Saturday, June 26, 2010

Medvedev in Silicon Valley: Do Not Fall For It

The Russian President visited Silicon Valley last Wednesday (June 23). His aim: To establish a Russian silicon valley outside of Moscow. He wanted the assistance and capital of Silicon valley. As usual, Medvedev emphasized that a rule of law would be established in Russia to safeguard foreign investment. Our experience to date in Russia is that promises of a rule of law are cheap. Delivering on that promise is expensive. As I write this piece, Khodorkovsky is still in jail in Siberia, now accused of stealing virtually all the revenue ever generated by Yukos Oil company. BP, ExxonMobil and other energy concerns are rewarded for their billions of dollars investment with de facto expropriation by environmental or tax authorities. Since Russian independence, there are few, if any, western companies, that have earned returns on investment commensurate with the risk. Under Putin, the largest and potentially most-profitable companies are now run by the state either directly or indirectly. The Russian mindset has always been to reserve the real profits for ourselves. If a western venture is about to earn a substantial profit, we must find a way to take it away.

I assume that these lessons are not lost on Silicon Valley. My advice is for them to stay away until that goal on the distant horizon is reached -- a true rule of law.

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