IKEA's struggle to do business in Putin's Russia.
- By Alexander OsipovichAlexander Osipovich is a reporter at the Moscow Times.
For most Russians, the biggest problem with Vladimir Putin’s authoritarian regime isn’t the rigged elections or the lack of independent media. It’s the entrenched corruption that permeates every sphere of life: the traffic cop lurking on the road to collect bribes from drivers, the surgeon in the supposedly free state hospital who refuses to operate unless he gets a "gift" from his patient, the teacher who hands out good grades for cash. And Russians universally think that such petty acts of greed are a pale echo of what goes on at top levels of the bureaucracy, where officials live in a cocoon of privilege symbolized by the migalki — the blue sirens atop government officials’ cars that allow them to defy the rules of the road. Despite periodic proclamations that the authorities are finally set to tackle the problem, things have gotten so bad that global graft watchdog Transparency International ranked Russia 146th out of 180 countries in its 2009 Corruption Perceptions Index, putting it on a par with Zimbabwe and Sierra Leone.
If you really want to understand what such epic levels of corruption mean in Russia, open a business. Russia’s brave or foolhardy entrepreneurs — and there are few of either kind these days — confront thickets of red tape, endless inspections, and regular demands for bribes, ranging from the subtle to the blatant. This beleaguered new business class generally operates under a self-protective code of silence, terrified of doing anything that might hurt profits. So the abuses go unremarked, except by the increasing number of businessmen who have fled abroad to escape persecution. In a revealing exchange caught on television last year, metals tycoon Oleg Deripaska complained to President Dmitry Medvedev that judges regularly took bribes for rulings. "Everyone knows one has to pay," he said. A visibly angry Medvedev retorted that it was the fault of business for paying the bribes in the first place. Left unanswered was the obvious question: How can a business possibly make a profit if it doesn’t play by the rules of a corrupt system?
A new memoir by Swedish businessman Lennart Dahlgren explores just that quandary. Dahlgren spent nearly a decade battling bureaucrats to bring furniture giant IKEA to Russia. His book, Despite Absurdity: How I Conquered Russia While It Conquered Me, reveals his behind-the-scenes struggles with officials who were ready to throw countless obstacles in IKEA’s path unless they gave in to the system. Published in Swedish last November and now translated into Russian, the book has provoked heated discussion in Russia by providing a shocking and unusually public glimpse at the pervasive rot of Putin’s system.
Dahlgren arrived in Russia in 1998 as IKEA’s emissary to Russia’s new middle class, sick of its clunky Soviet-era furniture and ready to upgrade to Scandinavian modern. His team quickly acquired property in Khimki, a suburb north of Moscow. Helped along by a friendly mayor, Russia’s first IKEA store opened in March 2000, drawing a huge crowd of nearly 40,000 shoppers on its first day. The bedlam seemed to herald a bright future: The company had ambitious plans to build a shopping mall next to the flagship Khimki location and open as many as 20 more stores throughout Russia. But its plans were nearly derailed when Khimki’s accommodating mayor was replaced by Vladimir Strelchenko, an ex-military officer with little patience for Western investors.
The epic Dahlgren-Strelchenko battle dragged on for years. One of the early skirmishes involved an overpass that IKEA wanted to build to connect the future shopping mall to a nearby highway. IKEA jumped through all the necessary hoops to obtain building permits, but once construction was partially completed, officials changed their minds and halted the process. The overpass, they said, veered too close to a World War II monument marking the historic front lines between German Nazi forces and the Red Army in 1941, and would thus be offensive to patriotic Russians. The overpass to nowhere stood there for about a year, until officials reversed their stance again and ordered IKEA to finish it as soon as possible. Now, they said, it was needed to ease traffic jams.
The battle over the shopping mall reached similarly arcane levels of bureaucratic balking. Strelchenko’s administration ordered inspections of each of IKEA’s 80 company cars. It said the planned mall was a biohazard because shoppers wouldn’t be able to flee quickly enough if an epidemic broke out. It refused to allow the opening of a vital access road, citing the risk that cars might pose to an underground gas pipeline — even though the same pipeline already passed under a busy six-lane highway and a major railroad. In the winter, IKEA was fined for not cleaning the snow off its roof. When Dahlgren asked a respected Russian lawyer for help, the lawyer had two words of advice: "Pay them."
Instead, the Swedes fought back. Dahlgren announced to the media that the opening of IKEA’s Mega Mall would take place as scheduled on Dec. 10, 2004, whether local officials liked it or not. Journalists who showed up at the grand opening were treated to a surreal sight. Police had sealed off the mall, but Dahlgren and his team held a pomp-filled opening ceremony anyway. The Swedish ambassador to Russia defiantly parked his car, bearing the Swedish flag, in front of the police lines.
A media frenzy ensued. Newspapers around the world ran articles sympathizing with IKEA’s plight and criticizing the Khimki authorities. Under pressure from his higher-ups, who worried about the damage to Russia’s reputation, Strelchenko finally called Dahlgren into his office and said the Mega Mall could open its doors.
IKEA has been remarkably persistent in the face of such difficulties, investing $4 billion in Russia to date and opening a dozen stores throughout the country. But lately the company has shown signs of wearing down. Last year, it announced that it was halting its expansion plans in Russia because of trouble with bureaucrats. (Notably, officials in the city of Samara had prevented a store from opening because they said its walls could not withstand hurricane-force winds, though such weather conditions are virtually unknown there.) And in February, IKEA’s squeaky-clean image took a hit when it fired two senior executives for tolerating the paying of bribes to a Russian subcontractor.
Throughout his time in Russia, Dahlgren kept searching for farsighted officials who could grasp the value of working with a big foreign investor like IKEA. He got help from some colorful characters, including a mysterious man whom Dahlgren suspected of being a former KGB agent. He once showed up at Dahlgren’s office carrying an odd device with glowing lights. "Lennart, do you know your office is being listened to?" he asked. Then he pushed a button: "Now nobody can hear us."
Dahlgren’s book made a splash in Russia this year after a selection of juicy excerpts was published in various magazines and newspapers. For those familiar with the struggles of Russian entrepreneurs, the book was further proof of a grim reality. "It is clear from this book that many here are not especially concerned about our country’s attractiveness to foreign investors," Kommersant business daily dryly observed.
There will likely be more books documenting the grip that corruption holds over life in Putin’s Russia. But until the Kremlin is ready to open up society, allowing a free press and genuine opposition parties to criticize government graft, whistle-blowers like Lennart Dahlgren are unlikely to have much impact. And bribery will remain just as omnipresent in everyday life as IKEA furniture is in the apartments of middle-class Russians.