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Editorial Last Updated: Jun 22, 2022 - 1:05:40 PM


My Education In Russian Business
By Dr. Gary K. Busch. 20/6/22
Jun 21, 2022 - 11:18:17 AM

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In 1992 I was asked to examine and create the logistical system for importing the raw materials for the production of aluminium and the exporting of finished primary aluminium through the Far East of Russia. Two of the largest hydroelectric power installations in the world, at Krasnoyarsk and Bratsk, were used to generate the vast electrical inputs that the production of aluminium required. In addition, the powerful and expanding economies of Asia, especially Japan, China and Korea were the best possible customers for the aluminium production in Siberia and the Russian Far East.

The gradual breakup of the USSR under Gorbachev created massive problems for the Russian transport system. After almost seventy years of sporadic development, there had been a major shift in the infrastructural requirements of the former Soviet Union. The break-up of the USSR into constituent republics within and without the C.I.S. made regular access to seaports more problematical and seriously called into question the reliability of adequate and timely internal transport of goods on the rail system. The Russian Republic found itself deprived of unrestricted access to what were traditionally reliable Baltic ports and in a potentially conflicted situation with the Ukraine over free access to the Black Sea/Crimean ports. The resurgence of the "nationalities question" brought to the fore the problem of who owned and controlled the rolling stock on the railroads and created the potential for delays and disruption whenever trains crossed what were formerly internal borders but which now marked the borders between nations claiming various degrees of sovereignty

Yet this same problem also represented an opportunity for Russia. The major growth in the patterns of world trade was in the Pacific Rim. The growth of intra-Pacific trade and commerce had grown much faster than trade in any other area. The Pacific Rim nations, with the exception of Australia and the U.S.A. are largely resource poor but wealthy. They are potentially the best customers for Russian raw materials, semi-finished and refined goods. Russia is fortunate to have several good ports in Russian Asia; including the deep-water natural bay port of Nahodka which is capable of all-year navigation, close to all the major Pacific Rim trade routes and at the end of the main Trans-Siberian rail line; Vostochny, which lies below Nahodka and constitutes a trade facility (Wangel Bay) which is part of the Nahodka complex;  Vladivostok, which lies north of Nahodka on the Trans-Siberian rail line; Vanino which lies further north on the Eastern Coast near Sovetskaya Gavan, a sheltered deep-water all-year port lying at the terminus of the Baikal-Amur rail line; and several newly-accessible former fishing ports like Posyets and Zarubina in the south by the Chinese-Korean border near Kraskino. These all provide, with varying degrees of advantage, sea-rail links to a window onto the Pacific Rim for the export of Russian goods and for the import of products required for Russian industrial expansion.

There was an acute crisis for these Russian ports and Russian rail lines. The dismemberment of the former USSR into its several constituent parts left the warm-water ports of the Baltic largely in the hands of the newly independent states of Estonia, Latvia and Lithuania. The Black Sea ports were largely incorporated into the new Ukraine, Georgia and Azerbaijan. The capacity of the remaining Russian ports after the breakup of the Soviet Union was about 187 million tons per year or a reduction of about 58% of the USSR's former capacity. This reduction in its port facilities meant that, even at current volumes of trade, Russian ports could handle only 54% of this trade. The balance of Russian trade (46%) had to travel to and through other countries. These shipments via foreign ports cost Russia dearly as this trade took place in hard currency; at 1992 rates these transfer payments amounted to about $2.3 billion per year and, in terms of a rapidly declining rouble, made up a geometrically-escalating cost for Russian commerce. It was clear to see that an All-Russian port and rail system was required.

I examined the various permutations for the ports, the rail and the storage of the goods in transit. The Russians recommended that I use the port of Vostochny. I travelled to Vostochny to examine the port and its connections. I was accompanied by Tolya, a nice young man from the Trans-World Moscow office. I examined the port. It was a very nice port with great potential but of little use to me. It was on the Trans-Siberian railroad, south of Vladivostok and Nahodka. Vladivostok was just opening to foreigners but, as the centre of Russian Far East commerce it was likely to grow quickly. The Japanese had virtually taken over the port of Nahodka and were expanding rapidly. I met with the port director and told him that his port was very nice but that I couldn’t use it as a base for our activities. I explained that there were to bigger ports above his on the rail line and that they were growing apace. That meant that we would be competing with them (and the Japanese) for the use of locomotives and rolling stock to and from the smelters. I intended to bring in about 2.6 million tons of raw materials and to export around 1.8 million tons of finished aluminium. There was no capacity to even come close to our needs. A further consideration was that this rail line is a strategic route for moving troops, equipment and supplies to the Far East, especially to the Ussuri border.

The port director was adamant. He told me that if I paid him, personally, $6 a ton he could arrange things with the railroads. I explained that I wasn’t arguing economics or negotiating price, The laws of physics say that two objects cannot occupy the same space at the same time. There was no room for my goods on that rail line. I got ready to leave the port when Tolya, very upset, confronted me. He asked if I was not going to settle with Vostochny. He asked me what I was going to do, now that I failed in the agreement.

I learned something important from that. Russians were “task-oriented” businesspeople. They divided their work into tasks which had to be completed. I explained that my mission was a success, not a failure. My goal was to make money; I was a goal person. I could not make money using Vostochny so not making an agreement was a success. On reflection I realised that because of the layers of competing bureaucracies which characterised Russian business, no individual had a direct stake in the outcome of creating a viable business but took his measure of success or failure from completing the task he was set, even if the success was evanescent or transitory.

I started my further investigations by concentrating on finding the right seaport and rail line. I chatted with a number of ship owners at the Baltic Exchange at the weekly Monday assembly when cargoes were advertised and traded. None really had any extensive knowledge of the Russian trade or ports. I then went to the journals and the reports on Russian business without much success. I decided that I should go to the horse’s mouth.

I asked myself who would know about Russian ports and railroads? There was one obvious answer, the U.S. Department of Defence: especially Naval Intelligence. Surely, they knew all about Soviet sea defences and the layout of the railroad systems. I was lucky in that I had had some prior contacts with the Defence Intelligence Agency (DIA) and went to Washington where I had a meeting set up with them and some friends from the CIA. There were three specialists on Soviet port and transport operations. I was advised to go to the U.S. Department of Commerce to buy copies of the Operational Navigation Charts (ONC) and the Tactical Pilotage Charts (TPC) for the parts of Russia in which I had an interest. These were detailed maps produced by US satellites which showed road and rail links, the contours of the land and the radar sites and their frequencies.

The three specialists told me that I should not believe any Russian map. The Russians lied as a matter of course on their maps in public circulation and deliberately changed the information. When a Russian plane flew internally, as I saw myself later, the passengers went on board first and took their seats. Then the pilot, co-pilot and navigator boarded the plane. Then the security people boarded the plane and secured the real flight map and plan under a piece of Plexiglas and left the plane. On arrival the security men boarded the plane and retrieved the map. Then the pilots and crew left and then the passengers. The Soviets were paranoid about maps and controlled their circulation.

I checked with everyone, and they agreed that I should investigate Vanino further. However, they pointed out that the Russians listed the draught (the depth of water alongside the quay) as only seven meters. That would mean we could only use shallow and smaller vessels. I checked with Naval Intelligence in Washington and their official comment was “Horseshit! The depth is fourteen to seventeen meters. The Russians are lying. Ignore them”.

The conclusion to my research was that the port most favoured for growth into a major world-class seaport was Vanino. It lies at the terminus of the Baikal-Amur Railway and has direct access to the most mineral-rich areas of Siberia. Its railroad tracks were quite new and, at least as far as Khabarovsk, were an efficient double-line railroad. The rail bridge at Komsomolsk-on-Amur was much better than its counterpart further south on the Trans-Siberian rail line. The distance between Vanino and the western regions is between 600 and 1,500 kilometres shorter than the Trans-Siberian link. That translates to about a week’s savings on transport and much better turnaround time between the Russian West and the port for scarce rolling stock.

Vanino was not a major city so there was wide scope for development and the undeveloped coastal territory was available for the growth of industries as well as port facilities.  There was a regional organisation of more than 60 firms and enterprises which had joined together to promote the advantages of the Vanino Port complex, including ferrous and non-ferrous metal, fertiliser and other industrial giants of Siberia and Kazakhstan. Vanino had a treasure trove of mineral wealth ready to flow through its ports to the world's markets, including coal, mineral fertilisers, apatite, petroleum products, wood, aluminium, copper, steel and manufactured goods. These could come in bulk in hopper cars, on flatbed railcars, in closed carriages and in containers.

This history of Vanino was appalling. There was a famous ballad which was a reminder of this, “I Remember Vanino”.[i] In the middle of Vanino, just north of the port is a very large (about three acre) field which lies fallow, covered with grass. In my ignorance I asked why such a piece of prime real estate in the middle of a town should have been left empty. It wasn’t even a park. Nobody even walked there. I was told it was empty out of respect. The trains that brought the huddled, shivering prisoners across the wilds of Siberia to Vanino on their journey to the Kolyma Gulag often brought prisoners who were dead on arrival; dead from exposure; dead from starvation; dead from disease or dead from attacks by fellow zeks. In late August and early September of each year the authorities in Vanino would dig three deep trenches before the ground froze. When the trains discharged their dead They were dumped into these trenches. When the ground defrosted, they were covered up with fresh earth. The man who told me the story said there were at least five thousand people buried there.

Sometimes, he said, the prisoners would rebel, and resist being pushed into the slave ships for Magadan. The authorities would respond by turning the hoses on the prisoners. They froze to death as they stood. They were laid out, like cordwood, and transported to Magadan. It made no difference if they got there alive or dead, as long as their arrival was accounted for. They weren’t expected to live very long at Kolyma anyway. Their meagre rations were stolen by the criminal gangs and the medicines were unavailable for prisoners. Aleksandr Solzhenitsyn quotes the Kolyma camp commander as establishing the new law of the Archipelago: "We have to squeeze everything out of a prisoner in the first three months — after that we don't need him anymore." [ii]The system of hard labour and minimal or no food reduced most prisoners to helpless "goners" (‘dokhodagya’, in Russian) who wandered about waiting to die. The numbers of people who died in or on their way to the Gulag is estimated at over three million. It wasn’t until the publication of Aleksandr Solzhenitsyn’s “Gulag Archipelago” in 1973-1978 that these facts emerged, even inside Russia. I looked forward to meeting those still there.

I was travelling with my good friend and colleague, Niksa Lazaneo, a Croatian living in Moscow, working for TransWorld. We got on well and spent most of our time laughing. The Russians we met were very nice, dedicated people. They took us to the port where we were given a tour and I was able to get answers to my queries. I was very impressed. The port director, Apollon Shengelia, and his assistant Valery Savinov were our hosts, and they called the engineers and others to hear my explanation of how I hoped to operate. We agreed to meet the next day.

During our discussions it became clear that we were thinking along the same lines. I agreed to pay $8 a ton for each ton of aluminium exported and that we would work on a price for the imports of raw materials as the handling facilities were created. We were wiling to start immediately with the export of finished aluminium from the smelters and would guarantee a minimum of 5,000 tons per month to start. They agreed and I handed over $40,000 in cash for the first month. I had discussed this with David Reuben, the head of TransWorld, and we agreed that TransWorld would prepay our bills in Russia. If you didn’t prepay. your Russian partner could not perform as he had no funds of his own. We did this is for all our transactions to start. I regularly travelled around Russia with $40,000 to $70,000 in cash, prepaying railroads, ports, etc. The Russians we dealt with were honest and direct and fulfilled their obligations as best they could. In all our years there, not one bit of aluminium was stolen or missing.

Having established our arrangements and first contracts the Russians were very curious about the company. They wanted to know a little more about our company and who was behind it. They needed to know that the company was financially stable and that they could count on it to perform its tasks and duties. Niksa spoke to explain a little about the Moscow operation and the Russian partners. I spoke about the organisation in London and Monaco. They were very interested and asked several questions. Valery Savinov asked if we had any brochures of our company, perhaps a calendar or pens or souvenirs. I apologised for not having anything like that with me. They then asked if I had any pictures of our operation or top management.

I looked in my attaché case for anything and found a small 3 x 5 sepia print. I had picked up a number of these sepia prints for my son James for a project he was working on in school about American Indians (or Native Americans to be correct) One of the prints was still in my case. I thought, “What the hell, why not?” I took out the sepia print of Red Cloud, principal chief of the Oglala Sioux and said, “Here’s our chief”.

 

The Russians looked at the print. They turned and looked at each other and then burst out laughing. They called in some people from the adjoining room and told them that this was the chief who was coming to Vanino to bring them aluminium. Niksa was grinning as well but looking a bit nervous. Shengelia came over around the table, shook my hand, and said this was a negotiation he would never forget. No one had ever made such a joke in the serious business of arranging things at the port. He asked if he could keep the picture and I said “Of course”. It was posted on the main bulletin board of the port’s office with a note in Russian “David Reuben, Chief of Trans World”. It may still be there. I did not include this in my report to David on my return.

The Russians have a finely honed sense of humour. It is a basic form of communication about subjects you might get into trouble if discussed seriously. A rich vein of this political satire and humour was found on “Radio Armenia”, an underground network of jokes. When one is relatively powerless in society, good jokes are what keep you sane. I was an aficionado of these jokes (I even provided two for Ronald Reagan when he was collecting them). However, I also learned that there were some subjects which the Russians felt were out of bounds for humour.

Russians of that generation have all been through a system of education that instilled the values of patriotism and loyalty. The children of the Pioneers and the Komsomol have all been taught from the same script. Even the doubters, in my experience, still believe the core values if not in the practice. I learned this when I made a maladroit attempt at humour. I was asked to design a bulk storage system for grains in the port of Vanino. I produced some drawings and entitled the installation the ‘Pavlik Morozov Memorial Grain Store’. This was greeted by wry smiles and frowns, It was a subject about which that they didn’t seem ready to accept humour.

Pavlik Trofimovich Morozov was the young 13-year-old Soviet boy in the Ukraine who denounced his own father to the authorities for hoarding grain during the repression of the kulaks. His own family turned on him and killed him when the Organs arrested his father. This became a celebrated case in the Soviet Union and there were songs, plays and operas written about Pavlik’s loyalty to the State. It became part of every Soviet child’s education. I probably should not have made a joke of it as they seemed to think it was in bad taste. This surprised me as they were uniformly hostile to the State and had suffered from the State’s activities.  It was poor judgement on my part.

Other than that, I found that using laughter was a wonderful way to operate and Niksa and I and Victor Parness (who operated in the port for TransWorld) spent a lot of our time having a good laugh. It added perspective.



[i] See  Applebaum, Anne, Gulag: A History, Broadway Books, 2003,

Bardach, Janusz / Gleeson, Kathleen Man Is Wolf to Man : Surviving the Gulag, University of California , 1998,

Bollinger, Martin J., Stalin’s slave ships : Kolyma, the Gulag fleet, and the role of the West, Praeger, 2003,

Getman, Nikolai: The Gulag Collection: Paintings of the Soviet Penal System,  Jamestown Foundation, 2001

[ii] Solzhenitsyn, The Gulag Archipelago, vol. 2, p. 49.


Source:Ocnus.net 2022

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