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Kremlin Capitalism: Privatizing the Russian Economy.

Attempting to measure the pace and the progress of economic reform in Russia is a little like trying to weigh a rhinoceros on the run. More than somewhat fool-hardy, the effort is not likely to produce accurate or conclusive results

Undaunted by the risks, however, the authors of Kremlin Capitalism: Privatizing the Russian Economy have actually managed to draw a convincing and eminently readable portrait of the process by which Boris Yeltsin's government shifted ownership of some productive state assets to private hands. The operation was largely successful, they conclude, but the patient--the Russian economy--still needs intensive care.

As told in a jargon-free, punchy, straightforward fashion by Joseph R. Blasi and two Rutgers University colleagues with whom he monitored the 1991-1995 progress of converting nearly 18,000 large and mid-size Russian companies from government to share-holder control, privatization represents only one early and far-from-complete step toward economic health. Not only are roughly 6,000 big enterprises involved in energy, transport, communications, and defense production still state property, but more than two out of every three employed Russians are on government, not private, payrolls--many of them teachers, doctors, and nurses rather than blue-collar workers. And although there has been an enormous rise in the number of small businesses--from zero in 1990 to almost 800,000 at the end of 1995--entrepreneurial energy and attitudes have not infected many new corporate managers. The reason is simple: Most of those managers are not new. They are the skillful apparatchiks of the Soviet era who have kept the loyalty of their employees--now their stockholders--by changing as little, including the payroll, as possible.

Among the unintended consequences of redistributing control from Moscow ministries to local shareholders has been a new, different sort of stasis. Employees who got theoretical control of their privatized enterprises as shareholders have behaved like security-minded workers, not risk-taking capitalists. Either they handed their power over to their familiar bosses right away so that hypothetical outsiders would not shake things up, or when outsiders did appear, the rank- and-file usually closed ranks around the status quo. Believing their jobs to be at stake, they opted for the devil they knew; but all they have managed to hold on to is an often underpaid, and increasingly unpaid, job, company housing where it has not been privatized, and a subsidized meal in the factory cafeteria. The result is sad, but it might have been predicted by students of Soviet psychology. Trained to value collective security and to mistrust individual enterprise, Russians over the age of 35 tend to be wary of innovation and risk.

That mindset has prevented privatization from going as far as its architects intended, and many enterprises still think of themselves as appendages of the state. Through the middle of 1996, indeed, inefficient companies managed to keep their doors open with loans at negative interest in times of high inflation, with direct subsidies as monetary policy stabilized and, most recently, by refusing to pay taxes. One by one, however, these expedients have been exhausted, and the day of reckoning draws closer. Based on their remarkable, multi-year survey of corporate Russia, the authors of Kremlin Capitalism came to a "shocking conclusion. No more than a quarter of Russian companies are clear winners, and only a small number of those firms are likely tO be able tO finance their modernization out of their profits" Of the 75 percent of the firms "in need of radical and far-reaching restructuring," Professor Blasi and his co-authors say, "at least a quarter...should be bankrupt"

Was privatization, then, the wrong remedy at the wrong time? Well, there was no right time for reform in post-Soviet Russia, and the economic reforms that have been instituted have also been continually undercut by political confusion in Moscow and in the provinces. The imperfect changes that have come, however, have already begun to transform the future--the promise Communism made and never kept. For the present, Kremlin Capitalism's authors are right to urge a massive training program for "thousands of young Russians in the skills of restructuring, turnaround management, and bankruptcy workouts " But the present is grim and the future is distant. Only someone who could weigh a running rhinoceros could predict how soon Russia will make itself a truly free market, much less a prospering society.

ALFRED FRIENDLY JR., a former Moscow correspondent for Newsweek, is co-author with Murray Feshbach of Ecocide in the USSR.
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Author:Friendly, Alfred, Jr.
Publication:Washington Monthly
Article Type:Book Review
Date:Apr 1, 1997
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