Paul SANDERS ESC Dijon

Globalization, economic interpenetration

and business ethics in emerging markets

Abstract A large number of MNEs who are serious about corporate social responsibility feel challenged by the issue of which standards and practices they should adopt in order to steer around the dilemmas they confront in ethically problematic emerging market environments. Demand for a conceptual framework outlining whether (and how) MNE activities can benefit the furthering of host societies in emerging markets has never been more pressing. Business ethics research has eschewed this international dimension, favouring the domestic context of developed markets. Citing the case of Russia the paper seeks to raise awareness and outline this focal problem of international business ethics. It aims to critically reflect the notion of a Western 'liberal engagement' with emerging markets, as well as the scope for economic and societal change through economic interpenetration. The need for a unified ethical benchmark methodology enabling Western business stakeholders to tie their activities to concrete objectives is highlighted. 'Globalization, economic interpenetration and business ethics in emerging markets'

The article aims to critically reflect on the interpenetration of economies and societies in the global marketplace, as well on the justification and scope for economic and societal change through economic interpenetration. We will try to illustrate our approach by using the case of Russia. Globalisation presents multinational enterprises with both opportunities and challenges. One of the most important challenges concerns reconciling business ethics with the increasing exposure to important emerging markets such as China, India, Brazil or Russia. The nature of ethical challenges in these markets derives to a large degree from the varying ethical standards and norms applicable in mature and in emerging markets. The hitherto classical example for this are the supply chain management problems experienced by multinationals such as NIKE, GAP and others. However, this is no more than the tip of the iceberg, for a more serious contention surrounds the issue that engaging in business activities may help to prop up political and societal regimes which are not in phase with our own social, political and environmental sensibilities. Of course a relativist viewpoint would challenge that this should be an issue at all, but surely this view is far from delineating a consensus among business ethicists. Business ethics research and global governance drives, although prolific, have provided little help in solving the conundrum, as they focus their attention on the rather more manageable areas of corporate social responsibility or corporate and financial transparency rules. These frameworks provide reasonable guidance for the domestic context of the type of market economies we see in fully fledged democracies, but they have little value for addressing the

complex ethics of interculturality. Another enduring feature are unenforceable international standards whose implementation is based on broad principles or wishful thinking. In contrast, for the more ambitious Western business stakeholders willing to embrace a broader societal agenda in emerging markets, the methodological and deontological problems are virtually insurmountable: no unified ethical benchmarking exists enabling them to tie their activities to precise objectives or timetables on civil society promotion; nothing exists to advise them how to navigate the Scylla and Charybdis of trade-offs, compromises and acceptable tolerance levels or what type of arbitrages are ethical. For Manuel Velasquez to conclude that the field of business ethics has "failed" international managers.1 Before proceeding any further one needs to consider why business should be concerned about ethics in emerging markets. Isn't their principal task to maximize stockholder value? And doesn't the idea of a wider societal remit clash with the reality of business operations in emerging markets? The facts appear to confirm this pessimistic point of view: despite talk of triple bottom-lines and CSR, practically no Western businesses are party to considerations of socio-political change in emerging markets. If they have an ethics policy then this will in most cases focus on "staying clean" in its immediate operations while conforming to the laws of the host country. In contrast the notion advocated by human rights activists that it should play a socio-political role in emerging markets is unlikely to elicit much popularity.2 As can be seen in the historical case studies of Myanmar and South Africa under Apartheid, considerable public pressure is necessary to get foreign businesses to review their policies or withdraw from markets in which human rights violations are massive and endemic.3 Still, there is no alternative to triple bottom-lines. One reason is that a sole "money making" concern is irreconcilable with the embedding of humanitarian principles in Western culture since 1945 - and would therefore be inconsequential. One indication for the lifting of the taboo on meddling in the affairs of a sovereign state is the emergence of a doctrine of humanitarian intervention, as experienced in the 1999 NATO intervention in Kosovo. The way had been prepared by Nuremberg which enshrined crimes against humanity and crimes against peace in international law. And further development was accompanied by an evolution in the body of international law: from conventions such as the UN declaration of human rights and the UN genocide convention, both of 1948, to the recent Responsibility to Protect proposals submitted to the 2005 World Summit. Another example of the "humanitarian shift" are the conditions for EU accession which include besides the obligatory economic harmonization measures a catalogue of non-negotiable humanitarian principles such as minority rights, protection from discrimination, rule of law, press and media freedoms, free elections etc. No country can become a member before "coming clean" on these principles. Although not always entirely on the same wavelength as Europe (s. death penalty), the US prefigured the shift through her advocacy of the Wilsonian liberal agenda of self-determination and democracy during and after World War One, the reconfirmation of its ideals in the 1941 Atlantic Charter as well as the spread of market capitalism after World War Two. Finally, business of the last decade has seen a momentous shift to ethical marketing, fair trade principles, environmental consciousness and other social responsibility concerns. Public opinion and pressure group activities are the reflection of this fundamental shift. They can force even the most recalcitrant businesses to adopt a position that is reconcilable with the general ethical agenda. To rephrase companies' new responsibility in the words of Rights & Democracy, a Canadian advocacy institution:

1 Manuel Velasquez, 'Globalization and the failure of ethics', Business ethics quarterly, 10 (1), 2000, 343-52.

2 For illustration of the human rights activists' stance s. the "Google" and "Economic campaigns" pages on the Free Tibet

website, http://www.freetibet.org/campaigns/past-campaigns, accessed 21 April 2009. 3 Charles Hill, International Business: Competing in the Global Marketplace, 2007 (6

th ed.), 127; 130.

In today’s world, focusing on the state as the only human rights duty-bearer does not reflect the increased influence of the market and its primary actors, corporations. However, the human rights responsibilities of companies are not the same as the obligations of states. Our view is that businesses must comply with national and international law, including human rights law, and that this is best understood as a requirement to respect human rights, not to benefit from violations of human rights, and not to be complicit in human rights abuses.4

If we take further this view, Western business has become an integral part of the overall shift in Western sensitivities and is an essential stakeholder in the new humanitarian agenda. In logical order one may want to conclude then that the relevance of triple bottom lines cannot be restricted to mature markets, but must be equally applicable to emerging markets. At the same time this Western universalism is as self-referential and parochial as cultural relativism. As Manuel Velasquez outlines in a piercing analysis published in 2000, universalist principles of human rights or justice found in the business ethics literature are founded on metaphysical assumptions "that are embedded in Western cultural ways of thinking". In fact none of the standards claiming to be universal "can claim a status that transcends all cultures".5 The understanding of human rights is informed by an individualistic conception of the person that is not necessarily shared across all cultures. Velasquez concludes that business ethics has failed the multinational manager because

[h]uman rights theories [...] fail to provide the kind of transcultural criteria that the multinational manager requires in a non-relativistic ethic.6

Velasquez brings similar criticism to bear upon the search for absolute "hyper norms" based on social contract theory and supposedly identifiable in all cultures.7 The question remains: 'Can the West remain true to its own values without at the same time being accused of imposing parochialism?' One suggestion is to drop the notion of universal human rights and instead agree on clearly identifiable human wrongs. Similarly it might be easier to specify what is unjust rather than just. As has been suggested by other authors, wrongdoings such as genocide or genital mutilation are severe enough to silence even the hardiest critics of human and gender rights universalism.8 Another answer to the dilemma may be "convergence", the independent attainment of similar characteristics by unrelated organisms evolving in separate or varying environments. Rules-based convergence How can convergence be achieved? A first option consists in advocating a rules-based approach. Examples for rules-based approaches abound. One could cite here the US Foreign Corrupt Practices Act, the UN Global Compact or the ethics or social responsibility charters of numerous multinationals. The Foreign Corrupt Practices Act (FCPA) was passed into the law of the United States in 1977. It followed a number of corruption scandals involving foreign officials and US

4 Human Rights impact assessments for foreign investment projects: Learning from community experiences in the

Philippines, Tibet, the Democratic Republic of Congo, Argentina, and Peru, Rights & Democracy (International Centre for Human Rights and Democratic Development), 2007, 15, http://www.dd-rd.ca/site/_PDF/publications/globalization/hria/full%20report_may_2007.pdf, accessed 23 April 2009. 5 Manuel Velasquez, 'Globalization and the failure of ethics', Business ethics quarterly, 10 (1), 2000, 346-7.

6 ibid, 347-8.

7 ibid, 349-50.

8 Chris Brown, 'Human Rights', in: John Baylis, Steve Smith, edd., The globalization of world politics. An introduction to

international relations, Oxford, 2001, 612.

companies. As a result the FCPA prohibited US corporations from engaging in such illicit payments to foreign public entities or the representatives. Although created to remove ambiguity the FCPA created about as many new question marks as it was supposed to resolve. Critics have pointed to the fact that it does not deal comprehensively with the problem of corruption by allowing loopholes for "acceptable" forms of facilitating payments (as opposed to outright bribes). Other criticisms include the fact that other countries have not passed similar legislation, and that the FCPA therefore places US corporations at a significant competitive disadvantage or that the framing of the issue of corruption is culturally relativistic and disinterested in economic wellbeing. On the whole experiences with the FCPA have been very mixed – a far cry from bringing a solution to the problem of international corruption.9 The criticism leveled at the UN Global Compact is of a slightly different genre. Founded by UN General Secretary Kofi Annan in 2000 as the world's largest corporate citizenship initiative, the Global Compact is an attempt to enshrine ten principles of good corporate governance in the areas human rights, labour, environment and anti-corruption. This association of public and private law organizations, NGOs and UN agencies is designed as a forum for dialogue rather than an enforcement mechanism. The Compact itself states that companies' declaration of support for its principles "does not mean that the Global Compact recognizes or certifies that these companies have fulfilled the Compact’s principles."10 The unenforceability of its provisions and unaccountability of corporations is also where the Compact's Achilles heel lies. Accordingly campaigners denounce the Compact as a public relations instrument or, more precisely, a "good-governance marketing tool" allowing signatories to benefit from the prestige of the UN.11 The ethics and social responsibility charters of multinational companies we find on the ground level of international business are hardly more convincing efforts. While these have a tendency to adopt admirable ethical standards in their domestic operations, at same time they outsource ethical problem zones to unaccountable third parties in foreign locations where legal frameworks and ethical standards are weak. Marketing shells such as NIKE or GAP which rely on myriads of foreign suppliers or contractors are particularly vulnerable to this. The global business integrity program of a randomly chosen US luxury company is indicative of the situation. Its program guide places much emphasis on the involvement of stakeholders such as governments, customers, company staff, but omits to address the real crucible of global business, i.e. supplier relations and supply chain management. The legal positivism of the program transpires from its stress on conformity with US and international law, and simultaneous omission of the grey zones or loopholes of international business:

The first and foremost obligation of responsible citizenship is to obey the laws of every country and community in which we do business. These include safety, environmental and antitrust laws, as well as international trade regulations. [The company] is proud to go beyond the law by becoming actively involved in initiatives for the betterment of the environment and our communities.12

9 Kenneth D. Alpern, "Foreign Corrupt Practices Act (FCPA)", in Cary L. Cooper (ed.), The Blackwell Encyclopedia of

Management, Blackwell Reference online, http://www.blackwellreference.com, accessed 14 April 2009. 10

'Participating companies in Bulgaria', Global Compact network, http://www.unglobalcompact.bg/index.php?p=join&sub=2, accessed 22 April 2009. 11

'Global Compact is "effectively useless", according to Global Witness', Global Compact Critics, 30 Mar 2009, http://www.globalcompactcritics.net/, accessed 22 April 2009; s. also Graham Knight & Jackie Smith, 'The Global Compact and its critics - Activism, Power Relations, and Corporate Social Responsibility', in Janie Leatherman, ed., Discipline and punishment in global politics - Illusions of control, Palgrave Macmillan, 2008. 12

'Global business integrity program guide', Coach - Governance documents, http://www.coach.com/online/handbags/genWCM-10551-10051-en-/Coach_US/CompanyInformation/CorporateGovernance/GovernanceDocuments/, n.d.

The focus on legality (rather than legitimacy), plus the treatment of what should be the core of a genuine ethics approach as a mere option - with no indication in terms of how superior outcomes may be achieved - beggars the question: what is global about this integrity program, apart from its name? In a separate document titled "Supplier selection guidelines" one finds the following paragraphs:

[The company] will not knowingly [emphasis by author, n.b.] use suppliers who fail to comply with the legal maximum working hours as specified by each country's standards and laws […] [The company] believes that people should be employed on the basis of the ability to do the job, rather than on the basis of personal characteristics or beliefs. [The company] will favor [emphasis by author, n.b.] doing business with those suppliers who practice this principle."13

Again a very minimalist approach. It is hard to escape the impression that the company's prime interest is to limit legal liability rather than advance a more activist agenda in social or human rights. For the case of Russia practically the entire current Western approach to engagement is of the rules-based type. The US approach is embodied in a Business ethics manual published in 2004 by the US Department of Commerce. This offers a number of normative guidelines as to running responsible business in an emerging market, among them a structured business ethics program. Most of the concepts holding together this framework, such as 'improving business performance', 'generating social capital', 'adopting global standards and best practices' or 'working with leaders' are taken straight out of the Western business ethics toolbox, with little to no adaptation to the foreign business environment.14 The basis of so much naiveté has to be seen in the paradigms still prevalent in some Western quarters: firstly that Russia (and other emerging markets) are going through a transition to a market based economy - a concept that is increasingly being called into question as far as Russia is concerned; and secondly that the malfunctions and ills of the current system are down to the long-term consequences of central planning. The European approach is not much different. Starting at the top of the pyramid one can cite the EU attempt to further the relationship with Russia in a Partnership and Cooperation agreement (PCA) first signed in 1997. This was followed by other declarations such as the "Four Common Spaces" (economy and environment; external security; freedom, security and justice; research and education), signed at the 2003 EU-Russia Summit in Saint Petersburg. Has this had any bearing in terms of furthering convergence in business culture and business ethics? Unfortunately the indication is that rules-based integration may have landed EU Russia relations in a dead end, from which it is difficult to back out now. It is indicative of the state of affairs that after its expiry in late 2006, the renewal of the PCA agreement has failed several times. Today the PCA has become a symbol of singular failure, in addition to being abused by several parties as a symbolic stumbling block for EU-Russia relations. One problem is the ambitious nature of the PCA which is legally binding. The PCA passed into law at a time when Russo-European relations were particularly good and when it seemed opportune to intensify and codify the political dialogue in the areas of competition policy, commerce and financial, economic, legal and cultural harmonization.15 The agreement had the objective to serve as prelude to the creation of a free trade zone, through the

13

'Supplier selection guidelines', idib. 14

Business ethics - A manual for managing a responsible business enterprise in emerging market economies, Good Governance Program, U.S. Department of Commerce, Washington, 2004, www.ita.doc.gov/goodgovernance/adobe/bem_manual.pdf, accessed 23 April 2009. 15

House of Lords, European Union Committee, The European Union and Russia, 14th

Report of session 2007-08, May 2008, http://www.parliament.the-stationery-office.co.uk/pa/ld200708/ldselect/ldeucom/98/9802.htm, 32.

assimilation of Russian and EU norms.16 The overriding idea being that a liberal and democratic Russia would adapt to European legal norms, institutions and values, even if there was no prospect of an eventual EU membership.17 Today both sides have come to realize that a thorough reconfiguration of the PCA is necessary – even though nobody can quite agree about the utility of the agreement. Among experts there seems to be an understanding that the PCA's practical benefits are limited and that a renegotiated PCA should include some overdue simplifications. Critics such as Philip Hanson question the EU's regulatory zeal in the PCA, which attempts to regulate 'everything under the sun'.18 For Mark Lyall Grant, political director at the UK's Foreign Office, the PCA itself is more procedural form than real substance.19 If the consensus nevertheless militates in favour of a simplified PCA, then this is founded on the fact that a total breakdown of negotiations would be interpreted as a considerable regression by both sides and could have dire consequences for the relationship.20 This symbolic and psychological aspect makes the delays in the renegotiation process, caused by the blockades of EU members Poland and Lithuania as well as by the August 2008 conflict in Georgia, particularly unnerving. The Russians themselves are no less sure than the European that they still want the PCA. The original version of the PCA was negotiated during a period when the Russian side – dependent on the financial and political support of the West - was prepared to grant wide concessions. The improvement of Russia's leverage in the decade and a half since runs counter to Russian will to submit to all principles of the PCA. Instead of simply accepting the principle of convergence towards European standards, the Russian side now seeks a terminology which reflects the equal partner status. Particularly conflict prone - and in need of renegotiation from the Russian point of view - are the normative stimulations of the PCA in terms of human rights, individual freedoms and democracy.21 The Russian side therefore pursues the aim to limit cooperation to a select number of politically uncontroversial areas, arguing with the intolerable level of abstraction and lack of concrete underpinning in the current PCA.22 These tendencies however cause offense to the voluntarism, auto-perception and ambitions of the EU which sees itself as a supranational regulatory gatekeeper able to reclaim from its privileged partners adherence to universal principles that transcend the usual bilateral framework between individual states. In other words, the EU reclaims – and in this it is encouraged by the PCA - a right to interfere in Russia's internal affairs.23 Thus the European side links the improvement of economic and political relations with progress (or at least not regression) in the areas of pluralism, democratization, press freedom and human rights. The Russian side rejects this coupling of "unrelated issues" out of hand, complaining that the European stance amounts to the "politicization of technical dossiers" as well as the "neglect of strategic dossiers".24 The project to relaunch the PCA therefore not only lacks agreement among current EU members, but also the genuine interest of the Russian side. There the internal EU blockade is interpreted as a sign that the EU is incapable of fulfilling its assumed role of supranational regulatory gatekeeper due to its inability to rein in individual members abusing the

16

Nina Bachkatov, "Nécessaire partenariat avec la Russie", Le Monde diplomatique, Jan 2007. 17

House of Lords, op. cit., Minutes of evidence, Memorandum by Professor Dieter Helm, 112-4. 18

House of Lords, op.cit., Minutes of evidence, Examination of witnesses: Professor Julian Cooper, Professor Phil Hanson, 11 Oct. 2007, 26. 19

"[…] slightly too much process and not enough substance", s. House of Lords, op.cit., Minutes of evidence, Examination of witnesses: Sir Mark Lyall Grant, Mr Michael Davenport, Mr Jasper Thornton, 19 July 2007, 6. 20

House of Lords, op.cit., Minutes of evidence, Examination of witness: Professor Anatol Lieven, 15 November 2007, 62. 21

House of Lords, op. cit., 32. 22

Sergey Yastrzhembsky, "La Russie et l'Europe, enjeux et perspectives", Géoéoéconomie - La Russie et l'Europe, no. 43, Automne 2007, 25-34; Mark Entin, "Relations entre la Russie et l'Union européenne : hier, aujourd'hui, demain", ibid., 35-58. 23

Jean-Dominique Giuliani, "Union européenne-Russie : je t'aime moi non plus", ibid., 13-4. 24

Yastrzhembsky, op. cit.

negotiations to press for a solution of their own bilateral differences with Russia.25 The blockade reinforces the Russian argument according to which accommodation with the toothless EU giant isn't worth the trouble as it was without tangible results. In this view it is preferable to pursue simpler bilateral agreements with individual EU member states. Nevertheless, despite criticism on both sides, the political roundabout continues, with the necessity to 'save face' on both sides degenerating the situation into a 'dialogue of the deaf'. The main criticism that can be leveled at the PCA is its lack of recognition of the principle that successful activity in or with Russia requires a continuous monitoring and adaptation effort.26 Solemn codifications of mutual standards in legally binding documents do not pay credit to this structural instability. The attempt to forge a relationship on the basis of enforceable norms is flawed. Experts, such as Katinka Barysch of the Centre for European Reform, believe that the PCA should be replaced by pragmatic ad hoc mechanisms which leave more room for spontaneity - and which therefore could be more successful. Barysch cites European-Russian cooperation in the framework of the Four Common Spaces as an example.27 This more flexible and non-binding declaration is geared to the intensification of links in four strategic areas, in order to solve concrete technical problems through lower-level bilateral contacts that are less exposed to the vagaries of high politics. The Prince of Wales International Business Leaders Forum (IBLF) belongs into a different category of initiative. With operations worldwide, the focus of its Russia program is on business standards and anti-corruption. The IBLF mission in Russia is to "promote and facilitate the responsible conduct of business with the aim of ensuring the stable and sustainable social and economic development of Russia"28, but the framework is characterised by normative goals and 'trial-and-error' as an operational approach rather than a strong methodological or conceptual grounding. The IBLF business standards initiative is a rules-based advocacy, the principal drawback of which is that it will hardly impact the burgeoning middle classes most interested in change, but consolidate the position of Russian big business interested in investing, listing or otherwise engaging with foreign partners and markets. As a result, the bulk of Russian business, in particular the crucial SME sector, is not concerned by these global transparency drives. Profound changes in Russian business culture and ethics cannot be expected from this particular approach. On the other hand the Forum's anticorruption program reveals a more organic method to business problems, in terms of bringing together foreign and Russian companies to share best practices. As we have seen, none of the rules-based formulas are without significant drawbacks. The rules-based view is also reductionist. If we take the example of EU integration – the predominant view of which is that of a soulless, rules-based mechanism - we must conclude that this has as much to do with the impulses and combined symbolic gestures of visionary leaders than with technocracy and rules creation. It would be foolish to minimize the import of the communion of French and German leaders on several historical occasions, such as the meeting de Gaulle and Adenauer at Reims in 1962 or the gesture of reconciliation between the couple Kohl and Mitterand, at Verdun in 1984. These were not the results, but the instrumental symbolic preludes to the creation of a strong rules-based terrain. Surely, a materialistic reading of European integration as a process based on a steel or coal partnership is flawed. The project was also a success because it could garner considerable emotional appeal with respective national publics and because leaders were not afraid to make broad gestures. If we apply the European matrix then it becomes instantly clear that

25

ibid. 26

Carl F. Fey and Stanislav Shekshnia, "The Key Commandments for Doing Business in Russia", INSEAD Business School Research Paper, no. 2008/16/EFE, http://www.insead.edu/facultyresearch/research/details_papers.cfm?id=19597 27

Katinka Barysch, "Three questions that Europe must ask about Russia", Centre for European Reform, May 2007, 11 pp., http://www.cer.org.uk/pdf/briefing_russia_16may07_kb.pdf 28

International Business Leaders Forum Russia, http://www.iblf.org/regions/Russia.jsp, accessed 22 April 2009.

the potential for any emotional or symbolic component in EU-Russia relations is drowned out by mutual suspicion and several contentious disagreements awaiting a solution. Lastly, the failure of rules can also be attributed to the fact that rules cannot deliver in environments such as Russia that are still bound to unwritten, informal rules, an insufficient level of institutionalization and, finally, a tendency to question any type of status quo and engage in cycles of never-ending negotiation and renegotiation.29 Creating convergence through good will measures and common experiences If a rules based approach cannot generate the environment in which business can take place in an ethically responsible manner what then can lead to greater convergence? The second option is what is described (or derided) as the "soft", "organic", "evolutionary", "gradualist" or "integrative" approach, based on a cultural osmosis. A specific example attesting to its success is the 18th century European culture transfer operated under Peter I (1672 –1725) and Catherine II (1729-96) which transformed Russia from a rural backwater into a major European power within two generations. Closer to our own historical epoch, confirmation that Russia continues to be prime terrain for transfers can also be derived from the fact that change during Gorbachev's perestroika was also to a large extent culture and values driven. In this case it was the "welfare state" that ordinary Russians and other citizens of the now defunct Soviet Union envied the democratic West.30 In the words of historian Stephen Kotkin,

affordable Levittown homes, ubiquitous department stores overflowing with inexpensive consumer goods, expanded health and retirement benefits, and democratic institutions were weapons altogether different from Nazi tanks. This was the competition that induced Gorbachev's fatal reform effort.31

Vladimir Putin himself has insisted on several occasions that Russia's change from Communist system to market economy and electoral democracy was chosen and not imposed by necessity. One would do well to not systematically discount such pronouncements as propaganda driven. If we accept the double premise that a) business has no choice than to face up to its social responsibilities and that b) osmosis is the most appropriate way forward, then the next question must be what business can do to make its activities in emerging markets benefit civil society development - rather than local elites - and whether this knowledge can be converted into a structured approach. And this is where the problems start, for the gradualist approach has both strengths and weaknesses: it derives its force from the creation of tangible common experiences; on the other hand there is no guarantee of quick results or of an evolution in the "right" direction. Caution is necessary as regards the potential of economic integration to deliver on societal or political promises. The notion that integration can generate or influence such wider change in emerging economies is itself a derivative of the "end of history and "globalisation equals emancipation" theme popularised by popular thinkers such as Francis Fukuyama. The traditional view since the end of the Cold War has been to relativise the constraining features of globalisation in favour of its democracy promoting features. In this benign reading of globalisation prosperity and emerging middle

29

For details refer to Alena Ledeneva, How Russia really works: The informal practices that shaped Post-Soviet politics and business, Cornell University Press, 2006; Jerrold L. Schechter, Russian negotiating behavior: continuity and transition, Washington, 1998. 30

Stephen Kotkin, Armageddon averted - The Soviet collapse 1970-2000, Oxford, 2001, 19pp., 39-43, 172-5. 31

idem, "How did Russia rebuild itself? Sorry, but you're wrong", History News Network, 26 Jan 2009, http://hnn.us/articles/59713.html, accessed 21 April 2009.

classes would drive unfree societies inexorably along the road to democratisation.32 Unfortunately, these claims have not lived up to their own rhetoric. As Michel-Henry Bouchet reminds us, the culture and values of globalisation are "essentially materialistic", while the relationship between market and democracy is "unstable".33 Also our current experience with globalisation seems to spell out that the bottom-line of globalization in emerging markets in terms of human, social and political emancipation is a very mixed bag, despite a truly impressive end result in terms of economic development and prosperity.34 In fact empirical data counters the emancipation theme, with increased interconnection allowing oppressive regimes the world over to increase their stranglehold on captive societies, while at the same time reaping the benefits of economic interpenetration. One way to achieve this is to restrict access to strategic "coordination goods", a term describing public goods such as media or to higher education "that critically affect the ability of political opponents to coordinate but that have relatively little impact on economic growth".35 In more general terms there is a tendency towards a reinforcement of authoritarian regimes that masquerade as democratic regimes (illiberal democracy). This is visible in areas such as Central Asia – where Russia is regaining ground on the basis of its illiberal credentials - as well as in Africa, a continent where Western insistence on the linkage of investment with improvements in the area of social and human rights has favoured state-supported Chinese competitors who have no such demands. And these trends are growing.36 A second problem is the lack of empirical proof to assess the performance or even validity of engagement. If we take Russia, then we are limited to the historical case study of 18th century culture transfer. This uncertainty of outcomes is the source of considerable division among current EU members. One camp led by the UK, Sweden, Poland, the Baltic States and other Eastern Europeans, desires a more confrontational stance toward what is perceived as Russian expansionism or aggression, along the lines of Cold War "containment" policy. A second, more powerful camp, lays claim to a "new pragmatism", traded under the slogans Integration und Verflechtung (integration and interpenetration), Wandel durch Handel (change through trade) or simply liberal engagement. The pragmatic approach draws strength from several observations: the "mistakes" of a triumphant or complacent West that wasted valuable opportunities to draw closer a weak 1990s Russia; misrepresentations of Putin's Russia; the loss of Western political leverage and the assumed futility of "lecturing" a more self-assertive Russia on common values; as well as the long-term mutual benefits accrued through engagement, cooperation and integration of Russia into common political and economic structures. Germany's role within this "new pragmatism" is preponderant, but she is closely supported by the other members of the initial EU-6 (such as France and Italy), plus Finland, Austria, Spain and Greece. Despite the often changing rhetoric, economic considerations are the dominating influence within this group. Historically, Integration und Verflechtung, coined by German foreign minister Frank-Walter Steinmeier, is pitched on the earlier Wandel durch Annäherung (change through rapprochement) of German 1970s Ostpolitik. It continues in the mould of Gerhard Schröder's Russia policy, the high point of which was the short-lived tactical alliance Paris-Berlin-Moscow opposing the Anglo-American invasion of Iraq in 2003. In addition, Steinmeier has also made reference to European integration, and in particular

32

Jagdish Bhagwati, In defense of globalization, New York, 2004, 92-6. 33

Michel-Henry Bouchet, La globalisation – Introduction à l'économie du nouveau monde, Paris, 2005, 53; 346. 34

To name but one example: the core of Joseph Stiglitz's criticism of globalization concerns governance rather than the actual process of globalization itself, which he considers potentially beneficial, s. Joseph Stiglitz, Globalization and its discontents, Norton, 2002, passim 35

Bruce Bueno de Mesquita, George Downs, "Development and democracy", Foreign Affairs, 84 (5), Sept-Oct 2005, 77-86 ; Patrick Köllner, 'Autoritäre Regime – keine weltweit aussterbende Gattung, sondern eine wachsende Herausforderung', GIGA Focus, 6, 2008, www.giga-hamburg.de/giga-focus, accessed 21 April 2009. 36

An important consideration nowadays is not merely how and whether Western enterprises will export their practices and standards to emerging markets, but what an increasing influx of hardened emerging market investors will do in terms of business transparency in the West.

the Franco-German couple, as a model to follow for EU-Russia relations.37 German-Russian economic cooperation has a long tradition: its principal relay is the Ostausschuss der deutschen Wirtschaft (Eastern Committee of German industry) founded in 1952. This semi-state entity functions on the principle of direct contacts to Russian government members and its leverage is based on its connections to the Germany government. It draws on the previous experience of the Russlandausschuss, founded in the 1920s to coordinate trade between the Weimar Republic and the nascent Soviet Union. Liberal engagement advocates credit the interpenetration of contemporary Russian and European business with positive spillover effects that over long will align Russia on international standards, norms and values.38 Indicative of this orientation is Gerhard Schröder's dictum that "mutual interpenetration leads to common interests, more security and the opening of the Russian economy and society".39 Again the empirical basis underpinning this optimism is thin. While surely something can be said in favour of a constructive engagement with Russia, the argument on spillover effects - drawn from a particular narrative of the experience of engagement with the Soviet Union - is largely normative: for one thing historians still owe us their verdict on the respective roles of confrontation vs. detente in the Soviet demise; and even if we suppose that it was detente that eroded the Soviet system, this experience would still constitute no guarantee that liberal engagement is also the more effective option in dealing with contemporary Russia. Secondly the businesses supposed to serve as "fertilizing agents" are not always in tune with their own liberal engagement rhetoric. Already the issue of which standards and practices to adopt in order to steer around basic practical problems such as corruption, facilitating payments, supply chain management or employee rights dilemmas stretches them to the very limit. In addition multiple counter-examples exist proving that the activity of Western companies has not always benefitted democratic and liberal values (as claimed by liberal engagement partisans). One Chinese example is provided by Google's contested self-censorship. A Russian example can be found in the role played by investment bank Dresdner Kleinwort in the liquidation of the assets of the Yukos oil company. Equally lacking as the empirical basis or commitment is a reliable descriptive methodology outlining the mechanisms and levers of the approach. For even in a best case scenario gradualist engagement is not bound to performance and goals-oriented criteria, it allows no "quick fixes", a fact eliciting the criticism of the of human rights vanguard (droit-de-l'hommistes) who favour human rights advocacy via the allegedly faster route of democracy promotion and, if necessary, regime change. Ostausschuss chair Klaus Mangold greeted this tendency by upturning the tables and claiming that "Human rights were more important than democracy".40 Criticizing Angela Merkel's Tibet stance Mangold states:

We must offer our support for the promotion of human rights, media rights and rule of law, but we shouldn't engage in public finger-wagging every three months. In most cases continuous dialogue achieves more.41

37

This precept is highly questionable: for one thing one should not underestimate the incidence of the US factor in European integration as well as the threat of Communism. EU-Russia integration can neither rely on a superpower pointing the way nor on an exterior threat. 38

s. for example Celeste A. Wallander, 'La Russie face à la mondialisation : la voie du trans-impérialisme', Politique étrangère (hors série), août 2007, 37. 39

Gerhard Schröder, Speech, Industrietag Russland, Dresden, http://www.smwa.sachsen.de/set/431/rede_gerhard_schroeder_industrietag.pdf, 16. Sept. 2008. 40

Mangold: Menschenrechte wichtiger als Demokratie, Wirtschaftswoche, 20 Oct. 2007, http://www.wiwo.de/politik/mangold-menschenrechte-wichtiger-als-demokratie-224866/, accessed 27 April 2009. 41

'"Leise Töne sind effektiver als laute‘‘', Wirtschaftswoche, 20 Oct. 2007, http://www.wiwo.de/politik/leise-toene-sind-effektiver-als-laute-249570/, accessed 27 April 2009.

Still, soft engagement is the only option. Several reasons militate in this sense: while the West may be able to influence human and social rights outcomes in smaller countries, through the traditional methods of diplomatic, military, economic or commercial pressure, it has very little to no leverage over Russia. No Myanmar or South African pullout options exist, for the simple reason that a tough stance on Russia is not acute. The urgency to exert pressure and push for an improvement in standards cannot be compared to the human rights malaise in the two aforementioned countries. Except for the Chechen case, there are no human rights violations in the Russian Federation on the scale of, say, the Soviet Union. What really bothers Western governments and NGOs is the incremental erosion of civic, political and media freedoms, combined with a sophisticated technical manipulation of the current electoral and institutional system. The targets of oppression in today's Russia are a minority of investigative journalists, NGO activists and human rights lawyers.42 Law enforcement officials and courts are doing everything but playing their democratically legitimated role. However, on the other hand this is no longer a country running a sophisticated system of detention centres in order to intimidate or subdue the population.43 More importantly, factors of size and importance are such that the West needs Russia, and vice-versa. However, one area where the West can create "pull" is the attraction of its culture. Western culture continues to serve as a fundamental reference point to most Russians and indicates a willingness to engage on these grounds. We should not do ourselves injustice by limiting our understanding of culture to a narrow understanding of artifacts, material or immaterial culture, but also include social conventions, an area including business culture. Parallel to this business is the area where the terrain for creating common experiences appears most promising. We may conclude that while it pays to remain vigilant to the possible manipulation of international business interpenetration by vested interests, any possibility of cultural exchange should be taken up to drive forward the integrationist agenda and thus increase convergence. As an example Russian foreign investment should be encouraged wherever possible. The West should drop its current missionary rhetoric and adopt a more realistic and transparent framework concerning its expectations. Rather than expending precious social capital on rules-based projects of legal harmonization, it should seek out opportunities to foster common projects with a practical and/or symbolic value. In general terms The reinforcement or reintroduction of area expertise in higher education institutions and centers of excellence in Europe is a necessary prelude to being able to benefit from these new opportunities. At the same time the EU must not waver, it must speak with one voice and it needs more and better leadership to consolidate its position on the non-negotiability of its values. Felix Philipp Ingold, professor emeritus at the university of St Gallen, characterised the phenomenon of foreign culture transfer into 18th century Russia in the following words:

Nothing about the new eccentric capital (Saint Petersburg, n.b.), the new technical achievements, the scientific and artistic activity initiated from scratch was "Russian"; and yet - in a strange and fantastic way - at the same time all of

42

Western media attention around the high-profile murder of Anna Politkovskaya in October 2006 underpins the assumption that the "hounding" of journalists in Putin's Russia is a daily occurrence on a massive scale. In actual fact the figures are low: according to Reporters without borders, 21 journalists have been the victims of targeted killings in Russia between March 2000 and late 2006, s. Reporters sans frontiers, Rapport annuel 2007, http://www.rsf.org/article.php3?id_article=20704, accessed 27 April 2009. And as the author of these lines recalls from his attendance of a conference in March 2000 the lives of journalists in Yeltsin's Russia were no less dangerous. Considering the tight interweaving of political and business interests in Russia, the image that these are necessarily remote-controlled out of the Kremlin is equally flawed. 43

Compare with 'Les droits humains en Fédération de Russie', Russie - Amnesty International Rapport, 2008, http://www.amnesty.org/fr/region/russia/report-2008

this could be claimed to be "typically" Russian, insofar as Russian culture has always been geared towards reception rather than to production.44

Historically Russia's role has been that of an emulator who borrows European or Western concepts and gives an own or new meaning to these. Positive examples of this ability are the two-century long cross-fertilisation between Russian and European in the arts and sciences from the beginning of the 18th to the beginning of the 20th century. Negative examples of this borrowing are Communism in 1917 and laisser-faire capitalism in the late 20th century.45 Under this aspect one may want to formulate tentatively that perhaps Europe (and by extension, the West) gets the Russia it deserves. The questions Europeans need to keep asking themselves are whether the EU in its current form is the appropriate mechanism to engage with Russia and how the relationship can be expected to take off at a time when both Western economic and political models are in deep crisis?

44

Felix Philipp Ingold, 'Deutscher Geist und russische Seele - Sankt Petersburg als Drehscheibe eines aussergewöhnlichen Kulturtransfers, NZZ Online, http://www.nzz.ch/nachrichten/kultur/aktuell/deutscher_geist_und_russische_seele_1.775893.html, 4 Jul 2008 (translation by author), accessed 22 April 2009. 45

s. Martin Malia, Russia under Western Eyes – From the bronze horseman to the Lenin Mausoleum, Belknap, 1999.