Soviets OK Selloff of State Enterprises : Reforms: Action by the legislature is a major step toward a free-market economy. It will end the government’s monopoly.

The Soviet legislature Monday overwhelmingly approved a landmark law in the country’s economic reforms that allows the government to sell off state enterprises to private investors, thus ending Soviet socialism’s long state monopoly on the means of production.

The law’s passage by the Supreme Soviet after months of controversy is a major step toward a free-market economy, where entrepreneurship, profits and prices set by supply and demand will replace the failed system of central planning and government management.

Conservatives, fighting what some decried as a sellout by the Communist Party of its socialist ideals and a squandering of the nation’s patrimony, managed through a series of amendments to slow the pace of the planned sales and to assure continued state control of a few key industries.

But the vote, 303 to 14 with 26 abstentions, demonstrated the momentum for change that has built up over the past year as the Soviet economy has disintegrated.

The sales will eventually involve, over a decade, most of the Soviet Union’s 47,000 state companies with a book value of 1.1 trillion rubles--about $660 billion at the commercial rate of exchange--plus many thousands more shops, restaurants and other local enterprises.

Although accepted now as essential for fundamental economic reforms here, privatization has been difficult for most people to accept since private ownership and the profits that come from it contradict the basic principles on which the Soviet Union was founded in 1917 and the ethos in which virtually everyone here grew up over the past 70 years.

The Soviet government, which owns virtually all industry, has announced plans to transfer nearly half of it by the end of next year and two-thirds of it by 1995 to the “work collectives” at the enterprises, to their managers, to private Soviet investors and to foreigners.

So extensive will the state pullout be that the government calculates that even in key industries such as machine tools, the state share will be less than 15% and in metallurgy no more than 30%. In classic socialist economics, both were viewed as being on the economy’s “commanding heights”--industries that the state, as a matter of principle as well as policy, should control.

The government does plan to retain a 30% to 50% share of the defense industry and of the energy sector and 50% to 70% of transportation and communication services. Excluded from privatization are munitions plants not designated for conversion to civilian production, railways, airports, seaports and power plants. There are also exclusions for environmental reasons.

A third of the country’s enterprises will be virtually handed over to their workers, others will be sold at auctions or through merchant banks and many will be privatized through the sale of shares to their employees, managers and the public.

But fears are widespread that the new owners, if private investors or foreigners, will lay off much of the work force, that pay and working conditions will become exploitative, that in collectively owned enterprises the managers will be able to strip away the assets for themselves and that, overall, the result will be higher prices and lower living standards.

Anatoly I. Lukyanov, the Supreme Soviet chairman, tried to soothe these concerns by reminding deputies that the legislation before them was for the “denationalization” of state-owned enterprises, that privatization was just a portion of the program and that many enterprises would be collectively owned by their workers.

Fyodor M. Burlatsky, a leading liberal legislator, commented: “Simple people, workers, worry very much that the property that formerly belonged to everyone will be purchased by a small group of rich people.” For them, this meant exploitation, Burlatsky said, and the government would have to proceed carefully to avoid polarizing society even further.

Privatization, however, is seen by Soviet economists as the fastest way to move to a mixed economy driven by market forces, to make efficient production and distribution real priorities, to use prices to allocate resources and to make profitability a tangible rather than a paper goal.

“We have not yet created the driving forces of a market economy, and the only way to create them is to denationalize property,” First Deputy Prime Minister Vladimir I. Shcherbakov argued at a Kremlin conference on privatization last month.

To delay privatization would be to prolong the country’s crisis, probably beyond the point of salvation, Shcherbakov contended, appealing for rapid passage of the bill.

Yet, radical economists who have long advocated privatization were critical of the law, contending that it was too restrictive as a result of the conservatives’ amendments and that it was in conflict with the privatization programs already launched by some of the country’s constituent republics.

“I am not quite happy with the law, but I will vote for it because it will allow us to substitute (privatization) for the wild theft of state property that is now taking place,” said Michael Bronshtein, an Estonian economist.

Fierce battles are already under way between the central government and the country’s 15 constituent republics, its myriad regional and local governments and giant industrial enterprises formed over the past two decades about who owns what and who should be paid when a company is privatized.

The legislation leaves unresolved other basic issues--the ownership of land and of natural resources, the relationship between enterprises owned by the central government and those republic bodies that want to sell them and the absorption of surplus funds in the Soviet economy without allowing the black market to take over the companies on sale.

And there is no certainty that the privatization of state enterprises will, of itself, produce a strong private sector in the Soviet economy.

The legislation grants an enterprise’s workers, acting as a group, priority in bidding for its purchase, and it authorizes bank credits, leasing and other arrangements to ensure that as many companies as possible wind up in the hands of their employees.

Sales to foreign investors are already being negotiated as part of the government’s effort to draw foreign capital into the consumer industry. The government newspaper Izvestia reported last month that roughly a one-third interest in the country’s major automobile company, the producer of the Soviet Fiat, would be sold for $2 billion to a Western consortium.