Russian Experience

1. Think and say:

a) Which economy is better: command or mixed? Why?

b) How can you describe the economy of the present-day Russia?

c) What is new in Russia relative to the times of the USSR?

2. Read the text. Give a short summary of the text. Retell it from the point of view of a New Russian and from the point of view of his friend.

“New Russians” Come From the Old Nomenclature.

By Roy Medvedev

How come Russia, where quite recently almost all property belonged to the state, suddenly has people whose capital is estimated to be hundreds of millions of dollars?

The first legal business people as well as the first fortunes appeared between 1987 and 1988 just after the first laws on individual business activity and cooperatives were passed. At that time, many of those who are now among the elite in Russian business, earned their first millions by selling aluminium abroad and importing fax machines and computers. Over two to three months, $500 turned into $50,000, while a million rubles became 100 million. Leaders of the Young Communist League, or Komsomol, were especially active in business — they used various departments of that organization to cash money on bank accounts and creating the first commercial banks, commodity exchanges and housing construction cooperatives. Komsomol entrepreneurs dominated in show business, in the video market, in tourism and even in the gambling industry. They also accounted for a significant portion of Russia’s international speculative trade.

The state and its agencies responsible for trade and the economy of the former USSR took their first steps toward entering a market economy less obtrusively but no less actively. Ministries became concerns and trusts, other government agencies were replaced by trade houses, joint ventures and exchanges. Banks operating in particular industries and regional banks were gradually going commercial. All this was viewed as part of the economic restructuring on the way to a market economy. At the time, the ruling Communist party had no coherent policy on this account — it particularly lost control over the development of market economy relations.

With the democrats having come to power, the release of the price caps and rapidly soaring inflation provided new opportunities for getting rich quick. Purchases of goods at Russia’s domestic prices and their resale abroad brought quick and large profits. The large-scale buying out of staple goods, works of art and folkcraft, antiques and tableware was largely done by mid-size Western businesses. However, Russian citizens dominated in the export of oil, metals, timber, fertilizers and other raw materials. They controlled the market through their social status and connections which helped them get privileges and accumulate tremendous wealth in a short time. Business qualities were of secondary importance in exports. Connections, information and bribes were instrumental.

Soft Credits.

Another means of making a fortune was connected with getting large advantageous loans which were usually granted to agriculture and certain industrial companies by the state at 10 to 25% annual interest. However, it took the money a long time to find its way to the borrowers. Sometimes it never reached them at all. These loans circulated among “friendly” banks in profitable settlements, yielding a 2,500 to 3,000 percent annual interest rate for those who controlled the money flows. And although hundreds and thousands of banks later went bankrupt, the bankers themselves did not lose anything — they had insured themselves against losses by opening large accounts in foreign banks or purchasing property far beyond Russia’s borders. A majority of Russian bankers are young people aged 30 to 45..

The hasty privatization of state enterprises gave company directors and other economic administrators the opportunity to acquire large “chunks” of government property. For the post-Soviet regime it made political sense — numerous Soviet administrators and party leaders became the bedrock of the new ruling party instead of opposing it.

On the list of Russia’s 50 most influential business people, experts usually put five representatives of the gas and oil industry, three heads of car manufacturing plants, two individuals from the diamond- and gold-mining sectors, two entrepreneurs from the trade sector, two publishing magnates and three heads of multiprofile companies. And there are 27 bankers on the list.

Still, is it possible to call the people who began their “business” not through any ability or effort of their own real entrepreneurs? In my opinion, the most productive segment of the Russian business is the industrialists who were able to create and run effective companies, mostly involved in construction and production of consumer goods. Deplorably, they fall into the second or even third echelon in terms of wealth and influence. These people are seldom called “new Russians”. As a rule, they do not squander their money, but save it for business. For example, the Agrodorspetsstroi firm headed by Pavel Golyshev was originally established as a road construction company focused on rural areas, but the business brought little profit and the firm had to diversify its activities. At present, it engages in logging and gold-mining in Siberia’s outlying regions. The firm’s productivity as well as employees’ wages are three to five times above the national average.

Doka Pizza, a firm which started operating in 1991 with an authorized capital of 40,000 rubles, now owns dozens of production lines producing potato chips, many restaurants and Pizza-Hut cafes in Russia and republics of the Commonwealth of Independent States. The firm is headquartered in Tolyatti. Headed by Vladimir Dovgan, it produces minibakeries. Their quality is no worse than that of foreign analogs, whereas they are six to seven times cheaper. These bakeries are delivered to and sold in hundreds to every part of Russia. The firm also issues stock and other securities. The shareholders do not object to this activity as the money is used for further development and brings profit.

Ice-cream.

The joint stock company Anis, headed by Anis Mukhametshin, began in show business and continues to remain the leader. At the same time, it earns millions of dollars by producing wonderful ice-cream. One of his plants alone produces 180 tons of ice-cream per day which is sold twice as cheap as foreign-made production. Anis also built a tobacco factory, a liqueur and brandy distillery and a large pharmaceutical factory that saves many Russians from buying foreign medicines with expired consumption dates. His prices are 10 times lower than those for the same foreign drugs. Anis is now building a frozen food factory outside Moscow and a large factory to produce mineral Anis-Kola water in the republic of Tatarstan.

I was rather impressed by the Russian concern Paninter. It is headed by 46-year-old Alexander Paninkin, formerly a Moscow theater administrator with a degree in mathematics. He started his business back in 1988 with several sewing machines and a few thousand rubles. In 1994, the 700-strong workforce of the Paninter textile factory produced over a million articles. The effective labor organization, high productivity and, most important, top quality ensure quick sale of the concern’s merchandise. Of course, the quick sales returns are also helped by prices which are two to three times lower than for foreign clothes. The best domestic fashion designers work for Paninter. In Moscow alone, it owns several shops which sell off the products in three days at the most.

The concern expanded rapidly, creating affiliates in St.Petersburg, Yekaterinburg, Krasnoyarsk and other cities. I do not think Russia has any other similar “capitalist” enterprise at present.

From CPSU Member to Merchant.

A friend of mine, after losing his job on a district committee of the Communist Party, began to deliver flour and sunflower oil from his relatives living in the south to his wife’s relatives in the north in his private car. Today, he owns two trucks — a KamAZ and Mercedes. He also has a shop in Stavropol selling northern goods and a retail outlet in Kirov for southern products. My friend has created well-paid jobs for about dozen of families. He would never take a party job again, although his road business entails real danger.

Some acquaintances of mine — two young teachers and a researcher — founded a metalware firm which now employs over 300 workers. The firm manufactures up to 2,000 minigarages per month, as well as Venetian blinds, special window frames and many other products that are in demand in Moscow, Tambov and St.Petersburg.

My son — an analytical chemist and expert engineer — was unable to live on his meager salary and has started going on shopping tours to the United Arab Emirates where he purchases technical products ordered by firms and brings them to Moscow. He is assisted by his college friend, now the owner of a houseware store.

Among my friends are also private medical practitioners, publishers, newspaper kiosk owners, jewelers and a farmer who leases his Moscow apartment and successfully runs a farm using a minitractor and implements which he designed himself.

Myself, I work half a year in my 1,000 square meter garden. It provides my family with vegetables and fruits year round. I have neither a censor nor an editor to help me to prepare my books for publication, I pay for them myself selling small circulations. This is our new reality — in some respects it is worse compared with the previous times, in others — better. My friends’ businesses generally stemmed from need, but now they are helping them gain a foothold not only at the present time but also in the future.

Criminal Ties.

The dark side of Russia’s emerging new class is not only social negligence but also the close connections of a majority of the business people — both large and small — with criminals. In a poll the Institute of Applied Politics conducted back in 1994, 40 percent of the respondents admitted that they had earlier indulged in some illegal business, 22.5 percent said they had a criminal record while 25 percent stated they have links with the criminal underworld even now. However, that leaves a big margin for error because some of those asked may have concealed facts about their past or present activities.

Key terms.

1.Market

2.Command economy

3.Free market

4.Mixed economy