Privatization Gets Off to a Rocky Start in Former Soviet Republics

YURI BURLINOV sits erect, his clasped hands rest on top of his desk. Papers and files are neatly stacked, pencils perfectly arranged. He is one of the new Russian bureaucrats managing the shaky transition to a market economy, yet he is unflinching as he states the tasks before him."I am the vice chairman of the Russian State Committee for Antimonopoly and New Economic Ventures," he says. He is soon joined by his public relations assistant, whose title on her freshly printed card is "Chief Expert." In simple terms, their office oversees the transfer of government-run, government-owned output to the nascent private sector. Russia was once the bastion of the former Soviet empire's industrial production of goods and services; private ownership and trade in its economy is expected to carry this and other Soviet republics toward market reforms. (Prospects in Moscow, Page 5.) Sounding more like a functionary than a man helping to reshape his country's economic landscape, Mr. Burlinov refers a visitor to official reports rather than explaining what he is saying. The 47-page "Program to Support Business Activity in Russia" reads like a communist manifesto: "The Program to support business activity provides not only the achievements of economic aims ... it will also help to solve important social problems, to strengthen political stability in all the regions of the republic, to form positive public opinion with respect to business activity, to include parts of the population in this field, to oppose the unemployment, inflation, and other negative social phenomena. " While Burlinov's program covers procedure and goals, it does not address issues vital to private-sector development. The right to own land is assumed, but not addressed in the plan. The new republican governments have so far failed to work out the separation of their property from the Soviet central government. Plans to broadly privatize the economy - that is, hold auctions, directly sell off, or give out free vouchers for, shares in state owned enterprises to individuals or groups - have been in the offing for years. But they have never taken off. Vadim Plotnikov, chief executive officer at the Russian agency for the management of state property, says at least 10,000 state enterprises have filed applications to his agency. Among the firms trying to go private are automobile, truck, and tractor plants, oil producing and coal mining concerns, textile and finished-garment factories. The privatization process has followed a two-steps-forward, one-step-back approach. Mr. Plotnikov cites legal frameworks that appear to be in place, 14 legally binding methods of assessing property values and procedures for selling it, for example. Yet businesses that have already been privatized under an earlier method must be re-registered under the current one. Given the revolving door of economic advisors in republics and the center, the prospect always looms that what has been arranged will come unhinged. The uneven course of privatization has much to do with political infighting among leaders, and the abuses that develop when rules are not applied consistently. Former Communist Party apparatchiks, closely connected to state enterprises and well poised to assume control of them, are the main beneficiaries of unorthodox privatizations during the past year. In the Ukraine, young Communist officials formed 1,500 companies by selling themselves shares in state firms at very low prices. "There's a tremendous amount of graft," concedes James Wilburn, dean of the Pepperdine University School of Business and Management and a consultant to the Russian State Committee on Privatization. Soviet expert Anders Aslund, director of the Stockholm Institute of Soviet and East European Economics, calls this a "weird form of privatization, allowed to happen because the republic, under [Russian President Boris] Yeltsin, has been in total disarray." Despite all the setbacks and pervasive embezzlement, Mr. Wilburn has been trying to encourage international investors to buy Soviet enterprises. He ferries back and forth from Malibu, Calif., to Moscow and says he would love to live here "because it's the most dynamic, changing economy in the world." The 98 percent Soviet literacy rate provides a huge pool of some of the world's best educated, most highly skilled labor, he says. With the Soviet market hungry for consumer goods - both industrial and agricultural - the private sector can develop steadily to meet that demand as well as compete in international markets. But lawlessness in Russia and other republics has provided a safe haven for organized crime, Mr. Aslund says. Every legal enterprise must pay at least 10 percent to 15 percent of its profits to the mafia as protection money, he says. Failure to do so puts the enterprise, and the people running it, at great financial and physical risk. The system of extortion is so entrenched, it is an expected cost of doing business. Russians and citizens of other republics enjoy freedoms unknown for the past 74 years of oppressive rule. Crime has surged. Aslund notes the 23,000 murders committed in the Soviet Union last year (compared to 21,500 in the US). Aslund, who makes frequent trips to various republics to confer with leading policymakers, says "privatization will only take off on a large scale after a change in the system. It will never take off if people can't say where to start. Yeltsin has avoided doing anything about the economy for the past two and a half years." But the prospects for the future are brighter. Aslund says that Yegor Gaidar, Mr. Yeltsin's economic minister, is "a smooth politician who understands macroeconomics." In addition, he is well qualified for the job because he has served as the head of the privatization department at the Gaidar Institute, which he founded. Mr. Gaidar was able to bring in a colleague from the institute with him, Anatoli Chubais, as Russia's new privatization director.

Part 2 of a 6-part series. Part 3, on agriculture, will appear Thursday.