Since the Russian invasion of Ukraine, some 500 companies, primarily European and American, have announced measures against Russia. Corporations rushed to condemn Putin's declaration of war on Ukraine in the strongest terms.
After the invasion began on February 24, a race ensued to link disapproval to all kinds of concrete economic penalties, measures and trade/travel bans. As a result, western firms closed their production facilities in Russia, froze their investments, closed their shops or refused to export products to the Russian Federation.
In Moscow alone, as a result of Western restrictions, about a thousand shops had to close their doors, and thousands of jobs disappeared in a short time. Western social pressure for radical economic measures steadily increased. Corporations put aside their financial interests and profits for unambiguous moral principles. The competition for winning the moral high ground in front of the outside world began.
The invasion changed the political scene and the economic one at the global level. McDonald's, Coca-Cola, Starbucks and Heineken are the latest companies to announce halting business in Russia because of the war. Coca-Cola stated that "Our hearts are with the people enduring unconscionable effects from these tragic events in Ukraine".
Even if the announced western economic measures are in some cases symbolic and have little or no impact on the regime, firm positions are essential in securing corporate reputations. It is paramount to avoid a possible boycott in the West, leading to more significant economic and financial consequences. From a moral point of view, an embargo and a complete withdrawal from the Russian market sounds obvious and even obligatory.
Nevertheless, when we look at the flood of press releases and statements, it quickly becomes clear that the announced actions are not equally stringent. Many companies report an unconditional and final withdrawal from Russia (e.g. American Airlines, Deloitte, Exxon) or are temporarily suspending their operations in anticipation of a possible return (e.g. 3M, Amazon). Some other firms have seemingly half-heartedly scaled back some of their activities without completely stopping them (e.g. Carlsberg, Goldman Sachs, Kellogg Company), while some such as Philip Morris have added to scaling back an orderly exit announcement. Some seem to be gaining time mainly by postponing investments (e.g. Bayer, Unilever, Henkel) and others that have ignored the pressure to stop activities (e.g. Credit Suisse, Huawei).
There is a strong tendency to link these actions and measures to a moral-ethical sliding scale and to maximize social pressure, including from human rights organisations and pressure groups, on companies to at least force withdrawal and radical boycotts.
However tempting this view may be, it ignores the enormous complexity underlying the decisions that companies must or can take in the given circumstances.
For a company like Coca-Cola, for example, the consequences of shutting down its operations in Russia are relatively limited since Russia represents only 2% of global revenues. This makes it easier to make quick and hard decisions. However, on March 9, the Coca-Cola Beverage Plant Ukraine, located near the village of Bolshaya Dymerka in the Kyiv Region, came under enemy fire and was damaged. This was the only Coca-Cola plant in Ukraine, which opened in 1998.
Another consideration is whether a population that is bombarded daily with a massive amount of propaganda should pay the price for the actions of an intransigent autocratic regime. After all, Western economic measures primarily disrupt production/exports and eventually affect the population, whereas the regime and its representatives are usually not visibly affected by such measures. Moreover, the average Russian does not have the same escape routes as the oligarchs.
Putin wrenched a generation of Russian and Ukrainian youngsters from Instagram and conducted them back to the Middle Ages. He denied them any future and has brought death, hate and destruction to their lives and those of their parents and grandparents.
Research by Prof. Joseph Wright (Pennsylvania State University – USA) and Prof. Abel Escriba-Folch (Universitat Pompeu Fabra – Spain), into how economic sanctions affect the behaviour of dictators indicates such measures are likely to increase political repression in Russia and hurt the average Russians' economic security – without stopping Putin from pulverizing Ukraine.
Their research demonstrates that measures targeting personalist dictatorships of the Putin kind take more food out of citizens' mouths than those targeting other types of regimes. Punitive economic measures hurt ordinary citizens in personalist dictatorships because these leaders tend to shield elites from the financial pain of external sanctions by pushing costs onto regular people.
For many international corporations, the protection and safety of their employees is an absolute priority. That remains a legitimate reason for companies not to cease all activities hastily. In some cases, a departure is not always possible and may meet with internal resistance. For example, the owner of Burger King, Restaurant Brand International, withdrew support from its franchisees, but they continued to stand by their staff and refused to close. In short, today's lost MacDonald's customers can still go to Burger King in Russia.
Many other elements can stand in the way of a departure or a complete embargo. The fact that such decisions cannot be taken lightly is often due to legal obstacles, which do not always allow companies to decide on their own to withdraw without running the risk of being prosecuted. Moreover, Putin has already threatened to seize certain companies that cease operations in the country. And indeed, a few days ago Russian agents seized millions of dollars worth of Audemars Piguet watches in Moscow inapparent retaliation for Swiss measures banning luxury goods exports.
Therefore, it is not clear if a total Western boycott could hasten the autocratic regime's implosion through swelling protests by the people. Yet, there is a chance that the already strong nationalistic sentiment will increase further, and anti-Western feelings will progressively prevail. In this way, the economic penalties against Moscow could ultimately turn against the West. Nevertheless, companies who continue doing business in Russia need to seriously face the dilemma of whether the risk is worthy and count the cost of this exposure.
Finally, a line of Sherlock Holmes, whose statue (together with this of Dr Watson) stands outside the walls of the British Embassy in Moscow: "There is an east wind coming all the same, such a wind as never blew on England yet. It will be cold and bitter, Watson, and a good many of us may wither before its blast."
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