Review: The King of Vodka by Linda Himelstein

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SmirnovAlthough Linda Himelstein's King of Vodka concerns itself with a different time and a distant land, the byzantine history of the founding and eventual disintegration of the Smirnov vodka empire seems oddly resonant in today's business environment. The famous brand was forged in one of the most tumultuous periods in Russia's history, yet the company's eponymous founders struggled with many of the same business problems that financial analysts see today.

Pyotr Smirnov, founder of the empire, was born into serfdom in 1831, and was, effectively, the property of the Skripitsyn family. Fortunately for Smirnov, however, his family was ambitious, and the success of an uncle who made enough money to buy his own freedom inspired a young Pyotr to move to Moscow and pursue his own liberation.
Pyotr took up one of the few trades available to those starting out with little money: making and selling vodka. His timing was fortunate, as Tsar Alexander II, in hopes of speeding his country's development, freed the serfs. This measure, one of many that the Tsar undertoook to open up the society and spur the economy, led to a boom in entrepreneurism unlike any that the country had ever witnessed.

Smirnov was in the center of the action, and by stubbornly holding to high quality standards, currying favor at the Imperial court, and employing innovative marketing, he built his business into Russia's dominant maker of vodka and other spirits. His fortune swelled to an estimated $133 million in today's dollars.

However, by the end of the century, the new wealth and the stark separation between Russia's privileged and poor had drawn the attention of three groups that were to lead to the Smirnov Company's ruin. The first was the Russian courts, whose tax on the sale of vodka grew to constitute three-quarters of the industry's annual income. In search of further revenues, it took over the vodka trade and made it a monopoly of the crown, forcing the closure of thousands of taverns that had been strong Smirnov distributors.

At the same time the public, led by dignitaries such as Leo Tolstoy, was growing ever more discontented with the drunkenness of the Russian people. Step-by-step, the country's leadership became convinced of the need to prohibit the liquor, even at a brutal cost to the Tsar's treasury.

The third group was Russia's growing revolutionary cadre. Under the agitation of socialists such as Vladimir Lenin, the monarchy fell in 1917, and was quickly replaced with a communist government. All businesses became property of the state, and the Smirnov empire was over. One of Pyotr's sons later sold the liquor's name, recipes and production rights to an American, who anglicized the name to Smirnoff and introduced the U.S. public to what would eventually become its hard alcohol of choice.

One obvious parallel lies between Russia's vodka industry and America's tobacco business. Like America's government, the Tsar had to negotiate between conflicting desires to keep the tax stream coming yet wean his people off a substance that was harming them and the state. Russia's -- and later the U.S.S.R.'s -- experiences with prohibition parallel those of the United States. Its public, especially soldiers returning from WW I, demanded their familiar beverage, despite prohibition, and an underground economy quickly formed to fulfill the needs of a thirsty market.

Another all-too-familiar business story line that played out in the Smirnov family line was the moral decay of the founder's children. To his death, Pyotr Smirnov remained a religious, hard-working and ambitious man devoted to the well-being of his empire; however, most of his children chose the lifestyle of the foolishly rich and entitled, squandering their fortunes without accepting the responsibility for safeguarding the company's fortunes after the founder's death.

Ultimately, however, the company's collapse was not caused by market forces or family mismanagement, but rather by government actions. First the Tsar's people built a bureaucracy that discouraged business creation and those, like Smirnov, who penetrated this barrier were taxed heavily. When that still didn't produce enough income for the court, the Tsar's people took vodka sales out of the hands of private vendors altogether.

Himelstein's focus on authoritative sources and an ability to weave historical facts into an interesting narrative render this book a fascinating read and a revelatory tale. Before you order that next vodka martini, you might consider giving it a read. You'll never look at your cocktail the same again.
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