A friend was over from Moscow last week, where he works for a big international financial services group. We talked about the extraordinary boom in Russia, with everybody from bankers to brewers beating a path to do business there.
But what is most striking, said my friend, is how young the business elite in Russia are. Oleg Deripaska, the driving force behind the merger of Rusal and Sual to create the world’s largest aluminium firm, is 38. That makes him a year younger than Roman Abramovich, owner of Chelsea football club.
But beneath these high-profile billionaires are hundreds of 30-something Russians you’ve never heard of whose fortunes amount to mere hundreds of millions. “The thing about these guys is that they happened to be in the right place at the right time,” said my friend. “Most came from well-connected families and many were among the first to work and study abroad after the fall of the Soviet Union. That gave them a huge advantage when Yeltsin embarked on his shock therapy, privatising large swathes of the economy. They had the political contacts and were the only people in the country who knew anything about capitalism and finance.
“The smart ones junked their stuffy jobs in the West to come home to make their fortunes. They hoovered up shares at bargain prices in the country’s mines, oil wells and heavy industries. Of course, if they’d been a bit older, they would have been more established in their careers and families and therefore less willing to take a risk. So the nation’s wealth fell into the hands of a gilded generation straight out of college.”
As we talked, I was reminded of another gilded generation eager to make fortunes at the cutting edge of revolution. In the late 1990s, many of my contemporaries expected to become overnight millionaires in the dotcom boom. For a few crazy years, huge paper fortunes were accumulated by anyone with a business plan, as older folk gritted their teeth and cursed their misfortune not to have been born a few years later.
But we all know what happened next. Many of these fortunes evaporated overnight as shares crashed and millions of pounds were wiped off balance sheets and trading accounts. As the would-be revolutionaries quietly slunk back to their jobs, the dotcom boom left barely a ripple in London. Meanwhile, in Moscow, the oligarchs were making out like bandits.
Who could have imagined in autumn 1998 that this is how it would turn out? Russia was in the grip of a financial crisis. Its experiment in capitalism looked to have gone badly wrong. Oil was trading at only $10 a barrel and the country had just defaulted on its debts. It was a world away from swinging London, where Brent Hoberman and Martha Lane-Fox had just launched Lastminute.com to a media storm.
Who then would have predicted it would be much-derided old economy industries such as mining, oil and aluminium smelters that would prove the path to durable riches, while the internet would turn out to be fool’s gold? But if the last decade has belonged to the Russians, who will the next decade belong to?
There’s no doubt what the market thinks. Resource stocks trade at stratospheric multiples and commodity prices defy gravity. Yet the not-so-new economy has never been in such bad shape. Telecom companies are engaged in a fight to the death over broadband pricing. Media firms are struggling to cope with the fragmentation of their markets, the collapse of advertising revenues and the availability of free content online. And technology firms – including venerable names such as Microsoft and Dell – can’t keep up with the pace of innovation. Google alone seems to sweep all before it.
But is it too soon to write these sectors off? The world is in the grip of a second revolution, but, if the market is to be believed, one destined to devour its children. Yet beneath the surface, it is not all bleak. New products and services are emerging based on new business models – networking sites such as MySpace.com and Youtube.com, blogs and companies that develop ringtones. And this time they are profitable.
Big money is again starting to flow to innovative companies. Even Rupert Murdoch, who sat out the last boom, is investing millions online. Backed by a fast-growing share of advertising spending, the true commercial potential of the internet may be only just emerging.
And what of those Russian oligarchs, with their fortunes founded on the newly fashionable resources sector? Doesn’t this sudden rush to the stockmarket and the eye-watering valuations based on forecasts of ever-growing demand remind you of something? How much of this boom is due to the tide of cheap money that fuelled global consumer demand and ramped up commodity prices? And will prices remain high now that interest rates are rising around the world?
The oligarchs got the better of the dotcom generation in the last ten years. But what goes round comes round. That tends to be the way with revolutions.