Soviet entrepreneurs fight regulations, taxes, jealousy


MOSCOW -- As Yuri Tumentsev heads down Gorky Street toward the gritty industrial suburbs, his white Lada never leaves the fast lane -- fitting for the new breed of young, ambitious Soviet entrepreneurs.

He's dressed casually, but with a European flair unusual for the Soviet Union: black pants and a black shirt splashed with red, green and gold. He takes a drag on a Marlboro, the coolest cigarette in this nicotine-mad country. "I think I am a Soviet yuppie," he says, smiling.

In Zelenograd, Mr. Tumentsev stops at a large state-owned laundry, where his young retail and manufacturing company, ABV, leases two small rooms to make socks. He bounds away from the car -- but not before removing the windshield wiper blades and locking them inside.

This is the Soviet Union, remember, where chronic shortages make even thin blades of rubber a target for thieves.

Once inside, he weaves his way to a remote corner of the plant, where a dozen clattering machines pull thread from foot-high spools, weaving it into white socks.

Amid the clamor, Mr. Tumentsev, ABV's president, describes this cog in his grand plan: A pair of socks costs 4 rubles (about 67 cents) to manufacture, and he hopes to sell them abroad for $2. He'll use the dollars to build a lipstick factory, figuring he can make a bundle of rubles for each dollar invested. Then, he'll swap the rubles for dollars, the preferred currency for buying scarce materials and equipment.

Sound confusing? Sure. But as the nation lurches toward a free-market economy, a curious blend of chaos and creativity has become a hallmark of Soviet entrepreneurs. Like a balloon blown up and set loose, they're apt to careen from one business venture to another, in a frantic outpouring of energy.

The number of small businesses has grown rapidly since the Soviet government loosened the reins on the economy about two years ago. One sign of the times: At the House of Political Books, the most popular author is Dale Carnegie, not Lenin. The store recently sold 11,000 copies of his "How to Win Friends and Influence People" -- at one to a customer -- in 7 hours.

Still, small businesses make up less than 10 percent of Soviet economy. At midyear, an estimated 5 million Soviets were working at least part time in privately owned small businesses, which produce about 40 billion rubles in goods and services annually. (By comparison, about 39 percent of the U.S. gross national product is generated by small businesses, which employ more than 45 million Americans.)

"What is Soviet entrepreneurship? It is a baby in a cradle. It has a desperate fight for survival," says economist Mikhail Grachev.

Soviet entrepreneurs must battle a government bureaucracy that promises a free market but cracks them over the head with harsh taxes and regulations. They must develop businesses amid supply shortages.

And they must face the sniping from Soviets deeply suspicious of prosperity. A joke heard on Moscow streets describes the prayer of a Soviet farmer, who is jealous of his neighbor. "My neighbor has six cows and I have none," the farmer prays. God answers, "What would you like me to do?" The farmer replies, "Kill all his cows."

To run a business in the Soviet Union today, says economist Ludmila Lebedeva, "You must have a very hard head to push everything and everywhere."

But such small businesses are crucial to revitalizing the nation's economy, she says. Young entrepreneurs are likely to be much more creative than the plodding Moscow bureaucrats who have led the economy into stagnation. Meanwhile, the spread of such businesses will trigger diversification and competition.

The strength of the Soviet economy will come from small-and medium-sized businesses, not the industrial giants that have dominated the nation's production for decades, Ms. Lebedeva adds. "We can't build another 10 Kamazes," she says, referring to the huge, state-owned truck manufacturer.

Soviet President Mikhail S. Gorbachev has recognized as much. His recent endorsement of a radical, 500-day economic reform package included a call to transfer half the state-run shops and ++ restaurants to private ownership by early next year. He also called for the creation of a modern commercial banking system and a stock market.

But until such proposed reforms materialize, entrepreneurs will continue to battle bureaucratic and cultural demons.

Mr. Tumentsev, former manager of a state-run shop for foreigners, started small. His first business was an art gallery designed to operate on a barter system, trading paintings by Soviet artists for precious Western goods such as computers.

When that business ran aground, he and three friends -- including ABV Chairman Vladimir Ivlev -- started ABV by chipping in 1,000 rubles (about two months' salary) apiece.

Today, the headquarters of the burgeoning ABV empire is a shop at 57A Gorky St.

It's teeming with shoppers dazzled by the well-stocked shelves. The goods, which range from shoes to full-length fur coats, are expensive by Soviet standards. But the presence of crowds at every counter suggests that plenty of Muscovites are willing to part with their rubles.

Last year, many did. Revenue from the ABV's retail, wholesale and manufacturing operations hit 60 million rubles, and profits were 1.2 million rubles. ABV's strategy is to sell a lot of goods at a narrow profit margin. "Like Ford," says Mr. Tumentsev, a devotee of capitalist gods.

That strategy has made Mr. Tumentsev rich. He pulls in 3,000 rubles a month -- six times his salary for managing the state-run Beriozka shop and more than 10 times the average Soviet worker's salary -- seemingly enough to build a bulging bank account.

But in the Soviet Union's addled economy, nothing is that simple.

He no longer has access to under-the-table deals for food,

clothing or other goods -- an insider trading network common in the Soviet Union. In a society plagued by chronic shortages, whom you know is more important than how much you can pay. In this "friends' market," goods often are routed directly from manufacturer to consumer.

Now, Mr. Tumentsev's big salary is eaten up in typical yuppie style: 1,000 rubles a month for food at expensive restaurants and unregulated food markets, 1,000 rubles a month for clothes and other goods at black market prices. Another chunk of rubles is earmarked for a large, two-story, brick dacha being built outside Moscow.

Mr. Tumentsev enjoys his success.

Although 12-hour workdays and his reluctance to take vacations have strained family relationships, he's drawn to the constant challenge of competition. "At first, my satisfaction came from the money," he says. "Now, it's from business."

Still, he and other Soviet entrepreneurs feel constrained about publicizing success. They don't want to provoke a reaction by conservatives, who despise the free market.

"I'm afraid of making too much money," Mr. Tumentsev says.

Fickle government policy-making already has plagued ABV.

ABV began as a trading company, buying goods and reselling them to other stores and to consumers. But a year ago, the Soviet government reacted to complaints that many private businesses were hoarding scarce goods from state stores and reselling them for inflated profits.

To deter such speculation, the government passed severe restrictions against trading companies, forcing them into the business of manufacturing.

ABV dodged that bullet. The company obtained the manufacturing rights to a bit of arcane military research that had recently been declassified: socks chemically treated to ward off infections. Mr. Tumentsev's business savvy even turned the sock-making project into a winner. By renting space in the state-owned laundry, he gained access to industrial-size dryers, washers and other needed equipment.

Today, ABV turns out about 10,000 pairs of socks and 2,000 pairs of stockings a month. Monthly profits from the manufacturing operation are about 25,000 rubles.

Mr. Tumentsev guided ABV through another regulatory thicket by forging an unusual link between the company and a state organization that aids the handicapped.

ABV gives part-time jobs to handicapped workers. In the sock factory, for example, they work on a machine that adds elastic fibers to the finished socks. ABV also donates some money to the charitable organization.

In return, ABV gets the opportunity to buy scarce supplies at low prices. The organization, for example, can buy state-produced wool for about 7,000 rubles per kilogram and hand it over to ABV. kj Without a link to that organization, ABV would have to pay about 21,000 rubles per kilogram of wool. Tiptoeing on the edge of the law may be necessary for survival within the Soviet Union's chaotic economy. But such wheeling and dealing also has contributed to an image of entrepreneurs as money-hungry speculators who boldly flout Soviet laws.

Sometimes, that image fits.

Alexander Kalinin, a reformist member of Moscow's City Council, recently made a surprise inspection of some local cooperatives and found a wide range of violations. Although cooperatives are supposed to buy supplies solely from the high-priced free market, some were buying from subsidized state enterprises and falsifying documents to hide it.

Yet, the surprise inspections were ignored by officials who could have prosecuted and fined the violators.

Mr. Tumentsev won't discuss strategies for keeping ABV's store shelves full. "It's our secret how we get our supplies," he says.

But he clearly is aware of the widespread suspicion and criticism directed toward the novi rich. Outside the sock factory, he points a set of small, rusty dents on the front hood of his Lada. Who did it? Someone, he says, who didn't like his fancy clothes, his new car, his food-shopping sprees.

Such emotions, fed by long lines and empty shelves and rising prices and unemployment, could set the nation on fire, wiping out economic reforms and free enterprise. Mobs of protesters already have taken to the streets of Moscow and other cities, decrying shortages of cigarettes and other goods.

"Unless it improves in a year, everything will crash," says Yelena Kotova, the reform-minded chairman of Moscow's Economic Policy and Entrepreneurship Committee and a member of the City Soviet.

So, even as Mr. Tumentsev dreams about building a business empire -- boasting that "the Soviet market doesn't have a bottom" -- he worries about public and political retribution. He rages against the 60 percent tax he faces if his income rises.

And he's already given some thought to leaving the gray-shaded nether world of Soviet business and emigrating to Israel or the United States, where "black is black and white is white."

He says, "I worry about the business because I'm not sure about the future of the Soviet Union."

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