Sunday, October 31, 2004

SWIMMING AGAINST THE TIDE IN RUSSIA

By William Fisher

The popular image of Russia in the West these days is of a land of post-Soviet oligarchs, oil company billionaires languishing in jail, President Putin ruthlessly centralizing his power by replacing provincial governors, civil liberties being abused, and of course of the 10-year war in Chechnya with the resulting unthinkable murder of hundreds of Beslan children.

But there are other, more hopeful, crosscurrents in this vast and complicated country. One is a realization by Russia’s entrepreneurs that they must unite to reduce the endemic corruption that has impeded the development of small businesses in Russia since the fall of the USSR.

This new grassroots movement is being led by the Association of Entrepreneurs for Honest Business. Its mission is to unite and educate entrepreneurs across Russia, raise public awareness of the costs of corruption, draft anti-corruption legislation, engage power structures, and force changes in the business environment by running for and getting elected to public office.

This effort is an offshoot of the Productivity Enhancement Program (PEP), the private not-for-profit brainchild of an indefatigable San Francisco grandmother, Sharon Tennison. Tennison founded the Center for Citizen Initiatives (CCI) in 1983 in an attempt to break through barriers between the two superpowers. When the USSR imploded, she continued creating programs like PEP to help democratize Russia.

PEP is an out-of-country business management training program, adapted from the historic Marshall Plan's "Productivity Tours" which brought 24,000 foreigners to US plants after WWII. To date, the PEP program has exposed some 4,000 non-English speaking Russians to the “how to” of American management in more than 10,000 American companies in 500 US cities in 45 states. Another thousand English-speaking Russian entrepreneurs trained in CCI’s Economic Development Program (EDP) from 1989 to 1997. The US has used the EDP model in other former states of the USSR.

CCI’s 5,000 alumni form the nucleus of the new Association of Entrepreneurs for Honest Business – an effort several years in the making. Tennison says: “I've been obsessed with bribe-taking from Russia’s grassroots businesses, because it is suffocating the normal development of small business. Small business owners bemoan this plague endlessly, but have felt totally helpless to address it openly, since their businesses could be shut down overnight by local authorities.”

She adds, “It’s been every Russian entrepreneur for themselves, unlike in other countries with different histories. Complicating the situation is the fact that there is no history of uniting for effecting change in Russia. Those who tried in the past paid for it in the gulags or with their lives. A second complication is that during those times, Russians developed deep fear of one another, not knowing if their next-door neighbor would inform on them. This lack of trust among Russian citizens, combined with their lack of experience with uniting, casts a long shadow into Russia’s Business Life Today”

Transparency International, a highly respected non-governmental organization, reported that in 2002 companies in Russia were more likely to pay bribes to officials than in any other emerging market country in the world. According to Russian entrepreneurs, last year corruption cost businesses US$ 36 billion, or between 10 and 12% of gross domestic product. Bribes made up about 10 percent of the cost of all business transactions in Russia. Individuals paid about $2.8 billion in bribes, generally in order to procure "free" government services such as health care or access to education. The Moscow Times says small business disproportionately bears the brunt of red tape and corrupt officialdom. For big business, the paper says, “corruption may be an irritant, but for (small and medium-sized enterprises (SMEs) it´s a matter of life or death.”

But now, Tennison says, “The years of fearful compliance with forces beyond their control have begun to give way to a modicum of hope. Russia’s small business owners say they can ‘feel the wind blowing from the top’’. President Putin, whom most of them trust, has come out on their side, warning bureaucrats that corruption can’t coexist with a healthy economy and if they don’t change, then change will come from above.”

Earlier this year, CCI arranged for 100 of its 5,000 alumni to study the world’s experience in reducing corruption. In Washington DC, they held 55 meetings with the world’s experts in this field. Thirteen Embassies of countries with the best anti-corruption records trained the Russians, and international agencies such as the World Bank and the International Monetary Fund (IMF) provided methodologies successfully used by other countries.

The alumni’s ‘Recommendations to President’ were delivered to Putin’s Economic Advisor, Andre Illarionov, in the Kremlin. Illaronov spent 2.5 hours with these regional entrepreneurs and assured them he would discuss their 33 recommendations with the President. Then he urged them to go back to their regions, unite, create a bold website and use their voices to enlist other entrepreneurs in their struggle.

Bolstered by this high-level moral support, the CCI alumni returned to their regions, organized press conferences with local journalists, held roundtables with district and regional officials, and began the work of uniting themselves locally. In June they convened a second brainstorm to determine their nationwide work, and on September 25, had their Bylaws ready to legalize and register as a new non-commercial association.

The director of the new association is Nonna Barkhatova, a woman who founded and operates a successful small business development center in Novosibirsk, and is the city's best-known supporter of small business development. The new Chair of the Board is Andrei Davidovich, an entrepreneur who built a marketing company from scratch, and now has affiliates in several Russian cities. Tennison describes him as “a highly respected entrepreneur who advocates refusing to pay bribes in all circumstances. Just say NO, is his watchword”, she says. The new association is buttressed by several strong supporters, including John Pepper, recently retired CEO of Procter & Gamble, who is the Honorary Co-chair of the Association.

The Association’s immediate next steps are: creating public awareness, drafting legislation, engaging local officials on these issues, spearheading a national membership campaign, and lobbying all levels of officialdom for change

Tennison is optimistic about the association’s future. “These dynamic young entrepreneurs have trained in business sectors throughout the US, and have seen for themselves the market advantages of uniting for change. Now they are adapting it to Russia’s environment. An uphill climb is ahead, but this association is already a movement in motion. Its volunteers are unstoppable,” she says.

The value of volunteers is underscored by Dr. Jack N. Behrman, emeritus professor of International Business and Ethics at the University of North Carolina School of Business -- and founder and former Chairman of the volunteer MBA Enterprise Corps. Behrman says his studies “show that volunteer action is one of the most effective means of curtailing corruption in both government and business.” Volunteer action “demonstrates that there is grass-roots concern and that the damage is pervasive. Countries where corruption is rife remain on the lower rungs of development, and begin to progress to the degree that they curtail or eliminate it.”

A study by Marek Hessel and Ken Murphy for Transparency International concludes: “Corruption frequently ‘works’ only for those who receive bribes... Corruption breeds on itself: it gives the bureaucrats powerful incentives not only to keep inefficient rules in place (so that they can take more bribes and pass them about the office) but to multiply such rules.”

The new association hopes to turn the tide.

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