says Putin’s former chief of staff, the longtime Kremlin player Alexander Voloshin. He, too, laughs at the mention of the alleged spies. The rock he refers to is the 2006 incident when the Russian security services accused the British of using a rock to spy on them in Moscow. “It has about the same flavor,” Voloshin says, still trying to shake the giggles.

Sure, Russian officials have expressed hurt at the timing: Couldn’t they have waited a few months, you know, for the afterglow to pass after the high-level burger summit? And, behaving not unlike a woman scorned, Russians wonder: Who is trying to break America and us up?

But mostly the tale of The Illegals is seen as some kind of joke. The foreign ministry has issued just one statement; the Duma has asked for clarification, but that’s it, as far as seriousness goes. The president is mum. And the prime minister, a man who in his days as president would surely have lashed out with salty words—and, perhaps, a snot metaphor—is mute, as are his loyal security services. No one is making a move to kick out American representatives or arrest any American spies—or, indeed, the foreign journalists working in Moscow, who, in trying to discover policy outlines on the START treaty by talking to think tank experts, are doing pretty much what these supposed Russian spies did.

At a meeting with former President Bill Clinton on Tuesday, Vladimir V. Putin, the prime minister and a former spy himself, said, “Your police have gotten carried away, putting people in jail.” But he played down the episode: “I really expect that the positive achievements that have been made in our intergovernmental relations lately will not be damaged by the latest events.”

And no one is assailing the Obama administration or America as a whole, accusing it, as they would have during the Bush days, of trying to humiliate or vilify Russia. “The reaction has been minimal,” says Sergey Markov, a Duma deputy who chairs parliament’s council on global politics. “We’re trying not to spoil the relationship, to minimize the damage.”

Instead, the Russians, as is their wont, see a conspiracy. “America is a well-thought-out country,” one political aide told me. “It doesn’t do anything ‘just because.’ So if there is a huge uproar, why do they need it? And I think that you need to look not outside, but inside.”

In other words, Russia has nothing to do with this. The supposed spies, apparently, are an American domestic matter.

“The White House has lost control,” military analyst Evgeny Khrushchev told Russia Today, the Kremlin-backed news channel. “Beltway bandits have regained the initiative. Conservatives are hijacking the agenda. They are actively against resetting relations with Russia.”

Another theory is that this is an American military insurrection. “This is a protest of sorts,” Markov theorized. “It’s the military establishment’s démarche against Obama. If McChrystal, who is a serious general, accused him of unprofessionalism, it’s probably not only McChrystal who thinks this—that he is unprofessional and a pacifist.”

Or, some speculate, the unlikely tale is a product of overzealous U.S. intelligence. “Our intelligence services love distractions, your intelligence services love distractions,” Reznik told me, preferring, like many Russians, to see America as similar to Russia only with a better haircut. “If they don’t have work, they make work.” (Given the timeline of the FBI surveillance of The Illegals, this could be a byproduct of the snooping boom brought about by the War on Terror.)

Of course, no one is denying that there are Russian spies operating in America. “How do you not spy on Bush if he’s the most powerful man on the planet, and he periodically consults with God?” scoffed Markov, the Duma deputy.

So if spies in America and spies in Russia are a given, say the Russians, this whole mess is not about Russia in the slightest.

The utterly bizarre complaint filed in a Manhattan federal court doesn’t dispel that notion, and might offer hints why Russians wouldn’t rush to claim these particular spies.

First of all, there is a spy ring that is tasked with gleaning “information on the U.S. position with respect to a new Strategic Arms Limitation Treaty”… from New Jersey. Federal agents describe two operatives who can barely use their computers, and talk with awe of a super high-tech, state-of-the-art communication device known as the WiFi. Invisible ink makes an appearance in the complaint as does Morse Code, which, of course, is pretty uncrackable. And then there are the spies who bury cash in an open field and pass sensitive (think tank?) data to each other publicly… in bright orange bags. Not to mention the awkward Mata Hari, Anna Chapman, who buys a temporary Verizon phone using a fake name and the fake address at “99 Fake Street.”

Russians note that this motley crew hasn’t even been charged with spying. Instead, they stand accused of failing to register as foreign agents (maximum sentence five years) and money laundering (which could carry 20). And reading this complaint, it seems much more likely that a rogue element in the Russian secret service needed to launder some stolen cash and stumbled on some starry-eyed American suburban yokels and asked: “Hey, wanna be a spy?”

The American press is loudly invoking the late Le Carré. But to the Russians, it feels a lot more like Pink Panther. “I wouldn’t be surprised if it turns out that these spies are as real as Saddam’s atomic bomb,” Markov says, once again laughing.

Laughter at the Kremlin [The Daily Beast]

Business Trip

Friday, June 25th, 2010

“My goal is to see how everything works here,” Russian President Dmitry Medvedev said on his arrival in the United States this week, referring to his plans to build a Russian analog of Silicon Valley in Skolkovo, just outside of Moscow. “This is not a tour.”

It often seemed like one — like a delirious good-will mission. On arrival, Medvedev met with California’s action hero turned governor, Arnold Schwarzenegger. “Many residents of our country know you from an earlier stage of your career and of course it generates interest in you,” Medvedev told the governor in a looser version of his usual legalese. He had dinner with George Shultz, secretary of state under Ronald Reagan, who greeted a laughing, romping Medvedev on the tarmac in San Francisco, in Russian. He visited Cisco Systems, which waited for his visit to sign a $1 billion agreement to provide networking equipment to Skolkovo. He went to the headquarters of Twitter, where the founders, Evan Williams and Biz Stone, helped him set up his own Twitter feed. With the cameras rolling, he entered his first tweet: “Hello everyone! I am on Twitter, and this my first tweet.” The Russian had a typo in it, which, Williams said, made the tweet especially authentic. Everyone applauded.

Medevedev then went to the headquarters of Apple, where Steve Jobs gave him a personal tour — and the new iPhone, a day before it went on sale. (Back home, Russians joked that this was the sole purpose of the visit.) He visited the American outpost of Yandex, the biggest Russian search engine and darling of the Russian tech industry. He met with native Russians working in the Valley. With characteristically Russian largesse, he had oilman Viktor Vekselberg, head of Skolkovo, agree to pay the $1 million per year necessary for the upkeep of Fort Ross, an early 19th-century Russian fort that is now a state park north of the Bay Area. At Stanford, dressed in jeans, he read his warm remarks off an iPad. He sopped up the San Francisco scenery, tweeting a picture of the view from his hotel room and telling Schwarzenegger, “It’s hard to work in such a city.”

And the city welcomed him with open arms, applauding, toasting, and smiling at the Russian president. Even with the Belarus gas crisis unfolding in the background, the trip was a lovefest, and the coverage of it in Russia portrayed it as such. Russia Today, the Kremlin’s propaganda channel for Western consumption, which often takes a dim view of America, spoke of “the enduring nature of the U.S.-Russian relationship.”

The visit to Washington was equally delightful. The State Department sent an early welcome present, finally putting Chechen militant Doku Umarov — who claimed responsibility for the recent Moscow subway bombings — on its list of designated terrorists. “We stand in solidarity with the Russian people,” Daniel Benjamin, in charge of counterterrorism at the State Department, said in a statement. The two presidents agreed to speed along Russia’s long-stalled bid to join the World Trade Organization and closed a deal that would allow the United States to resume poultry exports to Russia. And Obama took Medvedev out for burgers, a testament to their vibrant relationship. (At this writing, Medvedev was only following three people on his new Twitter account: himself, the White House, and Obama.)

“The meeting of two presidents is always a big event,” says Masha Lipman, a longtime political observer with the Carnegie Center in Moscow. “But this one was planned and talked up in advance as a successful one. There are still lots of divisive issues, just as there are between any two countries, but they were not discussed.

So what, exactly, was the point of this three-day blitz?

One word: investment.

The trip’s laid-back tenor, the image of a laughing Russian president that struck such a contrast to his earlier, shyer self and to that of his slouching, snarling predecessor, and the swirl of news back home about an avalanche of new reforms, was there to show international investors one thing: that this was a new Russia. In fact, that’s exactly what Medvedev told thousands of Western and Russian business leaders who gathered last weekend for the St. Petersburg International Economic Forum, the Russian analog of Davos. “Russia has changed,” he said.

The depth of the world economic crisis has come as a massive shock to the Kremlin, which had been buoyed for years by high oil prices and cash from risk-tolerant foreign investors. Back in 2005, with oil prices at $60 a barrel, the Kremlin — and foreign investors — barely blinked at the troubling signs, such as when rogue elements inside the federal tax service forced William Browder and his Hermitage Fund, the biggest foreign investor in Russia, out of the country in a suspicious and violent campaign at the time There was simply too much money sloshing around. The Kremlin was drawing up budgets based on $160 barrels of oil and Russia, then President Vladimir Putin said, was “an island of stability” in a financial world that was already coming apart at the seams.

Those were different times. When world markets collapsed in the fall of 2008, so did oil prices and foreign investment in Russia. GDP growth went from 8 percent to nearly -10 percent. And though Russia managed to steer through the dark days of the crisis with impressive deftness, the depth of the fall — and the fact that oil still hasn’t bounced much above $70 a barrel — has left leaders in Moscow jittery. “The crisis really opened our eyes,” says Ivan Ivanchenko, the global head of investment strategy for VTB, a banking behemoth owned mostly by the Russian government. “It showed us that all these gains were the doing of external factors.”

In an effort to get foreign investment flowing again, modernization and innovation became the new buzzwords, and Medvedev’s speeches began to focus on diversifying the economy away from oil. But the projects that the Kremlin was dreaming of — a government search engine, nanotechnology, even a homegrown Silicon Valley — were all extremely capital intensive (industry insiders say that the $100 million the Kremlin wanted to dump into the search engine wouldn’t be nearly enough). “Russia needs a real investment boom” in order to achieve its modernization goals, Medvedev says, reflecting the new, frank tone when the Kremlin speaks to the West. But oil is still relatively cheap and the tens of billions of dollars of foreign capital that left the country in 2008 have yet to return. (In fact, foreign investment in Russia fell by over 40 percent last year alone.)

And so, for the last several months, the Kremlin has been trotting out its young liberals to speak frankly to foreigners about Russia’s challenges — the endemic corruption, the layers of bureaucracy, the government interference — as well as its potential and its human capital. At the St. Petersburg Forum, Anatoly Chubais, the man who privatized the Soviet Union’s massive holdings in the 1990s and now heads Rusnano, the state nanotechnology investment fund, exemplified the stance. “It’s well known that consistency, obedience, and aptitude for long and tedious work aren’t our strong points,” Chubais told the Wall Street Journal. “Maybe you find those qualities in Europe, in Germany or in China, but definitely not in Russia. Instead, we have creativity — the ability to think up and implement the most unlikely solutions in the most difficult situations. In that sense, I disagree with people who say that the Russian mentality means innovation can’t work here.”

At the conference, which in 2007 Putin had used to call for an alternate WTO, Medvedev and his young liberals announced a raft of changes: slashing the number of “strategic” — i.e., crucial to Russian economic security — companies by a factor of five. (Foreign companies have been reluctant to invest in sectors where the state is more likely to interfere. ) Finance Minister Alexei Kudrin suggested purging the bloated bureaucratic corps of 20 percent of its staff, a change he said would save the Kremlin nearly $1.2 billion annually. And, with the world financial system on firmer ground and the appetite for investment increasing, according to attendees, the foreign investors ate it up.

But while much of Medvedev’s modernization agenda is still in the planning phases and tangible changes are still scant, the atmosphere has become a bit freer. Arbitration has become more fair. The Kremlin has eased up on companies like Yandex, once seen as outsiders because of their fiercely apolitical stance. “I feel a thaw,” Arkady Volozh, Yandex’s CEO, told me. “They are finally proud of us.”

“Maybe I’m breathing the same pixie dust, but there’s real momentum for this,” says Esther Dyson, a longtime tech investor in Russia, and one-time member of the Skolkovo advisory board. She was present at some of the events in Silicon Valley and was struck by Medvedev’s level of engagement and bonhomie. “He is so sensible, he understands the issues,” she said. “He’s responsive, thoughtful, not at all bombastic. He gets the culture. You could stick him in a cubicle at Google, and no one would notice. But the issues persist, so the question is, can his mentality be expanded to everyone?”

And the issues are plentiful. There are no longer direct flights from Moscow to San Francsico, making cross-pollination difficult. The strict visa requirements that United States and Russia impose on each other’s travelers don’t help either. There is still rampant corruption, lack of transparency in both government and business, and the specter of businessmen ruined by the state, like jailed oil tycoon Mikhail Khodorkovsky and Evgeny Chichvarkin, the self-made cell phone king now hiding out in London whose mother was found beaten to death in Moscow on Easter morning.

There is also the question of whether a thriving sector based on human creativity can exist without an open political system, and whether Medvedev’s enthusiasm and competence can translate into real and effective decisions. He is, after all, still part of a diumvirate. “Medvedev is perfect for this [Silicon Valley] audience; Putin’s perfect for the old audience,” Dyson says. “But when the decisions are made, who makes them?” (Unfortunately for the Silicon Valley hopeful, most everyone is sure that, while decisions are made together, Putin still has final say.)

And can something like Silicon Valley and an innovation-based economy be copied, imported, and implemented from the top? Russians are deeply skeptical, seeing this as yet another boondoggle for the Kremlin elite. The Western and Russian press are no more optimistic about what is, in essence, a government campaign to change the worldview of its citizens.

“I think you’ll find a lot of skepticism because in Russia, every time they’ve taken on a project of this size, they’ve fucked it up,” says Ivanchenko, the banker, who got his MBA in London. “So often, it ended up with people just stealing dough, so there is little faith in this.”

But, he adds, that doesn’t mean that all hope is lost. “They’ve posed the right questions, found good people, they’re moving in the right direction,” Ivanchenko says. “Without a doubt, we will still have lots of Potemkin villages. We don’t know how do things efficiently in Russia, but maybe we’ll get some of it right. Peter the Great was a despot, and building St. Petersburg was a highly inefficient project. It was built on a swamp, on bones and blood. But it still became a global cultural capital. Even if Skolkovo is imperfect, even if we just learn how to build low quality cars for own citizens, or learn to produce substitute imports, that’s also modernization. It’s still moving the country forward.”

There is still a lot of defiant talk of Kremlin-led modernization as well as strident skepticism for much of the population, but more muted — and more informed — voices are starting to emerge, reminding the public that even with waste, graft, and inefficiency, the end result, however far from its quixotic goals, even if it is yet another incarnation of the old Russian archetype of reform-oriented and mild autocracy, it might still be a better alternative to the present.

In Callifornia, the doubts, if there were any, were kept far from the public cheeriness. Everyone was just too happy to have a friendly Russian president in town, a president who seemed as into their techie lifestyle as they were. When he bid Schwarzenegger a good night, Medvedev did so with the man’s own lines. “I’ll be back,” Medvedev laughed. “Hasta la vista.” He winked. “Baby,” he added. “Hasta la vista,” the governor replied, and promptly tweeted it.

Business Trip [FP]

Russia’s New Privatization

Friday, June 4th, 2010

It wasn’t supposed to be so cold in Moscow this late in May, which is why Dutch architect Rem Koolhaas arrived wearing only slacks and a T-shirt. He stood on stage with a slate-gray fleece blanket clumsily draped over his lanky frame, making him look like the superhero that the crowd — a who’s who of the Russian artistic and media elite — already believed him to be.

Koolhaas was gracing the opening of the Strelka (or “Arrow”) Institute, a new design school, housed in a stylishly restored old factory on an island in the Moscow River, with the ambitious goal of offering a transformative push to Russian architecture. Strelka is but the latest example in a larger crop of similar ventures. Frustrated with the tepid pace of traditional university education in Russia, private investors are dropping serious money on some unorthodox methods to tap into the intellectual harvest of the world beyond the country’s borders.

Koolhaas stood by patiently as the (private) funders and architects of the space — a sternly swanky Dutch-inspired compound with a cozy bar decked out like a vintage furniture store — spoke about Strelka’s mission to educate and inspire a new way of thinking about architecture, design, media, and urban planning in Russia.

Strelka’s position is that “in Russia there is a serious issue in terms of [architecture] education,” Koolhaas, still wearing his fleece cape, told me after he clambered down from the stage and made the rounds of the audience. “Of course, I’m not in a situation where I can say whether it’s true or not, but I see the same situation with education in general.” The star architect had been brought on to help Strelka design a curriculum for young professionals in the architecture and design fields that would bring them up to speed with the industries elsewhere and train them to bring the cutting edge to Russia.

It’s an experiment increasingly embraced, in a variety of fields, by Russians who are ill-served by an aged and slow-moving university system combining the worst elements of old and new Russia. The schools are still stocked with Soviet-era administrators, cloaked in unbudging tradition, prey to antediluvian ways of thinking, and marred by massive corruption, with students buying everything from a place on the class roster to a passing grade. (Just last month, a lecturer at Moscow State University, Russia’s most prestigious university, was filmed taking a million-ruble bribe to grant a student a spot in her department — chaired, incidentally, by the professor’s father.) Reform may be finally in the air, but its pace is glacial and uneven. Instead of waiting for universities to catch up, a handful of private initiatives are taking matters into their own hands, educating and training a hungry Russian populace in everything from modern art to data analysis.

Strelka is the youngest of the lot. Funded by three new-media moguls, its goal is to supplement the classical education Russian architects receive at old temples of the trade like the Moscow Architectural Institute, which traces its lineage back to 1749. Students at the old schools are trained to sketch and draw and plan and make, but rarely to think conceptually about their craft. “Russians are naive about questions of architecture and design,” says Ilya Oskolkov-Tsentsiper, one of Strelka’s founders and the creator of the Afisha media empire, Russia’s answer to Time Out. “Most people here think of an architect as someone who can build a pretty house, not someone who has a dynamic social role.” (His co-founder, Web mogul Alexander Mamut, thinks Moscow architects aren’t even good at that. “If you look at what’s been built in Moscow in the last 20 years, it’s humiliating,” he told me. “They haven’t built anything that we can be proud of.”)

Natalia Dushkina, a professor at the Moscow Architecture Institute and heir to a long dynasty of famous Moscow architects, does not disagree. “The most important thing that should happen here is to teach architects to think conceptually,” she said.

At the opening, Oskolkov-Tsentsiper told the crowd that a Moscow architect had “to make the city more habitable, and our society more humane.” That is a tall order for architects trained in building pretty houses, so Strelka is helping by providing a free yearlong master’s program to young professionals in the field, who, starting this fall, will work on tangible projects with Koolhaas and other stars of the architecture and design world.

This is all new to Moscow, but the model isn’t, points out Arkady Volozh, founder and CEO of Yandex, the dominant Russian search engine. In the Soviet Union, university upperclassmen would be placed in internships through their departments to prepare them for real work after graduation. When the Soviet Union collapsed, this system did, too. As universities languished from lack of funds and modern curricula, young Russians began to all but abandon class for work, much of it full-time and during the academic year, in new fields that were chronically understaffed.

In fact, the Soviet apprenticeship tradition has been better maintained in the private sector than in Russia’s educational institutions. When Yandex found that the excellent but abstract mathematical education provided at most Russian universities wasn’t equipping its graduates for the workforce, the company founded the School of Data Analysis. The two-year program, a partnership with two prominent universities in Moscow (but not Moscow State, which refuses to be involved despite supplying half of Yandex’s employees) aims to mold good math students into excellent programmers — and future Yandex workers who need no on-the-job training. It has been a sound investment: The school has served as a laboratory for innovations like MatrixNet, which, within a month of its introduction, bumped Yandex’s market share by 6 percent.

Strelka and its ilk are not without their problems. How deep, for example, are their founders’ pockets, and how expansive are their philanthropic spirits? How long can they fund the free education of 20 to 40 people per year? At Strelka’s grand opening, however, the crowd just seemed happy that something so promising — and promisingly unacademic — had been born. The founders, for their part, hoped that the institute would bring another kind of sustainability to Russia and prove immune to one of the country’s most persistent problems. “Someone who graduates from our program can work for any of the most fashionable firms,” Dmitrii Likin, who is responsible for the new media program, said. “But I hope they’ll stay and work here.”

Russia’s New Privatization [Foreign Policy]