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. Last Updated: 07/27/2016

INSIDE RUSSIA: Ledger Tricks Of Companies Keeping Pace

In the West, they still have a rather idealized view of the Russian economy. They try to measure the economy's gross domestic product and at the level of individual factories, they make up all sorts of clever schemes of regulating financial flows and even try to study that work of science fiction, the corporate balance sheet.

Which reminds me of a little New Year's story about an aluminum factory told to me by a Moscow representative of an off-shore company. The company had majority control of the factory and, of course, they didn't want the management and the workers to steal. It thought that it should have the exclusive right to steal.

The simplest way to check whether metal is being stolen or not is to track the inventory of the metal. In other words, you weigh the ingots of aluminum entering the factory and the ingots leaving the factory to make sure that the weight of the output equals the weight of the ingots.

So December comes along, it gets cold and the Moscow representative notices that the metal inventory in one of the workshops doesn't add up. The representative goes to the general director of the factory and says, "The metal inventory in workshop No. 5 doesn't seem to add up." The deputy director rings the head of the workshop. "How come your metal inventory doesn't add up?" "Because it's cold." "Do you hear," says the director. "It's cold."

The guy from Moscow's features contort into a question mark. He delicately inquires what the prevailing temperature has to do with the weight of the ingots. Perhaps, the factory has discovered some new law of physics?

"Here's the thing," says the general director. "In 1992, the factory took a big delivery of funny aluminum." It was funny in the sense that it came without any documents. That was just the natural course of things during the chaos of 1992. The factory, of course, did not send the metal back but just heaped it up against a wall. So when these Muscovites start making trouble about the metal inventory, the workers just run over to the wall and get as many ingots as are required.

But now it's cold and the ingots are covered with snow. No one can be bothered running over to the wall.

There are plenty of other interesting things to tell about the factory. For instance, the management has insured the workshop against "fire and nuclear war." For another instance, on orders from the management, three workers were gunned down at the front gate while trying to make off with a few small kilo-size ingots worth less than $1.50 on world markets. And then there was the time they bartered ingots to settle a debt with bandits who provided the factory with "protection."

These financial machinations make for wonderful stories on cold winter nights. But here is the real point. Dear investors, if you get the idea of investing in a Russian factory in 1999 on the basis of its balance sheet, bear in mind that in Russia, a corporate balance sheet, like a metal inventory, depends on the most surprising things.

You can make as many wishes as you like to Father Christmas but there is one thing he cannot bring. The Russian economy will still defy statisticians and Russia's corporate governance will remain a snow-covered heap of metal.