Commodity Markets Reshape Distribution
As the centralized distribution system collapsed, new commodities exchanges emerged across the former Soviet Union. Unlike their counterparts in the rest of the world, these exchanges deal in retail goods. Some disdain them as outgrowths of the 'shadow economy,' but others see them as a bridge toward a free-market system.
MOSCOW — YURI SOBOLEV sits quietly in a green plastic chair, studying a thick computer printout. Young men and women bustle around checking computer screens in the center of the large hall of the former central post office. A marble bust of Lenin perched in an archway on the second floor balcony surveys the scene.Another day of trading is about to begin at the Russian Commodities and Raw Materials Exchange, the largest and most successful birzha of the almost 500 exchanges that have sprung up across the former Soviet Union. The exchanges bear a closer resemblance to oriental bazaars than to the pit of the Chicago Mercantile Exchange, trading in goods ranging from cassette tape recorders and used Mercedes sedans to tons of Siberian crude oil. "This is a linguistic problem," says Russian Deputy Premier Yegor Gaidar. "We lead the world in the number of commodities exchanges, although trade in retail rather than wholesale goods is not what commodities exchanges do in the rest of the world." Today, Mr. Sobolev hopes to buy 20,000 to 30,000 pieces of winter clothing for a state trading company in the far north. Sobolev was a computer programmer at a defense plant until a year ago when a friend organized the brokerage firm AvanBrok, whose main clients are state-run defense enterprises. "They've lost their supply outlets," he says of his clients. "They have to get it for themselves."
Exchange replaces state The birzha is a unique product of the breakdown of the centralized Soviet distribution system, formerly run by Gossnab, the State Committee on Supplies. State-run enterprises received their supplies through Gossnab, and they returned most of their production to it. Alongside the official economy there emerged the "shadow economy," embracing everything from informal barter deals between factories to a black market in state goods. In part, the birzha simply reflects the emergence of the shadow economy into the open. Some disdain birzhy as corrupt because of bribes regularly paid and deals often made outside the auction floor. But others see them as a bridge between the planned economy and the market, and as a place where young brokers are making fortunes that will be the seed capital for entrepreneurship. The Russian Exchange was organized a year and a half ago by mathematics-professor-turned-entrepreneur Konstantin Borovoy. "It was clear economic decline was on the way," Mr. Borovoy recalls, sitting in an office decorated with pictures of himself with well known people such as the patriarch of the Russian Orthodox Church. "The ties between consumers and producers had been ruptured." In the beginning, the exchange dealt with imports, because only they were free of state price controls. Then it expanded to include wood products, then metals. "It was like a whirlpool which sucked in everything," Borovoy says. Slowly state enterprises started dealing there, buying supplies and selling the small percentage of their production they were not forced to give up to the state. Officially about 12 percent of distribution is now conducted outside of the state system, but Borovoy estimates the nu mber is at least twice that. Even Gossnab created its own exchanges to act as a formal locale for state firms to carry out barter deals between themselves. Defense industries operate about 20 such exchanges. Most of the exchanges result from the shortage economy. Experts believe that after the advent of free pricing on Jan. 2, the vast majority will fold or will convert into trading houses or brokerage firms. But as long as the state sets even a few prices, the exchanges serve a valuable role as the only place to determine something close to a market value. Borovoy is proudly pursuing good old fashioned capitalist profits. "I hate Communists," he says with a broad smile. His open disdain for his enemies has made him one of the best known businessmen in the country. Borovoy claims the exchange prospered in part because it was not taken seriously by Gossnab. "We had no luck for 74 years while we were governed by fools. It turned out to be good luck for the exchange, because nobody understood how the exchange operated."
Immense volume traded The Russian Exchange claims it accounts for about 70 percent of the total volume of all the exchanges, although that figure is hard to confirm. Its list of offerings has a combined value of 4 billion to 8 billion rubles every day ($720 billion to $960 billion at the market rate), but the deals struck amount to about 2 billion rubles a month, the exchange says. The exchange has spun off scores of subsidiaries, including the Russian Stock Exchange, a bank, and an economic information agency. There are 1,120 officially registered brokers at the Russian Exchange, and the cost of a seat soared from an initial 60,000 rubles to 4.4 million rubles by the end of September. The exchange charges 0.175 percent commission, but individual brokers can reap up to 10 percent of a deal depending on its size. In a pink sweater and black jeans, Irina Konyaeva looks more like a model than a member. She and her husband represent the "Wheel of Fortune" firm, which serves mostly small enterprises. in the provinces. Ms. Konyaeva is here with goods for sale - sugar, dried apricots, Israeli cloth, and artificial leather. The 60-70 tons of sugar comes from a state farm that wants the firm to buy it some audio and video equipment with the returns. Konyaeva loves her work. "I get very tired, but I like dealing with people. And I have a quite good, steady income." Indeed, the 22-year-old graduate of a construction engineering institute makes about 30,000 rubles a month in a country where the average salary is only 300 rubles a month.
Budding capitalists The young brokers are zealots for capitalism. "People say we are on the brink of hunger," says Sobolev. "But just look at the list - a huge amount of food is offered. All we need are structures to buy, sell, and store this food." Sobolev is saving up to start a bank with some friends. The brokers vividly demonstrated their political leanings last August on the first morning of the attempted hard-line coup. They met at the exchange, decided to defy the putschists, and quickly gathered millions of rubles to aid the defense of the Russian parliament. Then they marched there together to join tens of thousands of others on the barricades. But Borovoy does not hesitate to assail the Russian government for being filled with the same old bureaucrats. "The mentality remains the same: Everything should be controlled. Orders should be issued.... Progress is on the way but too slowly."
Fifth in a 6-part series. Tomorrow: banking reform.