2 Years After Coup, Russia Is Committed to Capitalism

Two years ago this week, when a cabal of aging Communists shocked the world by trying to revive the rigid Soviet dictatorship, Yelena B. Tenyaksheva endured the most nerve-racking days of her life.

Afraid of losing her job in the Soviet Communications Ministry, she trudged to work while other Russians rallied boldly against the plotters. As the Aug. 19 coup collapsed three days later, she hid her glee from her crestfallen superiors--and kept serving them as a computer programmer.

It wasn’t until the next February, two months after the Soviet Union was gone, that this child of the Stalin era made her break with the past, gave up her security and walked out of the state bureaucracy forever.

“Our generation had been brought up in fear,” recalled Tenyaksheva, now 45. “But after a few months of thinking hard, many of us decided to take the most revolutionary step of our lives: to switch jobs.”

As Russians look back to the dramatic events of August, 1991, what is striking is the quiet shift many have made from the cocoon of Russia’s still-bloated welfare state into its primitive, chaotic and often violent new world of private enterprise.

Tenyaksheva, an energetic woman who today sits on the board of Moscow’s largest private bank and just helped introduce the first ruble credit card, is a pioneer in one of history’s great economic transformations. In the next few years, government economists say, 40 million to 45 million Russians, almost two-thirds of the work force, will change their jobs and their lives as the economy staggers away from seven decades of failed central planning.

Though Russia is still a far cry from a law-based capitalist order with secure property rights, the switch to a market economy led by President Boris N. Yeltsin is in some ways more dynamic than anyone expected two years ago and is increasingly viewed, even by his critics, as irreversible.

Available statistics do show that the Russian economy has shrunk by one-quarter since late 1991 and has not yet begun to recover. One-third of the population lives below the official poverty line of 8,500 rubles ($8.50) per month. More than 1 million are unemployed. And while the wages of those who worked last year grew by 1,300%, consumer prices inflated by 2,500%.

But this picture is more dismal than reality, economists say, because it excludes much of the far healthier private sector. That sector deals largely in cash and rigs the books to avoid taxes. Nobody knows the exact number of private companies--”They’re sprouting like mushrooms after a summer rain,” one auditor said.

But a vague statistical outline is emerging. Last November, the CIA estimated that Russia’s private sector generated 20% of the gross national product and employed 15% of the work force. And that was before Yeltsin’s ambitious privatization program put more than 70,000 of the state’s 205,000 companies up for auction. About 2,300 of the auctioned firms are large and medium-sized industries employing 3 million workers.

The bottom line, says economist Yevgeny I. Yasin, is that roughly 60 million of Russia’s 150 million people live off the private economy, compared to as few as 8 million two years ago. Private citizens now own at least 1,700 banks, 2,300 publishing houses, 600 schools, 300 investment funds, 80 casinos and a couple of golf courses. A booming service industry offers Russians such wildly profitable novelties as catered food, cable television and telephone sex.

“It would be very hard to stop the process of privatization for one simple reason,” Yasin said. “A year ago, the heads of enterprises were trying to preserve them as state property. Now, they’re getting hold of these enterprises for themselves.”

Former Soviet President Mikhail S. Gorbachev told The Times last week: “The party nomenklatura --very many have gotten involved . . . and share in the reforms and act sincerely. . . . The main thing is that society will not be turned back.”

To be sure, many private firms are barely surviving, especially newly privatized small shops. While such companies are relatively healthy in Eastern European nations emerging from communism, they are more vulnerable to Russia’s cumbersome regulations, bureaucrats demanding bribes to ignore violations and increasingly murderous mafiosi who extort protection money.

Boris G. Levakov, 46, head of a real estate investment fund in Moscow, said most small-time operators are doomed by a regressive tax rate. His last venture, a company producing TV ads, failed. “The idea of setting up a score of small and medium businesses as a parallel structure to the almighty state enterprises has turned out badly,” he said. “Only a few stayed afloat. Exorbitant taxes strangled the rest.”

Moreover, privatization has not yet forced many bigger companies to halt their wasteful Soviet ways. To win support for a rapid selloff, the government had to give existing managers and workers the right to control a large chunk of shares before bidding went public. Many of these managers rose through the Communist Party and still run factories as fiefdoms.

But, in a struggle that is just starting and certain to last years, new shareholders are trying to wrest control of companies from the old apparatchiks. Longtime owners of the first company auctioned last December, the Bolshevik cookie factory in Moscow, reportedly had to resort to vote-rigging to fend off such a takeover in the spring.

Only the new capitalists have a real sense of just how the economy is taking off. What distinguishes Russia from its Eastern European neighbors is that this new rich class is surprisingly large--15,000 entrepreneurs worth $1 million or more, Moscow media estimate.

Much of their wealth represents profits from the export of Russia’s vast mineral and timber resources. Billions of dollars are reported to have flowed out of Russia to private accounts abroad in recent years. But huge sums stay for conspicuous consumption.

“The first stage of capital accumulation always involves some criminal activity,” Valery V. Zhabin mused one day in his scruffy office, recently converted from a barracks of the shrinking Russian army. The few objects in the room--an old gramophone, a religious icon, a desktop computer--offered no clue that Zhabin, 44, is founding vice president of Hermes, the conglomerate that pumps a third of Russia’s oil.

A beefy, affable man with a gold neck chain and a few gold teeth, Zhabin went into business during Gorbachev’s perestroika days but “didn’t do anything serious” until after the coup collapsed. “That event cut my umbilical cord,” he recalled. “From then on, I knew that whatever I earned they could not take away from me, as they could have before. Today my possibilities have no limits.”

But having freed most prices from central control--in one fell swoop in January, 1992--and having launched the huge property auction, reformers in Yeltsin’s government see constant battles ahead. The conservative Parliament is pressing to limit public access to the auctions, allow apparatchik managers more control over companies as they are sold and slow the process of weaning them off inflationary government credits.

The outcome of this struggle in the months ahead will determine not only the speed of Russia’s transition to capitalism but also whether Western governments and lending agencies continue to underwrite it. The next credit at stake is a $1.5-billion allotment due from the International Monetary Fund this fall.

For much of the past year, the reformers were on the run. Yegor T. Gaidar, the architect of their program, was forced to resign as acting prime minister last December. After a perilous brush with hyper-inflation early this year, Yeltsin narrowly survived an impeachment vote in Parliament.

Then the reform program--and Yeltsin himself--won decisive confidence votes in an April referendum. That allowed Finance Minister Boris G. Fyodorov, the new leader of the reform forces, to push through tough but effective anti-inflation medicine--a cap on growth of the money supply, a rise in the Central Bank’s lending rate, a cut in import subsidies, the freeing of coal prices--and to gain new Western aid.

But a 4% drop in July’s industrial output, caused by the ensuing credit squeeze, may have turned the political tide against the government. State farms and industries are clamoring for bailouts; they are backed by First Deputy Prime Minister Oleg Lobov, Fyodorov’s leading Cabinet critic. The cause of reform suffered another blow last month when the Central Bank decreed an unpopular, ineffective currency reform without Fyodorov’s approval.

To some Russians, the intensity of feuding over economic direction is a dangerous sign that the economic freedom of the past two years is just another experiment that could fail.

“Even today an inner voice keeps telling me sometimes: ‘Did you make the correct decision? Won’t you have to pay for it dearly? Won’t something change soon for the old way?’ ” said Tenyaksheva, the computer-tech-turned-banker.

But such doubts don’t haunt her for long. A divorcee, she describes herself as “a well-paid, middle-class businesswoman . . . on the way to becoming rich.”

She also remembers the humiliation of working under Communist bureaucrats “in a steel cage” where nobody ever listened to good ideas and “where some clerk in some ministry decided your whole future.”

“Some people have found it hard to adapt,” she said. “They think they can work the same way they did two years ago and live better. What they fail to understand is that this is a new country. Under the new conditions, one has to work differently, as an individual.”

Alexei V. Kuznetsov of The Times’ Moscow Bureau contributed to this report.