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Russians Officials Begin Campaign To Privatize Industry, Infrastructure

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>By Fred Hiatt

>The Washington Post

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>In the city where the Soviet Union made perhaps its greatest contribution to world history, 650 Russians Monday lined up in the cold to begin undoing what was certainly one of the former superpower's greatest mistakes.

Fifty years ago this month, the Nazis surrendered here in Stalingrad, as the city then was known, after one of the most desperate and costly battles in the annals of warfare. The Red Army victory proved a decisive block, most historians agree, to the Nazi advance through Europe.

Monday Russian officials chose this factory city on the Volga River to begin a campaign that may be less costly but will certainly last longer than the five-month Battle of Stalingrad: the mass privatization of its aging, ailing industrial infrastructure. The province of Volgograd put eight enterprises on the auction block, the first of more than 400 that Russia hopes to sell off by spring in more than a dozen cities.

Citing Russians' sacrifices at Stalingrad, President Boris Yeltsin recently said, "Today, we are living through a similarly crucial and difficult period in our history.'' Victory this time, he said, will bring a "prosperous, decent and free life for Russia.''

The privatization process, threatened by hyperinflation and burdened by compromises needed to win backing from powerful factory directors, will provide no easy bridge to that prosperity, even its most ardent backers agree. But they hope their ambitious plan will lock in reforms politically while encouraging initiative and enterprise lacking in the Soviet days.

Certainly, the dominant mood at the People's Privatization Center here Monday was more optimistic than would have been predicted by experts who said an entire generation of Russians was unschooled in the very notion of risk. By twos and threes, clutching their government-issued privatization checks, 650 Russians of all ages registered to buy stock, generally expressing skepticism tempered by a willingness to be surprised.

"Of course, it's a risk,'' said Alexander Rukhlin, who planned to bring company data home to discuss with his wife before making any investment decisions. "But for 70 years, they decided for us. Now we'd like to decide for ourselves.''

Men and women raised to believe that private ownership was the source of most evil debated whether to aim for early dividends or long-term capital growth. They asked foreigners whether light industry or heavy offered juicier profits.

More than 46,000 stores and other small enterprises already have become private during the past year in Russia, according to officials in Moscow. But the privatization of bigger factories -- essential to the transition from bankrupt socialism to free market -- is fraught with thorny social, political and economic questions that have delayed progress toward capitalism in Eastern Europe for several years.

The situation in Volgograd shows the limits of the program in Russia thus far, as well as its potential. The government is aiming to privatize 200 large firms in this province, a huge number by East European standards but only 15 percent to 20 percent of existing industry here.

In addition, to buy off workers and directors alike, officials have allowed the old "workers' collectives'' to keep control while investing little of their own money. At the Volgograd Tractor Factory, for example, where Germans and Russians fought from workshop to workshop 50 years ago, the 26,417 workers will own 70 percent of the stock, and the old-generation directors will remain very much in control. Only about 20 percent of enterprise stock is being sold to the public for rubles or vouchers, while the government is holding on to the remaining 10 percent for now.

Reformers in Yeltsin's government fear that continued control by current directors will foster inertia, perpetuate problems that led to Russia's current impoverishment and prevent needed streamlining, including layoffs.

But they also say that Monday's auctions, even with their limitations, are a first step in a destabilizing process that will lead to improvement, since workers will be free to sell their shares and old directors will have to succeed under new conditions, without government help.

"I think we can get results even faster than many expect, for Russia is a country in which everything changes rather rapidly, strange as that may seem,'' Dmitry Vasilyev, deputy director of Russia's privatization program, said here Monday. Vasilyev noted that some Volgograd stores increased their turnover fourfold within two months of going private.

"Of course, we cannot expect such dramatic changes in big enterprises right away,'' he said. "But the appearance of real proprietors who will demand dividends for their stocks, who will demand real decisions from managers, who will come to stockholders' meetings and elect directors and then insist that they bring order to the factory -- all this should change the situation at the enterprises within a year or two.''