Many people in Silicon Valley inquired over the years why I was not coming back to Russia often (I visited once in two decades) or why I’m not spending much time helping Russian startups. I usually answered these questions in generalities while keeping my grim thoughts and predictions to myself. The events of the past few days, unfortunately, show that the worst predictions I feared all these years did come true. The nightmare scenario is now unfolding as we speak, and Russia position in the world is now altered forever.

Many people in Silicon Valley inquired over the years why I was not coming back to Russia often (I visited once in two decades) or why I’m not spending much time helping Russian startups. I usually answered these questions in generalities while keeping my grim thoughts and predictions to myself. The events of the past few days, unfortunately, show that the worst predictions I feared all these years did come true. The nightmare scenario is now unfolding as we speak, and Russia position in the world is now altered forever.

The mass murder of passengers & crew of Malaysia Airlines Flight 17 using Russian’s weapons and (most likely) by hands of Russian military squad exposed to the world that Russia is now complicit in committing crimes against humanity. That was quite a journey for a country that just six months ago were considered a full member of the global community, even if notoriously ornery one. How was it possible for things to collapse so far and so fast?

The Empire of Lies

“How did you go bankrupt?”

“Two ways, gradually and then suddenly”

-Ernest Hemingway

To understand Russia’s lighting fast descend into the abyss one has to understand a simple truth that many (myself included) suspect all along: Russia was and is a failed state. What is seen from the outside is just a facade imitating a functional country and government. High oil prices, residual infrastructure of USSR and internal mass propaganda machine maintained the illusion for more than a decade.

Silicon Valley is far removed from that part of the world (Russia is non-entity when it comes to startups and innovation, besides being inexhaustible source of great engineers, we will come back to that), so let’s review some basic facts about Russia.

In simple terms, Russia is a mafia state. All the way from Moscow to regions and to small towns, everything is controlled by various mafia gangs. Police and judiciary are parts of most powerful gangs. They usually assist in extortion or theft of property earned by local small and medium size businessmen. Big business is subject to federal mafia clan wars.

The mafia-state formation is logical consequence of Russian economy: it is totally dominated by oil and gas revenues. Oil, gas and derivatives provide meaningful employment to about 1M people. Russian population is about 150M. How do they survive? The majority depends on various forms of government handouts.

With russian-style oil production you don’t have to think, innovate or even hire smart people. All you have to do is to cash the check. Gazprom is ranked as one of the most grossly inefficient enterprises in the world. So what happens when a small, totally incompetent minority controls country-wide oil rent while the rest of 149 million people are a burden? The answer is obvious: that 1M would create a mafia state to keep the rest of 149M in check by means of police and judiciary abuse and mass propaganda.

Russian propaganda machine is vast, it now exceeds the one of Soviet Union. Official TV propaganda lies professionally and constantly. There are no independent TV channels; everything is controlled by government stooges. The “news” teams employ special teams that do video editing and fabrications to present absolutely falsified accounts for TV transmission. Then these fabrications are broadcast to brainwash captive population.

The population at large is, statistically speaking, not very bright. Many are deranged from overuse of alcohol or drugs. A big number are simply aging elderly rooted in USSR-centric mindset who never adjusted to the modern world. Most of them do not “work” in the sense we understand full-time employment here: they occupy placeholder positions sponsored by the government. Being dependent their whole life on government help, they are psychologically unable even to think government can do something wrong.

The families, wives, children of Russian elite (think top 1% of that 1M strong oil & gas service clan) doesn’t live in the country. They actually despise Russia and it’s people. All of the live in the west, many in London: Russian’s oligarch family spending is major contributing factor to London overall economy. They have absolutely no long term interest in Russian country or population survival.

Corruption and theft are endemic. Recent Olympic games ended up most expensive in history of the planet not because they were so well built: it was because it gave an excuse to a huge number of mafia clans to steal on a gigantic scale.

Modern Russia is not a weaker version of Soviet Union “empire of evil.” This capability is, thankfully, long gone. Russia is “cargo cult” of Soviet empire. It lacks competent professionals, leaders and minimal work ethics to accomplish anything on that scale. It just have enough capacity to cover everything in a blanket of lies, and as long as it works on captive domestic population that is all that it’s leaders need to keep channeling profits from Russia to London accounts.

The best way to understand modern Russia is to imagine a steep pyramid. At the very top there is a clique of KGB-affiliated oligarchs, who manage barely-competent class of middle-managers (which can and do steal a fraction of everything they touch) which in turn sit on top of largely brainwashed and deranged mass population living on life-long government welfare.

Needless to say this is most toxic environment imaginable to incubate a startup ecosystem.

Creative Class

Despite all that titanic effort, modern technology is far more powerful than any attempts by a backward medieval government to hold it back. Internet, web and mobile formed so called “creative class” in Russia. In general, these folk are young, smart, energetic, totally in tune how to leverage modern technology to find out the truth or to achieve their goals. They were the spearhead and main organizers of December 2011 protests against Putin’s mafia state. When you see smart young Russian engineer in Silicon Valley, most likely, you are talking with a member of this creative class.

Yet, Macbook Pro Retina is a poor weapon when fighting AK-wielding government thugs. Mass propaganda and intimidation do work at mass scale. It is much easier to be dumb and “patriotic” than smart and inquisitive ( even US population had to learn that lesson the hard way after Iraq invasion ).

Creative class was a minority in modern day Russia and there is a strong emergent behaviour that draining their numbers. That is a class of people with the skills most in demand in Europe and USA. During “peaceful” decade of Putin’s rule over two million people emigrated from Russia: this is a number higher then immigration after communist revolution and civil war.

By my estimate there is probably few hundreds of thousands of people in the creative class in Russia. This vocal, yet very small group so far never succeeded at thwarting russian mafia state at anything. Then, recently everything had changed.

Ukrainian Valor

The differences between “Ukrainian” and “Russian” people are cosmetic. The distance between Kiev and Moscow is about same as Sacramento to San Diego. Even today, after all that happened, the most likely language you will hear on the streets of Kiev is Russian. So why Kremlin was so enraged about recent Ukrainian revolution? After all Ukraine has no natural gas or oil, there were no riches to divide, what was the fuss all about?

What happened is that first time in history, large group of ethnic “Russians” had overthrown a mafia clan in a popular uprising. Until then, Ukraine was a satellite state, and exactly because it had no natural oil and gas, much larger portion of the population had to develop “creative class” skills rather than going to work for oil company or police enforcement. Then suddenly this social group had enough heft and popular power to overthrow local mafia don.

You can imagine the amount of terror it produced in the gang occupying Kremlin right now. If was and still is an extensional threat to them, hence they pulled out all the stops to overthrow or destabilize a new government in Kiev, and at the same time whip out xenophobic mass-hysteria in a local population.

At this moment, Kremlin can not really stop. If Kiev government survives, it will fairly quickly unlock economic benefits of non-mafia, free economy. The large parasitic class living by bribes and extortion will be displaced: it will have the same effect as if base tax rate would suddenly drop by a double digit percentage. Next door, progressive Russians would quickly notice and spread information about growing prosperity and opportunity in a city next door. What was half million Euro-leaning progressives, would become a million, then few million: before long you can picture a Gaddafi-style demise for the Kremlin gang.

Kremlin is fighting for its own survival: supplying weapon system and military crew to a roaming criminal gangs is nothing for them in big scheme of things.

Russia’s brand is over

This situation will get worse before it gets better. Kremlin will fight to the last: we will yet see the massive flood of lies and deceit they will unleash to mitigate the anger of their recent mass murder. Very unfortunately everything they do will be branded with the words Russia or Russian. Can’t say the rest of the country is blameless: Putin got a stratospheric 71% support level after annexation of Crimea. Many in creative class would do the logical thing: give up the hopeless fight and emigrate. We are probably going to see another, super-massive wave of immigration coming from Russia in next few years.

I think we came to the end of the line with regards to Russia as a name, culture, a global brand. For the time being the country future is destroyed, police state is well-entrenched and the narrative for the brainwashed locals would be xenophobic tale of struggle with the “West”.

Here is what it all means for Silicon Valley:

Expect to see a lot of resumes coming from Russia. Keep in mind internal situation for smart and talented person is dire, they are not just looking for a job, they looking to save themselves and their families.

Try to differentiate between “creative class”, a few brave people trying to swim against incredibly dangerous tide and the rest of brainwashed population.

Help Ukraine. They have terrific outsourcing shops and consulting firms. Send them business if you can. Recent revolution would unlock even more creative force in this economically modest, yet energetic country. They are the first large group of ethnic “russians” who become free on their own power and valor. To understand the scale of that achievement, here is the last group of Russians who were not ruled by khans, czars, communist chairmans or KGB generals: Free Novgorod Republic. That was over 1000 years go. Ukrane was a cradle of Russian civilization – they might become a source of it rebirth yet again.

Boycott anything and everything related to Russian government and associated banks and corporations. Any business you send to them only strengthen the regime. Your contract dollars will pay for next Buk missile.

Personally, I’m thinking to start calling myself Euro-Slavic instead of “Russian”. It’s a flimsy defense, yet Russian brand, after already being tainted with gulag and the rest of its toxic legacy, is now synonymous with mass murder of innocent civilians. There is nothing of value left to recover.

Updates & Coverage

Bloomberg

The Village

VOA

Euro-slavic translation by AIN:

Ukrainian translation

Interview with Espreso.TV: Part 1 | Part 2 | Part 3

The story continues in Part 2