Toughest Job in Russia’s Rust Belt: Self-Reliance

Until state planning collapsed with the Soviet Union at the start of this decade, Valentina Lukshina never had to make a major decision about her life.

She studied metallurgy because she came from the coal-mining region of Novokuznetsk. She then moved to this remote steelmaking city in the “distribution”--a Soviet-era practice of deploying college graduates wherever the state deemed their labor most needed.

She married a fellow engineer at the foundry, started a family and moved to a two-room cubicle that was her due after sharing a single dorm room with five other workers. The tram that took her to work each day had only one destination, the Severstal steel mill, and workers were collected from the sidings like so many teeth along a zipper.

“In a lot of ways, it was easier then,” says Lukshina, now 44 and nursing a fourth child by a third husband and juggling a new career in public relations. “You did what was expected of you. We didn’t think to ask questions or doubt the system. Now I can’t imagine being so trusting.”

Monotony was the lulling rhythm of life for provincial Russians in the Soviet era, and few have been as quick as Lukshina to fathom the freedom and opportunity that have filled the vacuum created by Big Brother’s demise. The new demands for decisiveness and self-sufficiency are proving major obstacles to reform in Russia’s provinces, which have been far slower to recover from seven decades of Communist misguidance than the glitzy metropolises of Moscow and St. Petersburg.

History of Suffering, Oppression

Russia’s history is replete with suffering and oppression, producing a nation of people resigned to the worst fate can offer and usually devoid of the motivation that elsewhere powers the entrepreneur.

For most of the 320,000 residents of this Pittsburgh on the taiga, the loss of the state’s guiding force in their lives has been a painful jolt. They seem baffled by the unfamiliar burden of thinking and doing for themselves.

But even in company towns like this, a few adventurers have shed the doldrums and jumped into the pursuit of their individual dreams, sparking some hope for a more colorful future in Russia’s vast and dingy rust belt.

As Cherepovets and its people seek to cope with layoffs and shrinking benefits from the Severstal mill, a handful of movers and shakers is luring new business and industry here to break the traditional dependence on one omnipotent employer. Lukshina and other lobbyists appear on the verge of winning a major new refinery and a plastics enterprise for their city. It would thrust Cherepovets into the lucrative natural gas industry headed by Gazprom.

With its promised boost to any local economy, the project, known as Severny Marshrut (Northern Route), has other bidders among the industrial outposts along the pipeline that carries gas from Siberia to West European markets. A decision is expected in late summer, but project director Mikhail Roshchin in Moscow describes Cherepovets as “the only logical location.”

The refinery and factory would create thousands of construction jobs by the end of this year and up to 8,000 positions for skilled laborers by the time it would be in full operation around 2005.

Buds of Social Renewal

At the moment, however, Cherepovets suffers the transitional tribulations of most one-factory wonders thrown up overnight during the days of reckless development in the Soviet Union. The potholed streets, garbage-strewn dirt lots and prefabricated concrete buildings here bear communism’s signature of squalor. A gray haze from the forest of Severstal smokestacks spreads across dying birch trees like a furry gray blanket, and the nearby Rybinsk reservoir has been rendered a giant cesspool by decades of toxic dumping.

But for all the dispiriting testimony to the dull lives foisted on local residents in the age of compulsive planning, the landscape of Cherepovets also bears a few buds of social renewal.

“People are buying apartments, building dachas and keeping a fairly extensive network of shops and services in business,” says Yelena Sedelnikova, the city’s chief tax inspector. “We may not be able to tax all the income, but we can guess at its magnitude by the more conspicuous spending.”

When a local firm recently signed a contract with the French-based Alcatel telephone company to install a more modern network, all 5,000 new hookups on offer were bought up in a single day, despite their $800 price tag--more than four months’ salary for the average local worker.

Lukoil, Russia’s largest oil producer, has a subsidiary at work here building a chain of gas stations to service the exponentially expanding stock of private cars clogging local streets and the upgraded highway west to St. Petersburg.

Although many Russians hide the source of their extra income, compliance with tax laws is on the rise here. More than 9,000 private-business income declarations were filed ahead of this year’s April 1 deadline--double the number reporting in 1996.

Still, the fate of the steel giant has long determined the quality of life here, because the entire Vologda region depends on Severstal and its 45,000 employees for 80% of its budget.

The sole sizable employer here and the 14th-largest steelmaker in the world, Severstal has lately been tardy in paying its workers, triggering speculation that the engine of this company town could shut down.

The hardships are caused by economies imposed by Severstal’s new bosses, who are no longer getting subsidies from the federal government now that the enterprise has been “privatized.”

Pitfalls of Privatization

The story of Severstal’s conversion from a state industry to a joint-stock company is typical of the privatization schemes that have transferred at least 70% of Russia’s industrial property to private hands over the past few years while doing little to spread the public wealth.

Shares in Severstal were issued to each of its then more than 53,000 employees in 1994. But the enterprise’s failure to pay dividends or attract foreign investors allowed a small group of cunning locals to buy up their co-workers’ shares at cut-rate prices.

Cherepovets was selected by Soviet planners as the site of the massive steelworks in 1949, not for its proximity to resources or markets but as a compromise between sites that were better for each. The Communists, it seemed, could be indifferent to the bottom line, meaning they acted as if they did not care about the costs of shuttling in raw materials and moving out finished products. But today’s market-driven transport network makes both import and export costs prohibitive.

The Severstal management now dismisses the more hysterical predictions being made about the facility’s future. “We are concerned about the global trend of reduced demand for steel, but this won’t mean the death of our industry in the next few years,” says Alexei Mordashov, Severstal’s 31-year-old general director.

Although the enterprise is reducing its payroll by an additional 10% this year, Mordashov says most of the cuts will be among unskilled laborers and those overdue for retirement.

While Mordashov blames Severstal’s difficulties on a depressed market, a local economist and former employee accuses the management of dumping its production in poorly regulated markets to hide its true income and evade taxes.

Severstal’s reported drop in net profits from $99 million in 1995 to less than $5 million last year was a ruse to allow the managers to pocket more of the income and sidestep pressure for reinvestment, charges former enterprise statistician Sergei Kononov.

Only a third of the 7.4 million tons of steel produced last year was sold to traceable sources, says Kononov, with the rest finding buyers “offshore” in trade havens such as Cyprus, the Cayman Islands and Liechtenstein.

By dumping its output, which depresses global steel prices, and ignoring the need for costly modernization, Severstal’s management appears to be telegraphing that it doesn’t plan to compete over the long haul, Kononov says.

Meanwhile, the surrounding community of Cherepovets is doing more than just surviving the throes of its main employer--it is seeing a proliferation of new, albeit smaller businesses.

Mikhail Belyayev, for example, opened Cafe Yalta, his second private restaurant, in March. He proudly proclaimed it profitable in the first month.

But burly gangs of racketeers--plying the protection trade--pay routine visits to Belyayev’s establishments just as blatantly as mobsters shake down Moscow entrepreneurs. As in the capital, 250 miles to the south, the hefty kickbacks paid out here are shrugged off as a cost of doing business.

“There are difficulties, but everyone willing to work hard has a chance nowadays,” says the cafe owner. “But not everyone is prepared to do that. I haven’t taken a day off since I opened this place, and many of our workers cannot even contemplate such a lifestyle.”

Compromise With Law, Conscience

Money paid for protection also tends to buy access to rare bank credits, as financial institutions in the provinces are widely considered to be under mob control. Russians find money so tight now because the federal government has shrunk the supply as part of its battle against inflation. This, analysts say, has left business-people with nowhere else to turn except to mafia loan sharks.

That success demands compromises with both law and conscience comes as no surprise to most Russians. Indeed, acceptance of the corruption and injustice riddling the post-Communist economy helps explain why even in such hostile circumstances, business is booming.

The educated shrug off economic perils and social injustice as the way capitalism has always functioned, pointing to the 19th century American tycoons--the Rockefellers, Carnegies and Morgans--as equivalent to today’s Russian robber barons.

“Our workers regard those who have gotten rich as criminal or incomprehensibly lucky. The idea that someone might have worked hard for success doesn’t occur to them,” says Natalya Matveyeva, 46, a philosopher and head of the local teachers union. “I hear 14-year-olds saying they don’t want to be educated, they want to go into business and get rich. They think all they have to do is stand around and a miracle will make them successful.”

Matveyeva’s assessment of her blue-collar neighbors rings true in the seedier bars and squalid cellars of derelict buildings where the down-and-out congregate to escape through cheap vodka and drugs.

But the picture of Cherepovets’ future is neither uniform nor entirely gloomy.

Private schools and clinics have appeared to serve those who can afford more than the state’s meager offerings, although the vast majority must settle for the declining standards of state education and health care.

But the drive to grab hold of one’s life and turn it around for the better is still sorely lacking among Russians who have become accustomed to the state making their choices for them.

“We cross ourselves every day and pray for an improvement in the steel market, because if this enterprise goes under, there is no hope for us out here,” says Andrei Krasovsky, 33, a machinist with three young daughters.

Rumors of further reductions at Severstal sweep the community like seasonal wildfire, and no one seems willing to hope that the proposed enterprises connected with the new Northern Route will come to the rescue.

While moods and expectations are equally low here, many attribute the gloom as much to habit as to the real difficulties of overcoming 74 years of misdirection.

Suffering and sacrifice for the next generation have been part of Russian life throughout this century, locals note, recalling that their grandparents endured the brutalities of war and collectivization and their parents the indignities of a life without choice.

“History shows that it is possible to recover from much worse circumstances,” says Cherepovets Mayor Mikhail Stavrovsky of the hardships afflicting his city today. “The Germans surmounted utter ruin after World War II, and the United States came back strong after the Great Depression. You survived, and we will as well.”

Not Settling for the Hand That’s Dealt

Optimists such as Lukshina see a promising, if distant, future for their city as it disengages from dependence on one, wobbly industrial monolith. She points to her own experience as evidence of how quickly a worker’s mentality can change, recalling that she got her start in public relations when Severstal sent her to Moscow in 1993 for a U.S. Agency for International Development-funded course to educate provincial Russians about democratic elections.

She has parlayed that brief class in image-making and a quick study of the new markets in advertising and media relations into a successful private business that has allowed her to design her own life instead of settling for the one dealt her.

“I want to travel now--that’s my new passion. We went to Cyprus last year, and I have never been anywhere so fabulous!” recalls the metallurgist knowledgeable about art and history, like most educated during the Soviet era.

She shows off a slick coffee-table book of paintings by Dutch masters, reverently detailing the significance of each. Perhaps a trip to the Netherlands should be next on her travel agenda, a visitor suggests.

“I’ve already been to the Louvre,” she says in wondrous remembrance, as if one trip to heaven should have been enough to last a lifetime. “But who knows? I never would have imagined even a few years ago that I’d get beyond Moscow.”

NEXT: Although Samara is now a Volga River boomtown, residents are still wary about the future.