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. Last Updated: 07/27/2016

More Important Than the Oil Price

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The ideal type of a successful Russian businessman until recently was the proverbial oligarch: a streetwise, tough businessman with skills learned the hard way during Soviet times and the early years of perestroika. He would have considerable clout in the government allowing him to get lucrative government-related business and to privatize valuable assets left over from the Soviet era.

However, as the period of distribution of state assets comes to an end, the new period brings new rules of the game and, correspondingly, a new ideal type of successful businessman emerges.

In recent years this country has demonstrated a certain track record of stability, and the new owners of privatized assets now seem increasingly convinced that there will be no major forced re-distribution of their assets initiated by the state.

In this environment, funneling cash flows to offshore destinations starts to bear increasingly high opportunity costs, as domestic political and macroeconomic risks diminish and business and investment opportunities expand. Economic growth and the emergence of a middle class create new demand for goods and services, many of which were not supplied by the market before and often require knowledge of modern business processes and models.

Market and structural reforms are gradually changing the business and investment climate, eliminating "soft budget constraints" and providing an increasingly level playing field for businesses.

In this changing environment, the recipes for success undergo radical change.

Instead of ability to leverage contacts in the government and use public funds for private benefit, the new name of the game becomes value creation and market competition.

For a growing number of Russian enterprises, the need to access international capital markets is demanding and encouraging things previously unheard of, such as good corporate governance, financial transparency and a focus on shareholder value.

In this new environment, corporate success stories begin to be increasingly determined not by the "oligarchic" qualities of corporate leaders outlined above but by how successfully companies can build or integrate teams of professional managers.

These professional managers may not be that good at lobbying for government-supplied resources; instead, they know how to create real economic value through business restructuring, advanced marketing and sales, proper management accounting, analysis of return on investment and modern human resource management.

It is very encouraging to see that such a shift in corporate mentality is taking place with noticeable speed.

However, such rapid change suddenly exposes another structural weakness of this country. When economists argue about the importance of the oil price or banking reform for economic growth in the coming years, they seem to overlook the fact that future rates of growth in Russia and the degree of its integration in the global economy will very much depend on the supply of professionals with Western-quality education in business and finance.

The current supply of qualified professionals may simply be insufficient to meet the demand generated by a growing economy. In fact, there are already signs that recruitment agencies and employers are starting to feel the shortage of well-trained specialists, as in particular evidenced by the recent growth in average salaries in the higher-qualification segments of the labor market.

The legacy of 70 years of a command economy and the attendant nonmarket mentality is still huge, and this country desperately needs a growing pool of business and finance professionals. These people should fill the vacancies that a growing transition economy creates in management, corporate finance, consulting, marketing, accounting and audit, commercial and investment banking and so on. They should finally and ultimately replace the generation of Soviet-era red directors, khozyaistvenniki and proizvodstvenniki.

These people will view gaps in product supply or service infrastructure not as a reason to emigrate but rather as great business opportunities.

However, for this to happen on a sufficiently large scale, Russia has some catching-up to do. Back-of-an-envelope calculations suggest that as a proportion of the total labor force, Russia now educates 20 times fewer people in business and finance than the United States, and six times less than European Union countries. In qualitative terms, the gap is significantly bigger given the difference in quality of education and work environment.

Both in the government and in the business community, decisionmakers who think in terms of decades rather than months or years should recognize the importance of this problem. Possible policy responses could include setting up student loan schemes, and providing grants and additional tax benefits to students and business schools. Supporting the development of domestic institutions should be a priority because sending people abroad is not a cost-effective solution.

Finally, those decisionmakers abroad who are interested in Russia becoming a stable democracy with a dynamic economy could make a significant contribution by adopting a set of measures that will help Russia to raise its young class of business and finance professionals, which is all too small at the moment.

Alexander Kim (Alex.Kim@neurok.com), partner at a private high-tech venture capital firm and adviser on foreign investment to the State Investment Agency under the Economic Development and Trade Ministry, contributed this comment to The Moscow Times. He is a member of a group of individuals that is currently working on establishing the first nonprofit loan scheme in Russia for students studying business and finance.