Four Years That Shook My World

The movers have come, and I'm packing up souvenirs from four astonishing years in Moscow. Here's the tape of the horrible night in January, 1991, when tanks attacked peaceful demonstrators in Lithuania. (The Lithuanians sound defiant; I sound terrified.) Here, too, is the flower presented to me by a young defender of the Russian White House as we kept vigil together during the abortive putsch of August, 1991. And I can't leave behind the can of sardines an old woman gave me as I trudged through the snow in a grimy Russian industrial town. "You look hungry and miserable," she said, insisting I take part of her monthly ration.

Miserable? Well, perhaps I was at times. Long, dark winters and impossible phones can get to you after a while. But mostly I was awed by the ability of Russians, Balts, Ukrainians, and other citizens of what was then the Soviet Union to withstand, beginning in 1989, tidal waves of political change.

Now, as I prepare to leave Moscow, I see the Russians adapting to the difficult economic reforms launched in 1992. I'm convinced that they are building what could become a prosperous capitalist economy.

DIRTY WORD. They have already come a long way. It's easy to forget, with the politicians constantly bickering and the macroeconomic statistics telling of 15% monthly inflation, a 7 trillion-ruble budget deficit, and a lifeless currency. But when I arrived in 1989, Moscow was a dull city of painfully empty stores that all seemed to look alike. Basic goods, such as cheese, sour cream, and paper, were nearly always in "deficit," as the Russians put it.

Biznezman was a dirty word then. Only the toughest and wiliest dared set up restaurants, stores, trading companies, or banks. They were hounded by bureaucrats, watched by the KGB, and generally condemned for spekulatzia--charging more than they paid, making a profit.

Now, every Russian is a potential biznezman. Economic necessity and new economic freedoms have spurred thousands of Russians to give up their old prejudices against profit. Kids clamor to clean my car at almost every intersection. My fax machine delivers up notices of new services daily: dry cleaning, fast-food deliveries, and discount travel tickets. Fed up with earning the equivalent of $20 a month, a dentist friend closed his practice a year ago and set up a company that buys, refurbishes, and resells apartments. He just bought his first Mercedes.

Consumption now is booming--a sharp break with the past. On nearly every block in Moscow, rows of kiosks emblazoned with such slogans as "Everything for You" sell Turkish-made blouses, Kentucky bourbon, and "Green Love" condoms made in South Korea. Revamped shops in downtown Moscow sell Danish ham, Dutch cheese, and plentiful Russian goods. Billboards proclaim the availability of once exotic Western products and services. Meanwhile, new three-story homes are rising on the outskirts of the city.

The chance to buy goods after years of shortages provides people, whether former Communist Party apparatchiks or recent university graduates, with a powerful incentive to earn money. Owning things gives them a stake in the new system. Day by day, a greater sense of individualism is replacing the grayness, the sameness, the contrived equality, and the lack of responsibility that underlay Soviet socialism.

Of course, a tumultuous transition from socialism to capitalism was bound to churn up new problems. Fearing their days are numbered, Communist-era bureaucrats are seizing their last chance to earn bribes for giving out licenses. To avoid taxes, biznezmen are stashing large parts of their income abroad. Gangs of racketeers demand protection money--and sometimes kill those who resist. The legacy of low wages under socialism means--now that the cost of basics is so much higher--that as much as 40% of the population lives in poverty. Unemployment and bankruptcies both are sure to mount as the painful process of industrial restructuring accelerates.

What's striking is that in the face of these problems, ordinary Russians aren't rioting in the streets. Instead, they're plotting how to make a ruble, or, better yet, a buck. There's enough of a cultural sea change to carry the precarious new economy along while President Boris Yeltsin struggles to remake the country's institutions. He still must rewrite the constitution, slash government spending, and stabilize the ruble, or the grass-roots efforts could wilt. But as long as Yeltsin continues his push for stability on the national level, he will help entrepreneurs and managers become a powerful force for change.

ACID TEST. They still have to win over some Russians who figure that biznezmen make money only by buying and selling and can't be counted on to invest in Russia's productive future. This is one acid test for the country: whether the entrepreneurs active in consumer goods, finance, and lighter industries will channel their profits into heavy industry, still the backbone of the nation's economy.

I think they will. New investment opportunities are opening up. Consider Andrei Chuguevsky, 33, a hard-driving entrepreneur who made his first millions trading computers nearly four years ago. When we met earlier this year, his company, Arter Group, had just won the license to develop the rich Udokan copper mine in Russia's Far East. And when he opened an office in Irkutsk, in Siberia, Chuguevsky presented a 1 million-ruble icon to the local church and offered to pay for two scholarships for study in the West--all to woo local officials before an expected tender for Russia's largest gold mine. "Just to sell oil isn't interesting," he says.

Other serious investors are swooping in to take advantage of the massive privatization program. A little-known Georgian investor, Kakha Bendukidze, snapped up 18% of the sprawling machine toolmaker Uralmash--built by Stalin in the 1930s--when it was privatized recently. Alfa Capital, a fund set up to invest citizens' privatization vouchers, is buying 8% to 10% stakes in cement producers, construction companies, and such Russian mainstays as the Bolshevik Confectionary Co.

Add up all these investments, and together they could ignite the long-delayed restructuring of Russia's backward industry. By yearend, the government expects to have privatized 5,000 enterprises--about half of the industrial sector. And by the end of 1994, the state will have sold its majority stake in all but a select group of strategic industries. To survive, these factories will be forced to retool and gear up for competition.

Don't expect many overnight transformations. Russian managers and workers suddenly turned owners are often afraid of abrupt change. At the first shareholders' meeting of the newly privatized Vladimir Tractor Factory recently, shareholders voted against the appointment of a new general director, a former deputy manager with a Harvard business school degree. Josef Bakaleynek, 41, urged his candidacy on the shareholders as they gathered in the rain in the local football stadium: "The survival of the enterprise is at stake. We have to prepare for competition." Despite the appeal, they stuck with General Director Anatoly Grishin, an 18-year veteran. But Bakaleynek, who bought 8% of the tractor plant's shares and won a seat on the board, thinks the shareholders will want him in a year or so, when the plant begins to face real competition.

Bakaleynek was one of the first managers I met back in 1989. Then, he and other industrialists rarely uttered the word privatizatzia. Now, it's clear that private investment is the key to Russia's future. With the government broke, it's the only way the economy can grow. And the only way to woo private investment is to achieve political stability. There, Yeltsin seems to be on the right track. A new constitution will lead to parliamentary elections, which will sweep away Communist hangers-on and probably produce a more reformist body. That will allow Yeltsin to push through the land reforms, securities regulations, and other changes parliament has resisted. Western aid can help, but it is not enough to make a critical difference.

Much more must be done. The government needs to work on enforcing the laws--chasing down tax evaders and racketeers, for example--and cleaning out its own corrupt offices. If Yeltsin fails to do that, social disillusion will deepen.

Many difficult days, even years, lie ahead. As I pack up my boxes, I try to imagine what the Russia I've known might look like four years from now. If things go wrong, the widening gap between rich and poor could indeed send people into the streets. But if Yeltsin can build on the changes and attract investment, the pain will begin to ease and the economy will slowly begin to turn around.

At a recent lunch with the BUSINESS WEEK bureau's Russian employees, I got an earful about the promise of the new Russia. A year ago, they were howling about high prices. Now, they're urging me to make a long-term investment. "Buy a piece of land. Buy a dacha," counsels Tanya, the secretary. "Buy some privatization vouchers and invest in some good factory."

Maybe I will. After all, a dollar goes a long way here. And after seeing Russia in such dire straits, I want to watch its renaissance unfold over the remainder of the century.

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