Soviets OK Stock Exchanges, Tax Cuts for Businesses

Soviet lawmakers, moving to end more than 70 years of state socialism, approved legislation Wednesday that authorizes the establishment of stock exchanges, ends the monopolies long enjoyed by state companies and sharply reduces taxes on business profits.

Taken with earlier legislation to sell two-thirds of state-owned enterprises over the next two years and allow foreign investors almost full access to the Soviet market, the newest measures push the world’s first socialist country dramatically toward a highly competitive, free-market economy.

With pressure from the West to prove the Soviet commitment to fundamental economic changes, President Mikhail S. Gorbachev will be able to point to this and other far-reaching legislation when meeting leaders of the Group of Seven major industrial countries in London next week.

After months of bitter debate over how to replace the Soviet system of central planning, state ownership and management by “administrative commands,” the country’s legislature is now pushing through bold new laws to remake the Soviet economy so profits, entrepreneurship, competition and market prices all prevail.

Members of the Supreme Soviet, the national legislature, voted 354-to-1 with three abstentions to approve in principle a bill that permits the establishment of stock exchanges and regulates trading in securities.

Finance Minister Vladimir Orlov, noting that more than 1,000 privately owned companies are issuing stocks and bonds to raise capital, won preliminary approval for the measure by arguing the need to protect investors with regulated stock exchanges.

“A nonregulated issue of securities can lead to losses for investors, and a delay in passing the law threatens to give a criminal color to the fledgling securities market,” Orlov told the deputies.

The bill, in fact, goes further--to encourage development of a nationwide capital market through regional and specialized stock exchanges, the issuing of stocks and bonds to raise funds and the sale of securities on the basis of negotiated prices.

Scores of commodity exchanges have begun operating in the past year in various parts of the country. But their role has been confined to auctioning products, such as building materials or computers, or arranging complicated swaps for goods.

The bill, which may be amended in further debate, is expected to be passed early next week.

Deputies also gave overwhelming final approval to antitrust legislation that, as much as the privatization law, reverses the decades of economic centralization characteristic of Soviet socialism.

The law prohibits government organizations and the myriad of other agencies created to administer the Soviet economy from creating monopolies for any enterprises, giving them special benefits or otherwise favoring one company or discriminating against another.

But the effect is more profound because it rejects the long-held socialist assumption that market competition was inherently wasteful, particularly in allocating resources and setting national priorities. Soviet regimes have maintained that centralized industries, run from the top, were inherently more efficient.

The law effectively outlaws centralized distribution of products--once the principal function of dozens of government agencies in Moscow. It also bars one Soviet republic from refusing to allow the sale of goods from another, hoping to ensure maintenance of a “common economic space” as the basis of a renewed Soviet federation.

It establishes a government antitrust committee with the authority to order enterprises to restrict activities, ban mergers, void regulations and contracts that contravene the principles of the anti-monopoly law and impose fines of up to 1 million rubles (about $600,000 at the commercial rate of exchange) on violators.

In a further effort to develop the entrepreneurial sector, the Supreme Soviet approved major cuts in taxes on business profits. Taxes on profits of most firms were cut to 35% from 45%; those on banks and commercial insurance companies would fall to 45% from 55%; taxes on state insurance companies would drop to 35% from 55%. Officials said the main goal was to stimulate production, particularly of consumer goods.

“These measures will help take the country out of the crisis, boost production of consumer goods and help solve social problems,” said Anatoly Saunin, deputy chairman of the parliamentary commission for budget, planning and finances.

But a further result of these changes, other Soviet economists noted this week, will probably be the generation of considerable capital--in rubles and foreign currency--now fiercely sought by entrepreneurs for various projects.