Zero Sum, by Charles Hecker, joins the growing ranks of works that settle the score with the “end of history”. Hecker, who spent years in Moscow as a journalist and consultant, saw firsthand how Western triumphalism, combined with a supply of risk takers and lots of capital, led to bold wagers on the future of Russia as a more or less normal country. Many of those bets were undone — seemingly once and for all — by the invasion of Ukraine.
The book is made up of sharp analyses as well as vivid glimpses of life — either witnessed by the author or recounted to him by those involved. In one of them, a director at a law firm recalls how, in February 2022 at Sheremetyevo Airport, every flight number on the board suddenly began flashing — cancelled — and his life seemed to race before his eyes: the last thirty years in Moscow. Like many others, he had believed to the end that Putin would not invade. Western companies, too, could not imagine he would act against both his own interests and those of the country, disrupting the relationship that had existed between Russia and globalisation.
As Russian troops built up along the Ukrainian border, business people kept assuring one another there would be no war. In Moscow, at the offices of Alvarez & Marsal, the international consultancy drew up a series of scenarios to forecast what might happen next. The one deemed most likely — assigned a 50 per cent probability — was that it would all “blow over.” They put the likelihood of war at just 10 per cent. A sense of American decline, exacerbated by the botched evacuation from Afghanistan, only reinforced mistrust of CIA reports. US intelligence insisted an attack was coming. At that stage, however, no one was taking the American government seriously.
As Stuart Lawson, former CEO of HSBC in Russia and a long-serving senior figure in the country’s financial services community, put it: “the fundamental misunderstanding was Putin is going to act rationally. And if he was acting rationally, he wouldn’t have done what he did.” Putin made the decision to invade. Western companies paid a steep price — over $100 billion in losses, according to the Financial Times.
After the invasion, a new word for expropriation appeared in Russia: deprivatisation. Rules ceased to matter. Vultures — private investors and state officials — circled the companies, eager for a piece of foreign assets. Interestingly, some of the firms that fell prey had failed to leave Russia in time because of their slow decision-making processes. Poor management means trouble in times of geopolitical turmoil.
There is always the question of where an appetite for risk ends and ignorance begins
“Ruskaya specifika” — this is what many Russians in the 1990s tried to explain to foreign investors and businesspeople. Things are done differently here. Often, to get things done, you have to be ready for uncomfortable compromises. Embracing this Russian exceptionalism requires a high tolerance for risk. Russia has always attracted this type of men, and the era of globalisation made it easier for the people Russians call “riskophiles” to seek opportunities after the collapse of the USSR.
There is always the question of where an appetite for risk ends and ignorance begins. The most vivid example concerns an American bank opening branches in Russia in 1917. Just after the revolution, its director congratulated Russians on their “self-restraint” and expressed his belief that the country “will come out of it stronger than ever.” In February 1918 came the largest default in history at the time, when Russia repudiated its debts and nationalised all assets belonging to foreign investors. Even so, the same American bank pressed on, remaining steadfastly bullish on Russia, and in 1919 opened another office. Not long after, it had to close all of them.
Russia brings out the taste for risk in those who already have it. So it was after the fall of the USSR. As Hecker notes, everyone thought a time of great opportunities had opened, but few realized how fragile Russia’s institutional framework was in the immediate aftermath of communism. “Everything was possible,” we read in Zero Sum. The country could have gone in any direction, even ending up entirely in the hands of criminal elements. The collapse of the USSR sent pulses racing, and adventurers were dispatched to a country that would from then on bear the label of an “emerging market”.
Zero Sum draws our attention to how important a good story was in those years of investment euphoria. At the time, “third world” countries with non–investment grade ratings were given a new spin as “emerging markets,” and suddenly investors flooded in. Where doubts lingered, Goldman Sachs assuaged them. When Jim O’Neill coined the acronym BRICS in 2001, many took it as a green light to invest in places that those with a lower tolerance for risk would have avoided. BRICS became a key part of the story of Russia returning to the ranks of developing countries in the global system after its 1998 default. It was, after all, mentioned in the same breath as China.
As Hecker explains, “With Goldman Sachs’ analysis backing you, investing in Russia became the closest thing you could get to a no-brainer … Vice presidents of emerging markets — a job title that scarcely existed a decade ago — became extremely busy and wildly popular. Everyone took their calls. Globalisation went into overdrive.” Although many things had to go right for Goldman’s rosy forecasts to come true, Moscow boomed.
Beneath the story was a country that, in the 1990s, did not know the rule of law. Those who worked there called Russia a “relationship country,” in the same sense that China’s system is described as “guanxi capitalism” — capitalism built on connections. In the 1990s, there were no rules, but there was investor optimism and a belief that Russia had set out on the path of liberal democratic capitalism. Uncertainty did not deter them because, as a Russian journalist quoted by Hecker explains it, bankers and consultants “had beautiful, cheap prostitutes, cheap vodka, and 1,000 per cent profits.”
Over the course of the 1990s, liberal democracy and the rule of law proved increasingly illusory. Order in the jungle of Russian capitalism was imposed by Putin. From now on, what mattered were not ties to gangsters but to his people. He put an end to bungled attempts to imitate Western systems and introduced what his circle called “managed democracy.” For many doing business in Russia, Putin meant stability: a law-and-order president who did not drink like Yeltsin and who could rein in the mafia element.
A few decades later, however, Putin proved to be a destabilising force. In Russia, it is still possible to make money, but not by betting on the country’s future as in the 1990s.
Zero Sum is a fascinating account of how an appetite for excessive risk creates a bias that makes one overlook the national constraints of the economy. The rules of the game vary widely, shaped by cultural foundations that do not easily vanish, neither under the pressure of fashionable jargon nor in the charged atmosphere of historic turning points. Together with Russell Napier’s Asian Financial Crisis, these books are remarkable contributions to the revisionist current against the “end of history” narrative.
While Napier believes the twenty-first century will turn toward more communal forms of capitalism, such as the East Asian variants, Hecker seems to suggest less dramatic change: geopolitical risk has once again become a factor that companies and banks take seriously. Zero Sum reminds us that the combination of capital, risk-inclined personalities, and a coherent narrative is an underrated historical force. It can lure us into exuberant optimism, eroding our ability to imagine what the future may hold.
We are living in a period in which financial markets are among the major forces shaping our world. The Hegel of our times would have to devote himself to the dialectic of stocks and options, study currency movements and commodity cycles. Meanwhile, we need more books like Hecker’s to recalibrate our outlook on history, regardless of the political lens that colours our view.
