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Adam Smith:
Original Air Date: May 11, 2001
If you would like to read the full transcript of one of the interviews excerpted in this show, please click on the appropriate link below: Dr. James Billington Strobe Talbott
ANNOUNCER: This program has been brought to you by the Whitehead Foundation and the Blum Kovlar Foundation and these other funders. ADAM SMITH: Russia -Friend or Foe? GRIGORY YAVLINSKI We want respect. ADAM SMITH: Russia - Boom or Bust? FRANK BAKER We saw the opportunity.. ADAM SMITH: Russia - Democracy or Dictatorship? IGOR MALASHENKO We are facing a fork in the road. ADAM SMITH: Russia - Threat or Promise. ADAM SMITH: Hello. I am Adam Smith. The Mayor of Moscow says with some humor: "There are three reasons why Americans should pay close attention to Russia. One - we have more gas and oil than anyone. Two - we graduate more scientists than America. And three - we still have thousands of nuclear warheads, and that has to count for something, doesn't it? Strobe Talbott thinks Russia still counts for something - he was Washington's top Russia expert in the years of Bill Clinton and Boris Yeltsin. STROBE TALBOTT: Deputy Sec.of State 1994 - 2000 Russia is almost unique, I think, both in its importance to the United States, historically, but also in the central importance it will play in the decades to come. ADAM SMITH: We will come back to Strobe Talbott. We will go behind the scenes of Russian television, where there is a battle for freedom of the press. We will meet an American businessman who says the payoff in Russia, if it comes, can be 200 to 1. And we will meet an American woman who was the head of a Russian television network. In a traditional annual ceremony, Russian president Vladimir Putin made an announcement from the Kremlin about Russia's future that was straight out of Russia's past. (ANTHEM IS PLAYED) Russia would return to its Communist roots by officially adopting the Soviet national anthem. (ANTHEM) In an elaborate ceremony, the Kremlin choir performed the old song sung to new words. Some feel Russia's leader is the same way. (PUTIN IN RUSSIAN) A new man shaped by an old system. (PUTIN N RUSSIAN) STROBE TALBOTT: There is no question that Putin, by instinct, by background, believes in this - "the fist". ADAM SMITH: One year into office, Vladimir Putin is forging a new identity for Russia to make it once again a great nation - using both Czarist and Soviet symbols. Dr JAMES BILLINGTON: Librarian of Congress The problem is, all these symbols, they have their associations with pride but they are also associations of terror, of repression, of fear. ADAM SMITH: His inauguration was certainly fit for a Czar. One of royal pomp and ceremony, gilt and goose stepping. President Bush has said Russia is not an enemy but they may be a threat. Anybody with a nuclear weapon is a threat. Putin is courting Russia's former Soviet allies, North Korea and Cuba, and even selling weapons to Iran. MICHAEL McFAUL: Carnegie Endowment If Putin decides to abandon his engagement of the West and decides that Russia has to go it alone, go its own path, then I think we could be in for real trouble. ADAM SMITH: At the same time, Russia's economy is booming and some see the investment opportunity of a lifetime. ALAN ADREAS: Chairman, ADM The environment in Russia I think is one one of the greatest opportunities in today's environment. ADAM SMITH: With a new president in the White House and a new president in the Kremlin, relations are said to be chillier than at any time since the end of the Cold War. What will the climate be with this new Russia? Winston Churchill once called Russia an enigma. And that is the way many see the new president of Russia, Vladimir Putin. Is he a democrat or a Soviet bureaucrat? Is he really a free market reformer, and will he be America's friend? Or adversary? One thing we do know is that he is a nationalist - in his own terms a patriot with a strong connection to Russia's past. After he was sworn into office last year Putin promised to bring order back to Russia with a strong hand, a dictatorship of the law. DR. JAMES BILLINGTON: He is willing to use the word `dictatorship' which is very ominous. After all Communism was the dictatorship of the proletarian, it became all dictatorships and no real word for the proletarian. So he is trading a little bit on these symbols of the past, and it is very dangerous. ADAM SMITH: With 16 years experience in the KGB, the Soviet Union's feared intelligence service, Putin should know a thing or two about order. He got to where he is today through a government system of patronage starting ten years ago in his native Leningrad, not St. Petersburg, working with this man, then Mayor and reformer, Anatoli Sobchak. Mayor Sobchak told me about his ideas back in 1991, Sobchakıs dreams of a free economic zone in Leningrad never panned out, but his protege - Vladimir Putin - would go all the way to the Kremlin, winning the presidential election in the year 2000. MICHAEL McFAUL: He won it, I think first and foremost because he was a young man with a pulse in the Kremlin who looked very different from the old man unhealthy man, President Yeltsin, who was there. People wanted a change and they voted for him as a result. ADAM SMITH: At 48 Putin is a new breed of leader for Russia. Virtually unknown as little as two years ago, today Putin controls what he dreams will be a strong Russia, from here, Russia's age old seat of power, the Kremlin. Behind these walls the Czars ruled for centuries. DR. JAMES BILLINGTON: The danger of an authoritarian regression in Russia today comes from a long history of experience that has been internalized in Russian history. ADAM SMITH: Librarian of Congress, Doctor James Billington - noted Russian scholar - told me about the tradition of the Czars. JAMES BILLINGTON: There is a long subliminal tradition. They are not even conscious of it. The Czar is all powerful, he exists in the Kremlin, a kind of magic citadel with high walls hidden from view - he emerges with these great symbols of power. ADAM SMITH: Putin is following this tradition by bringing power back into the Kremlin according to Former Deputy Prime Minister Anatoli Chubais. ANATOLI CHUBAIS: Former Dep. Prime Minister I do believe that Russia could not be effective in government and politics without making the state power much stronger than before. Than it was when I was in power. ADAM SMITH: I talked to Russian presidential candidate Grigori Yavlinsky, who ran against Putin. He is the head of Russia's only democratic political party, Yabloko, and he told me about Putin's obsession with making a great Russia. What does he have in mind when he talks about Great Russia? GRIGORY YAVLINSKI: Chairman,Yabloko Party I think he has in mind the image of Soviet Russia. ADAM SMITH: Soviet Russia? GRIGORI YAVLINSKI: He wants respect. And he thinks that when respect comes, then the neighbors would be frightened enough. And for that he needs a strong Russia. ADAM SMITH: The neighbors Yavlinski refers to are former Soviet Republics like Ukraine and Georgia, who are now being pressured by Moscow. The vast majority of Russia's 146 million people learn about this - and indeed about everything - from television. In fact television is really the only way to reach all of Russia's eleven time zones. That makes the control of Russia's airwaves valuable and volatile. This next story is a litmus test for Putin's democratic intentions. It starts fifteen years ago. 1986. Mikhail Gorbachev announces a new policy, Glasnost - or Openness. The Soviet Union is still Communist, but the press for the first time is more than propaganda. 1991. Hard line generals stage a coup against Gorbachev. President of Russia, Boris Yeltsin climbs on a tank to rally the people in opposition. The coup fails. The Soviet Union breaks up. And Yeltsin leads the newly independent Russia. The press in Russia enters a Golden Age. It is totally open. The chaotic economy sees the rise of Robber Barons. One of them, Vladimir Gusinsky, teams up with a pair of journalists to start a new kind of independent television network - NTV. YEVGENY KISSELYEV: Former General Director, NTV. NTV was founded as an independent station. Hundreds of journalists and television professionals from other channels left them to start a new life here. ADAM SMITH: Igor Malashenko, one of the former bosses of Soviet TV, becomes president of NTV. IGOR MALASHENKO: Former President, NTV We had major problems during the first war in Chechnya in `94 and `95, because unfortunately there is a deep rooted attitude in Russian political culture since there is no such thing as an independent media. That is, the media should be controlled. And basically it should be controlled by the government. ADAM SMITH: The network breaks new ground investigating corruption, and covering Russia's own Vietnam war Chechnya - from both sides, a threatening move to the Kremlin. The Yeltsin years deliver a free press but at the same time Russian families suffer through hyper-inflation and depression. With the standard of living dropping, a presidential race looming, and Yeltsin's ratings in single digits, in 1996 it actually looks like Russia will vote itself Communist. This man, Communist leader Gennadi Zhuganov, leads by a wide margin. When I meet him it seems as though he will be the next president of Russia. With their fortunes at stake, the Robber Baron oligarchs throw their support behind Yeltsin. For MTV owner Gosinsky, that means applying the power and reach of MTV to help ensure Yeltsin's victory. IGOR MALASHENKO: In `96, we faced a kind of a Catch 22 situation. If the media did not support Boris Yeltsin probably Gennadi Zhuganov, the Communist candidate, would win. ADAM SMITH: In return, the MTV Chairman gets a large loan from a government controlled gas company - Gazprom - to expand his media empire. STEWART PAPERIN: Snr.VP. Open Society Institute The original loans from Gazprom to MTV were made as a reward for MTV being very supportive of the then government - Mr - Yeltsin's government in 1996. And MTV, together with ORT, the other network, were integral in the reelection of the president. ADAM SMITH: Four years later Russia has its third presidential election, and Yeltsin's candidate is Vladimir Putin. This time MTV chooses not to back the Kremlin. MICHAEL McFAUL: Without question, the State controlled press in Russia helped Putin to become president. The two largest channels in Russia ORT and RTR unequivocally supported him and unequivocally denounced his opponents. But the free press did not. And they are paying a price for that now. ADAM SMITH: Four days after Putin's inauguration, armed men from the tax department and the prosecutor's office raid MTV with submachines and ski masks. Imagine an IRS audit of CBS or ABC with the agents carrying submachine guns and wearing ski masks. It was certainly intimidating to the journalists who had to lie on the floor while their offices were searched. IGOR MALASHENKO: In this war against us, every method is being used. The company was searched a dozen times. Dozens of people were interrogated. Many managers of the company don't go back to Russia because we have a very good chance to end up in jail, despite the fact that we are not guilty of any wrongdoing. ADAM SMITH: NTV's chairman, Vladimir Gosinsky is arrested and jailed here for 3 days with hardened criminals. And even a mid level NTV manager is put in prison without trial for months. Putin was out of the country at the time and claims to know nothing about it. IGOR MALASHENKO: It creates an incredibly dangerous precedent because this methods may be used and probably will be used against anybody else in Russia. ADAM SMITH: Now, Gusinsky, it should be remembered, is a very controversial Robber Baron. But in the West, his imprisonment is seen as a threat to freedom of the press. After his release, he flees to Spain where he is now under house arrest. (NOTE: Gusinsky has, since this was recorded, been released from house arrest by a Spanish court). YEVGENY KISSELYEV: Of course Gusinsky was arrested, back in June, with President Putin's consent. ADAM SMITH: Yevgeny Kisselev is NTV's main anchor -one of Russia's most famous faces - and a major thorn in Vladimir Putin's side. He wins journalism awards around the globe. Interviews everyone who is anyone. And his weekly news show "Itogi" is a "must see". ADAM SMITH: I sat down with him to hear his side of the story. YEVGENY KISSELEV: Putin and his advisers largely exaggerate the extent of television's abilities. They are really obsessed. They are really mad about control of electronic media. This obsession leads to the campaign, with the ultimate goal of which is to impose editorial, financial, and political control over NTV. ADAM SMITH: Arrests and IRS agents in ski masks are not the end of it. The loan NTV got from the government's gas company, GASPROM, is now called. Now, in the West, if you have a loan due you can usually reschedule it or bring in new investors. And Ted Turner of CNN offers to put together a consortium with George Soros. They will put up the money if NTV's editorial independence can be maintained. That offer gets a noncommittal response from the Kremlin. Stuart Paperin runs George Soros' investments in Russia. STEWART PAPERIN: There needs to be a way that the press is independent, that the press is not harassed, that it can proceed forward. And to some degree you know, there have been very very mixed and very troubling signals from this current government. ADAM SMITH: Hoping for a cease fire, NTV's journalists ask Putin for a meeting. They want Putin to release their colleague from jail and put an end to the raids. Kisselev says the president was insincere with him, claiming he had nothing to do with the raids. YEVGENY KISSELEV: Unfortunately we went out in a very gloomy mood -I was shocked by this meeting. Because to my mind Mr Putin presented himself as a weak President. ADAM SMITH: He says Putin tried to convince him to accept Gazprom's takeover of the network. The scene reminds Igor Malashenko of the Soviet era. IGOR MALASHENKO: It disturbs me, because it is a clear return to the Soviet past. Because in the Soviet past, you know, Soviet officials, you know, would shamelessly lie again and again. ADAM SMITH: A lot of people see this battle between Putin and NTV as "freedom of the press". Is that your take? STEWART PAPERIN: I would argue that the battle isn't a battle of Mr Putin and NTV. It is a battle of Mr Putin and Mr Gosinsky. I mean independence of the media, to me, means that you separate business interests from editorial policy. I don't think anybody who has ever even in their wildest dreams suggested that the editorial policy of NTV is independent of Mr Gusinsky's control. ADAM SMITH: Russian journalists also accuse NTV of having a political agenda, which Kisselyev does not deny. YEVGENY KISSELYEV: Yes, I won't argue with this. We have a polit- cal agenda. Because we have an agenda of fighting for our independence, for our right to remain an independent television station. ADAM SMITH: But the bosses of Gazprom insist this has nothing to do with the Kremlin. Gazprom is in it only for the money. In February, this full page ad runs in the Wall Street Journal declaring Gazpromıs intention to be repaid by taking over NTV. IGOR MALSHENKO: It was just a propaganda message. The Russian authorities are doing their best to pretend that freedom of the press is not the issue. DR. JAMES BILLINGTON The importance of a free press is not merely the expression of freedom, but the accountability of government. So the threat to the major - the only - independent nationwide television network, is a very serious indicator. ADAM SMITH: NTV's other hit show, "Kukly", a puppet show, is also unpopular in the Kremlin. The show is like a Russian version of "Saturday Night Live" satirizing political figures. DR. JAMES BILLINGTON Kukly, these dolls, has the satirical form that they have developed on Russian television since the Soviet period, are enormously amusing and they are very much part of a great Russian tradition of comic satire. ADAM SMITH: In this episode Putin is confronted by his Communist country cousin. Doctor James Billington says this kind of expression is vital for Russia. DR. JAMES BILLINGTON: If that is suppressed, they will have crushed the dynamic part of their culture and one of the most important institutions for the development of a democratic society and for that matter of a healthily functioning market economy. ADAM SMITH: The battle for control of MTV tells us a lot about Russia's President. The right to free speech may not extend to those who criticize the government, but international respect is very important to Putin. And without a free media he will suffer on the world stage. IGOR MALASHENKO: It is going to be a fundamental, a historic choice because we are facing a fork on the road. And NTV is a litmus test of which direction Russia is going. ADAM SMITH: April, 2001, the storm breaks. At a shareholder's meeting Gazprom throws out Kisselev and the MTV management, and installs Boris Jordan, a young, Russian speaking, Russian American anchor as Chairman. Jordan says the dispute is commercial, and that he will protect editorial freedom. MTV journalists are skeptical. Kisselev denounces the attempt to nationalize the channel, thousands of MTV supporters rally in the streets of Moscow. The government attacks other parts of Gusinsky's empire. The Moscow daily "Sevodnya" - closes. The staff of "Itogi", a joint venture with Newsweek, is dismissed. NTV journalists walk out - that effectively kills the Turner deal. Who wants the beehive without the bees, says Gusinsky. Some MTV journalists begin broadcasting at a cable channel, but it too is attacked for back taxes. It is owned by another oligarch, Boris Berezovsky. It is a bit odd to have these Robber Baron - oligarchs of Yeltsin - emerge as champions of the free press, even if it is for their own purposes. The biggest and most notorious of all the oligarchs is Boris Berezovsky. He too owns a television channel, and he too lives in exile. He is a member of the Soviet Academy but quickly adapted to the slick, rough ways of business in the Yeltsin era. In 1996 he spearheaded efforts to reelect Boris Yeltsin. ADAM SMITH: You are said to be the man who put Yeltsin into power in the last election? BEREZOVSKY: We fight, not for success of Yeltsin. We fight for success of ourselves, because we want to protect ourselves. You see, I don't want to be a hypocrite. Many people say: "we fight for people. We fight for national interests." I fight for myself. ADAM SMITH: In the Yeltsin era, Berezovsky was a controversial Kremlin insider. A man that some would like to see dead. You got up one morning, got into the back seat of your car. The car parked next to you blew up with such force that your driver was decapitated and your body guard was killed, and you were badly burned. Who would try to kill you? BEREZOVSKY: It is clear -after 1996 - when Yeltsin won, Communists and people from KGB, they realized there is a new power in Russia, which is capital. ADAM SMITH: Berezovsky invests in Russia media, not for profit - but for power. BEREZOVSKY: From the very beginning when I start to participate in mass media, I was absolutely open. I said absolutely sincerely, that I don't think that mass media in Russia is business. ADAM SMITH: It is not a business? BEREZOVSKY Not a business. It is very simple - I never said that I didnıt use it as political leverage. I use it as political leverage. We supported Yeltsin. We supported Putin. I think in spite that, he did a lot of mistakes. In Chechyna. In Croatia. Nevertheless I think that he is the best choice. ADAM SMITH: You supported Putin. BEREZOVSKY Yeah. ADAM SMITH: Do you get along with him now? BEREZOVSKY My relationship with him now is bad. And because he is not happy that I took this open position. But I think we, all of us, we need to help him, to help him to learn. He doesn't understand language of argument. He understands the language of actions. And I think we need to act. We need to create a real Russian opposition. ADAM SMITH: Is there opposition to Putin now? BEREZOVSKY: Doesn't exist at all. ADAM SMITH: Boris Berezovsky may be a figure from the past, but Russia's future is in the new generation coming of age today, with more freedom than their grandparents could ever have imagined. For these kids, pop culture has become their culture. In the Soviet days, ice hockey and gymnastics were the sports of choice, and tennis was considered a capitalist sport. Not any more. Welcome to Moscow's International Tennis Academy, where the kids of Russia's rich work on their backhands at a cost of thousands of dollars a year. Just how did tennis become the hottest new sport in Russia? I asked tennis coach Anatoli Karpishev. He told me Boris Yeltsin opened up tennis for young people. How does he know? He used to coach President Yeltsin thatıs how. And, he says, tennis is more popular than ever among Russia's youth. Yeltsin's real legacy may be this tennis player - Anna Kournikova. Pop culture is also taking off. For Russia's young generation freedom of expression sounds a little something like this. (NOISES OF YOUTHS) These kids want their MTV - the Russian MTV that is. I went to see my old friend, Linda Jensen, President of MTV Russia, and the only American running a Russian television channel. I asked her about Russian kids today. LINDA JENSEN: President MTV Russia Essentially what MTV is all about is a new Russian generation. There is a whole generation of people now - for example somebody born in 1980 would be 20 years in in the year 2000 that doesnıt remember really very much about Communism, about lines for bread or the difficulty that Communism really posed. ADAM SMITH: While touring the studio I asked Linda if Russian kids prefer all things western? LINDA JENSEN It is interesting, because I don't think very many of them differentiate in their mind between what is Western and what is necessarily Russian. In the same way that they have taken something like rap and turned it into something which is distinctly Russian. That was a Russian song. The younger part of our demographic tends to be very free in their thoughts. They understand that a lot of doors are open to them. They are optimistic about the future. They are very oriented towards new technology. They are just as interested in being in a chat room or owning the latest model mobile phone as anybody in the West might be. Unlike the past, I think people realize that they can have any number of dreams about life. I mean someone can dream about being a rap star. They can dream about working in a bank. They can dream about being in advertising. Industries that didn't exist before. It is possible to dream and plan a future they simply couldn't dream and plan before. ADAM SMITH: That is a very big change. Instead of leaving Russia and moving to the West to make their dreams come true, some in this generation prefer to stay and make their mark at home. "NATASHA" They see that in Russia you can earn more money than abroad. So I think we have the bigger future. ADAM SMITH: Natasha studies here at Moscow's prestigious Plekhanov Institute, the Harvard Business School of Russia if you will. I talked to students here about their classes and their hopes for the future. "TATIANA" I would like to specialize in public relations. ADAM SMITH: Public relations. "TATIANA" Yeah. ADAM SMITH: This is a new idea for Russia surely. "TATIANA" Yeah. That is right, I would like to join it, I would like to learn more about this profession. "VOLODYA" In ten years, through the right allocation of resources, through hard work and through some reforms, we will definitely become one of the mightiest countries in the world. "EKATERINA" I want to make money. ADAM SMITH: That is a good idea. "EKATERINA" Yes. (LAUGHS) ADAM SMITH: Until a decade ago - remember - capitalism was a crime. There was no such thing as a business school. Now, in today's Russia, classes in finance and marketing are in high demand. DEWINA FAYWEATHER Instructor, Plekhanov Institute The demand for the courses is principally coming from the employers that they will then move on to. Hopefully international employers in the future. ADAM SMITH: Do you mean employers are coming here saying give me some Russian kids for this or this or this. DEWINA FAYWEATHER They are certainly doing that and we are entering into a dialogue at the moment with these organizations to say that is what you need. ADAM SMITH: Many of these students will go on to work for Fortune 500 companies or they might even start their own businesses. That is exactly what Pavel Cherkashin did four years ago. PAVEL CHERKASHIN: Founder, ACTIS I think that internet may help Russia to leap forward from the old Soviet way of doing business to the newest economy right away. ADAM SMITH: With five friends and 50 thousand dollars Chercoshen started Actors a company offering professional internet services. I asked him what his biggest obstacle was. PAVEL CHERKASHIN: We need to go through long process of proving to the world that Russia is is a good region to deal with, that the Russian company can add value to the global market. ADAM SMITH: Since 1998 their sales have quadrupled every year and their staff has grown from 6 to 250 people and the average age here is just 24. PAVEL CHERKASHIN: We believe that by not letting this talent go outside of the country we would rather provide them with good job on on where they are so that they earn money and spend this money in their region. ADAM SMITH: Internet programmers can earn up to 2 thousand dollars a month, a fortune by Russian standards. But the young people here also have a bigger dream. PAVEL CHERKASHIN: Part of the excitement of of staying here is that you see how the whole country has changed, and you have this wonderful feeling of yourself being part of the whole culture and doing something very interesting for the whole region. And build some place where where it would be good for our kids to stay. ADAM SMITH: Russia in the 1990's fell into a depression as deep as the Great Depression of the 1930's in America. The institutions of a market economy simply weren't there and crime was the only real growth industry. Today most Russians are poorer than they were under Communism but more recently the Russian economy has started to look good. I spoke to Anders Aslund, a Swedish economic advisor to the Russian government in the 90's and he used a surprising word - booming. The Russian economy at the moment is booming? ANDERS ASLUND Carnegie Endowment Yeah. ADAM SMITH: Really? ASLUND The Russian economony grew by 7.6% last year, and it will be a substantial growth in this year as well. ADAM SMITH: That is over 7% growth in Russia's gross domestic product after shrinking an average of 5% a year during the 1990's that is a real bounce. ASLUND: The Russian economy took off when the oil price went up and the exchange rate went down. And that has clearly started it. ADAM SMITH: Russia sits on a sea of oil and gas -it was 10% of the world's oil reserves so the rise in the price of oil has floated the Russian economy. In the long run that could be a mixed blessing. MAN: Oil is something ( ) narcotic and it rarely leads to develop economic balance. And Russia needs a balanced economy, so their raw materials can be a threat as much as a benefit. ADAM SMITH: When I talked to Mikhail Gorbachev in 1993, balancing Russia's economy was a distant dream. He said Russia's most important task was shifting its Soviet mentality towards a market economy. GORBACHEV: (RUSSIAN) ADAM SMITH: It was a painful transition, but today Russia's openness has attracted over 500 American businesses to Moscow. Frank Baker of Anderson Group a venture capital firm, is among them. FRANK BAKER: Anderson Group, Moscow Investing in Russia takes more diligence than perhaps any investment that you will ever make in the United States. We saw the opportunity, we saw the city as being hugely under served, we understood that we could produce content and information they had never seen in their lives. ADAM SMITH: Baker saw the opportunity to bring theWestern world into Moscow's living room by wiring the city for cable television. The average day for him starts out like this: slogging through the Moscow streets to a joint venture office then meeting with his Russian partners and later going on location visit a cable installation site. FRANK BAKER: This is a 2 hundred and 50 million dollar project. We have to get on with cabling the city, bringing you on, our subscribers, providing internet, telephony, interactive cable. So that is going to keep us busy for a while. The classic demographics in Moscow are very poor. Probably per family less than 800 dollars a month. Our prices are substantially less than they are in the west. We are offering the same cable in Moscow for two dollars. We did a great many demographically balanced polling of the population in Moscow and that was the most single desired service among the people that we spoke with. They are desperate to get on the internet. ADAM SMITH: Even Putin took part in a historic web cast on the BBC, answering questions from people around the world live on the internet. Demand for the internet may be high but so are the risks. Baker learned first hand about the perils of doing business here when his stocks from his first investment were literally stolen off a computer. We made a small investment in a data carrier in Moscow and that was our first attempt to invest in Russia. ADAM SMITH: How has that turned out? FRANK BAKER: Well I would say it did not turn out too well at the beginning. You know in Russia they have electronic share registry. If you have the share registry in the company in which you are invested it might be some temptation at some point to click away your shares. Without consideration. ADAM SMITH: Does this happen? BAKER: It did happen to us. ADAM SMITH: They clicked away your shares? BAKER: They clicked away our shares, I am sorry to say. ADAM SMITH: In the end, Baker got his shares back. He puts up with the risks because if he succeeds his payoff could be as high as 200 to one. FRANK BAKER: You get licenses to provide communications in major metropolitan areas in the west is incredibly expensive. Our licenses to provide communications in Moscow are valued at 5 dollars a pop. I mean that is compared to thousands and hundreds of thousands of dollars a pop in western cities. ADAM SMITH: You are getting these for five dollars a pop? BAKER: We are getting them for five dollars a subscriber, but they are not yet connected, so when we connect them then they could be worth based on other sales a thousand dollars. I believe we are going to get a good take up rate on this. Out of the million and a half homes that we are wiring I believe we will get a million subscribers. ADAM SMITH: Other American companies are also optimistic. Archer Daniels Midland is an agriculture company that exports food to Russia. ALLEN ANREAS Chairman, ADM We have been there for almost a hundred years, so we have great faith in the ability of Russia to provide an environment that is receptive to capitalist investment. ADAM SMITH: ADM's success is a testament to Russia's potential. But there are still a lot of problems. Lack of foreign direct investment, rule of law, a dependable banking system, and capital flight. No one wants to keep their money inside Russia not even the Russians. STEWART PAPERIN: Capital flight in the last ten years has been close to 150 billion dollars which is equal to the outstanding debt of Russia that could have been paid off. ANDERS ASLUND: There are several black holes in the Russian economy. I think the worst is the bank system. You can't use a Russian bank for anything else than a payment. Any wealthy person keeps money abroad. ADAM SMITH: The wealthiest of the so called Robber Baron oligarchs who got rich during privatization have funnelled their fortunes overseas. Ron Freeman is an investment banker with extensive experience in Russia. What will happen to these oligarchs who manage to make off with the largest assets in the country? RONALD FREEMAN: VP (retd) EBRD The greed and the thievery and the larceny and the shenanigans have gone as far as they can usefully go. Having stolen what they could steal they now recognize - those who are the beneficiaries of the past malpractice - that they now have to play by the rules if they want to continue to flourish. Otherwise their fortunes will wither. ADAM SMITH: So what Russia really needs now is to reverse this trend by courting direct investment. RON FREEMAN: Foreign direct investment in Hungary is greater every year than foreign direct investment in Russia- and Hungary is 15 times smaller in terms of population. So people are not buying that act. You have to play by the rules if you want to attract that foreign investment. STEWART PAPERIN: What is missing are a couple of precursors to be able to invest prudently. One is there is still not a rule of law in Russia. You still can't go to court and say he didn't give me what I was entitled to and I want remedy. ADAM SMITH: Frank Baker is experiencing these problems first hand. FRANK BAKER We are trained, you have to make your numbers every day. A plan is very very important. The Russians would say: "well that plan isn't any good, let's get another plan." FRANK BAKER: Well, but what happened to the fact that I was relying on that plan. And they would say: "well there is nothing sacred about a plan, let's do another plan". (LAUGH) ADAM SMITH: If a friend of yours were to say should I follow in your tracks in Russia? What would you say? FRANK BAKER: If he is prepared to go for the long haul, and if he is investing with an organization that has some Russian experience, and if he is satisfied with the diligence of his associates, both Russian and Americans are satisfactory, and its emerging market venture capital, I would say it is a good shot. ADAM SMITH: Otherwise, not. FRANK BAKER: Otherwise, not. Exactly (LAUGH). ADAM SMITH: Keeping, attracting and protecting money will all be critical to Russia's future .. RON FREEMAN: I would watch foreign direct investment and foreign portfolio investment. Now, those are the most sincere forms of voting. And people vote with their savings, they vote with their dollars, whether Russian or foreign. That is a real test that the country is doing better. Mr Putin and his team they understand this right down to their bones. ADAM SMITH: Mr Putin understands that? RON FREEMAN: Absolutely. I know him. I have known him since 1994, when he was working for Mayor Sobchak in St. Petersburg. I think I have a good sense of his ability to understand what is important, and to act upon it. ALAN ANDREAS: He has made some real progress in the economy, he hasn't made as much as everyone would like, but the fact that they have implemented a real tax reform policy, I think, is a is a tremendous positive. If they can continue their economic growth, and if they can stay on track to build an environment that is more receptive toward foreign capital, Russia will return to its previous glory. ADAM SMITH: During the Clinton administration Russia ranked high on the list of foreign policy priorities. President Clinton made five trips there, and Deputy Secretary of State, Strobe Talbott, went with him. Strobe, why should Americans care about Russia now that the Cold War is over? STROBE TALBOTT: Russia is almost unique, I think, both in its importance to the United States historically, but also in the central importance it will play in the decades to come. And the direction that it goes in is going to have an awful lot to do with the kind of world we live in. ADAM SMITH: You met Putin several times, what is he like? TALBOTT Very cool character. In sort of Marshal McLuhan terms, Yeltsin was hot, Putin cold. Another thing that struck me early on about him is that he was very - not just unSoviet - but antiSoviet in his desire to put his interlocuter at ease, and to appear to be conciliatory. The Soviet instinct or default position always was to start with the big Nyet - you know, No is where we begin this conversation and now we will talk about it. In Mr Putin's case, he begins with Yes. Or Maybe. Or, I think you are probably right. You have a good point, let's see if we can work on that basis. Now, where you end up, is often nyet. In other words, the yes that you got at the beginning evaporates as you work your way into the details of the problem. The other thing about him is that he is very very disciplined and orderly. He clearly learned the value of information - and the use of information - when he was in the Intelligence Services. I was always struck, for example, that he had mastered the biographical dossier on anybody that he met with, no matter how lowly. ADAM SMITH: Your dossier? STROBE TALBOTT: For instance. ADAM SMITH: What would he say to you? STROBE TALBOTT: He would make references to points in my own background and experience with Russia which I wouldn't have thought would have risen to his level of attention. Now, part of his purpose there was to say: "I know about you." I do think he is a modern leader of Russia. STROBE TALBOTT: that he understands that Russia is going to succeed or fail - and he personally as the leader of Russia is going to succeed or fail - depending on whether they can get the economy plugged into the global economy. And that means opening up. And it means opening up to the world but you also have to open up your own society and your own markets. You can't have one without the other. ADAM SMITH: Russia has had a free press for about ten years now. There are some Russian observers who say the Russian people don't see a particular virtue in having a free press and are not even sure if it should be kept free. STROBE TALBOTT: Now there are lots of problems with the media some of them self induced and some imposed by the regime, but nonetheless I just reject the idea that Russians kind of don't get it.. on the value of a free media. I think they do get it and they want to keep it. ADAM SMITH: There is this battle over NTV, the last independent television network in Russia -- what is the significance of this. STROBE TALBOTT: I think it is extremely important that the international community and that means first and foremost the United States and the principle European partners and allies keep the issue of Russian democracy, civil society, and free press, on the agenda of our relations with Russia.. I think there is a temptation on the part of a lot of people and I think some people who are now high up in the Bush administration to say let's not pay quite so much attention to the internals of Russia. That would be a great change if that view were to prevail -- I think on other things it would play to the worst instincts in the Russian leadership right now and Mr Putin himself. They would like to be let off the hook. They would like to have Western leaders stop talking to them about Chechyna democracy and free press. ADAM SMITH: As the new president of Russia, Mr Putin began his official travels and where did he go? North Korea, Cuba, what does that signal? STROBE TALBOTT: The trip to Cuba was I think definitely in the category of tweaking the United States. Now he also went to a non rogue state I think or he went to Canada which is a very good friend of the United States, obviously.. but the fact that he would go to Cuba and then overfly the United States and Canada I think was meant to underscore what would be a theme of the Putin presidency, and that is that he would like to downgrade the relationship with the United States a bit. ADAM SMITH: Putin will be there a long time. What do you fear most in his Presidency. STROBE TALBOTT: I worry, and I think a lot of Russians worry that he could succeed in becoming too powerful. There is in the political culture of that country a predisposition to putting too much power at the top. That was true under Czars, it was true under commissars. Also with regard to the other former Republics, of the U.S.S.R. one of the most positive things about Boris Yeltsin is that he was essentially passive towards these other 14 new independent states. He was prepared to let them go their own way. But he in that sense I think was different from Mr Putin, who I think is attracted to the idea of a quite strong sphere of influence and will be looking for ways to bring these countries back under Moscow's sway. That could lead to big trouble. ADAM SMITH: What direction will Putin's Russia take? Does Russian culture offer us a clue? ADAM SMITH: I went to the world famous Bolshoi Theater where I met Executive Director and former opera star, Alexander Boroshilov. Do you find that the Russian audience has reacted to the political turbulence around them? He told me these days Russians prefer their own operas, their own composers like Tchaikovsky, Rimsky Korsakov, and Glinka. Outside of Moscow I walked with a friend in the Russian countryside. It could have been a scene from the movie "Doctor Zhivago". We came to a country church, a wedding with old rituals. DR. JAMES BILLINGTON There is a return of what they call spiritual culture to Russia, which is always underground. It never vanished, but it has had a considerable flowering. ADAM SMITH: We stood outside with a young priest who told me his generation, many of them, are returning to the Orthodox Church. Dr. JAMES BILLINGTON It is a quiet phenomenon but the penetration of the ordinary culture of every day living with this deeply moral sense of of the Russian character and of the Russian cultural heritage. ADAM SMITH: When the Wall came down and the Russians abandoned Communism we thought Russia would become a kind of western country - McDonald's was the symbol. And then as the Russian economy imploded there was a tendency to write Russia off as unimportant. Now, Russians say they want a normal country in touch with its roots and once again seeking to become "a great power". But Russia will be with us for a long time to come. Russian culture may indeed be returning to the rituals and symbols of its past to guide its people toward their uncertain future.
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