Russian Capitalists Move To Ward Off State Control

THIS vast, secret Soviet defense complex for producing rocket fuel was not quite completed when the last Soviet budget ran out of funds in 1991. All that was left were 100 workers and a lot of empty boxes.

So goal-oriented Valery Ivanov bought it.

He is gradually filling in these spaces with conveyor belts and machines that blow-mold plastic into 1.5-liter bottles, mix ingredients, and carbonate the water from a well beneath the complex.

This is Mega Cola now - a poster child for the largest privatization effort in history, which now encompasses more than 70 percent of Russian industry. Mega Cola employs more than 500 people, including all 100 of the leftover workers except two fired for alcohol problems. Mr. Ivanov has already added a tea-packaging plant and is looking for investors for a pasta factory among these ruins of the Soviet military-industrial complex.

But now Russians are seriously debating curtailing or rolling back the privatization of their economy - which has created 40 million private shareholders, more than in the United States.

The leaders of the Communist Party that now controls the Duma, or lower house of parliament, have vowed not to take over successful private enterprises. But party leader Gennady Zyuganov told the Duma Wednesday that ''we will need a special commission to deal with that which has been privatized and does not work.''

Corruption and inside deals

Support is unraveling for a particularly controversial wave of privatization deals last fall.

Banks were authorized to auction the rights to state shares of oil and other natural-resource companies and then won their own auctions, sometimes disqualifying significantly higher bids. These deals symbolize the corruption and inside dealing that nearly everyone here agrees is a widespread part of privatization.

The new head of the Russian State Property Committee said this week that the government will buy back control of these shares, which were sold in these deals at a fraction of market value in a sort of lease-to-own arrangement. In addition, Russia's prosecutor general Yuri Skuratov said Monday that he plans an intensive probe of these privatizations ''right up to the filing of criminal charges.''

Few here imagine that even a Communist victory in the June presidential elections would lead to large-scale seizures of private property by the state, especially property that has a profitmaking value.

Mr. Ivanov of Mega Cola, an ambitious entrepreneur, is not worried about losing his business. In his view, the new Russian Communists are more like the social democrats in European countries. He says he probably shares their politics.

But Sergei Pavlenko, director of the Working Center for Economic Reform, part of President Boris Yeltsin's administration, warns that ''the danger to privatization is very real.''

The danger potentially comes from the Yeltsin administration itself, if the president tries to distance himself from privatization in the months before the June elections. The scenario Mr. Pavlenko foresees is a highly visible, struggling, enterprise - perhaps the carmaker ZIL - being re-nationalized.

Delicate web of property rights

Such a symbolic nationalization would upset the delicate web of property rights in Russia, where property-rights law is undeveloped and difficult to enforce, Pavlenko says. An entrepreneur would then be guessing whether his property was vulnerable to takeover from even a local government or a neighborhood association, he says.

If entrepreneurs and investors decided that nationalization was a new government policy, then investment in Russia, already tricky, would stop, Pavlenko says.

Gennady Kotchetkov, director of the Center for Conversion and Privatization, notes that Russian industry is rarely as private as Mega Cola even after privatization. The state remains a major, although usually not a majority, shareholder in most industrial enterprises.

In practice, Mr. Kotchetkov says, state or private ownership has little direct relationship to how market-oriented Russian managers are. Increasingly, they give up on state subsidies and look to markets to survive, whoever owns their shares.

Some state committees are trying to reassert control over the shares they already own, Kotchetkov says.

The Committee for Defense Industry, for example, has tried to take on managing enterprises through the old method of issuing direct state orders. But clever managers can usually thwart these directives by uniting managements and worker collectives, who together hold the majority of shares, Kotchetkov says.

Pavlenko agrees. ''Government involvement in private management is a paper tiger,'' he says. The bureaucracy doesn't have the manpower, and local and regional governments, also stakeholders now, would not stand for it, he says.

You've read  of  free articles. Subscribe to continue.
QR Code to Russian Capitalists Move To Ward Off State Control
Read this article in
QR Code to Subscription page
Start your subscription today