BUSINESS

SOVIET PROFITS

CO-OPERATIVES ARE FLOURISHING IN THE SOVIET UNION, BUT NOT ALL CONSUMERS ARE HAPPY WITH THE RESULTS

Anthony Wilson-Smith July 17 1989
BUSINESS

SOVIET PROFITS

CO-OPERATIVES ARE FLOURISHING IN THE SOVIET UNION, BUT NOT ALL CONSUMERS ARE HAPPY WITH THE RESULTS

Anthony Wilson-Smith July 17 1989

SOVIET PROFITS

BUSINESS

CO-OPERATIVES ARE FLOURISHING IN THE SOVIET UNION, BUT NOT ALL CONSUMERS ARE HAPPY WITH THE RESULTS

The 30 or 40 people who visit the Cooperative Art Gallery on downtown Moscow’s Chekhov Street each day often come out grumbling. Unlike Moscow’s large and usually free-of-charge state galleries, the co-operative charges an admission fee of two rubles, the equivalent of about $4 at the official exchange rate. Inside the two medium-sized exhibition rooms, the walls are lined with some three dozen paintings. Most of them, in styles ranging from Abstract Expressionist to Postmodern, offer ideas and concepts that have seldom appeared publicly in the Soviet Union. Because of that, said 26-year-old curator Yevgeni Mitta, “many people do not understand what our co-operative is trying to do. And when they do not understand, people often say they do not like it.”

The lament is common to many owners of the estimated 77,500 privately owned, profitoriented co-operatives now open across the Soviet Union. Two years after Soviet leader Mikhail Gorbachev first supported their creation, the growth of co-operatives has become one of the most controversial aspects of Gorbachev’s program of perestroika (reform). With goods and services ranging from dating bureaus and restaurants to automobile repair shops, co-operatives last year had estimated revenues of almost $11 billion—a total of about one per cent of the Soviet economy and roughly the same as what Canada spent on defence last year. The co-op revenues represent an increase of more than 17 times the 1987 total revenue of $640 million. The Soviet state planning committee has predicted that revenues will double again next year. Soviet

officials are also depending on co-ops to provide new employment opportunities for the 16 million workers whom they estimate will need new jobs by the end of the century because of economic changes. Said a Moscow-based Western diplomat: “A little taste of capitalism must go a very long way.”

But such dramatic growth has fuelled resentment among many Soviet consumers, who say that they distrust the motives and operating practices of co-operatives. One reader, in a letter to the newspaper Sovetskaya Kultura, referred to co-operative owners as speculators who are “sucking people’s blood.” Many Soviets say that cooperative restaurants—which routinely charge prices more than 10 times the average of state-run restaurants—siphon off food supplies and, as a result, cause shortages for ordinary consumers. In a stinging attack earlier this year, Pravda, the official newspaper of the Communist party, accused many co-operatives of profiteering through buying state materials, attaching different wrappings and labels and reselling them at vastly higher prices. Said Pravda: “Such practices have become widespread.”

Some of those complaints are clearly justified. In the Soviet Union, where the average monthly wage equals $378, few consumers can afford prices that are exorbitant even by the standards of higher-paid Westerners. A lunch at Moscow’s Upirosmani res-

taurant, consisting of a light salad, juice and several meatless entrées, will typically cost about $45 per person. Dinner at the Aist restaurant, another downtown co-operative, averages more than $55 per person for such meals as roast pork or boiled beef—without wine or liquor. Some budding Soviet capitalists in the cooperative movement seem devoted to achieving new heights in prices and services. When the newly formed Congress of Soviet Co-operatives held its first meeting last month, foreign journalists were told that they could obtain publicity releases about the congress from FAKT, a news-gathering co-operative and participant in the meeting. The cost for the service was $915.

At the same time, Soviet authorities I often display a confusing and ambivaÍ lent attitude toward the co-operative I movement. Although co-ops are rex garded as one of the cornerstones of

Gorbachev’s reform efforts, prospective owners often face waits of three to five years and a bewildering array of government regulations before receiving their operating licences. Earlier this year, the government ordered the closure of most co-ops offering medical services, as well as others which showed videotapes of popular movies that often were not available in regular theatres. Other businesses in the cultural sector, including private schools and publishers of scientific and literary works, were banned entirely—in order to “remove negative phenomena,” according to a spokes-

man for the justice ministry. But outside Moscow, many co-ops have disregarded the orders and remain open. Yevgeni Mitta of the Chekhov Street Art Gallery said that his group began approaching government officials with inquiries about a licence three years ago, when public discussions first began. After investing more than $900,000 in renovations to the gallery, said Mitta, “we still had no formal guarantee that we would be able to open.” The gallery finally received its licence in April, and, said Mitta, “We regard this as a minor miracle. To people in the West, receiving such a piece of paper does not seem like such a big deal. But this is the Soviet Union, where any delay can happen.”

Even then, operating obstacles can be formidable. Sergei Dyomkin, the chairman of a construction co-operative, recently described the frustrations his group faced while trying to buy supplies from the state to build summer cottages. Said Dyomkin: “We buy trucks at

seven times the price the state buys them for, and building materials at twice the price.” As a result, he said, cottages once built and leased for $15,000 now cost three times as much. In fact, some government officials appear prepared to accept co-operatives only when their prices are not directly competitive. Said prominent Soviet economist Gavriil Popov, a strong supporter of the co-operative movement: “When co-operative prices are higher than the state ones, the monopoly and omnipotence of the state sector are intact. If the prices of cooperatives are lower than the state ones, then it is not just a taxi driver or a photographer who is in trouble, but the whole system.” Some co-operatives have also attracted unwanted attention from another group. Last year, Alexander Gurov, a specialist on organized crime with the Soviet ministry of internal affairs, said that co-operatives have become favorite targets of the country’s growing number of organized crime groups. The groups use the co-operatives to launder profits from drug sales. At the same time, cooperative owners say that they have an increasing problem with organized crime groups attempting to extort protection money from them. Earlier this year, several Moscow cafés were vandalized, and customers in one café were slightly wounded when two men, brandishing knives, set the restaurant on fire. At Yusufs, Moscow’s only Jewish co-operative restaurant, founder Yusuf Peresovsky said that vandals have broken the front window several times. Declared Peresovsky: “Being threatened is a fact of life we have come to recognize.”

In spite of such problems, few co-operative workers openly regret their involvement. Soviet government figures released earlier this year show that the average co-op worker makes between $700 and $900 a month—or more than twice the national average. And, they say, the intangible benefits of making their own decisions are substantial. At the Chekhov Street Art Gallery, paintings by local artists are on sale for between $900 and $37,000. Said curator Mitta, whose work is also on display: “This gallery is my life, not just a way to make a living. Here we can see and buy and sell the things we want.” Now, supporters of the co-op movement must convince more skeptical Soviets that their newfound freedom of choice is worth almost any price.

ANTHONY WILSON-SMITH in Moscow