One of pop diva Alla
Pugachyova's first songs was about a harlequin who, regardless of
the ups and downs in his own life ("no one can see my tears"), has
to take the stage every day and make people laugh. Investment funds
are in much the same situation. Even if the country they specialize
in is experiencing difficulties, they have to make the investors,
both current and potential, feel good about it. By taking people's
money and investing it, however, they assume a lot of
responsibility. They can't just make up the numbers. So sometimes
they have to do a little song and dance.
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About a year and
a half ago, right after Mikhail Khodorkovsky was arrested, Al
Breach, head of research at Brunswich UBS, pulled off an
unforgettable feat of linguistic gymnastics at an international
conference. First, he found something good to say about the
oligarch's arrest, then --without skipping a beat -- he recommended
that the government use the thriving oil industry as a model for
reforming the natural gas sector. Breathtaking. I couldn't pull off
a stunt like that; my tongue's not flexible enough.
When you're tongue is not flexible enough, sometimes
it is hard to deal with the facts. In a comment titled "Baiting the
Bear," which ran in The Moscow Times last December, Eric Kraus,
chief strategist for Sovlink Securities, revealed that the "Russian
state was born in 13th-century Kiev." The piece was written in
English, of course, and Kraus -- who holds a doctorate from the
University of Paris VI -- may have figured that Russians, who were
still living in caves not so long ago, wouldn't read it. Your
average foreign investor might not realize that Kraus should have
changed the city or the century, or preferably both.
But Russia's one thing. William Browder, CEO of
Hermitage Capital Management, the world's largest investment fund
specializing in Russia, recently decided to rewrite U.S. economic
history. Browder is known for making contentious statements, such as
his claim that the destruction of Yukos actually strengthens the
institution of private property. His prediction may be correct,
depending on what happens in the future. But when Browder gazes into
the past, he runs into trouble.
In an interview that ran in Expert magazine a few
weeks ago, Browder flatly rejected the notion that the "robber
barons" who dominated the U.S. economy in the late 19th century
provided a suitable analogy for the current situation in Russia.
This is not a trivial matter because after the Rockefellers, the
Carnegies and the Mellons made their fortunes in less-than-admirable
ways, they cleaned up their image and donated huge sums for the
creation of universities and the like. But Browder insisted that the
comparison is inaccurate. "In the United States in 1890, there were
750,000 people known as 'robber barons' who controlled around 45
percent of the U.S. economy. In Russia today, 22 oligarchs control
around 40 percent of the economy." On the contrary, J. Bradford
DeLong, one of the world's most respected economists and an expert
on long-term issues of inequality and growth, estimated that in 1900
there were around 22 "billionaires" in the United States. Not even
22,000, just 22. Matthew Josephson, who coined the term "robber
barons," came up with a similar figure. In other words, the analogy
is a perfect fit.
Maybe they should be more upfront with investors and
simply explain that greater risk means lower prices. In this
situation, investors are advised to buy, not sell. And this creates
greater opportunity for growth. It's a positive message, and it
steers clear of history.
Konstantin Sonin, professor at the New Economic
School/CEFIR, wrote this column for Vedomosti.
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