Vanderbilt Business

The Benefits of Bartering

Russians turn to a longstanding tradition

by Yuri Mamchur | Inside Business, Spring 2010 | Comments | Print Print |

Russian-SymbolA version of this article originally appeared in National Review Online on Aug. 12, 2009.

German Sterligov is well-known in Moscow, but unlike Roman Abramovich, Oleg Deripaska and other publicly flamboyant Russian billionaires, he is little-known abroad. Sterligov neither sails the Caribbean nor drinks in London’s Mayfair district; most of the time he lives a traditional peasant lifestyle deep in the Russian countryside with his wife and five children. In winter their farm is accessible only by horse-drawn cart, and the nearest house is seven miles away. Sterligov’s way of life makes a strong Russian Orthodox statement and amuses Moscow’s public.

Sterligov made his fortune in the 1990s running a large barter business. He founded a mercantile exchange where Russians traded products they were unable to buy or sell for cash. He lived the luxurious life of a billionaire and owned properties in Moscow, London and Manhattan. In 2004, after an ill-fated bid for Russia’s presidency, Sterligov sold everything and moved to the countryside.

However, the financial crisis forced him to put on a suit, get in a car and find his way back to Moscow. Today, when not milling his own flour or hatching his turkeys and chickens, he occupies the Russian capital’s newest skyscraper in the trendy Moscow City district. He rented “B” Tower’s entire 26th floor and injected $50 million into the new business.

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Sterligov is an economic mastermind who’s helping Russians overcome their country’s lack of financial liquidity. His barter business model has been applied across Russia, particularly in Moscow. It may be the main reason why today, despite economic turmoil, Moscow’s roads get paved and its skyscrapers continue to rise.

Sterligov’s business model may appear confusing, but it’s basically simple. If a provider of goods or services cannot find a client with money, they can offer their product in exchange for other goods or services. But since straight-up exchanges are the exception rather than the rule, additional participants have to join the circle of exchanges in order to satisfy everyone’s needs. Stergilov uses an advanced computer system to match product with consumer.

Often the series of exchanges begins with a debt. When Sterligov described the process to the Moscow Times, he used a steel company’s debt of 1 billion rubles to a coal company as an example. The steel company might not have the money to pay its coal bill, but it will soon be able to put 1 billion rubles’ worth of steel into the exchange. The coal company can provide a list of goods or services it will accept to fulfill the steel company’s 1 billion ruble debt. Eventually another company—or a whole chain of companies—will bridge the gap, taking the steel and either providing products or services directly to the coal company, or bartering them to the coal company’s eventual benefit. When all is said and done, every player has made a fair exchange, and Sterligov’s business has taken 1 percent of each transaction’s value.

Russia’s barter tradition comes not only from medieval history but also from the Soviet Union’s latter days and the early 1990s, when workers wouldn’t get salaries for months or years at a time and had to become creative to feed themselves and their loved ones. Factories paid workers with products, and babushkas from toy factories could be found at train stations exchanging stuffed animals for stuffed cabbage.

Modern Russians have witnessed several financial defaults and were prepared for another crisis. Every Russian family lost its savings in 1991 during the Soviet Union’s implosion. In 1998 the banking crisis swallowed the savings that Russians had accumulated after the painful rebound of the mid-1990s.

As for the current economic conditions, common people in Russia joke that those who weren’t wealthy didn’t lose anything, those who accumulated billions during shady privatizations endured a fair adjustment of their fortunes, and no one became homeless or starved. This black humor comes naturally to Russians. Of course, the same could also be said about their longstanding tradition of barter. And like their humor, it has helped them survive centuries of hardships.

Moscow native Yuri Mamchur is President of the MBA Class of 2011. He founded and edits Russia Blog, directs the Discovery Institute’s Real Russia Project, and serves as the Executive Director of the World Russia Forum.

© 2009 by National Review Online, Inc., 215 Lexington Avenue, New York, NY 10016. Reprinted by permission.

illustration credit: Bulent Ince, istockphoto

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