Vekselberg had a partner who decided it would be prudent to cash in his chips and step away from the table. “I had one friend—let’s not criticize him, it was his personal choice—who said, ‘What vouchers! What privatization! I don’t need that,’” Vekselberg told me. He withdrew his share of the group’s profits so far—about $100,000, Vekselberg recalls—while his erstwhile partners went on to become billionaires. Having worked together for twelve-hour days at the beginning of their capitalist metamorphosis, he and Vekselberg haven’t been in touch for years. “We don’t have much in common anymore,” Vekselberg said.
On September 23, 1932, six weeks before the election that would begin his service as one of America’s most consequential presidents, Franklin Delano Roosevelt addressed the Commonwealth Club of San Francisco. The speech he delivered is a model of rhetoric—U.S. political scientists in 1999 judged it to be one of the best addresses of the twentieth century—and it made the intellectual case for what would become the New Deal. From a distance of eight decades, what is striking about the address is its characterization of the robber barons. FDR paints them as business titans, geniuses at responding to revolution who ushered America into the industrial age.
It was the middle of the nineteenth century that a new force was released and a new dream created. The force was what is called the industrial revolution, the advance of steam and machinery and the rise of the forerunners of the modern industrial plant. The dream was the dream of an economic machine, able to raise the standard of living for everyone; to bring luxury within the reach of the humblest; to annihilate distance by steam power and later by electricity, and to release everyone from the drudgery of the heaviest manual toil.
Bringing this dream to life required the robber barons: “To be made real, it required use of the talents of men of tremendous will, and tremendous ambition, since by no other force could the problems of financing and engineering and new developments be brought to a consummation,” the president explained.
But FDR was also firmly of the view that the interests of these talented “men of tremendous will and tremendous ambition” didn’t perfectly coincide with those of society as a whole:
So manifest were the advantages of the machine age, however, that the United States fearlessly, cheerfully, and, I think, rightly, accepted the bitter with the sweet. It was thought that no price was too high to pay for the advantages which we could draw from a finished industrial system. The history of the last half century is accordingly in large measure a history of a group of financial titans, whose methods were not scrutinized with too much care, and who were honored in proportion as they produced the results, irrespective of the means they used. The financiers who pushed the railroads to the Pacific were always ruthless, often wasteful, and frequently corrupt; but they did build railroads, and we have them today. It has been estimated that the American investor paid for the American railway system more than three times over in the process; but despite this fact the net advantage was to the United States.
From today’s polarized perspective, what is striking is how FDR gave the business titans their due for bringing the industrial revolution to America, yet at the same time insisted that their self-interest differed from that of the nation as a whole. We live—or at least until the 2008 financial crisis, we lived—in the age of triumphant capitalism, in which the titan is, as Pitch Johnson told the Moscow MBA students, “the hero of our time.”
But the reality is more nuanced. The heroic businessman who brilliantly surfs the wave of revolution is driven by the imperative to build his business. That usually creates a lot of value for the rest of us—the railroads of Roosevelt’s speech—but profit, rather than nation building, is the titan’s North Star. Being good at responding to revolution doesn’t necessarily mean focusing on those businesses that are most important for the nation’s long- term growth.
The buzzword in Russia today is “modernization.” That is because, despite the country’s shift to a market economy and its relatively strong economic growth over the past decade, Russia’s leaders have started to worry that they have built a version of capitalism appropriate to the twentieth century rather than to the twenty-first. Where, they wonder, is Russia’s Bangalore, not to mention its Silicon Valley?
This absence is particularly galling for Russians because they take great pride in their national scientific and technological prowess—and not unjustifiably so. America laments its lack of engineers, but in the Soviet Union engineering, math, and physics were the most valued degrees. And the country as a whole wasn’t bad at putting that knowledge to work; after all, the Soviets made it to outer space before the Americans did, and they built a nuclear arsenal bigger than the American one.
That meant that when communism collapsed, a lot of smart observers thought Russia’s liberated scientists would lead a new wave of innovation or, at the very least, offer a stiff challenge to India as an outsourcing center. To understand why that hasn’t happened, at least not in a big way, consider the story of Serguei Beloussov. When the Soviet Union collapsed, he was perfectly poised in a position between insider and outsider. He was from an academic family in St. Petersburg, but he had made it to the Moscow Institute of Physics and Technology, the country’s premier math and technology school. Like many of the oligarchs, he began experimenting with entrepreneurial ventures while he was still in college, organizing national tours for his university’s judo club, among other things, mostly for pocket money.
Beloussov has done well. Today, he owns two software companies, with a global workforce of one thousand. His best-known product is software that allows Windows programs to run on Macs. But Beloussov isn’t an oligarch. And that is because he wasn’t as good as they were at responding to revolution.
“In Russia, all the property belonged to the state and the most money was made by people who were involved in privatization,” Beloussov, wearing dark jeans and a long-sleeved red T-shirt advertising Parallels, one of his companies, told me.
“Business is about money and that is where the money was. Then, ten years ago, the big scarcity in Russia was brick-and-mortar businesses and many of my engineers would come to me and say, ‘I want to open a chain of drugstores’ or ‘I want to build homes.’ Then, five years ago, many businessmen decided to work for the government.” Only now, he thinks, is it starting to make real sense to work in technology.
Beloussov has no illusions about his own decision to focus on building actual computers and then computer software from the very start. Sipping his nine p.m. espresso in a crowded Starbucks in downtown Moscow, he told me, “I was young and stupid”—he was twenty-two at the time. “If I had invested my first money in privatization, that would have been much more profitable.”
Contrast Beloussov’s decisions with those of another smart technologist who saw a market opportunity in the late 1980s in the Soviet Union to write computer software: metals and oil magnate Viktor Vekselberg, today worth $12.4 billion.
Vekselberg made his first small fortune in 1988—when Gorbachev’s USSR took its first tentative step into capitalism with the cooperative movement—by writing and selling his own computer software program. Within three months he had earned enough, he told me, “to buy an apartment, a car, and a dacha.”
He and his five partners next devised a more complicated deal involving salvaging copper wire from scrap heaps in western Siberia (familiar to them because their Moscow institute did a lot of work for the oil fields there), then exporting the copper and using the revenue to import IBM computers, which his group loaded with their own software and sold to Russian companies. The business was hugely lucrative—Vekselberg said he and his partners made a hundred dollars for every single dollar invested—and within a year they had made $1 million. “That sounds funny today,” he mused, “but in those days it was huge money.”
If this were a Silicon Valley story, Vekselberg and his partners would probably have gone on to become serial software entrepreneurs. If this were a story about India, they would probably have moved on to technology outsourcing. If they were Chinese, they might have used that first million to build a factory. But this was Russia, and Vekselberg was turning out to be one of the country’s most adept businessmen, so he saw and jumped on the biggest opportunity: privatization. “People didn’t know what to do with privatization vouchers, so we bought up vouchers and used them to participate in privatization auctions. That is how we bought our first real assets, beginning with aluminum factories, and from there on we built our real business.”
Beloussov says it isn’t his nature to look back, but that his partner “still regrets that we didn’t participate in privatization. But it was just impossible for us to understand conceptually.”
Today, the Kremlin has given Vekselberg the job of building a Russian Silicon Valley. But Beloussov warns
