COLUMN ONE : Perils of Profit in U.S.S.R. : The Kremlin wants cooperatives to jump-start the economy. But their operators are pariahs, hated by citizens, targeted by criminals and pursued by the tax man.


When Russian racketeers set fire to the cooperative restaurant Come and Taste one winter night because they had not received protection money, manager Anatoly A. Rutkovsky watched helplessly as flames gutted the building on Peace Avenue and melted nearby snowdrifts. But he vowed not to give up.

A year later, when the government raised his restaurant taxes by 300%, Rutkovsky defiantly told friends that he still saw himself as riding the wave of a revolutionary future: among the first Soviet entrepreneurs to bravely push aside the tired ideas of communism and usher in a new era.

It was not until he realized that many of his fellow countrymen think cooperative managers are evil opportunists--and some even launched an effort to drive him out of business--that Rutkovsky finally admitted defeat and laid plans to emigrate to the West.

The Soviet Union’s cooperatives, once viewed as a key to jump-starting this superpower’s astonishingly stagnant economy, have become the country’s retail pariahs, targeted by criminal gangs and tax collectors and hated by the average citizen.


Owned and managed by groups of businessmen rather than the state, cooperatives number about 195,000 nationwide, employing nearly 5 million people. But as many as half are seriously threatened with closure this year, according to businessmen’s associations. More than 5,000 have closed in the last couple of months alone.

The enterprises offer consumers the chance to purchase quality goods and services unavailable elsewhere, to eat tastier meals at restaurants offering quicker, friendlier service and even to use clean public pay-toilets that, unlike their state-run counterparts, have toilet paper and soap.

So why aren’t consumers thrilled? Why, in fact, is there such public loathing of cooperatives?

Price shock is part of the reason--cooperatives are not state-subsidized, so their goods are generally more expensive. But perhaps more important, there is a traditional distrust in the Soviet Union of anyone who makes a profit. Cooperative owners often take home four times or more the average monthly salary of about 250 rubles ($400 at the official exchange rate).


Tanya Dodoleva, a 32-year-old Muscovite who works at a health retreat for government scientists, may be typical in her reaction to cooperatives.

Window shopping with her daughter outside a cooperative clothing store in southeast Moscow, Dodoleva said that although the stylish blue-jean skirts and colorful spring dresses on display were unavailable in state stores, she still refused on principle to buy from the cooperative.

“All these people are working for is their own pocketbook,” she complained heatedly. “They don’t care about the customer or quality of goods. And they have dealings with criminals.”

Even the Kremlin, which officially has backed cooperatives, suffers from diametrically opposed goals on the issue: President Mikhail S. Gorbachev wants them to help move the country toward a market economy, but at the same time, government practices appear aimed at preventing cooperatives from becoming too wealthy or powerful.


Cooperative managers find they often must pay bribes to officials to get permits needed just to open their businesses--and then they usually discover supplies are difficult to obtain through state-run channels. Further, since January cooperatives’ pre-salary profits have been taxed as much as 75%.

Rutkovsky of Come and Taste said both stifling government restrictions and open public enmity result from a philosophy of enforced economic equality that has been drilled into Soviets for decades.

“Most revolutions may be intended to make the masses happy and wealthy, but ours 70 years ago was aimed primarily at idealizing poverty and making sure the masses never could get rich,” he said, wearing a silver bracelet and chain-smoking imported Marlboros.

“We Soviets have been taught that we should be happy with a red flag instead of meat. Even today, people who don’t accept that, who want more for themselves, are viewed as greedy speculators,” he added.


Vladimir Yakovlev, founder of the three-month-old independent Kommersant business newspaper, said public dislike of cooperatives also is caused partly by the fact that there has been no sustained history of economic competition in this country, so it is a concept few understand.

“For nearly 70 years in the Soviet Union, all our goods were priced by the state. There was a chief upstairs who decided this cigarette lighter should cost 10 rubles and this pen should cost two rubles,” Yakovlev said.

“Now, if someone sees this lighter on sale for 20 rubles, they don’t understand production costs. They just think of this as the private decision of some guy sitting in a room somewhere, and they respond angrily.”

At Come and Taste, angry Muscovites have begun to respond in an organized fashion. In the evenings they gather outside the restaurant or sometimes even come inside to curse at customers and try to disrupt business. Rutkovsky said the harassment is taking a big bite out of his income as well as his morale, cutting the restaurant’s gross earnings by more than two- thirds.


Undeniably, there is some basis for public distrust.

Cooperative managers face serious difficulties in obtaining raw materials to run their shops and restaurants--and many admit privately that they have been forced to turn to the black market to obtain needed goods. Sometimes the black-market goods have been illegally taken from state stores, resulting in worsened consumer shortages there.

“Right now, we cannot buy food from the state stores, but that’s not all we cannot buy,” explained Boris Uryanov, manager of the successful Moscow cooperative restaurant Lasagne, which accepts only foreign currency and where, therefore, virtually all the customers are foreigners.

“The state won’t even contract with us to sell napkins, plates, silverware,” he said. “We are forced to find alternative sources for these basics.”


In addition, many cooperatives--perhaps as many as 80% of those in Moscow, according to one official estimate--have some dealings with organized crime, usually involving the payment of protection money.

“These are the realities of the life in which these people are trying to create a business, so there is no choice but to be pragmatic,” newspaper manager Yakovlev said. “We can argue ethics all day, but the truth is, it is impossible to create a business based on a fantasy world.”

Yuri A. Tumensev, a manager of the ABC cooperative shop, which sells crafts and clothing, smiled when asked about whether his shop dealt with the Russian Mafia.

“With the racketeers, all is in order,” he replied. He then denied he was paying protection money to the mob. But when asked about ABC’s security system, he smiled again and said: “That’s our little secret.”


Under a new law, taxes at Tumensev’s shop were supposed to increase from 5% of the pre-salary profit to 75% last Jan. 1. But because the store had donated money to city charities, it received permission to delay implementation of the full tax hike.

Is that bribery? No, Tumensev declares, simply pragmatism.

Now, the store is required to pay 37% of its pre-salary profit in taxes and has been warned the rate will increase to the full 75% within six months. So, as of Sunday, ABC is laying off half of its 30 permanent employees, and Tumensev and the three other managers are cutting their salaries from 3,000 rubles ($4,800) per month to 1,000 ($1,600).

The planned tax hike was particularly dramatic in the case of ABC because it is a retail store, buying goods from producers and then selling them to consumers for a profit--typical for Western stores but branded “speculation” in the Soviet Union and illegal until the Gorbachev era.


“In other countries, this is normal business, but not for us,” Tumensev said. “When we first opened our doors, we heard passers-by saying, ‘You speculators should be shot. It’s a pity Stalin is not ruling the country, because then you would get the punishment you deserve.’ ”

Aversion to cooperative owners--because they make a profit, because their goods are often more expensive than state stores and because they are perceived as being involved in illegal dealings--clearly extends all the way up to the top reaches of the government, he charged.

“Everything is aimed at restraining the successful cooperatives,” he said. “If that doesn’t change, starting a cooperative won’t be worth the risk and our store will close its doors. And that, whether or not people realize it now, would be a loss for the Soviet consumer.”