Russia’s Factory Failures Raise Fears for the Future : Reform: Textile industry’s demise underscores a dilemma for Yeltsin. Situation prompts comparisons to the Great Depression of the ‘30s.

Larisa Baranova comes to the gates of the March 8 Weaving Factory every day with her 3-year-old son and the desperate hope that maybe, just maybe, this time the plant will pay her the three months’ salary it owes her.

“So far, there’s only silence,” she said, swallowing tears.

Silence, too, reigns in the eerie factory halls lined with top-grade weaving machines, now idled, draped in cloth and looking as if there are oversized corpses beneath. One month ago, the March 8 Weaving Mill, the pride of Soviet technology, the recipient of the Red Labor Banner award for performance and the envy of many a foreign visitor, ground to a halt.

“The collapse of Russian industry is visible to the naked eye,” said Vyacheslav Mityunin, the plant’s deeply depressed chief engineer. “And the end is not in sight.”

The fate of factories like the March 8 mill lies at the crux of the Russian government’s dilemma over the next stage of economic reform. Russia’s gross domestic product plummeted by 20% in 1993, prompting comparisons with America’s Great Depression of the 1930s and raising the question of just how much further it can drop before popular resentment explodes in violence and widespread strikes.

The strict, Western-oriented young economists of former reform chief Yegor T. Gaidar’s school argue that Russia’s outmoded factories must be left to sink or swim on their own. Prime Minister Viktor S. Chernomyrdin, a more conservative pragmatist, has vowed to make stemming Russia’s plunge in production this year’s top priority, even if that means issuing government subsidies and loans that would stoke inflation.

President Boris N. Yeltsin, in his first State of the Nation speech to the new Parliament recently, left the issue blurry. He acknowledged that under current taxes and conditions, “the only thing an enterprise can do honestly is die.”

Although the drop in Russia’s industrial production accelerated to a hair-raising annual rate of 23% in the last two months, Yeltsin offered no new strategy except to propose that the government decide which one-tenth of the country’s factories are strategic and help only them.

If that is, indeed, the line Yeltsin takes, with no further aid for industry, then the great textile mills of Ivanovo, a region of 1.5 million people east of Moscow, may be doomed. Dominated by women workers, the weaving mills, some here say, may soon be on the verge of a babby bunt --a women’s rebellion.

“People are hungry--they eat only potatoes and bread,” said chief engineer Mityunin. “We have a husband and wife who both work here and they have three kids, and they’ve gotten two-thirds their December pay and nothing since then. It’s a horror, a catastrophe.”

The March 8 mill, with its 1,500 workers, is only one of almost 50 textile factories in the Ivanovo region, the textile heart of Russia for three centuries. Almost all the Ivanovo plants are in the same plight, so despairing--Ivanovo’s cloth production has dropped by 60% since 1991--that they have asked the Kremlin to declare the region an “economic disaster zone.”

The mills’ troubles started when the Soviet Union collapsed in 1991, jeopardizing the supply of cotton from Central Asia, said Alexei Shiganov, chief specialist at Ivtex, the association of Ivanovo textile factories. In 1992, cotton prices shot up, and by the time Ivanovo plants could persuade the government to lend them money to buy it, there was almost none left.

So their output dropped radically. And when the factories’ loans came due in early 1993, they had to borrow more--this time at 213% interest. Now they are all “up to their ears in debt,” Shiganov said, unable to pay not only interest but salaries, energy bills and suppliers.

Factories such as March 8 are so deep in the red that their suppliers have refused to deliver any more raw material until they are paid--and without cotton to weave, the plant has nothing to do. Added to its troubles are skyrocketing energy costs, competition from cheap new Asian imports and long-overdue bills from its own customers.

But perhaps worst of all are the taxes, loads so heavy it seems to directors as if the government is intent on suffocating its own producers.

“I’m strangled by taxes to the point that I don’t have enough left for cigarettes,” said Stanislav Kuznetsov, director of the Polyot parachute-weaving factory in Ivanovo where output has been cut in half since 1990. “They take taxes for every time we breathe.”

Shiganov calculated that in addition to the 30% to 40% tax on profits factories must pay, 19 other levies are imposed on them, to the point that only 10% of their profits remain. “We work just for taxes,” said Mityunin of March 8, which was named for the International Women’s Day holiday celebrated in Russia.

By all indications, the financial difficulties of most Russian factories, not only those in Ivanovo, are snowballing. The Russian Statistics Committee reported last month that unpaid wages more than doubled in January, now amounting to more than 1.6 trillion rubles (in excess of $1 billion). About 30,000 factories owe wages to workers.

Baranova, the weaver at March 8, said she had been paid only 30,000 rubles--about $20--in the last three months. The factory kindergarten has closed and city day care is overcrowded, so she must care for her son as she looks hopelessly for another job. Her husband, another March 8 employee, also is on unpaid vacation. “I don’t know how we’ll live,” she said.

At the Ivanovo factories, where clattering cloth machines once ran 24 hours a day, virtually all have slashed their workweeks and shifts, sent employees on unpaid vacations and radically cut output. There is nowhere for Baranova to find another job.

In January, the unions of the Ivanovo region formed a strike committee. They do not want to strike, labor leader Antonina Kurzina said. But if factories keep dying, things could come to a head. If unemployment goes up by 1% more, the regional compensation fund will run out of money.

Leonid Ivanov, assistant industry overseer for the regional government, said he did not think things would reach the point that the long-suffering people of Ivanovo would take to the streets. Unless, he added, the government made no efforts to help and virtually all the factories fell idle--the crunch could come by this fall. “When I see a factory where all the equipment is standing idle, I get goose bumps,” he said.

Ivanovo’s leadership has been lobbying Moscow to make the textile industry a higher priority, but their chances there, too, are dim. “At the same time that we appeal, the coal miners are appealing, the oil workers are appealing, the communication workers are appealing,” said Yuri Kuzmin, economics editor at the local newspaper, Ivanovskaya Gazeta. “Who really deserves preference?”

Probably not the textile workers.

Kuznetsov of the parachute factory said he would be satisfied if the government at least paid its own debts on time. He said the military has gotten so slow in paying that he has threatened, “I’m going to give up making parachutes and go into making women’s brassieres.” The answer he gets back: “Go right ahead.”

“We’re still working, that’s all I can be proud of,” he said. “We just have to get through this year and next year will be easier.”

Will it, though? “The drop will continue because there’s nothing to raise it with, our cotton has run out,” said Shiganov of Ivtex.

The Gaidar school’s hopes that factories would quickly adjust to the market by shifting to profitable products look painfully unrealistic from the frighteningly silent shop floors of Ivanovo.

Even Kuznetsov, whose parachute factory still runs, said he has started putting out camouflage uniforms. But he cannot compete with clothing factories that specialize in shirts or coats.

So it makes sense for him to adopt a wait-and-see attitude and hope for government help instead--exactly what the Gaidar team did not want. None of the factories in Ivanovo is declaring bankruptcy, none is being put onto the auction block; all are advertising their misery and waiting for a response.

According to Ivtex, only 14% of workers were laid off--another sign of the wait-and-see attitude and another wrong response from the Gaidar perspective. “Maybe that’s our problem,” said Viktor Sokolov, editor of Ivanovskaya Gazeta. “We’re used to expecting that tomorrow or the day after, someone will come and save us.”