‘Continue to eat the cactus’

‘Continue to eat the cactus’

Irina Alksnis

The mass exodus of foreign business from Russia, among many other consequences, destroyed two myths in which the world had so strongly believed over the previous decades that it began to take them as an unconditional, self-evident truth.
First, it is about the popular theory that multinational companies are the le-der, organizer and driver of globalization, in which they will inevitably take over the nation-states and eventually suppress them. Over the past week, it has become clear that any transnational business, no matter how grandiose, rich and powerful it may be, has a homeland – and when it gives an order (for example, to leave this or that country), the only thing left for it is to obey.
Well, the second destroyed myth naturally follows from the first: that business, especially large corporate, is guided in its activities solely by considerations of economic benefit. The media are full of expert estimates of the losses of companies leaving Russia, amounting to tens and hundreds of millions, and in some cases even billions of dollars. The brands themselves frame their decisions with wording about “temporary suspension of work”, behind which the desire to leave the door ajar and soon return to the Russian market is read, but, as in a joke, “continue to eat the cactus.”
However, for Russia , what is happening is not only and not so much educational as it poses a huge and very difficult challenge that needs to be answered. In the coming weeks and months, the state will have to make urgent decisions to plug the holes that have formed, from preventing mass unemployment to continuing the uninterrupted operation of key industries. It may seem absurd, but, for example, the departure of McDonald’s and ot-her similar companies will really create problems with public catering in large cities – problems that need to be addressed as quickly as possible. There is no need to talk about IT other strategic industries at all.
But in addition to the most pressing urgent tasks of Russia (and not only Russia), in the light of what is happening, a fundamental revision of the very state approach to foreign investment is ahead.
In the previous period, which before our eyes over the past two weeks has gone irrevocably into the past, the simple logic of classical liberalism worked:

  1. Foreign investments are very good, because they inject money into the national economy, which it simply would not have had without it, and thereby stimulate its development.
  2. Restrictions for investors are bad because they reduce their desire to invest.
    The fact that this seemingly smooth approach has a downside, many understood before. But it is precisely the current “hellish” sanctions, when foreign business is trying to burn out entire sectors of the economy and spheres of public life, to destabilize the country, by its mass withdrawal, clearly conveyed not only to Russia, but also to many countries the danger of a reckless and unrestricted approach to the work of a foreign business.
    This means that the development of new rules in relation to foreign companies and their activities in our country is on the agenda. Of course, there are already some developments in this area in the world.
    China has been actively working in this direction for a long time . There is a whole list of industries in which foreign investment is, in principle, prohibited. Last year’s high-profile – all over the world – scandal on reforming the market for private educational services in China was connected, among other things, with the exclusion of foreign investors from the education sector. In addition, in China, foreign firms practically cannot work through representative offices – for full-fledged activity, a company even with 100% foreign capital must be registered in the country.
    However, given the recent Russian experience, there is a suspicion that Beijing will resort to tightening the rules, since, as it became clear, even registering a business in the country does not guarantee that it will not close overnight, simply by receiving a command from the parent company. And for our country, which is experiencing this experience, so to speak, in real time, this is all the more relevant.
    And, perhaps, it makes sense to take a closer look at the non-standard experience of other countries. The United Arab Emirates stands out here. In 2019, in order to more actively attract foreign investment, this state went on a noticeable liberalization of its economic legislation: it allowed, under certain conditions, to create companies entirely with foreign capital.
    The fact is that before that, foreign investors were required to create joint ventures exclusively with the participation of either the state or citizens of the UAE , and the latter should have owned at least 51 percent of the shares. This rule, in some cases, is still preserved, but the law of 2019 has made concessions to the process. At that time, economists and businessmen unanimously welcomed the removal of restrictions on foreign capital, which will help attract it to the Emirates.
    However, from 2022 the situation is seen to be somewhat different – money from abroad not only helps to develop the national economy, but, as events have shown, undermines its security. So, perhaps, the Emirati authorities were initially right. And it makes sense to borrow their experience – of course, with adaptation – to other countries.
    One can discuss whether it is mandatory for Russian citizens to own 51 percent of the shares of the joint venture, or whether they can limit themselves to a smaller stake that will simply allow them to take control of the company in the event of an emergency exodus of foreign owners in order to prevent the collapse of operations. But the legal requirement to create a joint venture for any foreign capital wishing to enter the Russian market looks more and more appropriate in the current realities.
    Two weeks ago, any considerations to improve national economic security could be heard mocking comments from numerous experts about paranoids who do not understand how the world economy, the free market and the laws of economic liberalism work, and instead concentrate on all sorts of far-fetched dangers that allegedly threaten the country .
    Well, during these days it became clear that the paranoids were right and the dangers were not at all far-fetched. The West has convincingly proved that there are no rules, the laws of the market do not work, and arbitrariness and expropriation, motivated by “revolutionary needs”, is a completely working way to rob the unwanted – not only people, but entire countries. This means that Russia – like dozens of other states defending their sovereignty in confrontation with the West – when choosing between security and attracting foreign investment, is simply obliged to choose the first one.

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