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By Newsweek Editors
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There's precious little faith in Russia's future around Moscow's squalid Children's World toy store. Here, at the dimly lit arcade, where desperate women line the corridors, ashamedly hawking items they managed to buy at cheap state prices, most people think the "privatization" checks that Boris Yeltsin is handing out are just the latest in 75 years' worth of government tricks. "What's worth investing in? Everything is going bankrupt," says Natasha Alenik, 29, who stands in the frigid cold, hoping to sell a pair of gray boots. She hasn't picked up her check yet, but plans to sell it when she does. Around the corner, Ira is selling her voucher to a pimply-faced speculator. "I have three kids-I need the money," she says. "My factory won't take these vouchers-they're just toilet paper."
Yeltsin is facing the challenge of his life-not only in the Parliament, where angry deputies hurled abuse at his government last week-but on Russia's snowy streets. By issuing 148 million privatization vouchers, one to each citizen, his government launched history's greatest experiment in market economics. Now he has to convince skeptical Russians that the checks have any value. But hyperinflation has so battered the Russians that the centerpiece of his reforms-the privatization of the country's lumbering, inefficient industries-is losing credibility day by day. "Privatization is a revolution of swindlers against the people," thundered deputy Aman Tuleyev at last week's congress. "People are blind, but soon they will realize the tremendous deceit-and who will guarantee that it will be peaceful when they do?"
Yeltsin may have underestimated the anti-reform sentiment among deputies and the public. He and his government made few compromises at the congress, sticking essentially to their shock-therapy reform program. Yeltsin himself probably remains untouchable. But the deputies lashed out at his brash prime minister, Yegor Gaidar, who could still lose his job.
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Yeltsin's economic team is racing the clock. When the vouchers were first issued in October, the face value-10,000 rubles, or $39, at the time-could buy, perhaps, a coat. But the ruble has steadily plunged in value; now 10,000 rubles, worth $25, can buy only about one boot. In hopes of winning public support and wrenching the economy out of the hands of former Communist Party bureaucrats, the government plans to start auctioning state enterprises for vouchers this month. At the State Property Committee, young Russian born-again free marketers and their American advisers are frantically compiling financial statements for thousands of state factories across the country. "We've always been in a hurry," says Maksim Boiko, 33, who was a Moscow University price-policy professor before becoming deputy head ofthe privatization program. "There is great urgency to produce a visible demonstration that vouchers can be used for something big."
While Moscow's conservative deputies-and many other Russians-long for the good old days of Stalinist stability, young reformers in the industrial city of Nizhny Novgorod (formerly Gorky) are forging Russia's future. The city has launched a small-scale privatization program that is being used as a model for the nation. Aleksandr Zolin, a former shipbuilding engineer, bought a truck from the city's former trucking monopoly last month in Russia's first auction for privatization vouchers. The rough-hewn entrepreneur is expanding his tiny dog-food business, which buys the meat of sick livestock from collective farms. His ramshackle blue truck, which cost 190,000 rubles ($475), stands in the snow next to the smelly, cluttered shack that is his headquarters. A frozen side of beef, a rotting horse's tail and a few other scraps of meat are scattered around the yard.
Silicon Valley it's not-but Yeltsin is counting on pioneers like Zolin to save Russia from the demagogues, ultranationalists and ex-communists in Moscow. And in Zolin's modest plans, there are hopeful signs. He earns about $150 a month, five times the average salary. "There are so many shortages and undeveloped fields here," he says, huddled in a fur hat and sheepskin coat inside his dilapidated "office...... If you want to work, you can get rich."
But privatizing Russia's behemoth enterprises, which account for most of industrial production, will be much more difficult than selling off trucks. Many factory bosses, who have benefited for decades from perks and opportunities for corruption, don't want to lose power to a bunch of shareholders. The government is trying to persuade them to go along with privatization plans by cutting deals that allow them to hold on to larger stakes in their plants.
The ultimate concern, however, is unemployment. In the past year alone, as government subsidies dried up, unemployment has jumped from 100,000 to almost 1 million. As factories privatize, they are likely to lay off millions more workers who for decades have been paid to do nothing. The idea of winners and losers-fundamental to capitalism-is hard to stomach for people who have all been equally poor for 75 years. And Russians' scorn for business is heightened by the fact that Mafia-style racketeers already control many of the country's fledgling free markets. But cruel as it may be for the babushka on the street, it may not matter who ends up in control. The smart managers will survive and thrive, and the incompetent will go bankrupt. "For a while we may have Wild West-style capitalism," admits privatization guru Boiko. "But it's the quickest way to real restructuring."
For the first time, the street value of privatization checks is climbing. From the 10,000-ruble face value, they had fallen to 3,500 rubles; last week speculators were buying them for 7,500 rubles-and selling them for 8,000 rubles. Outside the Russian Commodity Exchange, Aleksandr Kushnerenko, 28, director of a computer-programming company, was buying. His partners are researching which enterprises might be worth investing in. "We want to help ourselves first," says Kushnerenko, "but in the long run we will help Russia." If people like him can keep the faith, Yeltsin's privatization program may yet work. Then, and only then, can Yeltsin claim that his reforms are irreversible.
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