By Renfrey Clarke
MOSCOW — In the huge food store at Taganskaya Square, the mood at the bread counter was growing surly. Some 50 people pushed and argued, while the white-coated sales staff gestured helplessly.
As usual, there was plenty of bread on the shelves. But the signs that should have set out the prices were blank. It was January 2, the day of price liberalisation in the Russian Republic, and the staff had no idea what to charge.
Eventually the order came down; the loaves which two days before had sold for 60 kopecks would now sell for 2 roubles 10 kopecks. A murmur of disgust passed through the would-be buyers as they formed into the accustomed queues.
Bread is now more important to Russians than it has been in decades. Although the new prices are roughly 10 times those that applied as recently as March 1991, bread has become almost the only food staple that the mass of the population can regularly afford.
In December, bread could be purchased even in busy times with no more than a 10-minute wait. Now the queues frequently stretch out the door and down the street. If you're lucky, buying bread may take half an hour.
Bread is one of a small number of basic consumer items on which price controls remain; the others are milk, salt, matches, vodka and energy. The increase in bread prices has been comparatively mild. For many products that were once common purchases, the rises have been even steeper.
For example, one variety of boiled sausage which three months ago sold at a fixed state price of 6 roubles a kilogram now sells for 73. Butter, which until last April sold for 3 roubles 43 kopecks a kilo, is now hard to find for less than 60.
Few workers have had rises in the past year of more than 30%. The current average wage of full-time workers is about 500 roubles per month, and a typical pension 200 roubles. A day's income for a pensioner now buys a one-litre carton of milk in St Petersburg, or one and a half kilos of potatoes. An average worker has to spend two days on the job to earn the price of a kilo of chicken, and six weeks to buy a pair of jeans. A quilted synthetic jacket sells for the equivalent of a year's wages.
The impact of inflation during 1991 was softened because the prices charged for goods in the state-owned shops — which even today make up the bulk of retail outlets — rose only moderately or even remained constant.
There was only one catch: countless product lines appeared less and less often in the state stores at the official prices. A dramatic shift of trade took place into small privately owned "commercial stores" and kiosks, where prices were set by the market. By December, the state shops were virtually empty of most of the goods which people were accustomed to buying.
Since new year, inflation has been out in the open, and it has also become dramatically more virulent. After price rises in December of perhaps 50%, commentators are suggesting that inflation in January may be as high as 200%. Few workers will receive much compensation.
The sharp blows of the new year period might have been expected to bring angry crowds onto the streets. Several tens of thousands of people, largely former members of the Communist Party, did in fact demonstrate in Moscow on January 11. But the only spontaneous outburst recorded in the Russian press occurred on December 31 in the Siberian city of Barnaul, where angry shoppers blocked traffic outside a major store when they were unable to buy meat. Elsewhere the lack of active protest has been remarkable, despite universal grumbling.
'Buffers'
In part, the Yeltsin regime has been able to ride out price liberalisation thanks to a number of "buffers" inherited from the more prosperous past. Many Russians still have savings which they have not yet exhausted. Expecting a hard winter, many people last year built up hoards of non-perishable foodstuffs. Few Russians face being thrown out onto the street for non-payment of rent; the great majority of the population have state-provided housing at nominal rents, or own their dwellings.
Many will start to feel really poor only when their footwear and clothing wears out and cannot be replaced. So long as workers are in regular employment, they will not starve; even in Moscow, now one of the less well-supplied Russian cities, there is reported to be flour to last out the winter.
However, to lose one's job — something that will happen to large numbers of Russians as loss-making enterprises are shut down — will amount to a sentence of gross malnutrition. Unemployment benefits have been set at levels similar to the pension. In the Russia of "economic reform", the unemployed will join the pensioners begging in underpasses.
The failure of Russians to resist the massacre of their living standards also has profound political and ideological roots. It can be hard to appreciate the confusion and sense of helplessness of Russian workers after 60 years of Stalinist rule. In a political setting almost empty of informed debate, the proponents of economic "shock therapy" had a certain success in persuading the public that price liberalisation was necessary and would be effective.
Yeltsin and his backers promised that the population would quickly be rewarded for its sacrifices. In a television speech on December 29, the Russian president declared: "It will be difficult for us, but this period will not be long, a matter of six to eight months". Polls suggested that in Moscow, the heartland of Yeltsinism, about 50% of residents supported the decision to drop price controls.
In provincial cities, however, the move was opposed by solid majorities. Throughout Russia, the government's plans aroused intense uneasiness. In a poll taken in Moscow, 49% of hat they were meeting the new year either "with alarm" or "with fear".
As a step guaranteed to slash living standards, price liberalisation won the reluctant support of large numbers of workers only because no major political force put forward a credible alternative. The left-wing parties that might have drafted such a program and made it the centrepiece of a campaign were much too small and undeveloped to perform the task.
Queues remain
If Yeltsin's program is to have a chance of success, price liberalisation will have to start yielding results in the reasonably short term. The last few weeks have not been encouraging for the president and his supporters. By mid-January, the new, higher prices were supposed to have resulted in the shelves of state stores beginning to fill up. The queues were to have shrunk, and the process of freezing mafia elements out of consumer trade was supposed to have begun.
With few exceptions, however, the shelves are no better stocked than before. Except where goods are wildly overpriced, the queues are much as they were last year.
The money supply is continuing to expand rapidly. The state budget deficit stands at an alarming level of more than 15% of gross national product, pumping more and more purchasing power into the economy. Also, people understand that there is no point in leaving money in the bank at tiny rates of interest. If savings are not to evaporate, they must be spent fast on whatever goods are available.
A further reason the queues remain is that output is falling fast. The old links between enterprises and economic sectors have largely disintegrated, but a network of market mechanisms has not arisen to take their place. Vital trade links between republics are now being broken as well, as the newly independent governments ban exports of goods in short supply.
Very often, enterprises are reluctant to invest money in production when speculation provides much higher, quicker and more assured profits. Also, many enterprises do not face meaningful competition; as monopolists, they can respond to price liberalisation by cutting output, in order to intensify shortages and drive prices still higher.
The pathetic range of goods in the state shops suggests that price liberalisation has done little to reduce the diversion of supplies into the "shadow economy". The black market distribution system, immune to taxation and benefiting from the massive theft of goods by enterprise employees, appears to be having considerable success in "freezing out" legal trade.
In sum, there seems no special prospect that Yeltsin's gamble with price liberalisation will pay off. Yeltsin and his advisers would have done well to consider the example of Brazil. After repeated doses of "shock therapy", inflation in Brazil last year was 460%, and per capita incomes continued to decline.
For Yeltsin and his band of neo-liberal theorists, however, the real not be a stable rouble and the resumption of economic growth, but a rapid concentration of wealth in the hands of a new entrepreneurial class, and the ensuring of its profits through the reduction of real wages to levels that are low even by Third World standards.