Midwife to a Free Market

ONE of the biggest winners in the aftermath of the failed coup in the Soviet Union is the Russian free market. Now that the epitaph of communism as an ideology has been written, and the bankruptcy of highly-centralized, planned economic systems has been exposed, the careful work of Boris Yeltsin's team to put in the institutions that can make a free market work will move to center stage.While Mikhail Gorbachev has vacillated between free markets and centralized control, the heroic technicians who are committed to making free markets work have all migrated from the Kremlin to Yeltsin's "White House" further up the Moscow river. A new Russian Republic Bank of Foreign Trade has been chartered, under the leadership of Valeri Telegin, whose experience at American business schools and the US Federal Reserve System makes him comfortable dealing with Western bankers in English. He brings broad experience from his days as a deputy chairman of the Central Bank of the USSR. At the center of much of the work done by Yeltsin's team is the Committee on Antimonopoly Policies, New Economic Structures, and Privatization, headed by Valeri Chernagorodsky. Its "antimonopoly policies" are designed to break up the huge state-managed industrial system that for 75 years has concentrated all activity under a government minister for each industry. Yeltsin's team is already selecting specific monopolies to break into smaller, joint-stock, privately owned com- panies, recognizing that compe tition breeds efficiency, productivity, and goods on the shelf. The committee's responsibility for developing "new economic structures" includes work with 11 new "free economic zones" stretching across Russia's 11 time zones. In cooperation with local governors and mayors, the committee has selected model projects and is now seeking partners from the West. As these fragile institutions are given birth and turned out into the world of risk, they will receive favored status by Yeltsin's committee. The goal is not only their own success, but that they become examples t o other Russian entrepreneurs and to foreign investors. Some of these "companies" are military producers employing hundreds of thousands of workers. Others employ a few hundred. But many are attempting to find consumer goods that can replace the military hardware they have been producing. Some general directors of the larger conglomerates have been dragging their feet, hopeful that they would not have to destroy the esprit de corps of effective organizations of skillful engineers. Now that their hopes for maintaining their position has been dashed, the proces s of "conversion" should move ahead more rapidly. One example of the smaller-sized military firms is the Slavgorod Radioelectronics firm in Siberia. Its major contribution has been mobile radio electronic gear for the military. It is already beginning to produce black-and-white television sets and will soon be producing color units. There is such a huge backlog of rubles in the pockets of Russians that the company can sell all the television sets it can possibly produce. MANY startup companies are appearing in anticipation of the expected tourist boo m. There are hundreds of entrepreneurs in the Soviet Union learning to give the service and attention to detail notoriously absent from state-owned hotels and buses. These entrepreneurs are evident in most of the 20 cities with a population greater than 1 million. But they are found in remote regions as well. A larger group, Sputnik, is the outgrowth of the youth travel packages formerly operated by the Young Communist League. By developing several upscale hotels and a modern fleet of Mercedes Benz buses, it may be the best hope for causing Intourist, the state tourist monopoly, to improve its service. The next three to five years will witness such activities being replicated thousands of times across Russia. These small businesses will not only produce wealth for their new owners, but a better way of life for the citizens of Russia. A third area where the committee has significant responsibility is in training the new entrepreneurs and managers of these free but fledgling institutions. They should be counseled not to look to the West merely to duplicate America's MBA degree, but to seek new methods for more rapidly training managers who, already having significant experience at mobilizing the morale of large groups of people, simply need to learn about free markets and profits and losses. Much of this can be done through translating US books, videos, and audio tapes into Russian and making them available in a wide variety of forums. I have been invited to develop a series on free markets and how they work for USSR-wide TV. Several other efforts of this kind are already under way. Starting with such a vacuum, Russia may actually be able to attain a greater degree of economic freedom than existing capitalist economies. For instance, the Committee on Privatization plans to treat foreign companies in each industry equally with domestic companies. They have recognized that total freedom to compete will inevitably produce the best results for the citizens of Russia. If they can do this, they will have a significant advantage over Japan, which has so far continued to resist equal treatm ent for foreign companies. Thus, Boris Yeltsin has been the short-term winner in recent events. But the improved opportunity to develop economic freedom with private property and competitive businesses will make the average Russian family the winner in the long term.