Making Do in Russia Means Not Making TVs

At the Rubin television factory in Moscow you can rent office space or a stall to sell goods. You can buy practically anything here: watches, film, perfume, irons, telephones, or even a guitar.

But you won't see anyone making TV sets.

The company, which was once one of Russia's leading television producers, has found various other means of earning money.

"There's nothing to see," says General Director Anatoly Lashkevich, when asked for a tour of the workshop. "We're not making anything at present."

He takes visitors past offices leased to 130 other companies. Vendors sell wares - but not televisions - that are mainly imported from outside Russia.

The tale of Rubin's manufacturing decline is an oft-repeated one in this former superpower. All across the world's largest country, towns are dying because their one factory has closed down.

Russia's once-thriving industrial output has withered by half since the Soviet system collapsed in 1991, unable to meet the challenge of capitalism. State subsidies dried up, and cheaper foreign goods flooded in across newly opened borders.

"Russian producers never learned to adjust to competition," says Yuri Ten, deputy chairman of industry in the Duma, or lower house of parliament.

Instead of injecting capital into heavy industry, much of the money invested in Russia made its way to foreign bank accounts or treasury bills.

Part of the problem is that during Soviet times an estimated 80 percent of factories were linked to the defense industry. Many closed when the cold war ended.

The figures are enough to make an industry minister shut his office and go home.

Nearly 44 percent of factories were unprofitable in 1996, the last available figures by the state statistics service, versus only 7.2 percent in 1992. The number of factories has dropped from 20,998 in 1990 to 14,934 in 1996.

But what this second set of numbers does not take into account is that a lot of these factories, such as Rubin's, are not fully operational.

From bad to worse

The situation has gone from bad to worse with the economic crisis over the past two months, which saw the ruble collapse and foreign investors flee. Demand for many consumer goods has dried up, and the unfavorable exchange rate makes importing components and raw materials exorbitant.

For example, Rubin was already struggling to compete against cheaper Japanese and Korean imports. The company's annual production had dwindled from nearly half a million sets a decade ago to at most 120,000. It has stopped for now. Demand has gone down while the cost of components from abroad has gone up.

"People want to buy bread and butter now. They do not want to buy TVs," says shareholders' representative Alexander Miliavski.

Russia's new prime minister, Yevgeny Primakov, says a key to economic revival is government support for industry. This would create jobs and help the country become more self-sufficient, he says.

It's not that easy, respond skeptics. Yegor Gaidar, the architect of radical market reforms in the early 1990s, notes that industry needs low inflation to flourish. But the government would have to print more money, and thus generate hyperinflation, to bolster industry.

"This will not lead to sustainable economic recovery," Mr. Gaidar says. "It is unlikely that this policy will be successful."

Mr. Ten estimates that "billions of dollars" of investment are needed, but wonders: "What foreigner is going to invest now?"

Efficiency no safety net

Even well-run factories are having problems. Men's tailoring company AKRO was a model of a new type of privatized firm whose dynamic young managers emulated American efficiency.

With the slogan "the customer is king" they were one of the few successful firms in a moribund textile industry, marketing well-cut suits at reasonable prices.

But, "if the ruble drops abruptly we'll have to stop production," says Igor Nikiforov, AKRO's director.

He says his company is dependent on imported raw materials, because Russia does not produce adequate cloth, zippers, or buttons.

Elena Vigdorchik, an industrial analyst at the Expert Institute in Moscow, believes Russia should concentrate on raw materials, especially agroindustrial production such as meat and milk processing.

Machinery, engines, vehicle parts, pipelines, escalators, and bulldozers are not as vital.

Forget about long-use durables, she says, "The train has gone. We are too late."

"Only total isolation would help the production of Russian television sets," Ms. Vigdorchik adds. Such an isolation is not to be ruled out, if the economic crisis deepens, she says.

On a positive note, the higher cost of imports is a blessing for some Russian producers.

One of the first things shoppers noticed when the ruble crashed was that locally made cheeses and jarred tomatoes replaced foreign ones on the store shelves.

"Spaghetti factories were working 30 percent above normal during the height of the crisis," says Ms. Vigdorchik.

"If there was one industry which benefited from the economic crisis, it was food."