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Entrepreneurship and business ventures in the new commonmwealth
EXECUTIVE FORUM
ENTREPRENEURSHIP AND BUSINESS VENTURES IN THE NEW COMMONMwEALTH REUVEN BRENNER McGill University
T ity of whatever
HE FACT THAT STORES IN THE NEW COMMONWEALTH
ARE EMPTY, THAT THE QUAL-
food, clothing, or appliances are available is shoddy, yet people stay hours in line for getting them, is by now so well-known that it needs little reminder. It is also well-known that according to the accounting fiction the average monthly salary in the U.S.S.R. hovered around $150 until January, 1991. Since the floating of the ruble in January (and before that according to the black market rate) the monthly salary was about $10. It is no wonder that under such conditions, the Soviet workers do not work very hard and consider the major advantages of a job as being either the ease with which they can be absent, so as to stay in line and try and buy something, or the payments in terms of goods that come with the job. Volumes have been written on how the Soviet Union got into this situation, and by now volumes have also been written on suggestions as to how to get out. I do not intend to discuss here so much the past-though sunk costs are not sunk costs as one can learn from mistakes and experience. I wish to dwell here far more on the present and the future, taking into account some down-to-earth constraints, and dispel some of the myths that seem to be going around about what the New Commonwealth needs and what it does not need.
ENTREPRENEURSHIP
AND MANAGERIAL
SKILLS
It is frequently argued in the press and in academic circles that the Russians and the Eastern Bloc need entrepreneurial help, as 70 years of communism have destroyed this trait of human Address correspondence to Professor Reuven Brenner, McGill University, Faculty of Management, 1001 Sherbrooke Street West, Montreal, Quebec H3A lG5 Canada. The author thanks the Canada Council for awarding him the Killam Fellowship, without which he could not have found the time to take part in such consultations and write about them. Journalof Business Venturing 7, 431439 0 1992 Elswier
Science Publishing
Co.. Inc., 655 Avenue of the Americas, New York, NY 10010
431
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R. BRENNER
nature there. This was not my impression when I grew up there, and it was not my impression during recent visits. There were plenty of entrepreneurs behind the facade of order of communist regimes, and they were taking not only “business risks,” but even risking their freedom and lives when making business deals, something that their Western counterparts have never had to worry about. Exchanges in black markets both in the Soviet Union and in the Eastern Bloc contributed an estimated 30% to official production as far as food, transportation, building, repairs, and supply of clothing and smaller appliances are concerned-anything that could be produced on a small, less-visible, scale. Thus we are not talking here about a small number of entrepreneurs, but a rather large one. Neither should one make the mistake of thinking that all black marketeers under the communist regimes can be compared with the Mafia in the United States, a comparison that Russian bureaucrats and “intellectuals” like-and have the incentive-to make. (After all, if entrepreneurs can “manage” the economy, who needs the bureaucrats and the intellectuals advising and supplying them with theories and numbers?) The “black marketeers” were mainly involved in the supply and distribution of goods necessary for everyday living, rather than drugs, prostitution, and the sale of weapons. Maybe one should be constantly reminded of Edward Shevardnadze’s experiment in 1979, when he was the Georgian Party leader. After initially trying to eradicate black markets, he became convinced that it would be far better for all parties concerned to legalize the activites that were previously outlawed. He thus legalized some black-market industries so as “to tap their entrepreneurship.” He also allowed self-managed firms to be set up, and abolished controls over the press and the arts. The result of his policies? Georgia flourished far more than other republics. What is missing in the Soviet Union today is not the ability of people to take risks, to spot demands, to have a vision, and the discipline to carry it out. Nor is “human capital”-i-e, skilled people, -missing. Like Germany after World War II, Russia has plenty of human capital; it has a literate population, and 1.5 million engineers and scientists, double that in the United States. Though it is evident that most are not acquainted with the most-sophisticated equipment, and they need some time to catch up, they may not need much. Ten-is, one of Nintendo’s best-selling games, was written by a Russian in Russia. In addition to physical capital that is missing (again, as in Ge~any after World War II), a major missing element is managerial talent. This talent should be distinguished from either the entrepreneurial one, or the mere ability of learning technical skills. How to compensate workers? What should be the differences in wages in a firm’s hierarchy? Who can make decisions in the firm, and of what nature? How to manage an enterprise? These are the type of problems and questions that managers have to deal with. Russians have not gained much experience in dealing with such questions and solving such problems, as in the past most such decisions were politically motivated; but they are necessary for the smooth functioning of an enterprise-if the goal is prosperity rather than the satisfaction of quotas. Let me show with an example a managerial problem that is typical now in the Soviet Union, the solution of which is necessary before a company, foreign or domestically owned, embarks on a successful venture. A frequent complaint heard in factories, be they operated by Russians or foreigners, is the absenteeism and resultant unreliability of workers, even when they have been offered five times as much as the salaries in the state-owned sector. After checking the availability and price of food items, alone, in the cities 1 visited, the Russian workers’ attitudes seemed comprehensible rather than surprising. As noted, the state stores are mainly empty. However, on the few occasions that
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VENTURES,
AND THE NEW COMMONWEALTH
433
vegetables, meat, and milk products arrive at the store, they are snapped up by those who have heard the rumor of arrival and could wait hours in line. The prices in state stores are still ridiculously low for foreigners, but since January they are hardly affordable for those earning the $10 average monthly income. Still, even if one is offered a $50 wage, she has to rely on the state stores as she cannot afford paying the market prices for food, which are much higher. Thus a good manager in the Soviet Union today is one who notes this problem and succeeds in providing workers with the necessary food, thus preventing absenteeism. This is what Polaroid has done in its Obninsk plant located 60 miles south of Moscow; it has hired personnel whose work is to make deals with neighboring farms guaranteeing the supply of eggs, meat, and other essentials to their workers. Once this was done, Polaroid found that Russian employees were no longer absent, and performed as well as their Western counterparts. Thus the solution for absenteeism in the Soviet Union is very different from the one in the West, and it requires an unusual managerial solution. Polaroid’s experience shows that the Soviet workers are neither lazy and undisciplined, and nor is it true that their work ethic cannot be improved-given the proper incentives and normal surroundings. Nor is it true that they are addicted to drinking. True, they seem to drink a lot: but that was for years their only escape, their only “entertainment,” and even now most of them cannot either expect or afford much greater variety. After all, they were not given many more opportunities to improve their lot during the last six years. What they were given was the right to speak up, without, however, being able to do much-we shall see next a few of the reasons why. (By the way, the drinking industry illustrates the Russians’ entrepreneurial talent. When Mr. Gorbachev increased the prices of alcoholic drinks to prohibitive levels, making the mistake of thinking that it was excessive drinking that made Russians unproductive, rather than a fundamental flaw in their system, the black market picked up immediately, and sugar disappeared from the stores for the two years of this misguided experience.)
ENTREPRENEURS,
COMPETITION,
AND THE LAW
One role of governments is to maintain law and order. Under the communist regimens their other role was to make all decisions about the production and allocation of resources. The government gave orders as to how much a factory should produce and to whom it should supply its production. This meant, however, that the whole idea of “contract,” and the legal institutions interpreting it, were redundant. In fact, there was-and there is still-no independent judiciary system in the Soviet Union. By departing from the centralized system, without making any credible steps toward the establishment of such and other institutions necessary for the operation of a more decentralized one, the Soviet leaders created a void. This void causes much uncertainty, and helps increase the Russian Mafia’s power. Opportunities are discovered and exploited under every system of government. If the system is bad, the entrepreneurial talent will be diverted into costly acts, whereas if it is improved, the talent will more often go in more beneficial directions. It is true that many laws establishing some form or another of private property have been and are being passed, but as neither are the old laws canceled, nor are there any independent institutions to which one can turn for information and resolution of conflicts and disputes, the new laws are little more than pieces of paper. Yet, reforms on paper do not mean a thing if they are not expected to be enforced and when the unreformed totalitarian institutions are still in place. On the contrary, passing such laws, which are
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casually disobeyed (at times because nobody has ever even heard of them), brings the whole legal enterprise into disrepute. What happens in such an uncertain environment where nobody knows what the laws are and nobody quite knows which actions are legal and which ones are not? Though opportunities abound, there are many dangers. One of them is the antagonism developing toward the few successful entrepreneurs. This reaction has a number of sources, and in Russia a long tradition starting even before the establishment of the communist regime. Within the uncertain legal environment described above, the entrepreneur’s success is, at times, explained either by their having close contact with the still powerful bureaucracy, or by their being linked with criminal elements. The typically heard scenario runs something like this: an entrepreneur tries to go on his own, whether with a small store or a small enterprise. If he succeeds, he attracts the attention of some neighbors, who try to open a similar store or enterprise. If the new entrants succeed too, not many accusations are heard. But if they do not, then one hears about the bureaucracy putting obstacles in their way, and that the successful entrepreneur became so only because of his contacts rather than his talents. The suspicious reactions are easy to explain after living with the arbitrary Russian bureaucracy for years. Equally troubling objections against some entrepreneurs are those that accuse them of making links with criminal elements. The latter are blamed for raising costs by demanding extortions, or even for closing down some enterprises, and then either extorting more from those that remain, or taking them over. Such perceptions lead Russians to ask for stronger enforcement of laws and even recentralization of power. Meanwhile, such events also bring the notion of “competition” into disrepute. This is not the only way in which criminal elements are viewed as venturing into the void left by the fact that no institutions enforce law and order. They are also viewed as using cooperatives and joint ventures to launder their earnings, then depositing their profits in banks in massive amounts, sufficient to buy up some of the former state property once it goes on sale. In farmers’ markets their intervention is viewed as taking a different form: they are said to control distribution and fix prices. Shanker (1991a, 1991b) describes recent episodes that show how “competition,” bureaucracy, and crime are all linked in a complex maze. A woman, who was a physics teacher for seven years, decided at the age of 29 to open a small co-operative in May, 1990 with three friends. They leased an empty storefront in a suburb of Moscow from the city bureaucracy in charge of arts and cultural activities for children. Soon after the opening, a group of tough young men “came into the cafe, and once they learned [they] were a cooperative and did not have a big state trading agency or a foreign firm as a partner for protection, the bargaining began.” The racketeers offered “assistance and help,” assigning guards at night, finding scarce food items, doing odd-repair jobs-for 25%, etc., of the gross. For several months, the arrangement worked to both sides’ satisfaction. But then, one day an officer of the city cultural department from which they rented the place came and said that though they gave a five-year lease, they have to break it. It turned out that the restaurant was “the prize in a razborka or turf battle, between two rival mobs. Her original patrons, the guardians, lost.” What the bureaucrat’s compensation for his intervention was is not mentioned. Thus, it may well be that the Russian Mafia now has greater power, or more visible power. Yet the solution-just as in many countries that have experimented with prohibitions and bad laws-is to move toward the cancellation of regulations that cause the problems rather than trying to enforce them in the first place. The way to deal with a legal void, however, is more complex and there are not many historical examples to be guided by.
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VENTURES, ANIJ THE NEW ~OMMO~A~TH
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MORE ABOUT LAWS Even the laws that are passed, and which go some way toward ~~vati~tion, are so vague that bureaucrats can and do interpret them anyway they like. As there is neither legal tradition interpreting commercial laws, nor an inde~ndeot judicial system, nor any credible commitment of leaders in Moscow to move swiftly tqward establishing them, it is not entirely clear what will be the practical meaning of the parliament in either authorizing privatization, as the Soviet one did on the first of July, or in passing new laws as they seem to do daily. There seems to be a total faiiure in unde~t~ding that “markets” do not exist and cannot flourish in a vacuum, but require trusted institutions-or at least credible moves toward redefining and enforcing the rules of the game. Even the authorized “privatization” still does not mean the same thing in the U.S.S.R. as it does in the West, or even in Hungary and Czechoslovakia. In fact, the Soviet parliament made it clear during the six years of indecision that collective ownership and leasing ar~ngemen~ had priority over private ownership and foreign investment, p~vatization being expected to take such a shape as to permit “‘equitable” competition with enterprises that will continue to be owned by the state. The newest law, concerning privatization, passed on July 3, 1991, adds to the confusion. It says nothing about foreign investment, gives the workers collectives in enterprises to approve or reject privatization proposals, and does not declare that the old branch ministries responsible for the industry have no more authority. Combine such vagueness with both the lack of any inde~ndent institutions inte~reting the new laws, and the fact that both the republics and the city councils pass their own rules and laws, and it becomes more understandable why not much entrepreneurship came forward during the six years of perestroika. The old system had been abandoned-in words--yet many of the old laws continued to apply, though they were not systematically enforced, but rather quite arbmarily so. Thus, it is never clear which initiatives will be tolerated, and which ones will not be, preventing many from venturing into a business activity. The other main reason for the slow pace of change, the lack of increased initiative and productivity, had to do with what was explained in previous sections. When the supplies of both food and other necessities of life are unreliable, every entrepreneur will realize that the workforce will be unreliable too, even if possessing the technicai skills. How could they then establish a successful enterprise?
E23TABLISHJING CREDIBILITY In this uncertain state of affairs a~itional phenomena became apparent. One is the middlemen who claim to know the “right,” s~pa~etic b~eaucrats~ who, unlike most others, help get the necessary papers for entrepreneurs--either Russian or foreigners-probably hedging their bets. Who knows if indeed the Soviet leaders move toward a market system, they should imitate the Czechs, in which case these new contacts may provide them with employment. What the Czechs did was to forbid for any previously high-raking official and member of the Communist Party from holding any position of importance in the government for five years. The Leningrad Joint Venture Association, a non-profit ~rganiza~on, represents another adaptive phenomenon. It tries to do the same thing as the aforementioned middlemen do, only in a more organized way and pursuing a broader objective. First, it helps en~e~~neu~ and foreign investors find “loopholes” in the maze of convicting union, republic, and city legislations. They also help find that sympathetic, well-connected, bu-
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reaucrat who can give even temporary approval for a venture. They do not stop at this stage; once they succeed in getting the right papers, the association tries to establish a precedent, and then “lobby” the autho~ties for “truly” official ~cognition. They hope that such recognition, once given, can be less easily discarded than the word of, what can after the fact be claimed to be, just a bureaucrat’s errant interpretation. In the current situation this association’s work is difficult; not only must it fight with the bureaucracy, but also with the perception of some Soviet citizens who, as noted above, still think that owners of cooperative businesses have gotten their positions not because of skills and talent, but either because of contacts with Communist bureaucrats, criminal elements, or because they themselves are criminals. This is, in very broad lines, the typical atmosphere facing a Soviet citizen wishing to start a small business. Those who try to set up larger businesses in the U.S.S.R., be they Western companies, or Western companies collaborating with Russian partners, face a different set of problems. Representatives of the Western companies try to establish direct contacts with top officials, and avoid dealing with low-level bureaucrats. They are not always successful, as the following numbers reveal. Although more than 5,000 joint ventures between Soviet and foreign companies have been announced, only 200 or 300 operate. The rest were delayed, or indefinitely postponed due to the continuing political uncertainty, lack of fundamental reforms, lack of convertibility of the ruble, as well as the joint efforts of bureaucrats at ministries, secret police, and app~at~hicks. One should not forget that there are still 16 million Communist party (or past Communist) members in Russia who have incentives to slow down those who try to transform words about reforms into a reality. They have such incentives because many have absolutely no skills that could be marketable in a more decentralized system, and that can preserve their “status.” Briefly: as far as foreign firms are concerned, one can classify their Russian experience in three broad categories. There are the very large firms, which make special deals with the top levels of government, and which may overcome one way or another the constraint on expropriating profits. Either they hope for a long-term arrangement and compensation in the future, or present compensation in terms of “free” advertising for their current monetary loss. The Canadian investors who opened the Moscow MacDonalds are losing about $45 million a year, but claim that the coverage they have received in prime time and the front pages of newspapers in the West more than covered these costs. The same may be true for Estee Lauder and Nina Ricci, the two cosmetics tirms, which opened stores one facing the other, a few blocks from the Kremlin. The crowd of Russian women, even in the midst of day, staying in line before these stores (or before the newly opened Lancome in Leningrad), while the Gum (the state-owned smelly, dilapidated department store) uninviting and empty, must be seen to be believed. The other category of foreign firms is the one that exports what they produce. They do not face the problem of lack of convertibility, and they seem to be satisfied with their experience. Though the fact that these are the thriving firms is somewhat absurd. After all, in a country lacking in almost everything, it would have been far better to encourage domestic production to satisfy local demands rather than foreign ones. The last category of foreign firms is the relatively small ones who can neither arrive at the top levels of government, nor do they intend to export, but justifiably spotted the potential demand of 280 million people (give or take a few million, depending on how many republics’ populations are included in the count), and hope that sooner, rather than later, the Soviets will pay in hard currency. These firms face even greater risks and, understandably, few have carried out their initial plans.
ENTREPRENEURSHIP, VENTURES, AND THE NEW COMMONWEALTH
437
THE LAWS OF THJ.3LAND If laws concerning private enterprises are vague and subject to the whims of bureaucrats, so too, unfo~nately, are the new land laws. One would have thought that the Russians could have started with land reforms following China’s spectacular success and its increased food supplies; but they did not. According to the latest drafts, Soviet peasants can lease land from the government for 10 years, for agricultural purposes only and without the right to transfer property during the 10 years. City dwellers, however, can lease the land only if they move to the farms and commit themselves to farming. According to U~ainian regulations, however, even that may not be enough: the local authorities have the right to decide whether or not the migrant can become a farmer. What happens after the expiration of the IO-year lease is not clear. How much will people pay for the land? It is not clear either how planners will determine the price according to the “place” and the “quality” of the land. Quality for producing what? Apples, avocados, wheat, corn, flowers, grapes, cabbages? When this question was raised before self-declared “Yeltsin people” at the ~vatization Committee linked with the Russian Republic’s Council of Ministers (who are behind the plan) one got only blank stares. The stories one heard informally suggested that successful farmers, like successful enterpreneurs in the city, were having many difficulties. Not only were they being given the worse land, but if they succeeded in spite of all the obstacles put in their way by the small-time local bureaucrats, their leases were not renewed.
WHAT CAN THE SOVIETS DO? Though the Soviet Union certainly needs Western private-sector investment and management, they should first encourage-and certainly not hinder-domestic entrepreneurship. In order to achieve this goal they should prevent bureaucrats from sabotaging such efforts. This cannot be done credibly without moving in a far more dete~inate way toward establishing private property, setting up an independent judiciary or, to start with, some clear rules for the bureaucracy to suggest that the New Commonwealth is firmly committed to a system founded on these principles. “Markets” require trusted institutions; exchanges do not occur in a void. Such steps would bring more “positive” entrepreneurship and less of the criminal type, and also help the work of both middlemen and the associations who collaborate with the entrepreneurs. It could also give a far clearer signal to the still enormous administration that their days are numbered, and that they should better change careers or collaborate. Otherwise they may soon find themselves before courts where they will be accused of sabotage. To achieve this goal, the privatization of the extremely large state-owned enterprises should come last. The chances are that the value of many of these run-down, outdated, ~lluting, badly located enterprises is zero, even with the best m~agement, and under an ideal property-right system. privatization should start from the bottom, allowing people to open stores, factories, giving them land and then allowing them the right to transfer it, giving trucks (from the army) and thus enabling the start-up of a distribution system, and so forth. Spending enormous time, resources, consultations on privatizing “dinosaurs” is a waste-as the Russians could now have learned from the eastern European experience. The fact that the Russian cost-, depreciation-, and tax-structure had been completely arbitrary and must be completely overhauled is well-known. In order to encourage the quickest transition, the best thing would be to keep things now as simple as possible-there is plenty of uncertainty without adding more due to changing accounting and tax rules. There is nothing simpler than not imposing any tax on businesses, only imposing income and
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indirect taxes. By such a legal innovation, the Soviets can not only acquire a long-run advantage over other countries but also prevent an explosive growth of a domestic accounting and legal sector, a transaction cost they certainly could live without. Fiscal and legal innovations may have as powerful an effect as any managerial and technological one. The significant impact of good laws should not be surprising and underestimated. After all, bad laws contributed much in the U.S.S.R. to bringing it to the unenviable situation in which it finds itself today. WHAT CAN THE WEST DO? If my perceptions are accurate, two major conclusions follow as far as the possible roles the West can play. One is that giving massive, indiscriminate aid through the central government would be a grave mistake. As suggested above, many of the obstacles to production, both in agriculture and manufacturing, do not come because of lack of skills, knowledge, or initiative, They come because at every step the hard-working Russian farmer and potential entrepreneur is still facing the obstacle of bureaucracy and mediocrity. Because he has no legal and institutional protection, the latter frequently win. Unless the West insists on institutional, credible reforms, giving massive help to the center can only slow down the transition rather than hasten it. However, a decree announcing the freeing of prices immediately-rather than as an indication of where the government is heading-is as meaningless today as the passing of marvelous laws, if the decree does not come with the credibility and the administration that can deliver the process that the freeing of prices brings with it in the West. If production cannot expand, and new firms cannot enter when prices are freed, the result is inflation and chaos rather than competition and lowered prices. In January, this mistaken strategy was pursued, and misleadingly called a step toward the market. What happened was something else. Subsidies were cut, and prices raised. Nevertheless the entry of new firms was not eased. Moreover, in the process, people’s savings were wiped out by inflation rates of a few hundred percent, aggravating the problems. When people expect that the government’s deficits will be monetized-as they do now-hy~~n~ation is expected. With such expectations, goods will not come to the markets, People will hoard and barter (the latter further diminishing the government’s revenues). Why would anybody sell anything for pieces of paper? Once the credibility that deficits will not be monetized is restored, land reform should be carried out before freeing prices, just as it was done in China, followed by proceeding with all enterprises that people want to set up, on the principle that everything will be allowed-unless explicitly forbidden. For the moment the mindset is still: all is forbiddenunless explicitly allowed. It should thus be clear that aid in terms of food and other goods necessary for everyday living are required in the near future and until the land reforms have their effect. Otherwise, the other reforms cannot be expected to be useful. This is not because there is a threat of famine; the reports seem to exaggerate. However, famine is not necessarily the issue here; searching hours for food and staying hours in line everyday is. How can Russian workers be expected to work hard and persist, if they do not know whether or not they will find affordable food to feed their families after work-hours, and have to forage for it. It has also been argued that giving workers shares in companies could be helpful in increasing incentives and investments. Though this may work in a few cases, the fact is
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VENTURES,
AND THE NEW COMMONWEALTH
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that, as noted before, the equipment in most factories is so outdated, that it would be better to invest in new equipment. Neither the Russians’ human capital, nor the shares-even if marketable-can provide the sufficient capital for investment. The Russian’s best option today would be to encourage foreign investment as much as possible, and encourage entrepreneurship not from the top, but from the bottom and to forget about privatizing the worthless dinosaurs. Their own historical experience at the very end of the nineteenth century and at the beginning of this one should provide the lesson, and help discard many of the false accusations raised by opponents. Those were the years of great prosperity and, in general, after three years, during which the Russians learned the managerial and technical skills, and established contacts with foreign suppliers, they took over all the top positions in the foreignowned firms, or bought the firms. This would not be the first time that Russia would ask foreigners to restore order, and rely on updating them. Though Peter the Great’s import of European managerial and technical skill is the best known, another episode in their history provides an even better example. In 862 the Slavic people invited Rurik, a Viking chief, to rule their country, According to Nestor’s Chronicles, the invitation, which he accepted, said: “Our country is large and fertile, but there is no order in our lands: come, be our prince and govern us!” Plus Ga change, plus c’est la m&me chose.
REFERENCES Brenner, R. 1990. The long road from serfdom and how to shorten it. Canadian Business Law Journal 17(2): 195-226. Brenner, R. 1991. Canadian choices. In R. Boadway, T. Courchene, and D. Purvis, eds., Economic Dimensions of Constitutional Change. Kingston, Ontario: John Deutsch Institute, pp. 117-148. Brenner, R. 1991. From envy and distrust to trust and ambition. Rivista di Politica Economica LXXXI: 31-59 (in English and Italian). Brenner, R. 1991. Anchoring the ruble. Mimeo, submitted to Russia’s Ministry of Finance. Brenner, R. 1992. Legal reforms in the eastern bloc: A precondition to monetary and fiscal policies. In E.M. Claassen, ed. Exchange Rate Policies of the Less Developed Market and Socialist Economies, San Francisco, CA: International Center for Economic Growth, pp. 15 l-74. (French version in Journal des Economistes et des Etudes Humaines: Bilingual Journal of Interdisciplinary Studies, 1990, (3): 253-77). Brenner, R., and Brenner, G.A. 1990. Gambling and Speculation. Cambridge: Cambridge University Press. Greenhouse, S. 1991. Polaroid’s Russian success story. The New York Times (November 24) (3): 1. Hays, Laurie, 1991. Moscow diary: As socialism wanes, a Soviet family waits in line, and worries. The Wall Street Journal (October 22): Al. Hosking, G. 1990. The Awakening of the Soviet Union. London, England: Heinemann. McKay, John, P. 1970. Pioneers for Profit: Foreign Entrepreneurship and Russian Industrialization. Chicago, IL: University of Chicago Press. Rieber, A.J. 1982. Merchants and Entrepreneurs in Imperial Russia. Chapel Hill, NC: University of North Carolina Press. Shanker, T. 199la. Free-market economy is a bonanza for the mob. The Gazette (October 26): B8. Shanker, T. 199lb. Crime and punishment. The Gazette (October 26): Bl.
ENTREPRENEURSHIP AND BUSINESS VENTURES IN THE NEW COMMONMwEALTH REUVEN BRENNER McGill University
T ity of whatever
HE FACT THAT STORES IN THE NEW COMMONWEALTH
ARE EMPTY, THAT THE QUAL-
food, clothing, or appliances are available is shoddy, yet people stay hours in line for getting them, is by now so well-known that it needs little reminder. It is also well-known that according to the accounting fiction the average monthly salary in the U.S.S.R. hovered around $150 until January, 1991. Since the floating of the ruble in January (and before that according to the black market rate) the monthly salary was about $10. It is no wonder that under such conditions, the Soviet workers do not work very hard and consider the major advantages of a job as being either the ease with which they can be absent, so as to stay in line and try and buy something, or the payments in terms of goods that come with the job. Volumes have been written on how the Soviet Union got into this situation, and by now volumes have also been written on suggestions as to how to get out. I do not intend to discuss here so much the past-though sunk costs are not sunk costs as one can learn from mistakes and experience. I wish to dwell here far more on the present and the future, taking into account some down-to-earth constraints, and dispel some of the myths that seem to be going around about what the New Commonwealth needs and what it does not need.
ENTREPRENEURSHIP
AND MANAGERIAL
SKILLS
It is frequently argued in the press and in academic circles that the Russians and the Eastern Bloc need entrepreneurial help, as 70 years of communism have destroyed this trait of human Address correspondence to Professor Reuven Brenner, McGill University, Faculty of Management, 1001 Sherbrooke Street West, Montreal, Quebec H3A lG5 Canada. The author thanks the Canada Council for awarding him the Killam Fellowship, without which he could not have found the time to take part in such consultations and write about them. Journalof Business Venturing 7, 431439 0 1992 Elswier
Science Publishing
Co.. Inc., 655 Avenue of the Americas, New York, NY 10010
431
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R. BRENNER
nature there. This was not my impression when I grew up there, and it was not my impression during recent visits. There were plenty of entrepreneurs behind the facade of order of communist regimes, and they were taking not only “business risks,” but even risking their freedom and lives when making business deals, something that their Western counterparts have never had to worry about. Exchanges in black markets both in the Soviet Union and in the Eastern Bloc contributed an estimated 30% to official production as far as food, transportation, building, repairs, and supply of clothing and smaller appliances are concerned-anything that could be produced on a small, less-visible, scale. Thus we are not talking here about a small number of entrepreneurs, but a rather large one. Neither should one make the mistake of thinking that all black marketeers under the communist regimes can be compared with the Mafia in the United States, a comparison that Russian bureaucrats and “intellectuals” like-and have the incentive-to make. (After all, if entrepreneurs can “manage” the economy, who needs the bureaucrats and the intellectuals advising and supplying them with theories and numbers?) The “black marketeers” were mainly involved in the supply and distribution of goods necessary for everyday living, rather than drugs, prostitution, and the sale of weapons. Maybe one should be constantly reminded of Edward Shevardnadze’s experiment in 1979, when he was the Georgian Party leader. After initially trying to eradicate black markets, he became convinced that it would be far better for all parties concerned to legalize the activites that were previously outlawed. He thus legalized some black-market industries so as “to tap their entrepreneurship.” He also allowed self-managed firms to be set up, and abolished controls over the press and the arts. The result of his policies? Georgia flourished far more than other republics. What is missing in the Soviet Union today is not the ability of people to take risks, to spot demands, to have a vision, and the discipline to carry it out. Nor is “human capital”-i-e, skilled people, -missing. Like Germany after World War II, Russia has plenty of human capital; it has a literate population, and 1.5 million engineers and scientists, double that in the United States. Though it is evident that most are not acquainted with the most-sophisticated equipment, and they need some time to catch up, they may not need much. Ten-is, one of Nintendo’s best-selling games, was written by a Russian in Russia. In addition to physical capital that is missing (again, as in Ge~any after World War II), a major missing element is managerial talent. This talent should be distinguished from either the entrepreneurial one, or the mere ability of learning technical skills. How to compensate workers? What should be the differences in wages in a firm’s hierarchy? Who can make decisions in the firm, and of what nature? How to manage an enterprise? These are the type of problems and questions that managers have to deal with. Russians have not gained much experience in dealing with such questions and solving such problems, as in the past most such decisions were politically motivated; but they are necessary for the smooth functioning of an enterprise-if the goal is prosperity rather than the satisfaction of quotas. Let me show with an example a managerial problem that is typical now in the Soviet Union, the solution of which is necessary before a company, foreign or domestically owned, embarks on a successful venture. A frequent complaint heard in factories, be they operated by Russians or foreigners, is the absenteeism and resultant unreliability of workers, even when they have been offered five times as much as the salaries in the state-owned sector. After checking the availability and price of food items, alone, in the cities 1 visited, the Russian workers’ attitudes seemed comprehensible rather than surprising. As noted, the state stores are mainly empty. However, on the few occasions that
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vegetables, meat, and milk products arrive at the store, they are snapped up by those who have heard the rumor of arrival and could wait hours in line. The prices in state stores are still ridiculously low for foreigners, but since January they are hardly affordable for those earning the $10 average monthly income. Still, even if one is offered a $50 wage, she has to rely on the state stores as she cannot afford paying the market prices for food, which are much higher. Thus a good manager in the Soviet Union today is one who notes this problem and succeeds in providing workers with the necessary food, thus preventing absenteeism. This is what Polaroid has done in its Obninsk plant located 60 miles south of Moscow; it has hired personnel whose work is to make deals with neighboring farms guaranteeing the supply of eggs, meat, and other essentials to their workers. Once this was done, Polaroid found that Russian employees were no longer absent, and performed as well as their Western counterparts. Thus the solution for absenteeism in the Soviet Union is very different from the one in the West, and it requires an unusual managerial solution. Polaroid’s experience shows that the Soviet workers are neither lazy and undisciplined, and nor is it true that their work ethic cannot be improved-given the proper incentives and normal surroundings. Nor is it true that they are addicted to drinking. True, they seem to drink a lot: but that was for years their only escape, their only “entertainment,” and even now most of them cannot either expect or afford much greater variety. After all, they were not given many more opportunities to improve their lot during the last six years. What they were given was the right to speak up, without, however, being able to do much-we shall see next a few of the reasons why. (By the way, the drinking industry illustrates the Russians’ entrepreneurial talent. When Mr. Gorbachev increased the prices of alcoholic drinks to prohibitive levels, making the mistake of thinking that it was excessive drinking that made Russians unproductive, rather than a fundamental flaw in their system, the black market picked up immediately, and sugar disappeared from the stores for the two years of this misguided experience.)
ENTREPRENEURS,
COMPETITION,
AND THE LAW
One role of governments is to maintain law and order. Under the communist regimens their other role was to make all decisions about the production and allocation of resources. The government gave orders as to how much a factory should produce and to whom it should supply its production. This meant, however, that the whole idea of “contract,” and the legal institutions interpreting it, were redundant. In fact, there was-and there is still-no independent judiciary system in the Soviet Union. By departing from the centralized system, without making any credible steps toward the establishment of such and other institutions necessary for the operation of a more decentralized one, the Soviet leaders created a void. This void causes much uncertainty, and helps increase the Russian Mafia’s power. Opportunities are discovered and exploited under every system of government. If the system is bad, the entrepreneurial talent will be diverted into costly acts, whereas if it is improved, the talent will more often go in more beneficial directions. It is true that many laws establishing some form or another of private property have been and are being passed, but as neither are the old laws canceled, nor are there any independent institutions to which one can turn for information and resolution of conflicts and disputes, the new laws are little more than pieces of paper. Yet, reforms on paper do not mean a thing if they are not expected to be enforced and when the unreformed totalitarian institutions are still in place. On the contrary, passing such laws, which are
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casually disobeyed (at times because nobody has ever even heard of them), brings the whole legal enterprise into disrepute. What happens in such an uncertain environment where nobody knows what the laws are and nobody quite knows which actions are legal and which ones are not? Though opportunities abound, there are many dangers. One of them is the antagonism developing toward the few successful entrepreneurs. This reaction has a number of sources, and in Russia a long tradition starting even before the establishment of the communist regime. Within the uncertain legal environment described above, the entrepreneur’s success is, at times, explained either by their having close contact with the still powerful bureaucracy, or by their being linked with criminal elements. The typically heard scenario runs something like this: an entrepreneur tries to go on his own, whether with a small store or a small enterprise. If he succeeds, he attracts the attention of some neighbors, who try to open a similar store or enterprise. If the new entrants succeed too, not many accusations are heard. But if they do not, then one hears about the bureaucracy putting obstacles in their way, and that the successful entrepreneur became so only because of his contacts rather than his talents. The suspicious reactions are easy to explain after living with the arbitrary Russian bureaucracy for years. Equally troubling objections against some entrepreneurs are those that accuse them of making links with criminal elements. The latter are blamed for raising costs by demanding extortions, or even for closing down some enterprises, and then either extorting more from those that remain, or taking them over. Such perceptions lead Russians to ask for stronger enforcement of laws and even recentralization of power. Meanwhile, such events also bring the notion of “competition” into disrepute. This is not the only way in which criminal elements are viewed as venturing into the void left by the fact that no institutions enforce law and order. They are also viewed as using cooperatives and joint ventures to launder their earnings, then depositing their profits in banks in massive amounts, sufficient to buy up some of the former state property once it goes on sale. In farmers’ markets their intervention is viewed as taking a different form: they are said to control distribution and fix prices. Shanker (1991a, 1991b) describes recent episodes that show how “competition,” bureaucracy, and crime are all linked in a complex maze. A woman, who was a physics teacher for seven years, decided at the age of 29 to open a small co-operative in May, 1990 with three friends. They leased an empty storefront in a suburb of Moscow from the city bureaucracy in charge of arts and cultural activities for children. Soon after the opening, a group of tough young men “came into the cafe, and once they learned [they] were a cooperative and did not have a big state trading agency or a foreign firm as a partner for protection, the bargaining began.” The racketeers offered “assistance and help,” assigning guards at night, finding scarce food items, doing odd-repair jobs-for 25%, etc., of the gross. For several months, the arrangement worked to both sides’ satisfaction. But then, one day an officer of the city cultural department from which they rented the place came and said that though they gave a five-year lease, they have to break it. It turned out that the restaurant was “the prize in a razborka or turf battle, between two rival mobs. Her original patrons, the guardians, lost.” What the bureaucrat’s compensation for his intervention was is not mentioned. Thus, it may well be that the Russian Mafia now has greater power, or more visible power. Yet the solution-just as in many countries that have experimented with prohibitions and bad laws-is to move toward the cancellation of regulations that cause the problems rather than trying to enforce them in the first place. The way to deal with a legal void, however, is more complex and there are not many historical examples to be guided by.
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VENTURES, ANIJ THE NEW ~OMMO~A~TH
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MORE ABOUT LAWS Even the laws that are passed, and which go some way toward ~~vati~tion, are so vague that bureaucrats can and do interpret them anyway they like. As there is neither legal tradition interpreting commercial laws, nor an inde~ndeot judicial system, nor any credible commitment of leaders in Moscow to move swiftly tqward establishing them, it is not entirely clear what will be the practical meaning of the parliament in either authorizing privatization, as the Soviet one did on the first of July, or in passing new laws as they seem to do daily. There seems to be a total faiiure in unde~t~ding that “markets” do not exist and cannot flourish in a vacuum, but require trusted institutions-or at least credible moves toward redefining and enforcing the rules of the game. Even the authorized “privatization” still does not mean the same thing in the U.S.S.R. as it does in the West, or even in Hungary and Czechoslovakia. In fact, the Soviet parliament made it clear during the six years of indecision that collective ownership and leasing ar~ngemen~ had priority over private ownership and foreign investment, p~vatization being expected to take such a shape as to permit “‘equitable” competition with enterprises that will continue to be owned by the state. The newest law, concerning privatization, passed on July 3, 1991, adds to the confusion. It says nothing about foreign investment, gives the workers collectives in enterprises to approve or reject privatization proposals, and does not declare that the old branch ministries responsible for the industry have no more authority. Combine such vagueness with both the lack of any inde~ndent institutions inte~reting the new laws, and the fact that both the republics and the city councils pass their own rules and laws, and it becomes more understandable why not much entrepreneurship came forward during the six years of perestroika. The old system had been abandoned-in words--yet many of the old laws continued to apply, though they were not systematically enforced, but rather quite arbmarily so. Thus, it is never clear which initiatives will be tolerated, and which ones will not be, preventing many from venturing into a business activity. The other main reason for the slow pace of change, the lack of increased initiative and productivity, had to do with what was explained in previous sections. When the supplies of both food and other necessities of life are unreliable, every entrepreneur will realize that the workforce will be unreliable too, even if possessing the technicai skills. How could they then establish a successful enterprise?
E23TABLISHJING CREDIBILITY In this uncertain state of affairs a~itional phenomena became apparent. One is the middlemen who claim to know the “right,” s~pa~etic b~eaucrats~ who, unlike most others, help get the necessary papers for entrepreneurs--either Russian or foreigners-probably hedging their bets. Who knows if indeed the Soviet leaders move toward a market system, they should imitate the Czechs, in which case these new contacts may provide them with employment. What the Czechs did was to forbid for any previously high-raking official and member of the Communist Party from holding any position of importance in the government for five years. The Leningrad Joint Venture Association, a non-profit ~rganiza~on, represents another adaptive phenomenon. It tries to do the same thing as the aforementioned middlemen do, only in a more organized way and pursuing a broader objective. First, it helps en~e~~neu~ and foreign investors find “loopholes” in the maze of convicting union, republic, and city legislations. They also help find that sympathetic, well-connected, bu-
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reaucrat who can give even temporary approval for a venture. They do not stop at this stage; once they succeed in getting the right papers, the association tries to establish a precedent, and then “lobby” the autho~ties for “truly” official ~cognition. They hope that such recognition, once given, can be less easily discarded than the word of, what can after the fact be claimed to be, just a bureaucrat’s errant interpretation. In the current situation this association’s work is difficult; not only must it fight with the bureaucracy, but also with the perception of some Soviet citizens who, as noted above, still think that owners of cooperative businesses have gotten their positions not because of skills and talent, but either because of contacts with Communist bureaucrats, criminal elements, or because they themselves are criminals. This is, in very broad lines, the typical atmosphere facing a Soviet citizen wishing to start a small business. Those who try to set up larger businesses in the U.S.S.R., be they Western companies, or Western companies collaborating with Russian partners, face a different set of problems. Representatives of the Western companies try to establish direct contacts with top officials, and avoid dealing with low-level bureaucrats. They are not always successful, as the following numbers reveal. Although more than 5,000 joint ventures between Soviet and foreign companies have been announced, only 200 or 300 operate. The rest were delayed, or indefinitely postponed due to the continuing political uncertainty, lack of fundamental reforms, lack of convertibility of the ruble, as well as the joint efforts of bureaucrats at ministries, secret police, and app~at~hicks. One should not forget that there are still 16 million Communist party (or past Communist) members in Russia who have incentives to slow down those who try to transform words about reforms into a reality. They have such incentives because many have absolutely no skills that could be marketable in a more decentralized system, and that can preserve their “status.” Briefly: as far as foreign firms are concerned, one can classify their Russian experience in three broad categories. There are the very large firms, which make special deals with the top levels of government, and which may overcome one way or another the constraint on expropriating profits. Either they hope for a long-term arrangement and compensation in the future, or present compensation in terms of “free” advertising for their current monetary loss. The Canadian investors who opened the Moscow MacDonalds are losing about $45 million a year, but claim that the coverage they have received in prime time and the front pages of newspapers in the West more than covered these costs. The same may be true for Estee Lauder and Nina Ricci, the two cosmetics tirms, which opened stores one facing the other, a few blocks from the Kremlin. The crowd of Russian women, even in the midst of day, staying in line before these stores (or before the newly opened Lancome in Leningrad), while the Gum (the state-owned smelly, dilapidated department store) uninviting and empty, must be seen to be believed. The other category of foreign firms is the one that exports what they produce. They do not face the problem of lack of convertibility, and they seem to be satisfied with their experience. Though the fact that these are the thriving firms is somewhat absurd. After all, in a country lacking in almost everything, it would have been far better to encourage domestic production to satisfy local demands rather than foreign ones. The last category of foreign firms is the relatively small ones who can neither arrive at the top levels of government, nor do they intend to export, but justifiably spotted the potential demand of 280 million people (give or take a few million, depending on how many republics’ populations are included in the count), and hope that sooner, rather than later, the Soviets will pay in hard currency. These firms face even greater risks and, understandably, few have carried out their initial plans.
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THE LAWS OF THJ.3LAND If laws concerning private enterprises are vague and subject to the whims of bureaucrats, so too, unfo~nately, are the new land laws. One would have thought that the Russians could have started with land reforms following China’s spectacular success and its increased food supplies; but they did not. According to the latest drafts, Soviet peasants can lease land from the government for 10 years, for agricultural purposes only and without the right to transfer property during the 10 years. City dwellers, however, can lease the land only if they move to the farms and commit themselves to farming. According to U~ainian regulations, however, even that may not be enough: the local authorities have the right to decide whether or not the migrant can become a farmer. What happens after the expiration of the IO-year lease is not clear. How much will people pay for the land? It is not clear either how planners will determine the price according to the “place” and the “quality” of the land. Quality for producing what? Apples, avocados, wheat, corn, flowers, grapes, cabbages? When this question was raised before self-declared “Yeltsin people” at the ~vatization Committee linked with the Russian Republic’s Council of Ministers (who are behind the plan) one got only blank stares. The stories one heard informally suggested that successful farmers, like successful enterpreneurs in the city, were having many difficulties. Not only were they being given the worse land, but if they succeeded in spite of all the obstacles put in their way by the small-time local bureaucrats, their leases were not renewed.
WHAT CAN THE SOVIETS DO? Though the Soviet Union certainly needs Western private-sector investment and management, they should first encourage-and certainly not hinder-domestic entrepreneurship. In order to achieve this goal they should prevent bureaucrats from sabotaging such efforts. This cannot be done credibly without moving in a far more dete~inate way toward establishing private property, setting up an independent judiciary or, to start with, some clear rules for the bureaucracy to suggest that the New Commonwealth is firmly committed to a system founded on these principles. “Markets” require trusted institutions; exchanges do not occur in a void. Such steps would bring more “positive” entrepreneurship and less of the criminal type, and also help the work of both middlemen and the associations who collaborate with the entrepreneurs. It could also give a far clearer signal to the still enormous administration that their days are numbered, and that they should better change careers or collaborate. Otherwise they may soon find themselves before courts where they will be accused of sabotage. To achieve this goal, the privatization of the extremely large state-owned enterprises should come last. The chances are that the value of many of these run-down, outdated, ~lluting, badly located enterprises is zero, even with the best m~agement, and under an ideal property-right system. privatization should start from the bottom, allowing people to open stores, factories, giving them land and then allowing them the right to transfer it, giving trucks (from the army) and thus enabling the start-up of a distribution system, and so forth. Spending enormous time, resources, consultations on privatizing “dinosaurs” is a waste-as the Russians could now have learned from the eastern European experience. The fact that the Russian cost-, depreciation-, and tax-structure had been completely arbitrary and must be completely overhauled is well-known. In order to encourage the quickest transition, the best thing would be to keep things now as simple as possible-there is plenty of uncertainty without adding more due to changing accounting and tax rules. There is nothing simpler than not imposing any tax on businesses, only imposing income and
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indirect taxes. By such a legal innovation, the Soviets can not only acquire a long-run advantage over other countries but also prevent an explosive growth of a domestic accounting and legal sector, a transaction cost they certainly could live without. Fiscal and legal innovations may have as powerful an effect as any managerial and technological one. The significant impact of good laws should not be surprising and underestimated. After all, bad laws contributed much in the U.S.S.R. to bringing it to the unenviable situation in which it finds itself today. WHAT CAN THE WEST DO? If my perceptions are accurate, two major conclusions follow as far as the possible roles the West can play. One is that giving massive, indiscriminate aid through the central government would be a grave mistake. As suggested above, many of the obstacles to production, both in agriculture and manufacturing, do not come because of lack of skills, knowledge, or initiative, They come because at every step the hard-working Russian farmer and potential entrepreneur is still facing the obstacle of bureaucracy and mediocrity. Because he has no legal and institutional protection, the latter frequently win. Unless the West insists on institutional, credible reforms, giving massive help to the center can only slow down the transition rather than hasten it. However, a decree announcing the freeing of prices immediately-rather than as an indication of where the government is heading-is as meaningless today as the passing of marvelous laws, if the decree does not come with the credibility and the administration that can deliver the process that the freeing of prices brings with it in the West. If production cannot expand, and new firms cannot enter when prices are freed, the result is inflation and chaos rather than competition and lowered prices. In January, this mistaken strategy was pursued, and misleadingly called a step toward the market. What happened was something else. Subsidies were cut, and prices raised. Nevertheless the entry of new firms was not eased. Moreover, in the process, people’s savings were wiped out by inflation rates of a few hundred percent, aggravating the problems. When people expect that the government’s deficits will be monetized-as they do now-hy~~n~ation is expected. With such expectations, goods will not come to the markets, People will hoard and barter (the latter further diminishing the government’s revenues). Why would anybody sell anything for pieces of paper? Once the credibility that deficits will not be monetized is restored, land reform should be carried out before freeing prices, just as it was done in China, followed by proceeding with all enterprises that people want to set up, on the principle that everything will be allowed-unless explicitly forbidden. For the moment the mindset is still: all is forbiddenunless explicitly allowed. It should thus be clear that aid in terms of food and other goods necessary for everyday living are required in the near future and until the land reforms have their effect. Otherwise, the other reforms cannot be expected to be useful. This is not because there is a threat of famine; the reports seem to exaggerate. However, famine is not necessarily the issue here; searching hours for food and staying hours in line everyday is. How can Russian workers be expected to work hard and persist, if they do not know whether or not they will find affordable food to feed their families after work-hours, and have to forage for it. It has also been argued that giving workers shares in companies could be helpful in increasing incentives and investments. Though this may work in a few cases, the fact is
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AND THE NEW COMMONWEALTH
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that, as noted before, the equipment in most factories is so outdated, that it would be better to invest in new equipment. Neither the Russians’ human capital, nor the shares-even if marketable-can provide the sufficient capital for investment. The Russian’s best option today would be to encourage foreign investment as much as possible, and encourage entrepreneurship not from the top, but from the bottom and to forget about privatizing the worthless dinosaurs. Their own historical experience at the very end of the nineteenth century and at the beginning of this one should provide the lesson, and help discard many of the false accusations raised by opponents. Those were the years of great prosperity and, in general, after three years, during which the Russians learned the managerial and technical skills, and established contacts with foreign suppliers, they took over all the top positions in the foreignowned firms, or bought the firms. This would not be the first time that Russia would ask foreigners to restore order, and rely on updating them. Though Peter the Great’s import of European managerial and technical skill is the best known, another episode in their history provides an even better example. In 862 the Slavic people invited Rurik, a Viking chief, to rule their country, According to Nestor’s Chronicles, the invitation, which he accepted, said: “Our country is large and fertile, but there is no order in our lands: come, be our prince and govern us!” Plus Ga change, plus c’est la m&me chose.
REFERENCES Brenner, R. 1990. The long road from serfdom and how to shorten it. Canadian Business Law Journal 17(2): 195-226. Brenner, R. 1991. Canadian choices. In R. Boadway, T. Courchene, and D. Purvis, eds., Economic Dimensions of Constitutional Change. Kingston, Ontario: John Deutsch Institute, pp. 117-148. Brenner, R. 1991. From envy and distrust to trust and ambition. Rivista di Politica Economica LXXXI: 31-59 (in English and Italian). Brenner, R. 1991. Anchoring the ruble. Mimeo, submitted to Russia’s Ministry of Finance. Brenner, R. 1992. Legal reforms in the eastern bloc: A precondition to monetary and fiscal policies. In E.M. Claassen, ed. Exchange Rate Policies of the Less Developed Market and Socialist Economies, San Francisco, CA: International Center for Economic Growth, pp. 15 l-74. (French version in Journal des Economistes et des Etudes Humaines: Bilingual Journal of Interdisciplinary Studies, 1990, (3): 253-77). Brenner, R., and Brenner, G.A. 1990. Gambling and Speculation. Cambridge: Cambridge University Press. Greenhouse, S. 1991. Polaroid’s Russian success story. The New York Times (November 24) (3): 1. Hays, Laurie, 1991. Moscow diary: As socialism wanes, a Soviet family waits in line, and worries. The Wall Street Journal (October 22): Al. Hosking, G. 1990. The Awakening of the Soviet Union. London, England: Heinemann. McKay, John, P. 1970. Pioneers for Profit: Foreign Entrepreneurship and Russian Industrialization. Chicago, IL: University of Chicago Press. Rieber, A.J. 1982. Merchants and Entrepreneurs in Imperial Russia. Chapel Hill, NC: University of North Carolina Press. Shanker, T. 199la. Free-market economy is a bonanza for the mob. The Gazette (October 26): B8. Shanker, T. 199lb. Crime and punishment. The Gazette (October 26): Bl.