Young Entrepreneurs Flee Russia

Time magazine reports (for those who read Russian, a new ZheZhe blog has been created for expatriate Russians to lay out their reasons for fleeing the nightmare that is Putin’s Russia):

When he was 17 years old, Alexei Terentev, then a bookish high school student in Moscow, created what the Russian government has been desperately trying to engineer — a start-up with some of that Silicon Valley–style magic. It was innovative, cleverly marketed and could be run out of his parents’ apartment. By June of last year, when Terentev got his diploma from one of Moscow’s elite universities, his company was on its way to making him a millionaire. But it was also getting big enough, he says, “to get the wrong kind of attention from officials.” So Terentev, now 22, took no chances. One day after graduation, he packed up his laptop and emigrated to the Czech Republic, taking his company with him. He doubts he will ever return.

The reasons for his move, as well as his haste, are the typical worries of the young entrepreneurs Russia is currently hemorrhaging: corruption and bureaucracy, the forces that are driving the biggest exodus since the fall of the Soviet Union.

In the past three years, 1.25 million Russians have emigrated, most of them young businesspeople and members of the middle class, according to data released in February by the head of the state’s Audit Chamber. That is about a quarter million more than left the country during the first few years after the Soviet collapse, when Russia was a political and economic basket case. Now the country is stable and the cities are thriving. But small-business owners seem to feel less safe than ever.

For those just starting out, the most common fear is not competition or bankruptcy but a visit from corrupt officials, who go around soliciting bribes or offering paid protection, which is known as a krysha, or roof. Last month, the Economy Ministry said that in 2010 alone, Russians paid $581 million in bribes to authorities for “security provisions,” an incredible 13 times more than in 2005. As dozens of cases have shown in the past, a business owner who declines to have a krysha can expect to get visits from fire inspectors, tax auditors or the police until the company is overwhelmed with fines and red tape. If the owner still does not cooperate, a minor criminal case can be opened, often under the vague law forbidding “illegal entrepreneurship.” A brief stint behind bars then usually does the trick.

Against the most stubborn businesspeople, often the type whose firm is coveted by a well-connected competitor, a corporate raid is a favorite weapon. These have become so common in Russia that a cute nickname for them has entered the vernacular: maski-shou, or “mask show,” a twist on the name of an old sitcom. It is when gunmen, usually masked private security or special forces, enter a business and literally take it over, seizing documents and locking the management out. This tactic has been used in politically tainted cases, such as the government takeover of NTV television in 2000, and the 2003 raids against Mikhail Khodorkovsky, the oil tycoon now serving 14 years for fraud and other charges. Smaller mask shows rarely meet the threshold anymore for news in the national media.

But by word of mouth and articles in the online press, such stories spread fast in business circles. For Terentev, the wake-up call came last February, when one of the data centers of Agava, a leading Russian Internet-hosting company, was raided by police on suspicion of hosting an unlicensed video game. Six weeks later, the company’s server farm was raided by another police unit, this time on suspicion that one of its servers was hosting child pornography. Instead of taking the server in question, the police shut down all of them, forcing many of Agava’s clients off-line. The news caused such an outcry that President Dmitri Medvedev, who styles himself as a techie crusader for the rule of law, personally intervened the next day. The servers were quickly switched on.

But the damage to the industry’s confidence had been done, says Terentev. “The Agava case shook everyone awake.” Even before that, he says, “it was becoming clear to people in our industry that websites are being very actively shut down. Anyone can do this. A competitor can pay police to take your server and pass on your entire database.” Terentev’s hosting company, (whose name is a wink at Stalin’s secret police, the NKVD), has tried to innovate around that problem. All of its servers are housed abroad.

And the way things are going, the same may soon be true for much of Russia’s middle class. A survey released June 10 by the state-run pollster VTSIOM found that 21% of Russians want to emigrate, up from 5% in 1991, the year the Soviet Union collapsed. The largest portion of them were found to be young, educated and Internet-savvy — exactly the kind of people Medvedev has been counting on to help develop a Russian version of Silicon Valley. Known as Skolkovo, the planned technology hub has been the center of Medvedev’s economic policy, but it has struggled to mimic the alchemy of the original Silicon Valley. The problem? Finding enough start-ups to populate the place.

So far, the state has created three huge corporations to help fill that void, like Rosnano, which focuses on nanotechnology. This year, the corporations even set up a joint office in California’s Menlo Park, down the road from Stanford University, to attract young talent and technology back to Skolkovo. But that has been a hard sell. “You need an entire ecosystem to support innovation,” says Alexandra Johnson, a venture capitalist in Silicon Valley who has been advising the Russian corporations. “You need [business] incubators, entrepreneurship, managers to run the businesses. You need the rule of law. Many elements of this ecosystem are still missing in Russia,” she told TIME in San Francisco.

In theory, Skolkovo is supposed to create this ecosystem. It could provide, among other things, a kind of super-krysha to guard young businesses from the protection rackets of corrupt officials. “It’s no secret,” says Alexei Sitnikov, the head of international development at the Skolkovo Foundation. “Police [are] often more of a threat than protection in Russia.” So the new innovation hub is working with the Ministry of Interior to hire and train a “separate” police force for the center, and similar plans are in place for its sanitary inspectors and other rent-seeking bureaucrats. “They will not be able to come in and say, ‘O.K., shut down your business,'” Sitnikov says.

But even when Skolkovo is completed (so far it is an empty field near the Skolkovo School of Management), it will still be a very exclusive club, big enough to house only the couple of hundred ventures now being handpicked by a team of experts. So far about 120 have been chosen, while many others, like Terentev’s, are fleeing to the West. And they seldom look back.
Last year, the Russian émigré Andre Geim, who won the Nobel Prize in physics in 2010, was asked by a Russian reporter what it would take for him to return to work in the motherland. He answered: Reincarnation. Terentev says he agrees. “Maybe by the time I’m 30 the system will have changed. The risks will be different. But who knows? The Soviet Union lasted 70 years. Our country does not obey the laws of logic.” Nor of Silicon Valley.

22 responses to “Young Entrepreneurs Flee Russia

  1. I guess Russians will be very surprised when they learn that one cannot create Silicon Valley by a government decree. When Hewlett and Packard started their business in a garage back in the 1930’s, the U.S. government did not create “ecosystem to support innovation” nor “planned technology hub.” Russian president is very naive if he thinks that the assistance from the Kremlin is what’s needed. Entire Russian/Soviet economy has had nothing but massive assistance from the state for decades, and we all know what terrific results they got.

  2. “In the past three years, 1.25 million Russians have emigrated…”; “A survey released June 10 by the state-run pollster VTSIOM found that 21% of Russians want to emigrate…”
    The situation is even worse. 63% of young Russian scientists expressed their wish to emigrate
    The cited official statistics with 1.25 million people emigrated from Russia (that is, those who either have a double citizenship now or a permanent leave to stay somewhere out of Russia) does not include a numerous category of Russians who live on visas abroad but have no intension to go back to Russia. So, in reality the number of de-facto emigrants is much higher.
    What is even more telling is not the number as such but the quality of the emigrants (majority has university degrees).

  3. Read the comments to the TIME piece.

    The 1.25 million figure is the total number of Russians who have left in the PAST 20 YEARS! (The allegation that it only applies to the last 3 years is a Russian liberal manipulation and lies regarding what a government official said). This elementary fact renders the hack Simon Shuster’s entire article null and void.


    But Anatoly, Russia Beyond the Headlines says you’re wrong:

    And what’s more, once again you are relying on NOTHING but statements of the Russian Kremlin itself, implying you think we can accept on faith the claims of a regime ruled by proud KGB spies. That’s simply nonsense, and you know it.

    A whole new ZheZhe blog has been created for Russians to document the reasons they left the country.

    Maybe you should read it before you open your big, fat, stupid lying mouth.

    Russia has the ninth highest murder rate on this planet, higher than any other major industrialized nation.  No other nation in the world has a higher divorce rate.  Only only four nations drink more alcohol.  By contrast, Russia doesn’t even rank in the top 100 nations of the world for life expectancy.  If a person showed this kind of absolute, grim and dismal failure, a psychiatrist would no doubt classify him as a suicide risk.    Indeed, Russia seems to be, for all the world, an entire nation hellbent on suicide — and only five countries on this planet have people more likely to commit suicide than Russians.

    Any rational person would want to flee this nightmare. Are you saying Russians aren’t rational? Careful, now, we might agree!

    • So, according to you, LR, you can prove that Russia’s current regime is a failure only if you ignore (i) the official statistics accepted by the world as the best available estimates of what is going on in Russia and (ii) the opinion of, in your own words, “the vast majority of Russians”. At the same time, you consider selective anecdotal evidence confirming your points of view (like blogs) and opinions of a group of people whom you irrationally like (e.g. Nemtsov, Latynina) as the ultimate truth. Do you really try to understand what is going on in Russia and clarify the same for your readers, or is this a reflection of the fact you invest your effort, money and time into a blog that achieves nothing, but for stirring hatred. Don’t you realize that this is what you really do? You must be rationalizing this fact away — I suspect even you have a consciousness.

  4. On the one hand AT is enamored with Russia, on the other hand he comfortably lives in the U.S.A. On the one hand AT argues that “things are wonderful in Russia,” on the other hand he refuses to live there. On the one hand AT is shows his devotion and dedication to Russia, on the other hand he will not go and serve in the Russian army. Ouch…

    Talk about credibility. Or the lack thereof!

    • Well, John, I am not “enamoured” with any country. I am, however, impartial to both the United States where I am living very comfortably indeed and to Russia from where I am. I don’t believe that there is anything fundamental that prevents me from exposing lies or prejudices about any of my two home countries. Also, for a number of reasons, I am not conflicted at all with respect to the choice of allegence between these two countries.

      I am not quite sure what made you state that I argue that “things are wonderful in Russia”. On the contrary, I repeatedly stated that the country has major and numerous problems. I also demonstrated here many times that Russia was addressing these problems with a significant degree of success, which explains why “the vast majority of Russians” does not oppose the existing regime, despite its obvious shortcomings and deficiencies.

      None of my comments suggests that the living standard in Russia is higher than that in the United States — something that in my view is pretty obvious to pretty much everyone. This is only one of the reasons why I prefer living in the United States, although I have a choice to change my place of residence and move to any of a couple of dozen countries of my choice at any point in time when/if I choose to do so.

      I have also stated that I would probably prefer to live comfortably in, say, France and Italy, but for a number of reasons, I would probably not be able to do so with the same level of comfort as I enjoy in the US.

      So what specifially makes you doubt my credibility?

      • LOL, like the Russian states “success” in fighting corruption, which has become much worse under Putin….

  5. AT,

    You remind me of the propagandists of Cuba, yet another “heaven-on-the-earth,” just like the former USSR. Hollywood types like to proclaim the “virtues” and “humanity” and “equality” in Cuba. Yet, they would not even live there for 6 months. And nobody is stupid enough to move there permanently.

    Since you are a Marxist, a neo-Marxist, a variation of a Marxist, or at least admire Marx and his ideas, you should start defending Cuba too. :)

    Put your money where your mouth is. That should pretty much sum it up.

    • John,

      First, I am pretty much the opposite of a supporter of the Marxist theory. My “comfortable living” is very much contingent on my – I believe by now proven – ability to ensure success of private enterprise in difficult environments. All my comments strongly endorse capitalism, democracy and free enterprise as the most efficient economic and social fundamentals. If anything, I was accused of being a “social darvinist” here by your fellow poster RV, and this was a partly justified accusation.

      None of my comments presents Russia as “the heaven-on-the-earth”. As I stated many times here, I believe one can judge about the standard of living in any country by this country’s position in the nominal GDP per capita ranking chart. I talk from experience — having visited around 50 countries personally — , as well as based on serious research I’ve been involved in on a daily basis for a long time now. This chart shows that there are about 55 countries that are more qualified to be called “the heaven-on-the earth” than Russia and about 130 counties that have lower living standards than Russia has. Among those, are all the BRIC countries, all the ex-USSR countries, except for Estonia and Lithuania, as well as some EU countries, like Bulgaria and Romania. I would say not too shabby!

      People from those countries are actually lining up to get in Russia, the second country by the number of immigrants after the United States.

      Further, I am pointing out here regularly that Russia has been making a remarkable progress in terms of improving its living standards continuously for the last 10-12 years at least, with the exception of the crisis years of 2008-2009. This, as I argue, explains why the Russian populace supports the existing regime: although this regime has not made Russia “the heaven-on-the-earth” in 11 years, it has proven to be capable of improving people’s lives year after year.

      Again, I am not sure how Cuba and Marxism are relevant to the current situation in Russia. I agree with the publisher of this blog, as well as with some of her supporters (Andrew), that the current Russian regime is based on the concepts of money (along the lines of the “enrich yourself” slogans used by other regimes) and power, not on any particular ideology.

      Are you by any chance one of the senile Cold War warriors who still search for Communists under their beds? Pathetic.

      • I agree, your comments don’t indicate that you are any kind of Marxist. But the dangers emanating from Russia and Russians are not limited to the spread of Marxism alone. Tsarist Russia did not spread Marxism, but was just as horrible a place as it is now. But I do have a couple of questions.

        Your statement about “ability to ensure success of private enterprise in difficult environments” — is that a euphemism for your ability to know who and how to bribe in third world countries such as your beloved motherland?

        And then you say that Russia is the 55th country economically speaking, and according to you that’s not too shabby. I think it’s pretty shabby and it does solidly place Russia in the third world. But Russia aggressively pretends that it is much more important than that. That’s one of the reasons it inspires so much animosity — Russia simply does not know her place.

        And then you say that people from the BRIC countries and Bulgaria and Roumania line up to get in Russia. I don’t believe it’s true. Show some evidence that Brazilians or Bulgarians do that.

        And then you say the Putin regime is not based on any ideology. I don’t agree. The ideology is clearly seen by those who don’t close their eyes — it’s aggressive “patriotism” forcefully foisted on the population coupled with actively promoted hatred of the West and especially the United States. The same old Soviet ideology except for Communist rhetorics and Marxist sloganeering.

        • A couple of answers:
          – Bribes: I have never paid a bribe in my life;
          – @ Russia & its place: we’ve discussed that — no nation has achieved anything of importance by “knowing its place”. And 56th place is not too shabby compared where other post-Communist economies are. And given that Russia was not in the first 100 of countries by nominal GDP less than 10 years ago represents a fantastic progress;
          – Brazilians, Romanians and Bulgarians don’t. Brazil is marginally below Russia economically, so the opportunity cost is too high. The Romanians and Bulgarians emigrate to the EU. Georgians, Moldovans and Kazakhs do line up to come to Russia. I’ve provided a link to the official statistics many times.
          – The last paragraph just reveal how brainwashed you are.

          • @ animosity – deal with it; that a normal feeling towards a country that does not want to be anyone’s junior partner.

            • They were not too proud when they begged the West for food assistance because the population was starving or close to it. Or do you deny that? I certainly remember how my rabbi urged us greedy Jews to take up a collection in our temple for poor starving Russians.

              When that happens again and they crawl back on their hands and knees, I hope you remember your statement and will tell them not to be anybody’s junior partner.

              • Russia did not “beg” the West for anything, and there has never been shortage of food in Russia. And your food collection was probably wasted the same way that the “humanitarian aid” I witnessed being wasted on a very grand scale in Russia in 1991. Either you do not listen to me or you do not trust me. None of these is my problem.

                • RV, no seriously, we are running in circles with two topics: “Russia knowing its place” and “food collection”. Let’s either agree that we disagree on these two issues or we are doomed to make the same arguments to each other again and again.

          • You seem to think that bribery and corruption in Russia are quite normal and not a problem, this would seem to indicate you have in fact paid or received bribes, considering it is basically impossible to operate any sort of business in Russia without paying bribes, protection money etc.

            Your frequent defence (including denial of the existence of) of Russian institutionalized corruption is most remarkable for its consistency.

            As for Russian economic statistics, like all Russian statistics, including education, crime, etc, they are falsified to an extent unthinkable in democracies. I have been told this by an in-law who works in the Russian Ministry of Finance, his comment was “Take the worst case scenario for Russia and multiply by 10, thats what it is really like”

            BTW, he is ethnic Russian, and despises the place.

            • Andrew, is it a some type of a troll tactic? I directly stated that corruption is a problem in Russia here numerous times. I have also stated that I see progress in this area and that I’ve never paid a bribe. There are absolutely no conflict among these statements. And you are deliberately trying to misrepresent me again.

              If you knew anything of economy or statistics, you would know that statistics are very difficult to falsify. In a few years, the discrepancies become just overwhelming and very evident. That is why it is simpler not to publish statistics than to “falsify” them, like the Stalin regime did not publish the result of a census in the 1930s. As I said, you can deny that Russia is making a significant progress only if you trust “hearsay” and anecdotal accounts from those who despise the place. The rest of the world — businesses, stock exchanges, the World Bank and similar multilateral institutions — have never expressed any doubt about the estimates.

  6. Pingback: Young Russian Tech-Savvy Entrepreneurs Go West

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