by Dean LeBaron

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Chapter 3 
SOVIET-STYLE FISH CHOWDER

Refreshed more by excitement than sleep, I registered my first daylight impressions. Moscow was mighty, vast, and ugly. Every once in a great while, however, crumbling brick tenements and stained concrete-slab apartments parted to reveal a church from a Russian fairy tale with blue, white, and orange cupolas, their gold crosses flashing. Then it was gone, and I was back in the heavy, lumbering traffic with its drab trucks and mud-streaked buses. Although military vehicles and civilian trucks built on military models composed much of the traffic, plenty of private cars-mostly small, boxy Zhigulis, without options, sold abroad as Ladas-had recently become popular.

Like Paris, Moscow was built in expanding concentric rings, but its boulevards are broader, some wide enough to accommodate 20 cars abreast. Those boulevards are intersected by avenues radiating spoke-like from the Kremlin, originally a fortress constructed in the twelfth century and still the city's heart. Although there is much greenery, I noticed few large trees and was told that, as World War II approached, Soviet scientists believed leaves and other foliage would retain poisonous fumes if the Nazi armies resorted to gas attacks. Not waiting for this theory to be proven, the Soviets chopped down most of Moscow's large trees. Replanting began in 1947, but it went slowly, like so much other non-defense work, and was given a lower priority with each passing year.

In contrast to vertical New York, Moscow is more like Los Angeles-sprawling, horizontal, endless. Russians, themselves, say it isn't really a city, just a gigantic village. Among the crowds thronging the sidewalks, I saw few people moving with the purposeful stride of American urbanites. Instead, I saw either lethargy or panicky haste. On a side street, I noticed a Russian man attaching his windshield wipers, which he had locked in his glove compartment for safekeeping overnight. He did this in the same automatic motions with which he opened the door and switched on the ignition. It was just one more task before driving off, just as many Americans automatically remove their radios and attach Clubs to their steering wheels. I had read the explanation in newspapers. Wipers left out overnight are stolen and traded on the black market. The state was the sole manufacturer of windshield wipers and didn't produce nearly enough to satisfy demand. Here the consumer was not king, but beggar or thief.

We were streaking down the VIP lane on our way to an appointment at the Ministry of Defense Industries. I was about to meet the infamous Central Planning System in the person of Boris Sergeevich Belousov, the minister himself. In the Soviet Union, government bureaus made every and all legal, business and economic decision. Not a ship or a rivet was produced unless ordered by a Kremlin office. Not a car, a gasket, or a windshield wiper was made unless approved by some government plan. Those plans covered every aspect of the Soviet economy, not just the manufacturing sector. Restaurants were mandated to serve so many meals, painters to cover so many square meters, taxi drivers to make so many trips, hospitals to care for so many patients. Even writers had to produce a certain number of pages. Sometimes, Soviet trains ran without a single passenger, making extra, unscheduled trips around the tracks just to satisfy a plan's mileage requirement. In the mid-1980s, the central government controlled the production, pricing, and distribution of roughly 30 million products manufactured by nearly 50,000 plants, and this in a country with very few computers available to track the data. Estimates put the number of personal computers in the Soviet Union at 350,000, about 1 percent of those in the United States at that time.

Government control of the relationships among those thousands of plants had been in place since the early 1920s. It was not efficient or even effective in producing and distributing the right amount and combination of products, but the system seemed to work, at least in its own terms. The enterprises depended on the bureaucracy to do what markets do elsewhere: decide what goods should be made and services offered, in what quantities, and at what price. An immense bureaucracy called Gosplan ("Stateplan") prepared the annual and the five-year plans for every ministry and every enterprise. The five-year plans, beginning with the first, issued by Stalin in 1928, and continuing through the twelfth, presented by Gorbachev in 1988, reflected broad policy set by the party. After the plans were officially issued by Gosplan and approved by the presidium of the Supreme Soviet, the country's rubber-stamp legislature, they carried the force of law. Failure to reach the prescribed production targets was potentially punishable.

Consequently, a production problem was viewed less as a mishap than a crime. Plant managers were less interested in fixing problems than in affixing blame. No matter how long it took, someone had to be found guilty.

The contrast between our system and theirs would strike me even more forcefully months later, when I took a group of Soviet managers to visit General Motors' truck manufacturing plant in Pontiac, Michigan. While we were touring, a computer failure stopped the assembly line. "Hmmm, broken, just like ours," quipped one of the Soviets. But when their group talked to the plant manager, the conversation turned more serious. They did not ask what it took to get the line moving again but wanted to know who had been responsible for the glitch. Clearly, the Soviet system emphasized the stick more than the carrot.

Although the higher ranking managers had access to special food stores, better health care, and finer vacations, they were probably more motivated by fear of losing their jobs and the precious privileges than by the desire to succeed, rise higher, and enjoy more perks. On the whole, bonuses and other positive reinforcements were rare in the Soviet system. Virtually the only feedback was negative: usually docked wages for quotas not met or instructions not followed.

In a Soviet aircraft factory, I saw a board displaying various incorrectly made parts, with the name of the worker responsible next to each. I realized that if a disaster befell this economy in its difficult transition from communism to capitalism, people conditioned to seek a culprit would do so. During my subsequent trips to the Soviet Union, it became apparent, as overall economic conditions deteriorated, that Mikhail Gorbachev would bear the brunt of the blame.

Central planning did more than generate fear and stifle initiative. It also left the Soviets focused entirely on gross production, and with a peculiar attitude toward quality control, at least regarding the production of civilian goods. Quality was no concern of the producer whose performance was measured only by the number of units produced. It was solely the consumer's problem.

I knew from the outset that the emphasis on gross production was an obstacle we would have to address if our mission were going to succeed, and I also knew that it would be an uphill battle. The yardstick of achievement for Soviet enterprises was purely quantitative: the number of tiles laid; the boxes of soap produced; the weight of nails manufactured. No one was deceived. The workers made endless sarcastic jokes about manufacturing the "world's fastest watches and largest microchips." Krokodil, the premier satiric magazine, summed up the situation in a cartoon that showed a nail factory proudly displaying its "record output:" a single, gigantic nail suspended from an immense crane. In the oil industry, rewards went to those exploration workers who exceeded a target number of feet drilled in the ground. Because it was easier to drill the first hundred feet than the second or third, the countryside was pockmarked by hundreds of thousands of 100-foot holes that yielded no crude oil.

Since the target for textile mills was specified in yards of cloth, managers routinely instructed their workers to weave as loosely as possible in order to get the most yardage from a given amount of thread. And it didn't matter to coal mine managers, who were required to produce a specified tonnage of coal, that their miners uncovered a variety of other minerals that could have been sold in the world marketplace. Told to produce coal, that was all they produced, simply discarding the other minerals, no matter how precious. (The alternative was to illegally sell the unscheduled items. This, together with the associated corruption that plagued the centrally planned economy, was another massive problem.)

Soviet enterprises produced opaque sunglasses, shoes that only the barefoot would don, and appliances so faulty when they left the assembly line that they could never be repaired. Exploding television sets, long known to be a major cause of catastrophic fires, continued to be manufactured. Enterprise managers were told what to make, and their enterprises hewed to the numbers on the production plan, with only the slightest, if any, concern as to whether or not their products were useful or safe. The quality of the products made virtually no difference to them, at least in terms of how they were rewarded.

Pollution, which ranked high among other problems, was much exacerbated by the gross production mentality. Factory managers and their supervisors in trusts and ministries were so obsessed with meeting the production plan that they avoided anything, such as installing pollution control equipment, that they considered an obstacle to production. Obviously, this worked to the severe detriment of the environment. The levels of air and water contamination grew even more alarming because most Soviet industrial plants were built before World War II and, as in the rest of Eastern Europe, used highly inefficient, highly polluting production processes.

Some Soviet research institutes did fine work developing cleaner, more efficient technologies, but research often remained theoretical. Hardly ever was it applied because the researchers who developed the new processes had no contact with the enterprises that might use them. And since the ministries that operated the enterprises were responsible for monitoring pollution there, the government was, simultaneously, violator and regulator. Ministries were supposed to police themselves, but the system provided no incentives for them to do so.

Most local and regional authorities complied because their bread was buttered in the same way. The few brave ones who tried to warn of the health hazards and environmental damage of industrial projects were usually ignored or overruled. Massive hydro projects undertaken during the Brezhnev years, despite local opposition, resulted in environmental disaster. Those projects, designed to reverse the flow of rivers in order to irrigate the Southern republics, were ultimately stopped under Gorbachev, but the damage could not be undone.

As if all this were not enough, the central planning system rewarded weakness rather than strength. For example, if the manager of a plant that made tires reported that equipment problems were preventing him from meeting his quota, the appropriate ministry would allocate additional capital to the facility so it could get the job done. Enterprises that met their quotas received no capital infusion for modernization or improvements until they fell behind in production. In other words, the Soviet system spent money on losers, not winners: another feature inimical to efficiency and growth. The Soviet government, itself, estimated-very conservatively, as it turned out-that 3,087 enterprises, employing about 2.3 million people, were operating at a loss.

It was absolutely clear that many policies, practices, and attitudes would have to change before Soviet enterprises could function in a market economy. Still, some progress had been made, at least on paper; otherwise, our group would not have made this visit. Gorbachev recognized that the country could not maintain its status as a superpower without fundamental shifts in the planning system. The centerpiece of his reform was the Law on the State Enterprise, which took effect at the beginning of 1988 as part of the new five-year plan. The idea was that planners would concentrate on long-term strategy, leaving day-to-day decisions to enterprise managers. Following only broad "guidelines" from Moscow, the latter would draw up their own plans, instead of having them imposed from above. Part of their output would fill so-called state orders that satisfied the country's most basic or strategic needs. For the rest, they would be free to negotiate their supplies and sales, themselves, through direct contracts with other factories and customers.

In Gorbachev's vision, the share of state orders would gradually decrease. However, increased responsibility would accompany increased freedom to maneuver and operate. Factories would have to cover their own costs and finance their own enterprises.

Several major changes were necessary to make the new system work. For one thing, free market pricing of raw materials, goods, and services had to replace state-set prices. Everyone knew the distortions inherent in the current government decreed prices. Enterprises now purchased raw materials, such as coal and iron ore, for as little as 20 percent of Western prices, an arrangement that encouraged vast waste. The Soviet Union consumed more than twice as much energy per unit of gross domestic product than in the West, largely because enterprise managers had no incentive to conserve energy when their energy cost was only a fraction of its real cost.

In short, although it is difficult to be brief about a system so massively inefficient in so many ways, the immense waste and seemingly incurable shortages of quality consumer goods were linked. More than that, the insufficient quantity and quality of products were an inevitable result of bizarre, daily bureaucratic errors and careless work, common when there are no incentives to do well; the lazy and the diligent are paid exactly the same. But the deeper cause of the colossal economic madness was a political decision: the Communist Party's determination to maintain total power, total control. In my appointment with Boris Sergeevich Belousov, head of the Ministry of Defense Industries, I was about to encounter that very different world.

Enterprises subordinate to the Ministry produced an enormous array of products: microscopes, motorcycles, oil rigs, tractors, and even ships and power stations. As an investment manager who lives by the market, I was intrigued and impressed by the communist attempt, however unsuccessful, to replace the market's capacity to absorb the countless bits of disparate information that it considers in setting a price. I was eager to talk to a man who had tried to keep such an ambitious system on track.

***

With the Soviet penchant for acronym, the Ministry of Defense Industries was called Minoboronprom, "MinDefInd." It was housed in the generic Moscow office building, a boxy, concrete structure that surely looked old on the day that it was first occupied. Inside, no one seemed troubled by the scattering of burned-out light bulbs. As we walked down ill-lit corridors, people with the unmistakable posture of having nothing to do but sit at their desks, stared at us through their open office doors.

Our escort, Evgeny Vitkovsky, a deputy to Minister Belousov, had driven with us from the dacha on Lenin Hills. Our group included my friend and attorney, Paul Rugo, and my colleagues, Rich Gula and Jeff Braemer. Well over six feet tall, Vitkovsky, whose close-cropped, gray-flecked hair went well with his strong jaw line, carried himself much like the Soviet army general he used to be. With 10 minutes to spare before our appointment with his boss, he ushered us into his own office, whose desk was festooned with a rainbow of eight rotary telephones. I would soon learn that you could judge a Soviet official's importance by the number of phones on his desk, which conveyed prestige to Soviet visitors. However, it was a source of increasing embarrassment when the visitors were Westerners, since push-button and multi-line telephones were not yet in use in the Soviet Union.

I must offer a few more words about telephones, which reveal a good deal about a country's condition and attitudes. Since glasnost, it was perfectly legal to call abroad. However, exasperating delays highlighted the burden of the Soviet Union's long isolation: no more than 91 lines connected Moscow to the rest of the world. To be fair to the Soviets, East-West trade politics also contributed to the scarcity of international connections. Western and Japanese communications companies were forbidden, by an agreement between their own governments, to rent time on Soviet orbiters. Though these orbiters had plenty of excess capacity, the agreement was in place to promote their own use of Western- and Japanese-owned satellites. It seems we don't always practice the free market capitalism we preach. On the other hand, only Soviet planners were to blame for the 15 million Soviet citizens on waiting lists for telephones.

Although this situation would improve, at the time, the Soviet Union had no city phone directories and only difficult, cumbersome directory assistance was available. High party members used an entirely separate system for their important communications with each other and had directories that listed all members. Vitkovsky showed us Gorbachev's entry, which included both his office and home numbers.

Vitkovsky's spacious office, typical of upper-level ministry offices we would see on this and later trips, was wood-paneled and attractively furnished. Leather-upholstered armchairs surrounded a large conference table that sat perpendicular to the end of his desk, forming a T. Two portraits, one of Lenin and the other of Gorbachev, hung on the wall. In Gorbachev's, which was taken when the president was much younger, the birthmark on his head had been airbrushed away. In conversation during this and subsequent visits, Soviet officials sometimes referred to him as "Gorby," a familiarity an American does not expect from members of such an inflexible hierarchy. This was a useful reminder to me that Soviet officials, despite how we once imagined them, can be "regular" people too.

Strangely, we saw no portrait of Marx in any office at all. No likeness of communism's philosophical founder graced a wall, and no one mentioned his name, perhaps because Marxism seemed to be disappearing from the Soviet Union in late 1990, although the country was still governed by the communists, Lenin's party. Though I never asked, I always assumed that all of the officials we met were party members. Since government and managerial appointments in state enterprises were, in fact, made by the party, which seemed to envelop the government, it seemed a safe assumption. At that time, the Communist Party had about 19 million members, roughly the same number of people estimated to have comprised Russia's ruling class when the Bolsheviks took power in 1917. In one, although not in all ways, the revolution exchanged one ruling class for another.

Membership in the party offered substantial privileges. In the old Soviet Union, one of those privileges was "access." Only a party card could open doors to "closed" stores that supplied special foods, imported medications, Western clothes and cosmetics, and modern appliances. Likewise, permission for foreign travel was granted only to a select few.

When our 10 minutes had passed, Vitkovsky led us down a long hall, through a large wooden door, and into an even more expansive office. He introduced us to his boss, Minister Boris Belousov, a large, square-faced man in his mid-50s who wore an ill-fitting dark suit. We shook hands all around. Belousov, who did not smile easily, was obviously used to giving orders, and we sat where he indicated: Americans on one side of the conference table, Russians on the other. The setting seemed more appropriate for arms negotiations than for a business meeting.

"Would you like to say something?" asked Belousov through an interpreter.

Thanking him and his colleagues for inviting us to their country, I said we had come to see for ourselves the economic transformation about which we had heard in Cambridge. We wondered what role, if any, we could play. Then it was Belousov's turn. Undoubtedly unfamiliar with Western-style business meetings, he read a prepared text about the problems of converting plants from military to civilian production. Maybe he had never attended a business meeting and seen its informality; perhaps he was uncomfortable in the presence of foreigners. In any case, we felt awkward.

Most of our first meetings with government officials and enterprise leaders were conducted with self-consciousness on the part of the bureaucrats. Within Soviet culture, the degree of formality was directly proportional to the official's rank in the government hierarchy. Surprisingly, Soviet business people and industrialists were far more conscious of their ranks than people in equivalent positions in other countries tend to be. Our experience found bureaucrats, not business people, most concerned with their status. Then I remembered that in the Soviet Union, under the Communist Party, an industrialist and a bureaucrat were one and the same. This explained why the cumbersome central planning system made itself felt on every level, from the man reattaching his windshield wipers to discussions taking place in the highest government offices. Still, I found the formality useful, because it gave us an opportunity to assess each other before anything substantive was said.

Belousov continued reading. Despite a possibility of "temporary economic instability" in his country, he predicted an annual growth of 34 percent in the consumer-goods business sector. With some bluster, he declared that Soviet production targets were consistently met, but we all knew better than that. Stressing that the Soviet Union needed Western investment to convert its military plants, the Minister conceded that the country was in dire need of hard currency. He concluded by saying that he hoped we would discover all we wanted to know about Soviet enterprises during our short visit, and offered to do everything he could to assist us. He also warned that he did not think the country had much time. About this, he was right. The armed attempt to oust Gorbachev was made less than a year later; and four months after the bumbling coup ended in arrest and suicide, the Union of Soviet Socialist Republics ceased to exist.

Belousov and other officials with whom I talked recognized a need for major change even though they had attained their powerful positions under the old system. If, for no other reason, they were motivated by their profound embarrassment when they encountered Westerners. Their humiliation sometimes expressed itself in arrogance: a notion that we were somehow obliged to invest in the Soviet Union. Their dire need for relief made me feel that I could trust them. I thought that if we made a deal, they would stick to it, whether or not we had a contract. Those men, I thought, and continue to think, would not forget people who had helped them when they were in so much need. My hunch was that early investors in the Soviet Union would have a special relationship, unattainable by those who would come later.

The naiveté I detected in Belousov that day, his lack of familiarity with how the capitalist game really works, appeared again that evening in fresher, purer form. In the dacha's dining room, Paul Rugo and I found ourselves explaining the rudiments of capitalism to members of the State Commission. We explained, for example, how companies issue stock for sale on a public exchange. Our new students had a hard time grasping the difference between an equity investment and a loan. "I don't understand," said one Russian after another. "You mean that people would lend money to an enterprise by buying its shares and the enterprise wouldn't have to pay them interest?"

However, the members of the Soviet State Commission picked up the fundamentals of capitalist theory quickly, although how that theory would be enacted remained to be seen. Nothing in our first encounters suggested that the Soviet changeover would be easier than we had imagined. Indeed, there was a real question as to whether it was possible at all. The swift, deep currents of history in Russia are often the final arbiters of success and failure in any venture. Twice in this century-in the years before the Revolution and, again, during Lenin's New Economic Policy, immediately following the Civil War of 1918-1920-capitalism had flourished only to be curtailed, the first time by World War I and the second by Stalin. The current wave of unrest, characterized by political chaos and civil wars, could capsize the still fragile vessel of emergent Russian capitalism.

Of course, Russians themselves shared that anxiety, but, over the centuries, they learned to allay their misgivings in fatalism and humor. Jokes on every subject, from sex to central planning, were as plentiful as the work ethic was scarce. Nearly every Russian I met had a joke to tell, some about shortages or even the KGB. One joke I heard combined both: in Moscow a man went around asking the prices of various goods in different stores. Everywhere he went, the clerks told him, "We're out." As he left each store, the man wrote down in a notebook what that store was supposed to carry but did not. A KGB agent, suspecting Western espionage, approached the man and asked politely what he was doing.

"I've been coming here for 30 years," the man said, "and never before have I found prices so high and goods so scarce. No sugar, no meat, no soap, no socks, no razor blades, no salt, no butter, no nothing."

"Well, comrade," the KGB agent replied, "30 years ago we would have shot you for being so curious."

"So," the visitor asked, "why don't you?"

The KGB agent shrugged. "No bullets."

This epoch was legendary for its lack of consumer goods and lines waiting for anything. Light bulbs would be cycled forward from fixtures where visitors had been toward ones in their new destination. Soap would be put in washrooms just before visitors came and removed very quickly when they left. Food would be hoarded to put on a hospitable spread for guests.

One Russian declared that going from capitalism to a planned economy was simple, like making fish chowder. You catch some fish, chop them up, and cook them in broth. There's your chowder. Going from central planning to a free market was even simpler, he assured me. Just turn the chowder back to broth and bring the fish back to life.

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