'Money Must Come Back Where It Was Made'


Moscow. -- The rarest creature in all of Russia is a Russian businessman who is investing money in his own country.

One of the reasons market reforms are moving so slowly here is that the new breed of Russian entrepreneurs prefer to trade or speculate, then ship their profits out to foreign banks. By some estimates, $20 billion in private capital has fled abroad, while the total of all foreign investment in Russia last year was only $3 billion.

So meeting Vladimir Starchenko is almost like finding the Holy Grail.

The 48-year-old former naval engineer, dapper in a gray, European-cut suit and pinstriped shirt, is president of Teledisk Holding Co. with branches in Vienna and Moscow and controls 32 different Russian companies that actually produce goods and employ people.

His companies have sales of $200 million a year (large for a Russian private producer). He is importing new technology from Europe and setting up small food-processing factories all over Russia and the former Soviet Republics.

This may sound pretty ordinary in American terms, but in Russia it is almost revolutionary. In a country whose stores are now overflowing with foreign food products (which most Russians can't afford), but bare of Russian-processed foods except the standard ugly glass jars of pickles or tins of mackerel, the idea of well-packaged Russian goods on the shelves is still stunning.

"Why," asks Mr. Starchenko, "should we have to open a McDonald's here [which produces its own meat and potatoes and packaging] when we could produce the food ourselves?"

Why indeed, especially since Russia has the raw materials? In the answer to that question lies the essence of Russia's economic problems. Under the Soviet system, consumer industries were neglected in favor of heavy and military industry. Russia, for example, lacks refrigerated trucks for transport, modern food-processing facilities and packaging equipment.

In the transition to capitalism, the consumer sector is still struggling. The standard Russian wisdom is that taxes are too high (practically confiscatory), corruption and crime too massive, and the political scene much too unstable for anyone with brains to invest their money in building up Russian industries.

Unlike Western magnates, big-time Russian entrepreneuers risk more than investment money. They must fend off criminal syndicates who want a cut of the business, or a piece of the boss. Starchenko employs 16 personal security guards (all former members of the KGB division that used to guard top Soviet officials) and 400 of his 2,000 employees carry out security duties. He drives in a Lincoln limo with bulletproof windows and armed guards in jeeps at front and back.

The war in Chechnya and rising inflation also have discouraged some powerful new private Russian banks from their recent decision to invest more in Russian industry. But without such investments Russia's economy will never start to grow.

Starchenko has proved that guts and persistence can beat the system -- so far.

Back at the beginning of "perestroika" in 1986 when individual private business was still forbidden, he got a loan from a government agency and organized a cooperative which produced new kinds of commercial lighting. Starting early gave him an investment nest egg.

He put his profits into setting up computer classes for schools and universities just when Russians were first getting widespread access to computers. His classes spread and the project ultimately earned about $32 million.

As the era of "perestroika" sunk into economic and political crisis, he had to choose what to do with his money.

"Some thought the best way was to invest money abroad and buy property there," he told me "but I think money must come back to the place where it was made."

Mr. Starchenko was able to organize a joint venture with an Austrian partner, which made it possible to get credits and import technology from the West. Because he also had substantial proceeds invested in new Russian commercial banks, he could also get credit more easily at home.

His strategy has been to invest in "what people need -- to eat, drink, wear clothes and have a roof over their head." He has small factories outside Moscow to produce yogurt with Austrian technology in pretty plastic containers which look like Western dairy products, but are cheaper.

He has built a jeans factory outside Moscow that uses British equipment, and he will soon begin producing ties and underwear to European standards. He also plans to bottle mineral water in spiffy plastic bottles made with Western machinery.

He has two grocery stores in Moscow and is building a huge

dry-cleaning facility, a rarity in the capital. And, in a venture that may finance many others, he has a contract with the government to produce tens of millions of new Russian passports with Swiss equipment.

His most visible project is the construction of 41 huge villas with Western fittings outside Moscow for rich bankers that go for about $600,000 a shot. All have been sold. A two-foot-wide plastic model villa, complete with billiards room and miniature sauna, sits on his bookshelf.

And since Russia's new rich will need to furnish such villas, Mr. Starchenko has set up a spectacular shop on a chic Moscow boulevard with exclusive rights to Austrian cut-glass chandeliers and fine European china. A banker asked him who would buy these pricey items in impoverished Russia. No problem. Moscow's new moneyed crowd has snapped them up.

Next door, Mr. Starchenko's wife runs an exclusive women's clothing store called Sandra Star, where men purchase bundles of ladies Italian underwear at $200 for a teddy.

New Muscovite businessmen can dine at one of Mr. Starchenko's two exclusive restaurants in town.

Such a collection of ventures requires nerves of steel to maneuver around official and criminal predators and cope with financial gyrations. Mr. Starchenko insists that productive investment is the best way to beat inflation.

It's clear that until more Russians emulate him and start investing in their country, a market economy won't take hold.

Trudy Rubin is a columnist for the Philadelphia Inquirer.

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