Market Scene : Soviet Looks to the Past for Cure to Market Woes : In Czarist times, commodity exchanges were the centerpiece of the Russian economy. Now, a Moscow businessman wants to bring them back to cope with the collapse of the state-controlled economy.


How many pounds of fresh meat does a new computer cost? How can Moscow's collective farmers get videotape recorders, instead of almost worthless rubles, for their vegetables? And where can a builder get plumbing fixtures when the state supply agency has stopped selling them?

As the Soviet Union's economic breakdown accelerates, its state-managed, centrally planned system is less and less able to meet the needs of either producers or consumers, and the country is facing increasing economic paralysis as products of all sorts no longer reach their intended users and the Soviet ruble loses its value as a currency.

"The centralized system we have had for decades for planned production, allocation and distribution has collapsed, simply collapsed," said Gennady M. Poleshuk, a Soviet economist-turned-businessman. "The present situation is extraordinary--goods are still being produced, demand for them is still present, but retail and wholesale outlets are virtually empty and consumer frustration has long ago boiled up into anger."

The problem, simply put, is that the Soviet Union's transition from a planned to a market economy is stalled. The old system, which had long ceased to function effectively, is disintegrating much faster than its replacement is developing.

"Markets must grow--they cannot be planned or pre-structured," Poleshuk said. "But they do not grow overnight, and they do need some nurturing. . . . We say we want to develop a market economy, but where will the market come from? How does it grow?"

Poleshuk's answer to that question is one of the boldest of the reforms now under way here--the establishment of a series of commodities exchanges, trading marts where all sorts of goods, ranging from agricultural produce to construction materials, from computers to consumer goods, can be bought and sold at freely negotiated prices.

"We can cut through most of the theoretical debate and get to the core of the problem by responding to the market," Poleshuk said in an interview. "The market already exists, but it is hidden and rather savage and primitive.

"To cope with the collapse of the state-managed system, enterprises are already exchanging products directly, sometimes by barter, sometimes at absolutely wild commercial prices, sometimes for hard currency. We should move, as a step that we can accomplish virtually today, to get this trade into the open as a basis for a market economy."

Poleshuk, co-chairman of a planned Moscow Commodities Exchange and the director of a Soviet-Yugoslav-Italian construction venture, said that perhaps as much as 15% of overall Soviet sales already take place outside state channels and that this volume could quickly double and even treble as the government withdraws from day-to-day management of the economy.

"Our plan is to use trade in three or four types of commodities to establish a market where buyers and sellers know what the supply-and-demand situation is, what the prices are and where they can deal," Poleshuk said. "In economic terms, this is a very, very basic market, but we have to go back to where we left off 70 years ago and reestablish what we had."

Commodities exchanges were at the center of the Russian economy as it began to industrialize at the turn of the century; businessmen not only traded in commodities there but raised investment funds through the sale of bonds and shares in their enterprises.

More than 100 of the exchanges continued to operate under V. I. Lenin, the founder of the Soviet state, after the 1917 Bolshevik Revolution. But they were closed by Josef Stalin with the establishment of centralized state planning and management of the economy.

"Although no one remains who remembers exactly how they worked, we still have a feeling of affinity for this type of economic organization," said Poleshuk, 36, a research economist who came to Moscow three years ago with many other reform-minded academics from Siberia. "A commodities exchange seems more Russian, less foreign, and thus more acceptable. . . .

"We also expect that in its second phase it will have a department, which is being organized by Moscow's new commercial banks, for trading in stocks, bonds and other equities. This again is a Russian tradition--keeping the capital market within the commodities exchange and linking them directly."

The Moscow Commodities Exchange plans to open in borrowed quarters next month, with sales of goods in four high-demand areas--construction materials, metal products, agricultural produce and high-tech goods, including computers and audio-visual equipment.

Poleshuk projects that the turnover in the first year could be as high as 3 billion rubles, which would be the equivalent of $4.8 billion at official exchange rates--but about $200 million at the prevailing black market rate for the ruble.

"Initially, we will be a place for buyers and sellers to meet and do business," Poleshuk said. "A person with, say, a shipment of wallpaper to sell will know that on a certain day at a specified time there will be trading in building materials, and he has a pretty good chance to find a customer and probably more than just one customer.

"Our wallpaper manufacturer can then take other goods in exchange or sell for rubles or for dollars. It all will depend on the buyer and the seller, what the demand is like and what the supply is like. Such deals already take place in scores of different ways and through an informal but active network, but we want to assemble them in one place to create a critical mass that will gather speed."

As volume grows, the exchange will probably develop some kind of currency, a "commodity ruble," or accounting unit, to make it easier for meatpackers to buy computers and for collective farmers to buy video recorders, which are now among the most-prized possessions of a Soviet family.

"Three carloads of lumber might be exchanged initially for one computer or one carload of meat," Poleshuk said, "so there is already a price exchange. We might say 1,000 commodity rubles equals three carloads of lumber or one computer or one carload of meat.

"As the deals multiply, realistic 'exchange rates' and prices will appear. We need to go through the natural period of developing a market. This is an economic reality, but I admit it's not Marxist."

Poleshuk said he expects that Soviet factories, under increasing pressure to become profitable, will begin to sell off their large stockpiles of goods and raw materials, often equivalent to a full year's production, in order to boost their revenues.

The enterprises will also have an active, new market for additional production. Although officially encouraged to produce more, few factories have, because they often had no way to sell the goods outside state channels.

Poleshuk anticipates that cooperatively owned Soviet enterprises, which now number in the thousands, will quickly turn to the exchange to buy materials they cannot obtain from state agencies and to sell much more of their goods on a wholesale basis.

"Enterprises are supposed to have been freed from the state bureaucracy, but in fact they are still enmeshed in it because they have no real market where they can buy and sell," Poleshuk said.

And he believes that the exchange will quickly establish market prices for many products that currently sell for much more or much less than their real worth.

With the use of foreign currencies in some deals and direct foreign participation possible, the exchange will also quickly establish the true value of the Soviet ruble, which is pegged officially at $1.60 but is sold to tourists at 16 cents each and can be bought on the black market for 5 or 6 cents.

"Freeing the prices of 10%, then 30% and then perhaps 45% of the total turnover in the country will bring us into price reform," he said. "And price reform, based on true costs and real demand, will be the great economic rationalizer."

The Moscow Commodity Exchange, a project of half a dozen diverse groups, including the Moscow city government, the Soviet Assn. of Young Managers and the Soviet Union of Construction and Industrial Cooperatives, is likely to be a key participant in efforts by radical reformers to push development of a market economy faster than the central government up to now has wanted.

Gavriil Popov, a leading advocate of the establishment of a market economy here and the new mayor of Moscow, is providing the exchange with the political patronage that will be necessary when it challenges the entrenched state agencies that have long exercised total power over the manufacture, distribution and sale of everything from shoelaces to steel.

The main problem the Moscow Commodities Exchange faces is a shortage of experienced and talented personnel. Poleshuk said he hopes to recruit 35 to 40 people and to send most of them to exchanges in the West for training. He also hopes to develop a brokerage system, opening his own brokerage in time.

"We have book knowledge of how this is all going to work, but we don't yet have the habits and skills, the hands-on experience, that are needed to ensure its success," he said.

The exchange will be financed by the 3 million rubles ($4.8 million at the official exchange rate) invested by the founding groups, the sales of bonds to investors and of memberships to enterprises wishing to participate, sales of places to regular sellers and buyers, and from fees charged on the turnover and collected from occasional participants.

"We expect this will be a highly profitable business," he said, "but we are going to need a fair amount of capital to expand our activities and underwrite the start of the stocks and bonds department."

Other exchanges are being organized in Leningrad, where trading will start in the autumn in as many as 13 commodities, in the Ukrainian city of Lvov, where the products will range from textiles and televisions to buses and loading equipment, and in about 10 other Soviet cities.

Early next year, the central government plans to organize a Western-style commodities exchange for grain sales and purchases. It will initially trade in contracts for deliveries of wheat and barley, of which the Soviet Union is the world's largest producer, and later of other grains.

"Development of commodity exchanges happened all over the world several thousand years ago," Poleshuk said, "but we have to do it all over again in the Soviet Union."

The Market Morass: Comment and Cure

The CIA and Defense Intelligence Agency offered a bleak assessment of the Soviet economy in an April, 1990, report to a Joint Economic Committee of Congress. Some conclusions from the report:

" . . . Widespread breakdowns in the transportation and distribution networks interfered with the delivery7 of all kinds of goods from producers to consumers, causing goods to pile up in freignt cars and warehouses instead of reaching store shelves."

"State enterprises . . . often found themselves scrambling to obtain whatever supplies they could from a fledgling wholesale trade system that was not ready for the burden."

"Last August a Soviet survey of state stores found that only 200 of 1,200 standard consumer goods were readily available; by the end of the year, the number of readily available items fell to 50."

"Special distribution systems, notably food sales at workplaces, also helped individuals with access to obtain scarce consumer goods. The rapid expansion of these special channels, however, reduced the flow of goods to the general public."

"Freign shipments by all carriers fell by 116 million tons last year, a 2% drop from the previous year and one of the transport sector's worst annual performances in decades . . . Nearly half of all the nation's railroads failed to meet freight shipment targets."

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