Successive crises in Russia triggered the same strategic response: pump enough money into the economy for long enough until oil prices rebound. But, as my previous blog questioned, what if oil prices don’t go back up? How will Russia correct its current economic fragility then?
Russia’s government has been demanding economic diversification since the days of perestroika. The economy's lack of resilience left it naked in the marketplace, causing widespread misery in the 80s, 90s and already twice this century. Yet, despite repeated calls for diversification the economy stubbornly refuses to. The reason is that nobody really knows how to do it.
The temptation for Russia is to follow the same path taken by developed economies. But the risk is in confusing cause and effect. Does the US have an innovative economy because it has Silicon Valley; or does the US have Silicon Valley because it has an innovative economy? The white elephant that is the Skolkovo project shows the Russian government’s view but also that success rarely comes from copying what others have done; because context is king.
No country - not even the US itself - has built a successful economy by following the American business model (except perhaps Chile, the exception proving the rule). The US may advocate free trade, liberal democracy and small government but it became the world’s pre-eminent economy on the back of protectionism, oligarchy and a military-industrial complex driving policy-making to this day. It had also turned its back the exploitative colonialism model of the 19th century's hegemon - Britain - to propel its own rise in the 20th century; much as China - the 21st century's emerging power - is doing now.
The lesson leaders must recognise is that taking the same path doesn't lead to the same destination, because the path is not stable. The ocean navigated in winter does not present the same challenges as the same ocean in summer. Best practice is always past practice in a different context. It is at best misleading, at worst dangerous. Decision-makers must therefore develop a healthier scepticism of those who tell them what must be done - for it's impossible to know. Russia has never diversified before and there is no map to follow.
Successful economies, organisations and people must discover their own, more natural, paths to follow. Decision-making must be grounded in the local context. You can't replicate the success of others because your starting points - the time, place, capabilities and opportunities - are different. Leaders must resist the temptation (and habit) of picking models they like (e.g. Silicon Valley) and crow-barring reality to make it fit the vision and instead deal with the truth of the position they are facing and act accordingly.
Russia's economy will not diversify while the focus remains on what must be done. In a VUCA world of volatility, uncertainty, complexity and ambiguity clear solutions do not exist. The focus should be on how can we make sense of the world around us so we can act better in it?
Rather than trying to engineer ideal future outcomes leaders should seek to better manage the evolutionary potential of their present. They should launch a thousand safe-to-fail probes - designed to generate practical data from real world interventions without exposing the system to irrecoverable risk - to increase real-time awareness about what’s really happening and why. Instead of more top-down initiatives - crafted with the best of intentions by big brains, but often subject to expert bias, groupthink and hypotheses that lack context - they must become better at also gathering multiple perspectives from those closest to the action: using the insights to drive pragmatic, practical action.
Overcoming fragility in organisations and economies requires leaders learning how to augment their current skills with new ones that uncover pristine paths to success, rather than traversing the well-trodden trails of others. Like the two frogs in the story who fall into a vat of milk, they must not be the one who gives up because he can't see the way out, but become the frog who struggles hardest and who with every kick slowly turns the milk into butter, allowing him to hop out of danger tasting sweeter.
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