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Foundries: victim of the Soviet system.

Despite its enormous casting capacity, it remains difficult for the Soviet foundry industry to supply the needs of its customers.

The Soviet foundry industry leads the world in total casting tonnage poured and is home to some of the world's largest foundries. Yet many critical Russian industries, such as agriculture and petroleum, operate well below capacity because of a chronic casting shortage. One problem occurred during the industrial development of the 1950s, and again during the 1970s, as mammoth foundries were built in Siberia and on the barren Ural plain, thousands of miles from urban centers. Sheer distance, in a country with a woefully inadequate transportation infrastructure, makes delivery of castings a major difficulty.

A second problem, more pervasive and even more difficult to remedy, is the Russian system of central planning. Casting production is regulated by the central bureau in Moscow that oversees the foundry industry. A bureaucrat, thousands of miles from both the foundry and the foundry customer, establishes production schedules and priorities. It is a command-driven, rather than a market-driven, system. And it produces an absurd situation where a foundry in Pskov can churn out tons of castings for which there is no demand while an assembly plant in Minsk must shut down because the castings it needs are unavailable. Since the casting production decision is made neither in Pskov nor Minsk, but by a bureaucrat in Moscow, those in the best position to change the system are powerless to act.

The Russian foundrymen I spoke with said that, for the first time in their memory, Foundry Ministry officials recognize the nature of the problem and vow to rectify it by shifting decision-making authority to the foundry manager. But this change is slow to come and still far from full implementation.

President Gorbachev's industrial reforms include on-site production planning and a profit incentive for foundry managers in an attempt to make Russia's foundry capacity responsive to market demand. There are factors, however, working against this fundamental reform. One is the lack of hard currency within the Russian economy. Most foundry managers would rather sell castings overseas for dollars, yen or pounds-the hard currency that would make profit more than an illusion, but the economic planners in Moscow fear this would cause a casting shortage at home which would cripple other industries. So the foundry manager is required to sell his castings within the U.S.S.R. for rubles.

Foundrymen also complain that their new freedom to adjust production to the market is meaningless because raw materials are allocated by the state and the bureaucrats will only make those allocations for production planned by the ministry.

Another common complaint is the shortage of skilled workers. The reason for the shortage is that under the Soviet system all citizens are guaranteed a job and wages vary only slightly in proportion to the difficulty of the work performed. Foundry workers earn an average of 270 rubles a month compared to the average overall industry wage of 220 rubles a month. That wage difference, in a society where all basic needs are met by the government and there are few consumer goods available in the stores, just isn't enough to motivate most workers to seek the more difficult jobs.

In Leningrad, the foundry labor shortage is so critical that the government has converted Penal Colony #6, a featureless complex of fortress-like buildings on the southern outskirts of the city, into a prison labor factory where inmates work eight hours a day, six days a week, finishing steel castings. The "zeks" (Russian convicts) earn 200 rubles a month for their work, although the state keeps 100 rubles for "room and board" and issues the remaining 100 rubles only as credit in the prison commissary where zeks can buy cigarettes, jars of pickled cabbage, white bread and jam. For most zeks, however, the opportunity to work is welcomed. It is preferable to spending endless days in the 15 ft x 9 ft nine-man cells, with an open hole for a toilet, that are standard accommodations in the 102-year old prison.

For the average foundry worker, however, his 270 rubles a month (approximately $45 at current exchange rates) pays the rent and puts food on the table, although housing is so inadequate that many families are forced to share an apartment and grocery stores stock little more than bread, canned fish, cabbage and potatoes. Most workers have rubles remaining at the end of the month because there is nothing to buy in the stores. In Moscow, enterprising young men stand at the factory gates on payday and sell black-market goods (American cigarettes, condoms and canned meats are most popular) for rubles which they then sell to tourists for hard currency at half the official exchange rate.

All Soviet Union citizens receive free medical and dental care. Every foundry has an in-house clinic to provide emergency medical care to injured workers and routine medical care to all employees. Injured workers receive 100% of their pay while off work. The standard work week is 41 hours and all workers receive a one month paid annual vacation. Men retire at age 60 or after 25 years of work; women retire at age 55 or after 20 years of work. Retired workers receive a pension equal to 75% of their monthly wage. Many pensioners take jobs as street sweepers and night watchmen, for which they receive an additional 75 rubles a month, to purchase a few luxury items on the black market.

The conversion to capitalism, to a market-driven economy, which began with the accession of Mikhail Gorbachev to power in 1985, accelerated with the election of Boris Yeltsin as president of the Russian Republic in June, and has continued, somewhat erratically. The difficulty of such a conversion should not be taken lightly.

One significant obstacle is the Soviet Union's ongoing obligation and treaty commitments to the Eastern Bloc nations. Even with the incredible changes witnessed recently, the Soviet Union remains bound to trade agreements that inhibit domestic reform. COMECON is a 10-nation trading partnership formed by the U.S.S.R. and its client states in the 1960s in response to the growing trade solidarity of Western Europe. It was an attempt by the Soviet Union to bolster the faltering economies of the Eastern European nations laboring under an imposed communist economy. Under COMECON, the Soviet Union agreed to sell its oil, gas and agricultural products to COMECON members below world market prices. They also agreed to import manufactured goods from these nations at higher prices than those goods could command on the world market.

"Trading in COMECON," one insider observed, "is like selling a dead dog in return for two dead cats." Economic reformers within the Soviet Union want to sell Soviet gas and mineral ores for western hard currency. No one doubts that this would help the Soviet Union solve its cash flow problems. Some COMECON members (Poland, Czechoslovakia and Hungary) want to disband the alliance so they can join the European Economic Community; others (Albania, Bulgaria and Yugoslavia) see themselves cast permanently as the "poor men of Europe" without COMECON. The Soviet Union is caught in the middle.

Recently, a commission within COMECON has been formed in an attempt to reform the organization, but Professor Andrzej Lubbe, Poland's representative, notes that "COMECON was the handmaiden of a specific political system, and it was the political system and not COMECON itself which determined the scope and form of cooperation. It is an artificial system and very hard to reform."

If the Soviets manage to solve this dilemma and deal with the internal structural problems that inhibit the conversion to a market economy, they still face the formidable problems that discourage Western companies from doing business within the Soviet Union. First of all, Russian rubles cannot be converted to U.S. dollars, or other Western hard currency, which means that any profit made can't be readily withdrawn from the Soviet Union. Second, after more than 70 years under communist rule, the Soviets lack the business culture necessary to run a market-based economy. Finally, the state of Soviet communications, transportation and office automation is, at best, primitive.

It is difficult for us to imagine how a society we view as militarily advanced can be so backward in the technology that drives commerce. But the reality is staggering. When I attempted to place a telephone call from the Soviet Union to the United States I was told there was a two to three day waiting list for overseas lines; in every shop I visited (including Moscow's largest department store, GUM) salesclerks used an abacus to compute the price of a sale (the only cash register I saw was in McDonalds) and none of the hotels I stayed in had computers, copy machines or FAX machines.

Despite these problems many U.S. firms are drawn by the profit potential in this large country with vast oil and gas reserves and a population starved for consumer goods. Chevron recently signed an agreement with the Soviet Ministry of Oil and Gas Industry to study the feasibility of developing the giant Tengiz oil field near the Caspian Sea. The field has oil reserves estimated at more than 25 billion barrels, about 2.5 times those of Alaska's Prudhoe Bay. Bechtel Corporation has signed a long-term contract to provide consulting services in the U.S.S.R. to rebuild the country's infrastructure, including transportation corridors, oil and gas lines, seaports and airports. Bechtel will also be modernizing several Soviet steel mills, including the nation's oldest mill founded in 1723 by Czar Peter the Great.

Another problem facing the Soviets, which offers enormous opportunities for U.S. firms, is the need for pollution control technology and equipment. The air pollution problem in Moscow rivals any city in the West, an astonishing situation considering the fact that vehicular traffic in Moscow is only a fraction of that in comparable U.S. cities. Most of Moscow's air pollution is generated by industrial facilities.

I usually locate foundries by scanning the skyline for baghouses. In Russia, most foundries don't have them. One foundry in Novgorod has a simple system of disposing of spent sand and other waste materials: a continuous line of workers push wheelbarrows filled with waste from the back of the foundry down a slope to the river where they are emptied. Over the years a natural jutty has formed at the bend of the swift-flowing river, but most of the material is carried downstream.

Obviously, such practices cannot continue. Either domestic or international pressure will force the Soviet Union to address pollution control as democracy replaces totalitarianism and the U.S.S.R. seeks to ally more closely with the community of nations. A domestic environmentalist movement, similar to Germany's radical Green Party, is already organizing within the Soviet Union.

International environmental regulations will also force change if the Soviet Union attempts to move closer economically to the European Economic Community. Some Soviet economists even predict that by the end of this century the U.S.S.R. will seek full membership in the EC, which will entail compliance with environmental regulations governing membership.

The Soviet Union, at this moment, is on the verge of monumental changes that are yet to be fully understood. It is clear, however, that these changes will affect the worldwide foundry industry along with every segment of world commerce.

The Russians I spoke with are anxious to bring their country into the economic and social mainstream. They are disillusioned with communism but understand the practical difficulties of dislodging a bureaucracy that has been in continuous power for most of this century.

On my last night in Moscow I sat in a dreary apartment with water-stained walls and rags stuffed in the cracks below the window sill to keep out the wind. My host, a young teacher at Moscow State University, invited a few of his neighbors and colleagues to the apartment to meet me. We sat and talked for hours, primarily about America. When it was time for me to go they each, in turn, embraced me. "Come back," my host said. "You have seen the last of the dark days. Russia is changing. Come back, and you will see."

As I left the apartment it began to rain and the streets were dark and quiet. At the corner I stepped into a doorway to raise my collar against the chill. I looked back down the dark, empty street. The only light came from the apartment I'd just left, a surprisingly strong light in a seemingly endless concrete wall of darkness. I stared at that light for a minute or two before stepping back out into the rain. I wanted very much to believe him.

Mr. Simonelli is the executive director of the California Cast Metals Assn.
COPYRIGHT 1991 American Foundry Society, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Impressions of the Soviet Union: Part 3 of
Author:Simonelli, Frederick J.
Publication:Modern Casting
Date:Feb 1, 1991
Words:2139
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