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When It Comes to Ethics, B-Schools Get an F

Ever since Enron, business schools -- the training grounds for corporate tycoons -- have been forced to face the fact that they have failed to produce honest brokers. Why they have failed is a complex and revealing tale, one that I can relate from personal experience, having taught ethics at Harvard Business School (HBS) from 1987 to 1989 -- the years many of today's current corporate officers were in training.

HBS -- which deserves particular scrutiny, as the school to which many others look when they design their own curriculums -- had little in the way of formal ethics teaching in 1987. And that was typical. A 1988 survey of MBA schools found that only one-third had a required ethics class.

It was in 1987 that John S.R. Shad, then chairman of the Securities and Exchange Commission, made a personal donation of some $20 million to HBS to support the teaching of ethics. On April 21, 1989, after months of contentious debate, an initial proposal was put up for a faculty-wide vote. As a visiting professor, I was sitting in the bleachers -- and I witnessed a memorable scene. Reactions ranged from distrust to outright hostility. One economist argued that "we are here to teach science." Another faculty member wanted to know, "Whose ethics, what values, are we going to teach?" And a third pointed out that the students were adults who got their ethics education at home and at church. By meeting's end, the project had been sent back to the drawing board.

Debates continued over whether ethics should be a required course or a separate elective or, alternatively, whether the topic should be integrated into all classes. A member of the marketing department mused that if the latter policy were adopted, his department would have to close because much of what it was teaching constituted a form of dissembling: selling small items in large boxes, putting hot colors on packages because they encourage people to buy impulsively, and so forth.

A finance professor was also concerned about its effects on his teaching. Students later told me that they learned in his course how you could make a profit by breaking implicit contracts. Say, for instance, that you acquire controlling shares in a company such as Delta, where workers used to work harder and pose fewer demands than at other airlines because of an informal understanding that they had lifelong employment. The finance course would explain that once you take over, you could announce that you are not bound by any such informal arrangements. While such a change might be deemed a prudent move for the company, it could also bring personal gain to the new management: Your stock jumps (because your labor costs seem lower, absent commitments to carry workers during a downturn) and, bingo, you cash in your stock options and move on.

In the following years, an ethics course was taught at HBS, but it was ghettoized -- a minor requirement to be gotten out of the way as quickly as possible. These days, students take a required "mini" course on ethics upon arrival, and there is a required first-year course titled "Leadership and Organizational Behavior." And that's it. It's the same at other schools. One student at Stanford B-school, which until recently had a similar program, described his ethics class as "like going to church on Sunday." The George Washington University School of Business and Public Administration, where I now teach, has an elective on moral reasoning (the art of clarifying what your values are, rather than educating you on how to develop higher moral standards). And the University of Michigan, which has an activist student group that pushed its B-school to be mindful of social policy, requires only that students take one class in ethics or in law. Many other schools do less.

A subtle but damaging factor in this is the dominance of economists at business schools. While there is no evidence that economists are personally less ethical than members of other disciplines, approaching the world through the dollar sign does make people more cynical. This fact has been documented by data from an oft-cited experiment to test the standard economics teaching that, when offered the possibility, people will take a "free ride" -- and that it is "rational" for them to do so.

Take a group of workers in which each person's contribution to a given task is indistinguishable from everyone else's, and rewards (say pay raises) are handed out equally. A rational person (so goes the economics reasoning) will work as little as he or she can. In 1981, sociologists Gerald Marwell and Ruth E. Ames put this theory to the test with an experiment in which 12 groups were given a chance to take a free ride. Members of 11 of the groups refrained. That wasn't the case with the 12th group. How did that group differ? Its members were graduate students in economics. Those students had been mistaken about most people's behavior. But they had learned their own lesson well. All too well.

In my own HBS ethics classes, students resisted my argument that executives should take ethical considerations into account. They held, as they had been taught, that a company focused entirely on efficiency would drive a second one, more concerned with ethics, out of business. Ethics, they told me repeatedly, were something a corporation simply cannot afford. Only if being moral bought the corporation "good will" -- with a value that could be calculated and demonstrated -- should the corporation take ethical considerations into account.

In recent years, many B-schools have added courses that do promote values other than the maximization of investors' and managers' incomes -- and Harvard has been praised as at the forefront of this trend with its "Initiative on Social Enterprise." Such courses generally favor social values, and usually liberal ones, such as concern for environment or the well-being of minorities and workers in the Third World rather than traditional values, such as personal integrity, veracity and loyalty.

Many business school professors choose to steer clear of teaching morality, pointing out, with some justification, that while it is relatively clear what economics dictate and even what the law dictates, what is "ethical" is far from obvious. What appears ethical to one person is not to another, they say, and what is ethical under some conditions is not under others.

This equivocation was driven home to me during a crisis that erupted when I was at HBS. A professor instructed his class to read a case study about Braniff, an airline then headed toward bankruptcy: After a customer heard that Braniff was in financial trouble, he called the head of the company and said that he wanted to purchase a large number of tickets. But, the customer wanted to know, would the company be up and flying a few months hence? The head of Braniff, the story goes, responded that he was not sure. The students argued that the CEO should have lied, that he endangered the shareholders' equity by being candid, and that he was representing the shareholders, not the customers. The professor teaching the class was at a loss, and he asked an associate dean how to proceed.

Unsure himself, the dean arranged for a faculty conference to discuss the question. Those present made numerous arguments to justify lying. Business, some said, was like poker: If you play, you know that bluffing will take place. Others took a utilitarian line, arguing that there are no absolute values and that what is moral depends on the consequences of one's actions and on what their utility (or benefit) is. Based on this rationale, the CEO should have lied. To do otherwise might have caused the already troubled airline to collapse, causing harm to the shareholders, employees and creditors. Still others took a market-driven approach to truth-telling: People who are found to be lying will lose customers while those who are trustworthy will gain them -- making truth-telling a good idea in this case. Only two faculty members insisted that telling the truth is an absolute moral value and that the CEO should therefore avoid lying.

The result was unfortunate. The professor returned to his classes, as many others did, with a reinforced sense that teaching ethics was a tricky business and that one should not take a firm position in favor of one value or another. It all depends. . . .

A recent Aspen Institute study of about 2,000 graduates of the top 13 business schools found that B-school education not only fails to improve the moral character of the students, it actually weakens it. The study examined student attitudes three times while they were working toward their MBAs: on entering, at the end of the first year and on graduating. Those who believed that maximizing shareholder values was the prime responsibility of a corporation increased from 68 percent upon entrance to 82 percent by the end of the first year.

In another study, students were asked if, given a 1 percent chance of being caught and sent to prison for one year, they would attempt an illegal act that would net them (or their company) a profit of more than $100,000. More than one-third responded "yes."

In light of the recent corporate scandals, some B-schools will surely attempt to strengthen ethics education. They should recruit more faculty members to teach ethics. And ethics courses should be approached not as a way to circumvent challenges by outsiders (such as the consumer protection movement or advocates of the poor) but as a moral obligation any decent person heeds. The ethics requirements set by the Association to Advance Collegiate Schools of Business, which is responsible for the accreditation of B-schools, should be more straightforward: No MBA student should graduate without having taken at least one full-term course in a class aimed at heightening students' ethical standards.

Congress should also haul the deans of the leading B-schools into a hearing to tell the public how ethics has been taught at their schools -- and what they now plan to do differently. The resulting public scrutiny might prompt them (and other members of the faculty) to serve as better role models. It might get them off the boards of companies such as Enron, where some B-school deans recently found themselves in the hot seat.

Although such changes will not guarantee that we will never face another slew of business scandals, it might at least make them less likely.

Amitai Etzioni, a professor at George Washington University, is the author of "The Moral Dimension" (Free Press).

Corporate Russia reaches into its pockets

Visit a McDonald’s restaurant in Moscow and, if you happen to glance down as you’re wondering where your Big Mac and fries have got to, you’ll see a charity box attached to the counter. The boxes earn around $8,000 a year for good causes – a valuable addition to the $4.5 million the company has donated to various charities in Russia since 1990.

Yekaterina Ivanova, McDonald’s senior charity programs coordinator, said the firm has focused on helping children with its charitable donations, and now gives $200,000 to $250,000 a year to support a sports center for physically and mentally disabled youngsters in Moscow.

But the really good news, observers say, is that the fast food giant is not alone in its efforts. After a slow takeoff in the years following the fall of the Soviet Union, spending money on charity is fast becoming the thing to do in corporate Russia.

Charitable giving strengthens a company’s corporate image and increases its market value, participants say.

"Companies that demonstrate their social role become more attractive for investors," said Sergei Litovchenko, head of the Russian Association of Managers (AMR).

Businessmen seem to agree.

"Russian business is maturing," said Hugo Erikssen, international information department director for Yukos oil company, one of Russia’s biggest charity spenders. "Companies are starting to understand that they answer to their shareholders."

Research conducted by several Western organizations shows Russian companies spend a total of $150 million a year on charity projects, according to Yevgeny Vodopyanov, head of the Russian Union of Charity Organizations (SBOR).

Last year, almost a third of the national charity total of $41.3 million came from Yukos. The company plans to increase its donations by 19 percent this year, said Mikhail Vilkovsky, the director of Yukos’ charity department.

So far, Yukos has opened Internet centers for students in 25 Russian cities and provided funds for 1,000 scholarships, Vilkovsky said. It also allocated $743,000 to repair last year’s flood damage in the town of Lensk and gave money to help rebuild Primorye’s heating system.

"Living in a financially weak country, we often have to shoulder responsibilities that are not [normally] taken on by business," Erikssen said.

Research conducted by AMR last year shows Yukos is not the only generous company in Russia. Some 90 percent of general directors here feel that "participation in society’s development is a profitable investment that will pay for itself in the long term," said Litovchenko. Still, only 42 percent of that number actually gives to charity.

The AMR chief added that some 34 percent of companies involved in charitable donations have increased their donations over the last few years, although another 17 percent have cut back on this spending.

One way of encouraging more giving, companies say, would be to allow tax breaks for donations. The few breaks that did exist were scrapped in January. Yevgeny Vodopyanov, first vice president of the Union of Russian Charity Organizations (SBOR) – which was founded in 2000 and has 37 members – said that decision "lacked any reasoning."

Most corporate givers have remained dedicated to their causes, however, Litovchenko said, and did not reduce their charity donations after tax breaks were withdrawn.

Erikssen, like other businessmen, was diplomatic about the government’s new policy, only saying that the law was very different from that in countries like the UK and the United States.

"We consciously spend resources [on charity] from our net profit; we live in an imperfect world and accept our responsibilities," he said, adding that Yukos has actually boosted its charity spending since tax breaks were scrapped.

Litovchenko said, however, that Russian companies mainly support one-off charity projects, which means there is a dearth of long-running social schemes. Meanwhile, although official state statistics show there were 7,000 charity organizations in Russia in 2001, many businessmen say they are reluctant to trust them with donations and fear the money will be stolen or misused.

Litovchenko said almost 24 percent of managers say a negative image of the charities that receive the cash raised by corporations hinders a full development of the relationship between business and social needs, as it is seen in many Western countries.

"All these charities as a rule spend part of [their donations] on rent, mobile phones and security," said Alexander Gafin, vice president and head of PR and advertising at Alfa Bank, which has run its own charity programs for the last eight years and spends more than $1 million on good causes annually. Alfa Bank’s net profits reached $85 million last year.

Alfa Bank donates to three orphanages, a special facility for orphaned infants up to the age of 4 years, and several hospitals and hospices in Moscow. Along with charity programs in the nearly 40 regions where it operates, the bank has a special fund for catastrophes and natural disasters. It has also pledged to pay an unspecified grant to 75 children of Kursk crew members – killed when the submarine sank in the Barents Sea in August 2000 – when they turn 16.

Putin Pens Code for Ethical Conduct

In an attempt to boost public trust in government and maintain control over the course of administrative reform, President Vladimir Putin has signed a decree outlining the general principles of ethical conduct for public officials, calling on them to be professional, efficient and conscientious.

The nonbinding three-page document, signed Monday and released by the Kremlin's press service Tuesday, instructs government officials to refrain from abusing their positions of power, to avoid conflicts of interest and to remain "politically neutral" in the interests of the public good.

"A civil servant ... must proceed on the premise that recognizing, upholding and protecting the rights and freedoms of people and citizens determine the main purpose and substance" of his work, reads the document.

On paper, the decree addresses a major concern of ordinary Russian citizens, who routinely find themselves at the mercy of corrupt officials and endless bureaucratic rigmarole -- often blamed for stifling personal initiative and private enterprise.

According to the decree, government officials must not favor any professional or social groups and should avoid situations when personal interest threatens to obstruct the diligent fulfillment of official duties.

If a conflict of interests -- the term, for greater clarity, is explicitly defined in the decree -- does arise, an official should inform his immediate superior and abide by his instructions to resolve the situation.

The presidential decree also takes issue with the widespread practice of using public office to promote a favorite candidate or cause. It says public officials should remain politically neutral, not allowing political parties or nongovernment organizations to affect their decision-making and never forcing their subordinates to take part in the activities of such parties or organizations.

Civil servants must be polite and attentive toward citizens and refrain from behavior that could cast doubt on their fairness.

In an apparent attempt to clamp down on embarrassing public spats between officials, which have become a frequent manifestation of democracy Russian-style, the decree recommends that officials refrain from public assessments of other government functionaries or state bodies unless making such assessments is among their direct duties.

At the same time, bureaucrats are called on to respect mass media and help them, as far as the law requires, to gather information. They should also be tolerant and respectful toward the customs and traditions of Russia's peoples and take into account cultural differences.

Dmitry Medvedev, the first deputy head of the presidential administration, said Tuesday that the recommendations would be valid until new laws on state service are passed, Interfax reported.

A package of legislation designed to replace a 1995 law on state service would soon be sent to the Cabinet and then to the State Duma, Medvedev said. He added that the main bill in the package could be up for consideration by parliament as early as September and would be followed by separate bills on civilian officials, military and law enforcement.

The issue of an ethics code for bureaucrats was first raised publicly in February by Union of Right Forces leader Boris Nemtsov. After a meeting with Putin, Nemtsov told reporters that he had proposed the idea to the president and Putin had reacted favorably.

A group of liberal lawmakers, including Nemtsov, fellow SPS Deputy Vladimir Yuzhakov and independent Vladimir Ryzhkov, submitted a bill on such an ethics code, which was passed by an overwhelming majority in the first reading May 17 despite opposition from the Kremlin and government. However, a second reading of the bill was stalled.

Dmitry Vasilyev, executive director of the Moscow-based Institute for Corporate Law and Government, criticized the deputies' effort for its lack of a systemic approach. In an analysis published by the Moscow Carnegie Center, Vasilyev said that European systems for maintaining norms of ethical conduct by public officials usually include two tiers: a general first-level code of conduct and more detailed second-level codes that are adopted within each specific agency. European systems also include other components, such as government watchdog agencies and training programs aimed at inculcating high ethical standards among bureaucrats.

Vasilyev opined that the approach to reforming civil service ethics as outlined in the bill stemmed "from an insufficient knowledge of the world record of administrative ethics regulation."

"Russian reformers are not always fully aware of the complexity of ethical readjustments and hence they concentrate solely on the better known and more popular kinds of institutions or regulatory acts," Vasilyev wrote. "It is this haphazard approach that has produced the 'curious' Code of Conduct ... that is as well intentioned as it is impracticable."

Andrei Ryabov of the Moscow Carnegie Center said Tuesday he had not yet seen the presidential decree but believed it was unlikely to have any tangible effect on the country's bureaucrats.

"First and foremost, the behavioral code [of public officials] is determined by socioeconomic conditions," Ryabov said by telephone. In reality, he added, many top-level functionaries depend on sources of income other than their official salaries and often use their positions for personal gain.

Ryabov speculated that the Kremlin's decision to issue the decree now may be an attempt to "seize the political initiative" and push its own version of administrative reform instead of the one submitted this spring by the Duma deputies.

"This must all be regarded as part of an election campaign," Ryabov said, referring to upcoming parliamentary and presidential elections in 2003 and 2004, respectively.

"This is not the way to boost public trust," Ryabov added. "Public trust is boosted by the effectiveness of the state machine, and a reduction in the reams of paperwork that people are required to produce or obtain in their relations with the government. Unfortunately, in this sense, I doubt the code will accomplish anything."

Staff Writer Natalia Yefimova contributed to this report.

Russia Declines to Renew Visas for 30 U.S. Peace Corps Workers

MOSCOW, Aug. 13 - Russia has refused to reissue visas for 30 Peace Corps volunteers, most of whom were working as English teachers in regional Russian schools, and Russian educators said today that they were disappointed by the decision.

It was the second time Russia had forced American volunteers to leave in the middle of their two-year teaching commitments. Last year, 10 volunteers were refused visa renewals.

The rejections, made public on Monday, reduced the group of American volunteers working in Russia by half. Secretary of State Colin L. Powell "brought up the issue of visas," with the Russian foreign minister, Igor Ivanov, said an American Embassy spokeswoman in Moscow.

Late in the day today, the Russian news agency Interfax quoted an unidentified Russian analyst as saying that the reason for the action was that "the need for assistance has diminished," since 1992, when the Peace Corps began bringing volunteers to Russia.

An official from Russia's Ministry of Education said the volunteers, most without formal teaching educations, are ill prepared for their positions. Ten percent of the 64 volunteers in Russia teach business, a subject many here say should be taught by professionals only.

"Most of them want to see the world, but teaching should come first," said Nikolai M. Dmitriyev, chief of the International Education and Cooperation Department at the ministry. "I doubt American schools would accept someone without a teaching permit just because he is a native speaker of a language."

But a number of Russian educators, in interviews today, disagreed.

Staff members at a school in the Siberian city of Novosibirsk were furious. Gymnasium No. 6 lost a volunteer, Anne Wake, who had taught English and run an English-language club, and an Internet program.

"It's a tragedy that she won't be here," said Olga A. Vins, the school's principal. "There must have been some mistake. We can't afford to go abroad to learn English from native speakers, and classes are expensive. Unfortunately, no one asked our opinion."

Russia Keeps Stalin Locked in Its Past

Decades On, Nation Has Yet to Confront Murderous Reign

MOSCOW -- In August 1942, 16-year-old Aldona Voldynskaya was taken from a Soviet orphanage by Nazi troops and put to work unloading trucks in Germany. This summer, 60 years later, the German government sent her checks totaling $2,245 by way of apology for the horrors she endured.

She is still waiting, however, for her own country to make amends.

Like perhaps thousands of Russians still alive today, Voldynskaya suffered less at Adolf Hitler's hands than at those of the Soviet Union's great dictator, Joseph Stalin. The KGB secret police executed her father in 1938, then arrested and imprisoned her mother in a work camp. At age 11, Voldynskaya was sent to an orphanage for children of "enemies of the people" until German invaders seized her five years later and shipped her west. When she returned home after the war, Stalin's police jailed her for concealing her parents' arrest records.

Russia's redress for the horrors endured by Voldynskaya and others persecuted under Stalin is a $3 monthly stipend and certain discounts on rent and utilities. Beyond that, three decades of death and suffering have been largely relegated to the past, and Stalin's image has even been somewhat refurbished.

In contrast to Germany's public repentance over Hitler, Stalin still gets a pass in this huge and long-tortured nation, 49 years after his death ended the 20th century's longest reign of terror and more than a decade after Russia abandoned communism and secret police to pursue democracy and the rule of law. There is no national museum to document the history of Stalin's crimes. According to Memorial, Russia's leading human rights organization, official records prove that at least 1 million people were executed for political offenses, and at least 9 1/2 million more were deported, exiled or imprisoned in work camps between 1921 and 1953.

Moscow's monument to the victims -- a stone from a prison camp -- is so modest that few passersby even notice it in a tiny park across from the former KGB headquarters in downtown Moscow's Lubyanka Square. Access to the KGB files remains so strictly controlled that even survivors of gulag camps cannot discover who betrayed them.

Some scholars suggest Russia is too chaotic, degraded and impoverished now to draw too much attention to the savagery of the leader who once led it to military and industrial greatness. Others, like Alexander Yakovlev, a former Politburo member, worry deeply that the lack of contrition means that human rights is still a foreign notion to the average Russian. They worry that future Russians might be blind to the narcotic effect of power, whether wielded by another tyrant or by a Kremlin risen again on the world stage.

Officials of Memorial, initially founded to commemorate victims of political repression, see in Russia's failure to face Stalin's crimes the seeds of its blindness toward the documented atrocities of its troops in the war in Chechnya.

"It is so typical of Russians that people can get very upset when one person dies, but when millions die, they are indifferent," said Yakovlev, one of the leading figures behind the economic reforms of perestroika and now the head of a state commission to clear the names of those persecuted under communism. "This is thick skin, and I think this is scary. People do not seem to care whether we confront this chapter of our history or not."

'Proud of Their Heroes' Soviet President Mikhail Gorbachev and Russian President Boris Yeltsin both denounced Stalin, Yeltsin perhaps most vehemently in 1996 when Communist Party leader Gennady Zyuganov mounted a strong challenge for the presidency. But under President Vladimir Putin, the pendulum has swung toward the view that Stalin deserves some measure of honor.

Putin has authorized the issuance of 500 special silver coins bearing Stalin's portrait and unveiled a plaque honoring Stalin for his military leadership. He told Polish reporters this year that though Stalin was a dictator, "it would be silly to ignore" the fact that he led the Soviet Union to victory in World War II.

The Federal Security Service, or FSB, the successor to the KGB, appears to have taken its cue from its old boss. Last December, Putin, who directed the FSB from 1998 to 1999, hailed the history of Russia's security services, saying Russians "should, without shame, be proud of this history, be proud of their heroes and their achievements." The agency's new calendar shows the KGB headquarters and Lubyanka Square as they looked in communist times, with a statue of Felix Dzerzhinsky, the founder of the Soviet secret police, in the center.

There are limits, however, to the Kremlin's acceptance of the seamy Soviet past. This month, Moscow Mayor Yuri Luzhkov suggested that the 14-ton statue of Dzerzhinsky, torn down in 1991, be re-erected in the square. A top Kremlin official objected, saying such a move would be unacceptable to most Russians.

Still, it is hard to say that Putin doesn't reflect a certain nostalgia among the Russian people for Stalin, a ruler whom communist propaganda had elevated to demigod status by the time of his death.

In an opinion poll one year ago, more than half of all Russians surveyed viewed Stalin with ambivalence or as a positive force; only one-fourth said he did more harm than good. Communist politicians, the biggest bloc in the Russian Duma, openly praise Stalin, claiming the mass arrests and executions under his rule have been vastly exaggerated.

Mark Kramer, director of the Harvard Project on Cold War Studies, says Russia is not the only nation reluctant to confront a painful past. French citizens avoid a close look at the Vichy period; many Austrians pretend their country was a victim of Nazi aggression; Japan often plays down atrocities of troops in China, Korea and Manchuria in the 1930s and 1940s; and until 30 years ago, the United States ignored slavery in its reconstruction of colonial life in Williamsburg.

Still, Kramer argues, Russia is particularly unwilling to analyze the years of terror because its political leaders are Soviet offspring. Although he condemned Stalin, Yeltsin headed the Communist Party in Sverdlovsk and Moscow before he became president; Putin worked for 15 years as a KGB agent.

Another explanation is that the Soviet Union's peaceful collapse spared Russians the painful historical reckoning Germans faced when they lost World War II and were forced to endure the Nuremberg trials. In Russia, no one complicit in Stalin's crimes ever stood trial. The Communist Party's responsibility was briefly aired in Russia's constitutional court in 1992 after Yeltsin tried to ban the party, but the court did not try to assess guilt.

No Self-Examination Arseny Roginsky, chairman of the board of Memorial, said activists shunned trials because many key players in Stalin's massive machine were dead by 1991, and the rest were old. The complicity of millions of ordinary Russians who informed on their neighbors under withering state pressure also made it hard to single out villains.

Nor did Russia create a powerful truth-finding commission to document and draw lessons about the gulag era, as a panel in South Africa did in its 1998 report on 35 years of abuses against blacks. While Yakovlev's commission gained access to many such documents, it has focused mostly on clearing victims -- 4.5 million of whom have been rehabilitated -- not on fingering the guilty.

Now Roginsky says Russia's lack of self-examination was a historic mistake. "We were fools," he said. "If we had 10 or 20 hearings on such criminals, then people would have thought about it. But all this discussion at the end of the 1980s was thrown to the back of people's minds, and then it disappeared altogether.

"Today, only rare people think about the past." Yuri Pivovarov, a political science scholar with the Russian Academy of Sciences, said that neither Russia's leaders nor its people want to look back. "They think that all this is in the past, and let's not think about these dark pages of our history. Let's just stick to the concrete tasks of today," he said.

"People simply do not know their own history," he said. "And that means they are completely disarmed against any potential dangers."

Efforts to Remember A few activists, mostly Western-financed, struggle against the tide of forgetfulness. In Moscow, an 82-year-old historian is trying to turn a decrepit office building into a museum to Stalin-era victims, and has won permission from the city to take over a few rooms.

Some gulag exhibits are on display at a museum in western Moscow dedicated to Andrei Sakharov, a Nobel Peace Prize winner and human rights activist sent into internal exile in 1980. Next to them are blown-up photographs of civilians killed in Russia's long-running war to subdue the separatist region of Chechnya.

Yuri Samodurov, the museum's director, said he tried for 12 years to persuade the Russian government to open a museum to victims of the gulag. He finally concluded that the government was simply too riven to make a statement about the past. "Our state has not decided who it wants to be," he said.

And not just the state. Tatyana Kursina, 53, a former teacher from the Ural Mountain city of Perm, seeks with her husband Viktor Shmirov to turn one of Stalin's last labor camps, Perm-36, into a national museum. With $250,000 from Western foundations, they have restored two barracks and scavenged the ruins of the infamous Kolyma camp, in Russia's far northeast, for tin cans, tools and other artifacts used by prisoners.

This is a personal crusade: Kursina's mother was a girl when her family was forced off its land and exiled. Her father, like 1.5 million other Russian soldiers captured by the German army in World War II, was treated as a pariah after the war by Stalin's party bureaucrats and forced to work in a chemical factory far from his home.

But Kursina cannot talk to her 81-year-old mother about her work. Despite her family's history, her mother still supports the Communist Party and considers Stalin a great leader.

"She doesn't believe that so many people were in camps. She thinks it is falsification and exaggeration," Kursina said. "Unfortunately, in our country, no one has been able to call black, black. So people can choose to see what they want to see."

Lack of access to KGB files has helped blur the picture. In Germany, a 1991 decision to open the files of the Stasi, the East German secret police, kicked off a painful reappraisal of the country as a communist state. Neighbors, friends, even spouses were exposed as spies. Files on all public figures were opened.

In Russia, victims of political repression and their relatives can peruse parts of their own files, but many say they find little that is revealing. Names of the informers who fingered them remain secret. Files on public figures are open only to their close relatives. Private researchers can gain access only with the approval of the FSB.

To some victims, like Aldona Voldynskaya, Germany's program to compensate Russians who suffered from Nazi abuses only highlights the lack of atonement in Russia.

Now 76 and nearly blind, Voldynskaya recounted her trip from Soviet orphanage to German camps to Soviet prison in two days of interviews in her neat, modest Moscow apartment. Her strongest memories are of the orphanage outside Kirovograd, in the center of then-Soviet Ukraine, for children of enemies of the people.

"It was the most horrifying place I have ever seen in my life. We were starving there," she said.

Today she goes from school to school in Russia, trying to educate children about the sufferings of her generation. But until perestroika dawned in the 1980s, she said, she was afraid to speak about why she was banished to the orphanage, about her parents' arrests or about her six-month incarceration in a Soviet prison.

"Can you imagine when you are silent for 50 years?" she asked, poring over a few faded photographs of her youth through her thick glasses.

In 1991, invited by city officials in Bonn to recount her story to Germans, she described for schoolchildren her three years in German camps, where she endured forced sterilization, hunger and disease after Nazi troops conquered the village where the orphanage was located. Afterward, she said, one German boy approached her and told her: "Please forgive us." When she asked whether he had relatives among the Nazis, he answered: "No. But still we are to blame."

"Russians will never say that," she said.

Russian Revival

As things look up in Moscow, one crucial ingredient remains missing: foreign direct investment 

MOSCOW - Only four years ago, Russia was an international pariah, defaulting on its debt, its currency in free fall. Now, in a world buffeted by corporate scandals, bankruptcies and crises in emerging markets, it's a relative model of respectability.

As economies around the world are slowing, Russia has seen three straight years of robust growth. Buoyed by high oil prices and the 1998 ruble devaluation, which drove up the price of imports and made local manufacturers more competitive, Russia's budget is in surplus and its foreign-exchange reserves at all-time highs. It's paying off its debts on time and in full, its Eurobond yields are falling and its credit rating rising. Last year it had the world's best-performing equity market after China.

The stock-market boom also has been fueled by changed perceptions of Russia, which under President Vladimir Putin is now a partner in the West's war against terror. Its efforts to mend fences with old Cold Ware adversaries have been richly rewarded by a bigger role in the NATO alliance, membership in the G8 industrial nations and recognition by both the U.S. and the European Union as a market economy, The upshot: Russia is being seen by foreigners as a less risky place to invest.

But some skepticism remains. Foreigners may be returning to the Russian equity market, but are proving slow to set up their own operations here or buy Russian businesses. And that may put a crimp in Mr. Putin's plans for accelerating economic growth.

Ugly-Duckling Economy "Russian assets are simply not attractive," says Olegy Vyugin, deputy chairman of Russia's Central Bank. Foreigners, he says, are put off by the preponderance of corruption and government bureaucratic controls and a deep distrust of outsiders among Russian industrialists - especially in the provinces.

"You have to fight for investment, and Russia didn't understand that for a long time," says Mr. Vyugin. "The government always told foreigners, 'Here are the conditions: If you don't want to work here, then don't.'"

The result is that renewed interest in Russia has yet to translate into big inflows of foreign direct investment. FDI stood at a minuscule $1.9 billion in the first half of this year - down 25% from the year earlier period. In contrast, China reeled in nearly $47 billion in foreign direct investment in 2001.

The lack of FDI is a problem for Mr. Putin, who came to power saying Russia's economy needed to grow 8% a year for the next 15 years just to catch up with Portugal, let alone leading economies like Germany or the U.S. He was determined to lift his country out of poverty by raising economic growth and attracting Western capital flows.

So far, that's a pipe dream. Earlier this year, Mr. Putin chided government ministers for their unambitious targets - they expect the economy to expand by 4% this year, compared with 5% last year and 9.1% in 2000 - and told them to aim higher. Economists believe much more fundamental changes are required if Russia is to see real, sustained growth - and more foreign investment.

The fact that changing sentiment toward Russia has so far failed to generate big inflows of foreign capital shows the uphill struggle Russia still faces in trying to convince the world it's really changed. Under Mr. Putin's predecessor, Boris Yeltsin, the country was renowned for its lawlessness, political chaos and thuggish business practices. Mr. Yeltsin's Russia was best known for the way a group of tycoons, the so-called oligarchs, used their connections to snap up state-owned assets at giveaway prices. Foreigners' mistrust of Russia peaked in 1998, when many emerging-markets hedge funds were wiped out in the country's financial crash.

Meeting Resistance Since entering the Kremlin in 2000, Mr. Putin has worked hard to put Russia's house in order, pushing through changes aimed at cutting into the oligarch's power and improving the country's business environment. His government has slashed taxes, setting a 13% flat-rate levy on income, Europe's lowest; allowed the sale of agricultural land for the first time since the Bolshevik Revolution of 1917; liberalized Soviet-era labor laws; and introduced a Western-style judicial system better able to protect property rights.

But other, more far-reaching changes that could mark a definitive break with Russia's communist past and deliver the economic growth Mr. Putin wants are proving slow to get off the ground. A bold plan to reduce government interference in business has encountered tough resistance from the very bureaucracy it was supposed to curb. A socially painful plan to end state subsidies of energy and housing costs has been put on hold and is unlikely to go ahead before next year's parliamentary elections. A long-promised root-and-branch overhaul of the civil service, a revamping of the banking sector, and the restructuring of Russia's gas and electricity monopolies are all moving too slowly for some.

The lack of reform and foreign interest means Russia's economic success remains largely dependent on something beyond its control: the price of raw materials, especially oil. When oil prices are high, Russia, the world's No. 2 oil exporter, after Saudi Arabia, thrives: Investment increase, wages and living standards rise, and consumer demand surges. When oil prices are low, the economy sputters.

'Like an Addict' "Russia is like an addict, and oil is the drug," says Yevgeny Gavrilenkov, chief economist at Moscow investment bank Troika Dialog.

Moscow's efforts to wean itself off its dependence on raw-materials exports have been erratic. Industry is still dominated by a handful of big energy companies, while small businesses that have powered growth in other post-communist countries are underrepresented.

Yet in some ways, these energy giants are emerging as a key driver of economic change. Over the past few years, a handful of huge financial-industrial groups have emerged with their roots in raw-material exports, often compared with South Korea's "chaebols," or industrial conglomerates. These companies are often run by a new breed of corporate boss - young, profit-minded businessmen with ambitious plans to expand into all aspects of the country's economic life.

The process began in the late 1990s when Russia's oil, gas and metals tycoons, flush with cash from high commodity prices, began repatriating profits squirreled away for years in offshore tax havens. They bought up industrial assets across the economy at fire-sale process and welded them into huge, vertically integrated corporations.

Such a trend was almost inevitable in a country with no normal banking system. In the absence of financial institutions moving cash around the economy, only the big exporters were able to raise enough cash for acquisitions and investment. At the same time, they were big enough to counteract the "state mafia" - the name often given to the corruption and bureaucracy of government agencies that suffocate smaller firms.

The result has been an extraordinary concentration of ownership and wealth. According to a recent study by two Moscow-based economists at investment bank Brunswick UBS Warburg, Peter Boone and Denis Rodionov, 85% of the value of the 64 biggest private companies in Russia is controlled by just eight groups of shareholders.

Some economists worry this development could distort Russia's economy, with the tycoons using their dominance of the market and influence with government to keep newcomers out. "There's no place for new players in this system," says Mr. Gavrilenkov, the bank economist.

But Messrs. Boone and Rodionov say the new owners are often a force for good. They say they tend to be young, financially oriented individuals keen to sell stakes in their companies to foreign strategic buyers. So to improve their market capitalization, many have restructured their holdings, boosting transparency and shareholder rights. In the process, they've become a "key lobby for strengthening property rights and implementing policies that improve Russia's investment climate [and] reduce sovereign risk," the study's authors write.

A Change for the Better? Perhaps the best example is Russia's second-biggest oil producer, OAO Yukos, a private company owned by 39-year-old Mikhail Khodorkovsky. Under Mr. Khodorkovsky's leadership, Yukos has improved productivity and boosted corporate governance and disclosure. That has sent the company's share price soaring, as investors rewarded its high output growth, falling production costs and improved relations with minority shareholders. Others in the industry have begun to follow its lead.

Meanwhile, the new Russian bosses are filling the void where foreign investors should be. FDI is dwarfed by the huge capital expenditure of domestic companies, many of which are borrowing abroad to finance expansion. While FDI has dropped this year, portfolio investment in Russian equities and credits from Western banks to Russian entities actually grew. In the first half of the year, loans to Russian companies rose 60% to $6.3 billion.

The shift shows corporate Russia tentatively returning to international capital markets it was firmly shut out of after the 1998 crash. Companies like oil major OAO Sibneft and cellular-service providers OAO MTS and OAO Vimpelcom have raised funds on Western bond markets. OAO Gazprom, the natural-gas giant, issued $500 million in bonds this month, and is planning to tap U.S. investors with a $750 million bond issue next year.

Word Travels

The news about Russian companies' new way of doing business does appear to be trickling down to investors. "We've seen a jump in interest from foreign multinationals who are sending big fact-finding missions to Russia," says Niclas Sundstrom, an economist at Citigroup in London. He cautions, though, that "it usually takes 18 to 24 months for this interest to translate into domestic FDI inflows." Oil multinationals such as BP PLC and ExxonMobil Corp. are already making substantial investments in oil and gas exploration in Russia. Retailers like Swedish furniture group Ikea and the French supermarket chain Auchan are also making inroads. Renault SA is considering investing around $250 million in a new assembly plant in Moscow, and the first car produced by a joint venture between General Motors Corp. and Russian carmaker AvtoVAZ drove off the production line last month.

The change in perception of Russia has yet to show up in a big rise in figures for direct investment. But economists say there is clear evidence that corporate turnaround stories, structural reforms and Mr. Putin's pro-Western orientation may be changing the minds of investors - even those with clear memories of 1998.

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