Individual Enterprise Fuels New Russian Revolution : Economics: Industrial privatization, while well along, has not been fleet. People with selling skills take pressure off Moscow.

The rusty iron gates of the Kirov Factory creak open grudgingly, heralding the decrepitude and indifference within.

A bored security guard, interrupted in his exercise of tipping back on the rear legs of his chair, eyes visitors languidly and takes another drag on his cigarette before bestirring himself to let them in.

The factory’s overstaffed Permissions Bureau has no request for passes for the visitors, and no one can call the director’s office because the internal telephone system is malfunctioning throughout Kirov’s acres of industrial plant.

Although the factory shows little outward sign of improvement since its days as the Soviet Union’s largest producer of tanks and armor, it has undergone a transformation over the past two years from a single state-run behemoth to 70 private ventures manufacturing goods ranging from bank vans to car trailers.

Few would describe Kirov’s escape from the Kremlin’s managerial clutches as any kind of privatization model for other heavy industrial dinosaurs to follow; the huge enterprise seems to stagger just ahead of bankruptcy largely by the force of its own weight.

The explanation for the sprawling factory’s relative success lies outside its gates, where dozens of crude kiosks and sidewalk services testify to a major step along Russia’s tortured journey to a market economy.

The real revolution, here as elsewhere in Russia, has been the explosion of small businesses and services absorbing laid-off workers from obsolete defense contractors and heavy-machinery makers.

Kirov’s work force has dropped from its late 1980s zenith of 50,000 to 22,000 and holding, says Robin I. Pertenava, vice president of the manufacturing conglomerate that is still the biggest employer in this city, formerly called Leningrad.

With monthly salaries for the blue-collar force averaging the ruble equivalent of $110, Kirov workers enjoy an income about 20% higher than the official national average.

But statistics are the bane of those trying to assess Russia’s progress in developing private enterprise and individual prosperity.

Because of repressive tax structures and a latent desire to cheat the state, Russians seldom report all their income to the government. In the first half of this year alone, income-tax revenue fell $4.4 billion short of projections while sales-tax income was considerably higher than expected.

“There is no other way to explain the tremendous growth in consumption except to understand that people are really earning more than the $90 a month statistics say they are making,” says Maxim V. Boiko, president of the Russian Privatization Center.

Moonlighting is now the rule rather than the exception for workers in Russia, where even the official unemployment figure is a manageable 6% and widely thought to include many with jobs in the hidden economy.

Genuine poverty afflicts millions of pensioners, teachers, doctors and others on the government payroll--including diplomats. The Foreign Ministry announced in Moscow last month that its entry-level professionals earn less than the $46 needed to buy the most basic of groceries.

But malnutrition is no more prevalent now than it was during the Soviet era, health officials say, suggesting that even many of those classified as low-income are benefiting from private gardening plots and unreported income.

Village pensioners flock to crowded subway, bus and train stations to sell flowers and home-grown vegetables. Magazine sellers hawk their wares by patrolling gridlocked intersections at rush hour. Commission sales jobs abound as Western mass-marketing encourages consumer spending, and those with foreign-language or fix-it skills usually earn more than their official salaries for work na levo-- on the side.

And virtually anyone with a car in St. Petersburg can pad his or her income by picking up passengers from among the growing ranks of citizens who can afford to bypass the crowded subway.

The peripheral boom in small enterprise has nursed Russia through its slower and less-impressive industrial privatization, which economists say is about two-thirds complete.

The remaining production giants, however, are proving the hardest to privatize. Workers who fear job reductions after public stock sales often try to scuttle share auctions, like the employees of Rostelkom and Svyaz-Invest who have threatened strikes and protests if the state tries to sell the lucrative telecommunications enterprises to foreign investors.

At Uralmash, the Yekaterinburg complex that produces most of the country’s milling, grinding and drilling equipment, workers have enlisted local authorities in a legal battle that has frozen a 1992 effort at privatization.

Government officials, mindful of parliamentary elections in December, also have identified nearly 3,000 “strategic” manufacturing operations that will not be made available for sale through the State Property Committee, effectively preserving the inefficient, state-subsidized status quo for hundreds of thousands of employees.

But even seemingly unreformed enterprises that have been converted to capitalist-style joint-stock companies, like the Kirov Factory, are performing better than during their state-managed existence.

The Kirov enterprise’s output in the age of private ownership is difficult to measure against Soviet-era standards because the ruble has suffered from galloping inflation and the factory now manufactures a radically altered line of products.

But the conversion has been at least superficially successful in shifting nearly half the original work force away from dependence on defense contracts to the manufacture of consumer goods in high demand.

Armored vehicle assembly lines needed little refitting to tackle the growing market for the security-service vans and trucks used to shuttle money among Russia’s proliferating banks.

Equipment and work crews that once put together mobile gun mounts now produce car trailers--two-thirds of which are sold for hard currency abroad.

“We have completely stopped military production,” Pertenava says. “Shops that used to produce tanks now make combines and tractors.”

No mass layoffs were necessary at Kirov because the work force was reduced through attrition as employees retired or took better-paying jobs in the private sector--like those just outside the gates.

In Russia’s race to transfer industry from state to private hands, St. Petersburg is the front-runner. It has sold off two-thirds of its 900 manufacturing complexes over the past few years.

Economists in Moscow say 70% of industry is now in private hands, thanks largely to a 1993 voucher program that distributed state-owned assets to workers, pensioners and investors.

But more important, they concede, has been the subsequent boom in small-scale entrepreneurship, which has given rise to mom-and-pop services ranging from dry cleaning to pizza delivery and has provided a salve for this country’s aching consumer needs.

Motivation and ingenuity may be hard to find inside the Kirov compound, but incentive is apparent among the hundreds of pensioners and “jobless” who gather around the factory gates at quitting time to sell secondhand sweaters, on-the-spot shoe repair and biorhythms analysis.

An emerging middle class is also obvious in the quintupled traffic volume in major cities, in soaring sales of imported and luxury food items and in the well-groomed masses manning the new places of commerce.

Despite the positive signals, government officials may be overselling their case that Russia has executed its economic turnaround and that the transition is all up from here.

In July, the Finance Ministry reported an $800-million shortfall in privatization revenues, showing continued wariness among Russians about assertions that their own industrial sector is a safe place to invest.

That revenue gap is just one of many factors undermining Russia’s federal budget this year. The seven-month war against secessionist Chechnya drained the defense allotment, and income in general was projected at a ruble-dollar exchange much more favorable than the current 4,435-per-dollar rate.

Moscow officials insist they can juggle accounts and stay within budget this year. But with a miserable harvest forecast, their promises to toe the fiscal line have been sounding weaker each month.

Struggling to keep down expenditures, the government for years has had no money for defense purchases--one of the factors compelling enterprises like the Kirov Factory to switch from military to civilian production.

The drop in government spending on industry is the major reason that production and gross national product have been shrinking in Russia since the country embarked on its transition to a market economy in the late 1980s.

In July, President Boris N. Yeltsin issued a decree revamping mutual-fund laws, in a reflection of the leadership’s eagerness to boost employment by luring some of the huge stashes of U.S. dollars that many Russians hide in their homes into the converted industries. Undeposited savings are estimated as high as $50 billion, and the Finance Ministry reported earlier this year that $80 billion in earnings from Russian business had been taken abroad over the previous five years.

Boiko, of the privatization center, says some of that flight capital has begun to come back to Russia as those who made financial killings early in the transition sight new opportunities with the currency stabilizing and inflation subsiding.

But the fixed range for ruble-dollar trading imposed in July hinted at government desperation to instill public confidence in the economy, which opposition leaders contend may be poised for another crisis this fall.

Still, workers like the 38-year-old Kirov machinist who skips lunch to set up an orange-crate sales stand bearing cheese made by his mother may now be more representative of the Russian worker than those struggling along on pitifully low state salaries.

“Anyone with initiative can earn a couple of hundred dollars a month performing some service. There’s a market for everything now,” says the machinist, who gives his name only as Valery. “The main thing is to stay small enough that neither the government nor the mafia bothers with you.”