Re-creating Russian Capitalism

April 11, 1993|By ANTERO PIETILA

ST. PETERSBURG, RUSSIA. — St. Petersburg, Russia.-- Among the street vendors of souvenirs, pornography and political newspapers in the heart of this city built by Peter the Great are unobtrusive little men with signs that say only, "Vouchers."

They are the running dogs of Russia's re-established capitalism, hustlers who hunt for investment certificates that President Boris N. Yeltsin's government gave to all citizens last year in a massive effort to privatize the country's economy.

Millions of Russians have used their vouchers to participate in auctions to buy newly issued stock in local enterprises.

But untold millions of others Russians have sold their certificates to speculators who scrounge the countryside for residents who are willing to sell their vouchers cheap. The result is that vouchers often change hands in private transactions for a third of their 10,000 ruble face value.

Under a national privatization program, firms with fewer than 200 workers are to be sold by tender or by auction to entrepreneurs or existing employees. Large firms are to be first turned into joint stock companies. A chunk of the stock is then given or sold at discount to employees. Another large chunk is subject to competitive bidding, and the rest will be sold to small investors having vouchers.

Privatization vouchers are becoming a big business. Russia's 40 local stock exchanges have created formal markets for them. In this city alone, seven mutual funds sell and buy privatization vouchers.

Welcome to the roller coaster world of fledgling Russian capitalism. Nearly everything is for sale. Fortunes are made and lost every day. If things seem a bit absurd and surreal at times, perhaps some of that is explained by the monthly inflation rate that hovers around 30 percent.

St. Petersburg, Russia's second largest city which used to be known as Leningrad, is one of the leaders in privatization, along with Moscow and Nizhny Novgorod (formerly Gorky). Spearheaded by a municipal administration that actively promotes free enterprise, the transformation from socialism has been rapid.

Less than 16 months after the collapse of communism, privatization measures embrace 44 percent of all the city's merchandising enterprises, 74 percent of restaurant trade, 91 percent of transportation, 67 percent of service industry and 55 percent of construction, according to figures compiled by the newspaper Nevsky Vestnik.

Privatization of apartments, which under communism were state-owned, has been slower in this metropolitan area of 5.5 million people. By January, 56,100 of the city's apartment units had been privatized. Another 28,400 units had been privatized in the surrounding, populous Leningrad district.

Because of these relatively small numbers, a local real estate industry is still in its infancy.

But several foreign companies are aggressively advertising to acquire centrally located apartments which, in dollar terms, sell for ridiculously low prices. "We can sell your apartment the American way," one such company, InterOccidental Inc., promises in a local newspaper, with a picture of the U.S. Capitol in the center of its ad. "American laws protect your interests!"

In a country as vast as Russia, this all-out privatization drive is likely to take a decade. It is part of the process that will redistribute much of the wealth of the defunct Soviet state and the Communist Party.

Since privatization in many smaller cities and rural areas is still in the early stages, the ongoing political slugfest between President Yeltsin and the more conservative legislature has essentially been a fight over who controls privatization and the realignment of economic power it produces.

Even before the large-scale privatization was started by President Yeltsin, many of the Communist Party's economic front organizations hastily transferred assets into ostensibly private hands so that they could not be included in the government-sanctioned redistribution of wealth. Some of that money was whisked into foreign bank accounts. Or mobile assets, such as ships, were reflagged in such countries as Panama and Liberia.

The former communist elite and nomenklatura may have successfully protected their financial muscle but, in doing so, they have also bought a stake in the new capitalistic society President Yeltsin is creating, two Bank of Finland analysts argue.

"One relatively neglected consequence of these developments is that while the inevitable attempt by the nomenklatura to transform their politically-based elite position into one based on ownership may be ethically unpleasant, socially it tends to make the ongoing transformation irreversible.

"There is a very high probability that every former [Communist Party] department head or KGB general who has landed himself a highly profitable business opportunity. . . will be absent when those planning for a return to the olden times convene," bank analysts Seija Lainela and Pekka Sutela write.

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