Russia: More Than Meets The Eye

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Despite much vaunted “stability,” behind the scenes Russian society is changing rapidly.

Viewed from America, Russia can sometimes appear stagnant. Even before the crisis in Ukraine seriously exacerbated tensions with both Western Europe and the United States, the Russian economy was slowing down rapidly. According to official figures from Rosstat, the state statistics agency, Russian GDP growth in 2013 was 1.3%, the worst performance since the harrowing recession in 2009, and consensus expectations for 2014 are even worse. Things aren’t just slowing down in the economic realm: Russia’s political system has also seen precocious little change over the past decade. Supporters of the government call it “stability” while opponents call it “stagnation,” but there’s no arguing that since Vladimir Putin’s return to the presidency there has been almost no turn-over among the senior leadership. Despite a large string of public protests, pro-Kremlin parties continue to maintain huge majorities in both houses of parliament and Putin will remain the decisive political figure until at least 2018 and likely 2024.

Wharton Russian TrackDespite some of the negativity surrounding the country, however, the current Russian track is the largest in Lauder’s history, with 8 joint MBA/MA candidates and one JD/MA candidate. May consisted of intensive study at Penn—including courses on language, history, and political economy – to prepare for in-country immersion in June and July.  At the beginning of June, the group traveled to Moscow, where it is based out of a major Russian research university the Russian Academy of National Economy and Public Administration (RANEPA).

In the past 3 weeks the group has completed multiple hours of language instruction, attended lectures on economics and politics, met with local Wharton alumni, and visited a wide variety of companies including banks, private equity funds, and a major consumer goods retailer.  One of the most memorable corporate visits was with an international investment bank, and discussions with the head of economic research painted an intriguing outlook for the Russian economy more sophisticated and nuanced than those commonly accessed through mass media.

Behind the façade of continuity, many parts of Russia’s society and economy are rapidly changing. As just one example take a seemingly straightforward sector such as food retail. According to data from a leading retailer, the share of Russians shopping at modern supermarkets, now roughly 60%, is still relatively low in comparison not only to developed countries in Western Europe but to other emerging markets as well. As little as five years ago, however, this figure stood at 36%. Twenty years ago, the figure would have essentially been zero. Even in the midst of a general economic slowdown, the largest retail chains in Russia are now consistently experiencing 20% year over year growth in sales. The shopping experience of the average Russian is converging with Western norms at a shockingly rapid rate.

Another major, and equally unheralded, change is currently taking place in the Russian labor market. Thanks to the “demographic hole” of the 1990’s, the number of people now entering the workforce is smaller than at any point in the past fifty years. Burdened by an educational system that developed to support the needs of a heavy-industry-focused command economy, Russia already had significant shortages of skilled labor in certain sectors such as IT, finance, and consulting. These shortages, however, are currently growing much more acute, with the best companies not only offering higher salaries but a whole range of perks to attract and retain the best talent. After struggling with persistently high unemployment for most of its post-communist history, Russia has suddenly, and quite unexpectedly, found itself with an overheating labor market.

Russia’s recent economic slowdown is real, and few expect a return to the gaudy 7 and 8% growth rates of the early 2000’s. It would be a serious mistake, though, to think that the slowdown is the whole story. The same is true of Russia’s political problems: they exist, but they’re not the only thing that’s important. Despite the appearance of continuity, or even of “stagnation,” Russia continues to transform itself in ways that are not often appreciated. The class of 2016 Russian track is learning that even at a time of there’s still excitement and dynamism, it’s just a matter of knowing where to look.

By: Mark Adomanis (Lauder Class of 2016, Russian Track)

Note: Lauder Summer Immersion reflections and personal insights belong solely to the individual student authors and is not necessarily representative of the institutions or organizations that the writer is associated with.