Privatization in Russia - the road to a people's capitalism?

Boris Yeltsin's government has been issuing a succession of laws and decrees on privatization whose scale and ambition make Margaret Thatcher's "sale of the century" look like a village jumble sale. While this is meant to impress the IMF that Russia is firmly on the road to capitalism, most of the publicized examples of the privatization which has already taken place more resemble a mafia benefit night. However, as we might expect, the reality of privatization in Russia is rather different and more complex than either of these images would suggest.

There have certainly been some well-publicized cases of privatization in Russia which have been nothing more than asset-stripping exercises. There have also been examples, particularly in smaller enterprises in Moscow, in which privatization has been a means by which the enterprise administration has sought to seize control of the enterprise for its own advantage, grabbing the bulk of shares for itself, and issuing non-voting fixed-interest shares to workers. However, these forms of privatization have been well-publicized precisely because they have provoked opposition, both from competing factions of the new elite, and from the workers in the enterprise, as a result of which they have frequently been blocked.

Our experience of privatization, outside the Wild West environment of Moscow, is rather different from this picture. Many well-placed individuals, particularly former Party and Komsomol officials, have found comfortable positions in new commercial and financial structures, and in land speculation and property development, but the opportunities for profiting from the privatization of industrial enterprises are much more limited, not least because the workers in those enterprises, while they may not be effectively organized, have their own expectations of privatization. In many enterprises privatization plans have been bogged down by workers' opposition, which has often legitimated bureaucratic obstruction.

Those enterprises which have privatized most successfully seem to be those which have sought to respond to the workers' aspirations. In this framework privatization is not so much a vehicle of change, as a means of preserving, or even strengthening, most of the essential features of the Soviet enterprise as a "state within the state", giving the enterprise the independence and the resources to resist change. This pattern appears very clearly in the experience of privatization in the Kuzbass mining region, where about thirty industrial enterprises have been privatized. The Vakhrusheva mine in Kiselovsk is one of the most interesting, because the administration claims that privatization is providing the opportunity to experiment with the building of "people's capitalism".

When the then Prime Minister Ryzhkov visited Prokopevsk in the Kuzbass he broke down and wept, proclaiming that not even animals should have to live in such conditions. If he had driven out of Prokopevsk to the neighboring town of Kiselosvk his display would have carried more conviction. Kiselovsk is a small town of impermanent and decrepit buildings almost swamped by a moonscape of open-cast mines and slagheaps. The pithead of the Vakhrusheva mine has a strange beauty in such a landscape, for it stands in a clearing in one of the few remaining bits of forest, with the sun playing on the crumbling administration building, opposite which stands a beautiful, elaborately decorated, wooden "prophylactorum", a large building provided for the workers to rest. Although the mine is privatized, the administration has not thought to build itself a post-modern block to define its new corporate identity, although signs by the front door indicate the direction to the office of the commercial bank and the commodity broking firm, while opposite an old store has been converted into the commercial shop, stocked with Western goods.

The Vakhrusheva mine was a pioneer of privatization. It was converted to arenda, a form of leaseholding with a future right to buy, after the 1989 miners' strikes. The Director of the mine had already been drawing up plans before the strike, but faced considerable opposition from the local Production Association of which the mine was a part, because Vakhrusheva was the biggest pit in the Association, with high quality coal and good export potential. During the strike the workers backed the Director's plans, which the Coal Minister was persuaded to sign only on the steps of his plane. The mine was converted to a shareholding company in September 1991, with an authorized capital of 33 million roubles (about $240,000 at the current exchange rate), calculated on the basis of the written down book value of the mine's assets.

Vakhrusheva was an exceptional enterprise, particularly in the mining industry, in having a progressive administration which had long been committed to the principles of self management, embodied in the active role of the Labor Collective Council, which is elected by the workers, although it is usually under the control of the administration. Privatization was motivated by the same principles, the aim being to establish a form of "people's capitalism". For this reason the company was established as a closed company, with share ownership strictly limited to employees, and no individual being permitted to own more than 1 percent of the shares (the largest single shareholding is in fact much less than this: only 26,000 shares). Nine million of the 33 million shares were distributed to the workers, who were able to use money allocated to them for that purpose from the profits of the mine. Those who chose not to buy shares could take out the money in cash, but 2,100 workers have now bought shares. The "controlling interest" of 11 million shares was vested in the company itself, and the remaining 3 million is being held in reserve for sale to new workers. The enterprise is now governed by the Council of the Association, which meets monthly and has twenty-six members elected on a representative basis by the annual shareholders' meeting. They have refused to establish the "Council of Directors" provided for by Yeltsin's laws.

Share ownership certainly seems to provide an incentive for the workers to improve productivity, which has increased by 30 percent, while in the mines which remain under state control productivity has fallen by almost half. Privatization provides sticks as well as carrots. Between five and ten workers each month lose their share ownership rights for what by Soviet standards are minor breaches of labor discipline, with the decision taken by the Soviet of the Association. New workers are hired on three month's probation, and can buy shares after one year's service provided that they have not breached labor discipline. The Director of the mine has a contract with the Soviet of the Association, and workers have individual labor contracts with the Director, although Russian law still includes no provision for such contracts. The trade union still exists at Vakhrusheva, but it performs only welfare functions, and there is no collective agreement.

Wages at Vakhrusheva are lower than at neighboring mines, although they are now indexed to inflation, but workers have other benefits which make up for their lower wages. Every worker has a hard currency account in the enterprise shop, where the workers can buy imported goods acquired through barter for coal exports. Almost one quarter of the miners at Vakhrusheva have imported cars. So far profits have been ploughed back into the enterprise, or used to acquire goods for sale at subsidized prices, but workers are expecting that their shareholdings will soon start to yield dividends, and this is a potential source of conflicts, since the administration wants to plough back the profits into the development of production. The Director hopes that he will be able to persuade the workers to back his plans, since they are essential if Vakhrusheva is to continue to provide jobs for all its workers. However, the management is very concerned that the overwhelming majority of workers display the "sense of hired laborers", rather than the "sense of ownership", in giving priority to high wages and access to imported goods as the benefit of working at Vakhrusheva.

Vakhrusheva is not without its problems. It faced a lot of opposition from the start. It was only the strike that forced the Minister to concede privatization in 1989, and it has only been the careful cultivation of the support of the workers for its plans that has enabled it to survive. The Raspadskaya mine, the largest in Russia, was also privatized in 1989 and faced enormous opposition from the Kuznetsk coal association, which it was only able to weather because of its size and wealth. Vakhrusheva was more fortunate. Although it left the Association, until this summer Vakhrusheva's production figures have still been included in the Association's returns to the Ministry, for which the Association earned corresponding bonuses, and so was willing to maintain supplies to the pit, although there have been supply difficulties. However, this situation has now ended and the future supply situation may be more uncertain. They have also been unable to obtain licenses to increase their coal exports, although rail transport, harbor dues, and the high level of taxation have made coal exports financially unprofitable, but they are still important in providing access to imported goods for the workers.

Vakhrusheva is one of the oldest mines in the Kuzbass, and the main pit has only another three years of reserves. The mine began developing a new pit forty kilometers away in 1984, using its own resources, and 700 of the 2,500 workers are bussed there every day, but when the building of the new pit is finished there will only be work for 450. To provide more jobs the mine is now developing a third pit alongside the second, but it is unlikely that the cost of this new pit can be met entirely out of profits and the sale of further shares to its workers, so it is likely to have to sell shares to outside shareholders.

Although Vakhrusheva will continue to see its main role as coal mining, it is also diversifying to make money for the association and to provide both jobs and services for its workers. It has established a commodity broking firm, a bank, a medical insurance company, a timber manufacturing company and a company to build houses for the workers at the new pits. They are planning to build a meat processing plant, and have signed an agreement with a neighboring state farm to guarantee food supplies. These "daughter enterprises" are subsidiaries, in which Vakhrusheva holds 51 percent of the shares, and the remainder are available for the workers of the daughter enterprise.

There has been only a limited reorganization of management and production at Vakhrusheva. The administration has grown in size, as it has added commercial, investment, shareholder, and accounts departments, while closing the norms department, but it still retains the traditional "personnel department", which does little more than calculate the average age and skill distribution of the labor force. Recruitment policy is oriented to maintaining the solidarity of the labor collective, so that priority is given to relatives of established workers.

In common with many other mines, the workers chose to switch from a system of four six-hour shifts to three eight-hour shifts, but the workers released were redeployed elsewhere. Otherwise the pit retains the traditional organization of production, and the traditional principles of "one-man management".

Privatization has not led to fundamental changes at Vakhrusheva, but has given the administration the freedom and resources to develop the mine in a well-established direction. Although the mine is now nominally owned and controlled by its workers, and participation is encouraged, in practice it is a strongly paternalistic enterprise whose success has depended as much as anything on the personality and energy of its director. Far from developing in a capitalist direction, the mine has responded to the collapse of the wider society by internalizing more and more functions, expanding its provision of housing, food, medical care, savings facilities, and a growing range of consumer goods, and investing not for profit, but to secure the employment prospects of its workers. Vakhrusheva, like many other privatized enterprises, has managed to guarantee its workers a relatively higher standard of living and greater security than those of neighboring enterprises, but it has enjoyed the favorable situation of having a valuable product which provides hard currency earnings, and of having been given the assets of the enterprise for virtually nothing.

It remains to be seen whether Vakhrusheva's attempt to build "socialism in one mine" will be any more successful than have been previous Soviet "experiments". The main problem is that it remains a very paternalistic enterprise, with little active involvement or participation on the part of the workers, and little encouragement from the administration to develop such participation. The administration of the enterprise seems genuinely committed to their attempt to build a "people's capitalism", but they have no experience on which to build. They have never heard of any Western experiments in building workers' co-operatives, such as that of Mondragon in Spain, since their only source of information is the Russian press, which has published a few articles pressing the virtues of "employee- share-ownership" schemes.

Without the active involvement of the workers' Vakhrusheva is very vulnerable. On the one hand, the workers' aspirations for higher wages, which lag behind those of less productive pits which have secured large subsidies by the threat of strike action, conflict with the aspirations of the administration to plough back the profits. On the other hand, the enterprise is vulnerable to external pressures, since it still relies on the Production Association to secure its supplies, is burdened by high freight costs and high levels of taxation, and will need external funds to develop its new pit. The administration of Vakhrusheva would welcome the advice of anybody with knowledge and experience of the practicalities and problems of workers' self-management - Capitalism drives the employers to do their worst to the employed, and the employed to do the least for them. And it boasts all the time of the incentive it provides to both to do their best ! --George Bernard Shaw

The right of the people to make the laws-this produced the first great modern earthquake, whose distant shocks, even now, are heaving in the hearts of the world. The fight of the people to own the land-this will produce the next.

--James Fintan Lalor, Irish revolutionary leader (1807-1849)

Bolshevism is a menace to absentee ownership. That is its unpardonable sin.

--Thorston Veblen

Simon Clarke and Petr Biziukov are working on an ESRC-funded research project on the restructuring of industrial management and industrial relations in Russia. They can be reached at the Department of Sociology, University of Warwick, Coventry CV4 7AL.

COPYRIGHT 1992 Monthly Review Foundation, Inc.
COPYRIGHT 2004 Gale Group