`Property Owners' Are Rising From Russia's Economic Rubble

While Soviet President Mikhail Gorbachev struggles with the problems of the failing Soviet economy (and political system), disputing the course and pace of change with reformers, the problem is being solved by plunder. Officials of the old order are privatizing the economy by turning its pieces into their private property and diverting state resources to more efficient uses. Everyone is in en the act--factory managers, ministry officials, local and regional Communist Party secretaries, state shopkeepers, even KGB officials.

From my visits to the Soviet Union and from conversations with Soviet and republic officials, former members of Gorbachev's presidential council, and economic reformers such as Stanislav Shatalin, it is clear that the unofficial privatization under way takes a rich variety of shapes. Reforms, such as leasing and the right to establish cooperatives, together with the breakdown in Kremlin authority, let well-placed individuals use various devices to convert state property to their own. For example, cooperatives are created that have parasitical relationships to state enterprises and exploit the enterprises' resources. Other state properties are converted into joint stock companies, which in turn create a bank. The bank buys the shares, and the new ownership of the companies is necessarily murky, because of Soviet laws restricting private ownership.

Other conversions are more straightforward. A newly created cooperative rents equipment, such as machinery or trucks, from a state company. The more efficient private use of the equipment generates profits that can be used as bribes to continue the practice.

SLICK SWITCH. Once started, this process permeates every corner of the economy. For example, workers buy burned-out light bulbs from peddlers for a few kopeks, then switch them for good ones in their workplaces. The good ones are sold for a handsome profit. Other enterprising workers use factory machinery to make parts or products for private sale and commandeer trucks for private deliveries.

Officials who control resources and budgets can always succeed in diverting some part from official purposes. Such diversions have long characterized the Soviet system, but they grew in importance as the economy became integrated through the black market as well as through Gosplan, the state planning agency. By Brezhnev's time, many government officials had become virtually independent, managing state resources for their own benefit. When Gorbachev came to power, he discovered that he had little more control than medieval kings had over the counts and dukes whoonce were the king's appointed officials.Glasnost and perestroika accelerated the disintegration of the official economy. The chaos generated by ineffective reforms and diminishing central authority created new opportunities for state officials to convert public resources into their private property.

The Kremlin has been powerless to stop this process. The competing jurisdictional claims of Soviet, republic, and local governments prevent any effective government response to the problem of property. Tired of the official system's failures, people are disengaging from it and seeking workable solutions. Increasingly, mandated state deliveries are ignored while managers find alternative distribution channels. This exercise of initiative results in people behaving as if they were owners and creates a fertile ground for the enclosure of the communist manor. We are witnessing the transformation of the Soviet economy through the same unofficial means that created private property out of feudalism.

CIVIL WAR? So far, private property is emerging without violence--the fire and sword of Karl Marx's rhetoric. Recently, news accounts reported that the KGB has warned its foreign stations around the world that civil war in the Soviet Union is imminent. Violence over seceding republics is not out of the question, but the Kremlin lacks the ability to forcibly recentralize economic power usurped over the years by the system's officials. Not only do the unofficial fiefdoms overlap official structures but government officials who are turning themselves into private owners are unlikely to enforce the state's strictures against their own activities.

Central planning failed because it could not organize resources with enough efficiency to compete with the rewards generated by the black market. The planners did not focus the managers on the creation of values but onthe fulfillment of output quotas measured in physical units, such as number, weight or, in the case of housing, square meters under construction. The official economy, notorious for combining more valuable inputs into less valuable outputs, produces much substandard and useless junk that counts toward plan fulfillment. When the same resources are privately organized, real values emerge. Indeed, the massive Soviet black market owes its existence not to taxes as in other economies, but to the irrational incentives of the planned economy.

Gorbachev's reforms failed officially, but they succeeded in spurring the de facto privatization already under way. A propertied class is emerging, and if possession is nine-tenths of the law, it may be permanent.

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