Will this Russian evolution spark a creative economy?
New president Dmitry Medvedev knows his country must change. But, Paul Simpson wonders, can he really turn Russia into a nation of innovative entrepreneurs?
Eight years ago, IKEA tried to promote its new Moscow store with the slogan: “Every tenth European was made in our beds.” But the Metro banned the poster, saying it was in bad taste.
IKEA took that on the chin. But its two-and-a-half-year campaign to set up shop nearly came unstuck when the council stopped the retailer finishing a £3m overpass to its store when it was just two pillars away from completion. The overpass obscured a war memorial. Moscow officials were furious the store had been built outside city limits and the mayor’s press secretary was tasked with publishing stories exposing the “illegal activity of IKEA”.
The company had been given the go-ahead by the regional government, but a city decree threatened to make the overpass illegal. After a threat to quit Moscow, IKEA prevailed and has prospered in Russia, opening its first Siberian store last year.
Russia has changed radically in many ways in the eight years since – and not at all in others. Two years ago, the concept of a small business was legally recognised for the first time. The government would like 60-70% of Russians to work for an SME by 2020 and generate half its GDP.
Running a small business in Russia has never been easy. Entrepreneurs were persecuted when the Bolsheviks seized power in 1917, encouraged – out of desperation – by Lenin’s New Economic Policy in the 1920s and shot or imprisoned on Stalin’s orders in the 1930s. That may partly explain why recent polls suggest that only one in 20 Russians dreams of starting a business.
Tom Fleming, director of a consultancy that works on creative economy projects across Russia, says: “There is no culture of entrepreneurialism. Most Russians leave education assuming they’ll be employed by a company in a traditional industry. That’s especially true in the regions.”
The daunting obstacles an entrepreneur must face include: expense (it costs £150,000 to start up as a fashion designer in Moscow), endemic corruption, red tape, poor infrastructure, challenging logistics (Russia’s transport system is very Moscow-centric) and sheer lack of mobility. “Moving between cities isn’t straightforward,” says Fleming. “It’s often easier for Russians to move abroad than within their own country.”
Russia has something it didn’t have 14 years ago: 20% of the people are now middle class
None of this tallies with the government line. Dmitry Medvedev, Vladimir Putin’s hand-picked successor as president, is a former lawyer (who won a major case defending a pulp mill against powerful oligarchs), iPhone enthusiast and – depending on who you believe – either a faceless opportunist or the new Gorbachev.
But in talk and deed, Medvedev has been consistently pro-business. Securing Russia’s future, he says, is all about four I’s: innovation, investment, infrastructure and institutions. Medvedev has vowed to end Russia’s “legal nihilism” where “rights belong to those with the sharpest teeth and not those who obey the law”.
Russia’s economy has endured enough rapacious capitalism to have Lenin turning in his mausoleum. What it needs, Fleming says, is the legal, managerial and cultural framework that underpins capitalism in the West.
Recognition of basic property rights, simplified taxation, enforcement of copyright (“in most cities, it’s easier to find pirate CDs and DVDs than the official ones,” says Fleming) and a drive by local authorities and law enforcement officials to “stop frightening business” (Medvedev’s words) would bring the dream of an economy driven by SMEs (rather than giants like Gazprom) that much closer.
Mark Dampier, head of research at stockbroker Hargreaves Lansdown, is optimistic: “Foreign investors should realise the Russian stock market is one of the cheapest in the world. And forget the talk of oil dependence and falling prices. Russian oil is profitable if the price is above $10 a barrel.”
Dampier points to the progress made since 1999, when Putin inherited from Boris Yeltsin what was virtually a failed state: “Russia has something it didn’t have 14 years ago: 20% of Russians are now middle class. That could reach 50% by 2020 and change the dynamics of its society and economy.”
Russia mystified the West even before Winston Churchill’s riddle/mystery/enigma remark, and it remains a puzzle. In Georgia, it behaves like a typical superpower. Yet the profusion of online pop-ups promoting “sexy Russian girls” reveals the desperation of many of its inhabitants.
You can travel through centuries as you cross Russia (just to give you an idea: Siberia alone is bigger than Europe and the United States combined). In one of the gated communities flourishing near Moscow (one of which has been acquired by Goldman Sachs for £161m), you are at the cutting edge of the 21st century. As an architect in Moscow, enriched by the rush to build skywards, you share the heady optimism of 1920s New York’s skyscraper boom. But in a wooden village in the Siberian taiga, you’re nearer the 17th century than the 20th, your pride in owning a TV and fridge tempered by the fact that electricity only trickles into your village for one hour a day.
So is the growing middle class cause for hope? Up to a point, says Fleming: “The middle class is growing fastest in the big cities. In many regions, you just have the poor and the very rich.”
This isn’t good for Russia as a society or, as Putin has admitted, as an economy: “We are only making fragmentary attempts to modernise our economy. This increases our dependence on imported goods and technology and reinforces our role as a commodities base. The economy remains very ineffective. Labour productivity is very low. We have the same labour costs as many developed countries, but our return is much lower. With global competition, this will become dangerous.”
The urgency of Putin’s remarks is reflected in the massive priming by the state of such strategic areas as IT, software, nanotechnology and the £200bn investment in infrastructure. The drive to stimulate innovation may – as it is fleshed out over time – stimulate Russia’s creative economy.
“The creative economy is not a national priority,” says Fleming. “Graduates in art or design are loath to become entrepreneurs. The education they get is technically very good, but the learning process is instructive and didactic. They’re not necessarily acquiring the skills they need to think laterally in a creative economy.”
Designers can treat investors as philanthropists but capital and creativity can go hand in hand
In the absence of a national plan, Fleming says local clusters have emerged. “In Academgorodok, an academic city in Novosibirsk, the renaissance of the Russian space programme has encouraged the growth of digital services such as computer game design. In Moscow, creative networks have emerged organically in developments such as Artplay, in an old textiles workshop.”
Business space in Moscow and St Petersburg is so costly that arts and design businesses often have to take over abandoned industrial buildings. Elsewhere, Fleming says, “creative industries can benefit from a kind of civic boosterism” but this often promotes cultural institutions – such as ballet companies – rather than nurturing clusters of innovative small businesses.
He says a stronger retail sector would help enormously. “After the fall of Communism, Russians gravitated to glamorous Western brands. It’s not always easy for Russian companies or designers to find the retail space to make a name.”
This is changing, says Alexander Shumsky, director of Moscow Fashion Week: “Six or seven Russian designers took part in big international shows in 1999, and 50 or 60 are here now. Now we invite potential investors to shows, though designers often regard investors as mere philanthropists. We realise creativity and capital can go hand-in-hand. Russian couture appears, little by little, in larger shops. Hopefully, Russian designers will have boutiques in all major department stores in three years or so.”
Fleming, like Shumsky, has no doubt Russia has the talent. “The young Russians I’ve worked with have all the craft, intelligence and spirit to succeed. It’s depressing to think that if they were in Manchester or San Francisco, they’d be starting their own business.” In ten years time, will their successors launch a design business in Novosibirsk or Moscow? The answer to that may depend on Medvedev. In Moscow, one popular souvenir is a matryoskha doll of the new president which, when you open it, contains a doll of Putin, inside which is a doll of Lenin. The hope for Russia is that the dollmakers have got it wrong.
Russian designers of influence
Valentin Yudashkin
Born in 1963, Yudashkin is Russia’s most famous fashion designer. In 1991, he became the only Russian member of the Parisian Syndicate of High Fashion. Since 1987, he has created 50-plus collections.
Nadezhda Lamanova
Aged 24, the mother of Russian fashion opened her own dressmaking workshop in Moscow in 1885. She quickly earned royal customers and her fame soon spread throughout Europe.
Sergey Korolyov
Head engineer and designer for the Soviet space programme during the 1950s and 1960s, Korolyov was imprisoned for six years after Stalin’s ‘Great Purge’ in 1938. On release, he oversaw the Sputnik and Vostok projects.
Alexander Begak
The aircraft designer made the headlines this year when he launched the ‘Evolution’ – a vehicle that can travel by land, air and water and can reach 160kmph in the air and 80kmph on land.
Vladimir Zworykin
For some, the ‘true’ inventor of TV. Zworykin (1889-1982) played a key role in cathode-ray tube development. He also designed the iconoscope, a transmission tube used in the first TV cameras.
Yuri Soloviev
After studying design in Moscow, Soloviev became the first director of the USSR Research Institute of Industrial Design in 1962 and in 1987 helped found the Society of Soviet Designers. International Design Award winner in 1989.
Article first published in Design Council Magazine, Issue 5, Winter 2008
Picture credits
Russian model: Getty images
Russian woman protesting over raising food prices: Getty images
Dmitry Medvedev: PA photos