By Renfrey Clarke
MOSCOW — Asked in a recent survey who really wielded power in Russia, more than 50% of respondents reportedly ticked "the mafia". Facetiousness? Or an accurate perception of the kind of people now rising to wealth and influence in the country? The latter may be closer to the mark, thanks to the Russian government's all-out campaign to privatise the economy.
At a seminar on January 4 entitled "Supporting Honest Business", speaker after speaker depicted the privatisation process as riddled with violence, forgery and fraud.
At auctions of state property, would-be investors are regularly threatened by gangsters wanting to buy shares cheaply after scaring off other bidders. Local privatisation officials, when not themselves in league with criminals, are often harassed or beaten up. Managers forge documents in order to assign large shareholdings to themselves or accomplices.
So far, the bulk of the property transferred to private ownership has gone to the workers and staff of the enterprises concerned. In as many as 80% of privatised enterprises, the labour collectives hold controlling shares. Much of this property, however, is so run-down as to be unattractive to other buyers.
Where enterprises are making substantial profits, or own valuable property, workers have often failed to win control against the combined onslaught of bosses, racketeers, share speculators and crooked officials.
The privatisation process is turning many of Russia's prime assets over to swindlers, thieves and standover merchants. Even where the methods used to acquire property are legal — and frequently they are not — the money used may well be tainted. Fortunes made during the explosion of racketeering in the late 1980s are now being legitimised, as the money is used to buy shares in privatised enterprises.
There is no reason to believe that this outcome was not foreseen, in considerable detail, by Yeltsin and his associates. Openness to crime is an obvious weakness of the model of privatisation that was chosen when the process was launched in 1992.
Forced pace
When Yeltsin and his ministers planned the vast sell-off that was to return Russia to capitalism, their guiding principle was that it had to be carried out at breakneck pace. The first stage of the government's "reforms" — near-universal price liberalisation — had already set loose a storm of inflation and caused industrial output to plummet. Unless private ownership of industry and commerce was set in place with extraordinary speed, economic collapse might well provoke broad popular resistance before privatisation was complete.
The key consideration was that the process should be "irreversible", creating a new class of large property-owners ready to fight to retain their wealth. Planning initially to complete privatisation in little more than 12 months, the government adopted methods straight out of the hang-the-real-cost traditions of Soviet "shock work".
If privatisation was to take place over one year rather than 10, there could be no question of selling assets for their real worth. Foreigners were only occasionally prepared to buy Russian factories, and the Russians who were profiting from speculation and racketeering would only gradually accumulate capital on the scale needed to buy sizeable firms.
Most of the country's productive and distributive wealth would therefore have to be given away. But handing assets directly to magnates-on-the-make was politically impossible. The creation of capitalism would have to be popularised, as "people's privatisation".
To this end, the population were issued "vouchers" supposed to correspond to each individual's share of the former "property of all the people". These securities could be sold, traded or used to buy shares in privatised firms. State-owned enterprises were ordered to become shareholding companies, and to prepare to hold share auctions.
The fact that privatisation was to take place over little more than 18 months (the date for completion has now been extended to mid-1994) meant that legislation would have to be made up on the run. Inevitably, it would contain big flaws. Officials capable of administering the program, and police trained to detect fraud, were in short supply. Vast criminal inroads were a certainty, and the government obviously accepted this.
Privatisation chief Anatoly Chubais reported at the end of December that 70% of retail and wholesale shops had been privatised. Shareholdings in 11,000 of Russia's large industrial enterprises had been sold off, and by June 30 the remaining 3500 big firms would be disposed of. At this point, officials predict, about 80% of enterprises will be in private hands.
When the privatised sector is measured in terms of output or turnover, the figures are less impressive. The Moscow daily Nezavisimaya Gazeta reported in late December that private trade still accounted for only 33% of Russian retail turnover, and that in some regions this figure was as low as 9%. Nevertheless, there is no doubt that privatisation has been carried out with great ruthlessness and at remarkable speed.
Voucher funds
Privatisation-related crime has surged accordingly. Hundreds of voucher funds, investment agencies resembling mutual funds in the West, have sprung up to invest the vouchers of Russians who lack confidence in their ability to pick wisely on the share market. But investors who take this route have still to pick their voucher fund, and in a number of sensational cases, the funds have proven to be bogus.
In mid-November, 1500 angry investors blocked traffic for two hours in central Moscow, demanding that the government compensate them for their losses when the Technical Progress voucher fund shut its doors in July. As many as 300,000 investors may have been defrauded when the fund's directors vanished. Two similar cases occurred in St Petersburg early last year.
The more commonplace economic crimes in Russia now include "nomenklatura privatisation", in which enterprise directors misappropriate shareholdings. In January 1993 workers at a cement plant in Vologda, north of Moscow, reportedly found that two-thirds of the shares in the plant were unaccounted for. The workers eventually discovered that the director and his mother-in-law had signed up for shares worth the then-huge sum of 35 million roubles, and the chief engineer for 6.6 million.
At the Orel Electronic Instruments Plant in central Russia, 2000 workers early last year signed a petition demanding the help of trade union leaders in defending their rights during privatisation. Plant bosses had sent most of the workers on forced leave before setting up a flagrantly illegal joint-stock company.
Racketeers who buy privatisation vouchers do not turn sweet and mild once they start dealing on the share market. In Nizhny Novgorod on the central Volga, riot police are kept on hand when shares in privatised companies are auctioned. Privatisation officials in the city have been made personally responsible for the information they process, to prevent them tipping off criminals as to the identity of likely rival bidders.
The capitalist class emerging from the privatisation contains strong cohorts of "nomenklatura privatisers" schooled in the worst habits of the old Soviet bureaucracy, and of people who are less entrepreneurs than gangsters. These groups have few managerial skills and few long-term perspectives.
One of their chief concerns is asset-stripping; privatisation has been a boon to managers intent on looting the firms they administer. Another passion of the new "bandit bourgeoisie" is capital flight. In 1993 transfers out of Russia, legal and illegal, are believed to have totalled between US$12 and 15 billion — many times the total of foreign aid and investment.