July 29, 1997  
This Date's Issues: 1094 •1095  •1096  1098

Johnson's Russia List
#1094
29 July 1997
djohnson@cdi.org

[Note from David Johnson:
1. Eric Chenoweth: Re: 1081- Mendenhall/Adoption.
2. Stephen Wright: Re Air Force One - Americans call them
as they see them!
3. Diane Pearson: air force one.
4. St. Petersburg Times editorial: Russia's Legal Mazes Harass 
Even Law-Abiding Investors.
5. Press summaries from Russia Today.
6. Reuter: Kremlin sees no rift with Orthodox Church over law.
7. Itar-tass: Writers, Artists Appeal to Yeltsin Over Religious
Law.
8. Reuter: Mud flies in growing Russian privatization fight.
9. Obshchaya Gazeta: Yavlinsky Refutes Gaydar's Criticism.
(DJ: This is a long article by Yavlinsky. Worth paying attention
to, particularly these day when Gaydar's men are in the saddle.
Question: How do American officials view Yavlinsky today?
Is he just one of many voices to be dismissed and ignored?)
10. Journal of Commerce: Moscow to guarantee foreign investment.]

********

#1
Date: Mon, 28 Jul 1997 
From: "Inst. for Democracy in E. Europe" <idee@dgs.dgsys.com> 
Subject: Re: 1081- Mendenhall/Adoption

Dear David,
I know you have a cause against the export of rampant capitalism, but
don't you think you've gone a little far with the snide remark at
well-meaning people trying to help desperate children left to Dickensian
orphanages. Usually, the adopting parents are couples who can't have
children of their own and are looking to adopt needy children from other
countries. Tragic stories have been legion of orphanages in Romania,
Russia, China, etc. People want to help. Isn't it somewhat niggardly and
overly ideological of you to transform such generous impulses into some
dark, hypocritical hegenomic impulse? An odd position, certainly, and I
trust this is not really the case. 
Best,
Eric

*********

#2
Date: Mon, 28 Jul 1997 18:44:25 -0400 (EDT)
From: "Stephen G. Wright" <sgw@gwis2.circ.gwu.edu>
Subject: Re: Air Force One - Americans call them as they see them!

Dear Mr. Johnson:
I thank you for your recent comments on the film Air Force One. I saw this
film the other day with an old high school friend of mine. He was very
impressed with the it. He noticed my reaction was more restrained. I said
to him: "They could have picked a better bad guy." His response was
simply to say: "Why, it made sense?"
Recently, Itar-Tass published an article I wrote on the sad affair of NATO
expansion. In this article I said that if we continue to view Russia as an
enemy, then based upon my observations of the Russian culture, they will
feel it is only right to be kind enough to accommodate us! Air Force One is
good box office. I liked it as an action thriller. Yet, I am sad at how
insulated people in the States are to the daily lives of others in the
world. There are power hungry nationalists in Russia, and a few here in
the States as well! Images and words create a reality and we are
reenforcing very dangerous ideas and images and antiquated stereotypes.
They are Russians, not Soviets and Russia is a culture that is now in
crisis. There are many in Russia that would be very glad for the
opportunity to take the multitude of internal problems and direct them
outward as an external threat. Why add fuel to the fire!?
Let us begin by thinking of the words we use and being more careful. To
all of my colleagues that read this I ask you to STOP doing one thing now
that will begin to set a more positive trend - the nation in question is
NOT the "Former Soviet Union" they are the Russian Federation!!!! Each
time you speak of them or write about them using such phrases you call to
mind the past. I see FSU being used everywhere. I have heard a noted
U.S. consultant on European affairs, only one week ago, use the word 
Soviets 4 times during our conversation. Our speech, our writing, and our
films keep bringing home the message that Russia is the bad guy. 
Just for the record and to be fair, Russia is not the only nation
suffering such an insult. In the July issue of Embassy Flash the
Ambassador of Macedonia states that much to her displeasure, "...many
countries including the U.S. still insist on referring to the new country
as the "former Yugoslav Republic of Macedonian," or FYROM for short."
Mr. Johnson, knowing how our current images and phrases like "Former
Soviet Union" reflect a lack of respect for the hopes of a new nation, I
pose this question to my U.S. colleagues:
Are you calling it the way you see it, or just the way you want it?

Stephen G. Wright, President
The Global Community Project

*********

#3
From: "Diane Pearson" <granthbb@triax.com>
Subject: air force one
Date: Mon, 28 Jul 1997 16:52:10 -0700

David,
Thanks for the comments on the movie. I only saw the preview with a lovely
21-year-old from Balgoveshensk sitting next to me on her first day in
America. I was offended and couldn't help blanche at the look on her face .

********

#4
St. Petersburg Times
JULY 28-AUGUST 3, 1997
Editorial
Russia's Legal Mazes Harass Even Law-Abiding Investors 

MAN B&W DIESEL, a Danish-German joint venture, has been in Russia for
about 35 years. It is the world's largest producer and designer of engines
for ships, and much of the Russian commercial fleet is outfitted with
engines built to MAN B&W plans. The company has an active partnership with
the Baltiisky Factory, from which it orders ship propellers - making it that
rare animal in Russian industrial circles, a paying customer.
Russia surely values this decades-old cooperation. Russia, and St.
Petersburg in particular, is also keen to woo new foreign investment. Yet
once again, Russian Customs is working against the national interest by
spitting in the face of anyone stupid enough to come to this country and to
bring something with them - a car, some computers, humanitarian aid, whatever.
The latest victim of the customs' erratic behavior is MAN B&W's St.
Petersburg office. For years, City Hall claimed it had the right to register
local offices of foreign companies. Customs, however, disagrees, and in 1996
a federal law also stated flatly that representative offices must be
registered in Moscow.
MAN B&W got caught behind the curve on this law. This seems to have
bothered no one except for Baltic Customs ... who have de facto confiscated
the company's used car, a four-year-old Volvo. The car is worth about
$10,000; customs, using a convoluted mathematical equation, has fined MAN
B&W more than $8,600.
The argument is that, since MAN B&W's office was improperly registered,
the car is also improperly registered. But hey - what about the visas?
Shouldn't all of those investors be arrested and deported? And what about
all of those propellers they've ordered - can they do that? Shouldn't those
deals be broken off?
Ignorance of the law is not a legal argument. But in the case of Russia
and of MAN B&W, it is certainly a moral and practical argument: Moral,
because MAN B&W is a valued partner in developing Russia who has acted in
good faith; practical because following the legislation here is not always
possible.
This is a country where, to take an example, President Boris Yeltsin last
week issued a decree canceling 60-odd older decrees that most people had
forgotten about - and also, just sort of by the way, abolishing the decree
creating the Federal Anti-Monopoly Committee. 
Whoops! Whether this is a mistake or a warning shot across that
committee's bow remains to be seen, according to Saturday's Izvestia. The
committee has continued to work as normal, figuring its existence is
guaranteed in other, fresher federal laws. MAN B&W is also continuing to
work as normal, planning to pay the ridiculous $8,600 fee and chalk it up to
doing business in the Wild East. Little compromises like these are the
things that keep life creaking along in Russia - and also hold foreign
investment at laughable levels. 

**********

#5
Press summaries from Russia Today
http://www.russiatoday.com
>From July 25 newspapers.

Segodnya
Two Yeltsins 
Summary
Aleksander Bekker commented on the current situation of President Boris
Yeltsin, who is surprising the country with his energy, having fully
recovered from his heart surgery last fall. 
This week, a team of young reformers headed by First Deputy Premier Boris
Nemtsov visited the president, who is vacationing in the Samara region. 
Their reports after two hours of talks were most positive. "He has a
great capacity for work, and gets to the essence of matters very quickly,"
said Deputy Fuel Minister Kirienko,34. 
"He takes a text and makes very concrete comments right on the weakest
points," said the head of the Unified Energy Systems (EES), 29-year-old
Boris Brevnov. 
The author wrote that Yeltsin is more mysterious than a Sphinx. No one
can predict his reaction or his next move. He has developed his czar-like
manner and does not want to get involved in current scandals. 
Speaking with central bank chairman Sergei Dubinin, Yeltsin did not even
touch upon his recent sensational allegations of massive misappropriations
of budget money allocated for a plane contract with MAPO MiG. 
With the weakness of the state machine, Yeltsin remains a stabilizing
factor. Even the toughest guys, like Communist leader Gennady Zyuganov and
Moscow Mayor Yury Luzhkov, are trembling before him, the author wrote. 

Nezavisimaya Gazeta
Lead story 
New Zones for Territorial Redistribution Emerge in Russia 
IGNORING THE SAD EXPERIENCE OF THE NORTH CAUCASUS CAN CAUSE DESTABILIZATION
IN THE VOLGA REGION 
Summary
The regional elite could not miss out on the redistribution of power and
property in the country. 
They are inventing new ways to boost their political and economic
influence. In the process, they found an opportunity for the new
redistribution of territories within Russia under the law on rehabilitation
of repressed people. 
The law speaks about the re-establishment of historical borders. The
major conflict resulting from this law, adopted in 1991, became the
Ossetian-Ingush conflict over the Prigorodny district in North Ossetia. 
Chechen independence was another consequence of the law. Chechnya used to
be a part of the Chechnya-Ingushetia republic in Soviet times. 
However, the North Caucasus is not the only territory prone to conflicts
of this type. The daily learnt that recently Saratov Governor Ayatskov
secretly visited a territory of the Staropoltavka district in the
neighboring Volgograd region, where he met with local citizens. None of the
Volgograd authorities were present at the meeting. The reason was that the
Saratov delegation came to call on local people in Volgograd region to
create a German autonomous area in their territory, which would then become
part of the Saratov region. 
Nezavisimaya wrote that in five areas of the district, there are less
than 8 percent ethnic Germans. The interest of Saratov governor lies
primarily in the oil deposits located there. Oil mining brings about 35
billion rubles in taxes to the district's budget. 
RUSSIA TODAY Notes: 
A German autonomous republic in the Volga region was liquidated in 1941
by a Stalin decree. About 700-800,000 Germans were deported to Siberia and
Kazakhstan. Their autonomy has not been re-established because local
authorities in the Saratov and Volgograd regions were severely opposed to
it. Now most of the ethnic German population has moved to Germany, so German
"autonomy" would hardly make sense. 

Komsomolskaya Pravda
People Who Surprised Us This Week 
Summary
The list opened with Deputy Security Council Secretary Boris Berezovsky,
whom Forbes magazine included among the world's wealthiest people,
estimating his fortune at $3 billion. Recently the oil and media magnate
declared his fortune at 210 million rubles (about $36,000) as part of the
campaign obliging high officials to submit income and property declarations. 
Next comes Gen. Lev Rokhlin, the Duma Defense Committee chairman. He was
most optimistic about the situation in Russia: "In case of Russia's
collapse, I will shoot myself." 
Moscow Mayor Yury Luzhkov recently filed a 300-million-ruble lawsuit
(about $52,000) against Komsomolka for printing an appeal by Brigitte Bardot
to protect dogs from the Moscow mayor. Luzhkov has threatened stray dogs in
the city with extermination as part of the preparations for the celebration
of Moscow's 850th anniversary. The trial opens Wednesday. 

Pravda-5
British Beef Is Just the Tip of the Iceberg 
Summary
The daily wrote about the problem of the quality of goods imported to
Russia. 
According to 1996 statistics from the state inspection and consumer
rights commission, about one-third of shoe and textiles are rejected. About
half of butter and around two-thirds of all canned meat and vegetable oil
fail inspections. And inspection commissions rejects 80 percent of tobacco
products. 
However, these figures only apply to goods that came to the inspection
officials. Most of the imports, however, enter Russia bypassing any control. 
In the Soviet times, central Foreign Trade Ministry organizations worked
efficiently, choosing the best companies and checking products right at the
enterprises. Only about 1 percent to 2 percent were rejected.
Chinese-manufactured articles used to have the best quality indexes, said
the daily, but now all imports from China have become a sea of waste. 
RUSSIA TODAY Notes: 
Recently it was revealed that British beef made it to Russia, despite a ban
on its import. The shipments had been falsely marked with Belgium labels.
British beef has been banned in Russia for fear of "mad cow" disease. Most
health officials said there was little chance of tracking down the meat,
which had been distributed already in Moscow and St. Petersburg before the
truth was uncovered. 

*********

#6
Kremlin sees no rift with Orthodox Church over law
By Anatoly Verbin 
MOSCOW, July 28 (Reuter) - The rejection by Russian President Boris Yeltsin
of a controversial law on religion does not indicate a rift between the
Kremlin and the Orthodox church, the president's press secretary said on
Monday. 
``There can be no talk about a crisis in relations between the president and
the Orthodox Church,'' Russian news agencies quoted Sergei Yastrzhembsky as
telling reporters at Yeltsin's Volzhsky Utyos holiday retreat in central
Russia. 
Yastrzhembsky said the draft law had to be amended to conform with the
constitution. 
``If it corresponded to the constitution, the president would surely have
signed it regardless of various opinions from abroad,'' Yastrzhembsky said. 
Patriarch Alexiy, head of the influential Orthodox Church, said in a
statement last week that Yeltsin's veto of the draft law ``On Freedom of
Conscience and Religious Associations'' risked stirring up religious tensions
in Russia. 
``The decision of the president has evoked regret among believers of the
Russian Orthodox Church,'' said the statement. ``(The veto) could create
tensions in Russia between the authorities and a majority of the people.'' 
Yeltsin threw out the bill last Tuesday, saying it contravened Russia's
post-Soviet constitution guaranteeing equality for all confessions and also
its international pledges on human rights. 
The bill, overwhelmingly approved by both chambers of parliament, favoured
traditional faiths. Apart from Orthodoxy, which Russians closely associate
with their culture and national identity, these include Islam, Buddhism and
Judaism. 
It said only faiths registered at least 15 years ago -- when religion was
tightly controlled by the atheistic Communists -- could qualify as
``religious organisations.'' Others would have had to wait 15 years before
applying for full legal rights. 
Communist Party leader Gennady Zyuganov, who heads the biggest faction in the
State Duma (lower chamber), forecast on Saturday that parliament would
overturn Yeltsin's veto. Each of the two chambers needs a two-thirds majority
to do so. 
Communists, who in the Soviet era harassed and persecuted religious
believers, have now become strong defenders of Russian traditions including
resurgent Orthodoxy. 
In separate reports, Russian news agencies quoted Yestrzhembsky as saying
Yeltsin had summoned First Deputy Prime Minister Anatoly Chubais to meet him
on Wednesday and Prime Minister Viktor Chernomyrdin to visit him on Friday. 
They would discuss plans for the 1998 budget. By law, the government must
present a budget to the Duma before August 26. 
Yeltsin, 66, has been on holiday since early July. He says his heart works
like clockwork after quintuple heart bypass surgery last November and that he
has a firm grip on power. 
Yastrzhembsky also said Yeltsin was pleased with the result of an election of
a governor in the the vast Siberian industrial region of Irkutsk where a
candidate backed by a pro-government party defeated the local Communist Party
chief. 
``The crushing defeat of the communist candidate shows once again that the
policy of real deeds, small as they are, in implementing reforms...brings
success to reformers,'' Interfax news agency quoted Yastrzhembsky as saying. 

*********

#7
Writers, Artists Appeal to Yeltsin Over Religious Law 

MOSCOW, July 25 (Itar-Tass) -- A group of Russian writers, artists and
actors from popular-patriotic forces has appealed to Russian President
Boris Yeltsin with a collective letter. The letter's text was received by
Itar-Tass today from the Union of Russian Writers.
They think "the hasty decision" of the president "may have grave
consequences and even more complicate the catastrophic condition of the
nation's moral health." A priority position of traditional religions and
their legal advantages over "non-traditional" religious and
pseudo-religious communities and sects comes from the interests of
preservation and existence of "the historical Russian state," the letter
says. It stresses the "devastating effect" of new religious communities
which "are sometimes directly related to subversive activities of Western
and overseas secret services and enemies which oppose the idea of Russian
indivisibility from the very start."
The letter gives a rather sharp estimation of appeals of "the Pope of
Rome, human rights organisations of Europe and America, as well as
presidents and politicians of all levels." They say these people "have
their political gains" and we have "a common care for the benefit and moral
health of Russian people."
The 35 persons who signed the letter include writers Mikhail
Alekseyev, Dmitriy Balashov, Leonid Borodin, Vasiliy Belov, Valeriy
Ganichev, Vladimir Krupin, Feliks Kuznetsov, Stanislav Kunyayev, Viktor
Likhonosov, Valentin Rasputin, Viktor Rozov, artists Ilya Glazunov,
Vyacheslav Klykov, Valentin Sidorov, composer Georgiy Sviridov, actresses
Tatyana Doronina, Nataliya Varley, actor Nikolay Burlyayev and academician
Igor Shafarevich.

*******

#8
Mud flies in growing Russian privatization fight
By Alastair Macdonald 
July 28, 1997
MOSCOW (Reuter) - Insults flew Monday between Russian ministers and media
companies as a wrangle over the sale of government assets raged among rival
business magnates who backed President Boris Yeltsin's re-election campaign
last year. 
First Deputy Prime Minister Boris Nemtsov, the youthful reformer charged by
Yeltsin with cleaning up government and the economy, accused the losers in
last week's auction of a quarter share in the state telephone holding company
of ``hysterics.'' 
A prominent anchor on ORT television, who denounced the winning bid in an
outspoken attack over the weekend, compared Nemtsov's reaction to that of a
startled cockroach. 
``The Money Stank'' ran the headline on Sevodnya newspaper's front-page
coverage of the $1.875 billion purchase of 25 percent of Svyazinvest by a
consortium of Russian and foreign investors. 
The paper, owned by a businessman who banking sources said backed the losing
bid, recalled recent accusations of corruption leveled by the central bank at
an associate of the banker who led the winning bid. Repeating ORT's
arguments, it also accused the government's privatization chief of favoring
the winners. 
Sevodnya also ran a separate story saying Nemtsov might use the state's 51
percent stake in ORT to change its management. 
The newspaper is owned by Vladimir Gusinsky, one of several rival tycoons
who, allied with First Deputy Prime Minister Anatoly Chubais, then Yeltsin's
campaign chief, and threw their money and media muscle behind the president's
re-election bid to prevent the resurgent communists from taking over the
Kremlin. 
That strategy paid off handsomely. Bolstered by near blanket media support,
the once lame-duck Yeltsin won and Chubais, who had been out of favor, now
commands vast powers. 
Since then a number of prime government assets, mostly in the vast energy and
mining sectors, have been sold off in murky auctions where, insofar as the
buyers have ever been identified, control passed to some of those business
barons who had backed Yeltsin -- at prices well below the market, analysts
said. 
The Svyazinvest sale, offering a big stake in Russia's woefully inadequate
but potentially lucrative telecommunications network, was more of the same in
that officials refused to detail who was behind the bids from two unknown
foreign-registered consortiums. 
But it differed in that analysts judged the price fair and estimated that it
had been a truly competitive auction. 
The outbreak of feuding in its wake was proof, one senior government source
said, of the collapse of the election-year solidarity among the pro-Yeltsin
business and banking groups. 
Uneximbank, Russia's third biggest and headed by ex-first deputy prime
minister Vladimir Potanin, 36, said it led the winning consortium. A London
unit of Germany's Deutsche Bank, U.S. investor George Soros and other funds
were also involved. 
Spain's Telefonica telecommunications company said it was in the losing bid.
So, sources said, were Russia's Alfa-Bank and Most-Bank -- the latter part of
Gusinsky's interests. One government source said associates of a second
pro-Yeltsin business magnate was also heavily involved on the losing side --
Boris Berezovsky. 

*********

#9
Yavlinskiy Refutes Gaydar's Criticism 

Obshchaya Gazeta, No. 27
July 10-16, 1997
[translation for personal use only]
Article by Grigoriy Yavlinskiy: "Yabloko Knows Where
To Get the Money"

In Obshchaya Gazeta issue No. 24, Yegor Gaydar published the
article "Our Disagreements Are Our Achievements." Today we publish
Grigoriy Yavlinskiy's reply.
Over the past few years Ye. Gaydar has several times undertaken
the effort of explaining in absentia my position on various issues,
including important ones, presenting it as he sees fit. I have offered
my opponent a television debate several times. For my part, however,
I have tried to play down these arguments, especially on small issues,
and not respond to accusations of the "stab-in-democracy"s-back"
kind and sweeping labels that Ye. Gaydar was slapping on me. I believed
and continue to believe that time will put everything in its place.
Yegor Timurovich probably got worked up by such a one-sided game
and decided to continue it.
Out of respect for my opponent we spared his pride, not wanting
unnecessary clashes, but we have now decided that a discussion on
substance is indeed in order.
The point is that, in addition to time as the supreme judge
in all arguments, there are people alive today--the Obshchaya
Gazeta readers, for instance--who cannot be fed simple but
untrue political schemes all the time. Since Ye. Gaydar has invented
a new cliche for Yabloko--"a leftist social-democratic
organization"--we
will have to explain the substance of not only our economic differences
but also, at least briefly, our political ones.
On the main subject. The differences between the DVR [Democratic
Choice of Russia] and Yabloko are of a principal, philosophical
nature.
The DVR is a ruling party which in terms of its political
and economic practices serves the interests of the corporate, oligarchic,
criminal, and primitive capitalism emerging in Russia.
The characteristic traits of the economy and social system
taking root in our country are:
--the overriding dependence of entrepreneurs"
and bankers" level of income on personal connections and
proximity to the authorities;
--the absence of a competitive environment (and not
only in the economy);
--preserving the largest monopolies as the foundation
of the economic system and the nontransparency of their operations
to public control;
--disorganized and unclarified private property relations
(for instance, as a consequence of voucher privatization), and selective
political protection of private property rights;
--the diktat of crime as a regulator of contracts,
and on a broader plane, economic relations, utilized, among other
things, by the authorities;
--corruption as a supporting, and in many respects,
defining pillar of economic, and to a degree political, relations
in the country;
--keeping almost all land at the disposal of the
corporate-oligarchic
power.
The main goal of such a system and its driving force is to
maximize income for a small nomenklatura group at any cost. When
they say that this is "the only possible" road, they do so either
out of ignorance or in order to delay society"s realization
that the socioeconomic system being built in Russia is not like
that, for instance, in Germany, but more like that in Bolivia, so
that we fail to "feel the difference" as long as possible.
Well, Yabloko understands and feels this difference. That
is why we are against Russia spending the next century like Bolivia
or Colombia, moving from criminal to civilized capitalism&mdash;with
an unknown result, by the way. Its goal is an open society, real
democracy, observance of human rights and freedoms, and a competitive
market economy based on private ownership of small and medium-size
business, accompanied by a strict antimonopoly policy and public
control over natural monopolies. Yabloko does not accept either
the Pinochet stance of radicals, or the emerging dictatorship of
crime, or nationalistic autocracy. We believe that the aforementioned
political regimes are aimed in the final analysis at protecting
corporate-criminal primitive capitalism.
The DVR and Yabloko have different systems of values, and
life has proven this many times: the DVR"s participation
in the government of the Chechen war; supporting Yeltsin in the
elections; implementing the nomenklatura-corporate, economically
stupid privatization; unswerving and unconditional support of corrupted
authorities; and the policy of enriching a small group of people
at the expense of ruining science, education, and culture.
Yabloko considers this political direction unacceptable. We
believe that a resolute rejection of the socialist economic system
and Communist ideology is what unites us with the DVR, but we have
different methods and ways of conducting reform, and real--not
proclaimed--political goals and perceptions of the political
and economic system that Russia needs.
We believe it is absolutely necessary to cut taxes, give maximum
freedom to entrepreneurship, sharply reduce regulation of private
business, and create the largest possible private sector, demonopolization,
and competition, and a "small and relatively inexpensive government
that draws in its activities on the active support of regional authorities"
(p. 28 of our program)--all this is in our liberal program.
But there is also a social program. If we do what is enumerated
above, it will give us the ability to support the sick, weak, and
pensioners, preserve free education and free health care, change
the demographic situation, and support science and culture&mdash;in
other words, achieve civilization.
In our conditions we cannot do this sequentially--it
has to be done simultaneously. Just as when riding a bicycle you
have to push both pedals--right and left--or you
will fall. The argument that someone does not know how to do this
cannot obviate this objective necessity. In this sense we believe
that the discussion being imposed on us about liberals and social-democrats
in Russia today has no objective grounds.
Thus we are solidly with the DVR in rejecting the past, but
we appraise the current situation principally differently and see
the future differently.
We have always said this, and the fact that Ye. Gaydar has
not seen it indicates a vision problem.
True and imagined problems. If we formulate in one phrase
the main economic problem of today"s Russia, it is that
the rules of the game in its market economy are set and controlled
by corrupt, criminal structures. This has not happened
accidentally--this
is the result of a conscious political course, which was started
precisely by the government of my esteemed opponent. Leaving aside
all the social and moral costs of such situation, we want to particularly
emphasize that this is an ECONOMIC problem by nature. It is a paradox,
but over the past two decades the economic theory of institutional
organization of a free-market economy was developed with the most
active participation of the Chicago school Yegor Timurovich and
his colleagues dearly like to quote. Of course, it is easier for
a person with a Soviet education in political economy to learn a
couple or so monetary slogans than read the serious and professional
works of Nobel Prize winners Coase, Becker, Buchanan, as well as
Williamson, Tallock, Pelzman, Pozner, Kruger, and other very serious
economists of the Chicago (or, as it is also called, Chicago-Virginia)
school. The absence of a true economic education is not the reason&mdash;it
is the bane of both Yegor Timurovich and everyone who studied economic
science in Soviet times (myself being no exception). It is another
matter that over so many years one has not bothered to engage in
self-education in order to advance somewhat beyond college freshman
textbooks.
Well, according to true economic theory (and not its surrogate,
similar to our monetary ones), the free-market economy in developed
countries is effective not because they have unregulated prices
and controlled inflation. It is effective because it is based on
the institution of private property and competition (and the degree
of effectiveness is directly proportional to the degree of competition
and protection of property). Unregulated prices and financial stabilization
are only the necessary but not sufficient conditions of a competitive
economy. If prices are unregulated and stable, but you know that
at any time your wallet may be stolen, all your energy is expended
on protecting yourself from this threat or on stealing someone else"s
wallet. No time or resources are left for doing anything productive.
The same happens when you know that any attempt to start own business
will encounter a mafia extortion demand--you just go back
to your vegetable garden and grow potatoes. There is no incentive
to do anything socially useful despite all the lack of price restrictions.
I have said on several occasions that no matter how bad a
monopoly is in itself, even worse (from the standpoint of squandering
resources) is the fight for the right to a monopoly. If entrepreneurial
activities are carried out within the framework of well-defined
rights of property and rules of the game in conditions of competition,
entrepreneurs" energy indeed goes into searching for productive
methods of resource utilization, and the personal incentive of maximum
profit in many cases (but again, far from all!) is sufficient to
achieve economic efficiency.
But when a greater part of property is essentially "nobody"s,"
when there is not yet either competition or established rules of
the game, much greater profit and at a much lower cost is obtained
by pure theft, speculation, or "in the best case scenario" as a
result of active hustling to obtain privileges and licenses. In
this case the incentive of maximum profit works absolutely not in
the direction of raising economic efficiency but in the opposite
direction.
A crime-ridden, severely fragmented market cannot be effective.
In particular, in the environment of a market locked onto a small
group of "friendly people" it is impossible to use the advantages
of large-scale production. A closed market does not let new participants
in, which means that unrestricted prices do not lead to increased
supply. In the environment of a crime-ridden market there is no
certainty in tomorrow, which means that with or without inflation,
nobody will invest. A crime-ridden market can support the level
of consumption (semi-pauper for the majority of the population)
for some time. But it does not and cannot provide any prospects.
Therefore, counting on financial stabilization by itself,
by reason of some unknown "economic laws," improving the economic
situation has as much theoretical basis as the "economic law of
rising prosperity" in the political economy of socialism.
"Where to take a lot and how to divide it up." A few words
about last year"s presidential election program and Yabloko"s
other documents, in which Ye. Gaydar has discovered the desire to
"take a lot and divide it up." Of course, questions of economic
policy deserve in-depth discussion, which is past due, but since
the limitations of a newspaper article do not permit me to do this,
let us take only what was touched on in his article.
I can only reconfirm that today we have even greater need
of what I wrote about a year ago: systematic payment of and raising
the salaries and pensions of teachers, doctors, and the military,
installment loans for farmers, and much else.
In other words, we are in vital need of a well-paid competent
administration, reliable defense, procuracies and courts protected
from poverty, and even shelters for the sick and helpless. And by
the way, the more we delay in starting to do this, the more it will
cost us.
Nobody can deny this. One may not necessarily know, however,
how to do it. In last year"s calculations quoted by Gaydar,
it will take about R350 trillion. On this basis, he accuses me of
the intention to double federal budget expenditures in the first
year, and even triple them in the second one. This is incorrect.
The heading of a table on page 25 of my presidential program, which
is the core in explaining the financial support for our proposals
and which Yegor Timurovich uses several times, says in plain language
that the additional R350 trillion "is the approximate balance of
additional income and expenditures of the CONSOLIDATED BUDGET."
For the nonspecialist, let me explain that the consolidated budget
includes the budgets of territories and by its size is approximately
twice as large as the federal budget in both the income and expenditure
parts. Thus, we are talking about increasing the consolidated budget"s
expenses by 40-50 percent, or by 10-15 percent of the GDP.
The same amount will be needed in the second year as well,
but there is no need to increase the consolidated budget by the
same amount and it is not in the program. This is precisely why
the base table on page 25 shows the breakdown of R350 trillion in
revenue in a calculation per year, and we are talking about raising,
in particular, average salaries by a factor of two--not
four--over a period of two years.
All this should be absolutely obvious to a person of Mr. Gaydar"s
intellectual level, so in this case my opponent probably got confused
in his haste, just as he did with the average and absolute values
of wages.
Thus the necessary amount has been determined--about
R350 trillion.
Let me explain where to get noninflationary money: R150
trillion--taxes
from the shadow economy. According to official data, the shadow
economy comprises 30-40 percent of the GDP. This means R800-1,000
trillion. If we set a tax rate of 15 percent, we already get almost
one-half of the required amount.
Gaydar is mistaken when he writes that our shadow economy
is composed of drug dealers and bribe-takers, clandestine arms traders,
and so on. The shadow economy in Russia is composed of regular
entrepreneurs
who do not want to and cannot pay the sky-high, exorbitant taxes
set in keeping with Mr. Gaydar"s economic policy.
Here is how the DVR has been fighting the shadow economy:
raising taxes, tightening their collection, creating the VChK
[Extraordinary
Temporary Commission]. Where has it got us? Tax collection is 50
percent and state finances have disintegrated accordingly. The scale
of the shadow economy has expanded. What is being proposed now?
A. Chubays and Ye. Gaydar have proposed the Tax Code: further encroachment
on taxpayers" rights, citizens reporting on each other,
taxing income that has not yet been earned, taxes on taxes, government
arbitrariness in administrative acts (the right to "clarify" the
code"s provisions on the level of departmental instructions),
increasing taxation based on the volume of deals and reducing taxes
that depend on the effectiveness of these deals, making the total
number of taxes about 40, increasing taxes in a number of sectors,
and setting "market" prices for entrepreneurs by directive. This
is a new step in the direction of expanding the shadow market in
Russia, in creating the preconditions for a police state and an
instrument for potential political repressions for the purpose of
protecting the corporate-criminal system.
--R35 billion comes from the repeal of tax breaks
and privileges for corporations and monopolies that have fused with
the authorities. Even the minor pressure exerted by Nemtsov on Gazprom
has resulted in the repayment of R12 trillion&mdash;and this
is only a fraction.
--R50 trillion from the imposition of a fixed contribution
(only R20 million a year) by all registered enterprises and organizations
(of which there are 2.5 million) is a measure that is not burdensome
but effective until the new tax system kicks in.
--R30 trillion is payments from the $7-8 billion that
will accrue to the budget in compliance with the law on SRP [Russian
joint ventures], and in this connection, the return of some of the
capital that has fled abroad.
--R60 trillion is income (rent and lease of federal
property: mineral resources, transportation infrastructure, real
estate).
Taking the above into account--besides which, we have
to add the potential of the property protection and contract oversight
service, federalization of budget relations, and changing the entire
economic policy, all of which is mentioned in our programs&mdash;the
figure of R350 trillion appears realistic and very prudent.
Now about inflation. The substance of our position has always
been as obvious as 2 x 2 = 4--there should not be any inflation.
The question is HOW to achieve this not by voluntarism, manipulation,
and tricks but through a balanced budget, demonopolization, a competitive
environment, realization of private property rights, social sphere
reforms, and structural shifts.
On page 293 of our party program "Reforms for the Majority"
we publish a document describing our position. Allow me to quote
the appropriate paragraph: "...we need a three-year program of combating
inflation:
"The goal for 1997: 2 percent a month (25-30 percent a
YEAR--emphasis mine, G.Ya.).
"1994--15-20 percent, 1995--10-15 percent,
1996--3-8 percent a month."
Thus, we set the task of reaching the inflation level of 2
percent a month inflation in 1997--the level we more or
less actually have. But we considered it necessary to achieve this
by serious measures, not quasi-reforms. 
Today the victory over inflation of which the government is
so proud, in addition to all other things, has moved inflation into
a different dimension (about which, by the way, Ye. Gaydar wrote
in Soviet times in a treatise on why there was no inflation then).
The spread of barter deals (even by the government"s admission,
up to 40 percent of all deals are carried out this way; in our opinion
it is much more), various sorts of monetary surrogates, the absence
of any success whatsoever in squeezing out the circulation of foreign
currency, the $22 billion that left the national economy last year,
the R70 trillion arrears in payments of wages and pensions&mdash;all
this, along with nonpayments, characterizes the technical methods
of combating inflation without affecting its fundamental causes.
The government"s suppression of inflation has led
to a situation in which we got instead economic stagnation, a decline
in the standard of living of the majority of the population (for
instance, in the fall of 1995, during the elections (!), a decline
in real income by 13 percent, and the result: 250 Communists and
50 Zhirinovskiyites in the Duma), total lack of confidence in the
state, a very serious crisis in the military, hunger strikes because
of nonpayment of salaries at nuclear stations, and the loss of security
at nuclear facilities... This is what we really consider reckless
gambling.
The indisputable economic law that without doubt operates
in Russia is that the methods of "combating inflation" applied by
the government, while enriching a small group surrounding the government,
inflict no less damage on the economy and the state than this inflation
itself.
The Soviet propaganda trick we all still remember well consisted
of purposefully picking out quotes from an opponent"s works,
taking them completely out of context, and then successfully "crushing"
the "paper tiger" glued together from them. To our great regret,
Ye. Gaydar, the most "liberal" economist of today, apparently has
not fully gotten rid of this habitual method of discussion. In the
very heading of the article he clearly strives to evoke associations
with the sayings of a certain Bulgakov character, followed by quotes
picked out from three different works published in different years.
As a result, instead of an objective analysis of Yabloko"s
program and my presidential program, what comes out is a programmed
result.

**********

#10
Journal of Commerce
29 July 1997
[for personal use only]
Moscow to guarantee foreign investment 
STAFF AND WIRE REPORTS

BEVERLY HILLS, Calif. -- The mayor of Moscow is coming to town this week 
with an unusual business offer: the Russian city will use its own assets 
to guarantee new foreign investment against undue losses incurred there.
Mayor Yuri Lushkov plans to make the announcement at a trade conference 
at the Beverly Hilton organized by his office and the Los Angeles-based 
American-Russian Foundation for Progress and Cooperation.
"The priority belongs to the foreign investor in Moscow," said Melor 
Sturua, co-chairman of the conference and a professor of economics at 
the University of Minnesota.
"Every deal where the city's involved, if something goes wrong, the city 
steps in to make up for them," Mr. Sturua said. "For example, if the 
city suggests a Russian partner who was a crook or something, the 
investor lost his money, then Moscow steps in to rectify," he added.
"This is something we're seeing increasingly in Russia; that the federal 
government is not providing the guarantees and it's the municipalities 
(who are)," said Dan Riordan, managing director of Zurich-American 
Political Risks, a Washington, D.C.-based subsidiary of Zuich-American 
Insurance Group.
"I think it's encouraging for the market. The Russians are trying to 
provide the same sort of guarantees that local governments are doing in 
other countries, backed up by their resources."
Investment possibilities could include such projects as the building of 
an assembly plant, the purchase of income property such as an office 
building or the establishment of a distribution system for products made 
in the United States.
In addition to Mr. Lushkov, the two-day conference, which began 
yesterday, will feature talks by Strobe Talbott, a deputy U.S. secretary 
of state, and John Sandner, chairman of the Chicago Mercantile Exchange.
Moscow plans to deposit $40 million in British and Swiss bank accounts 
as a sign of its intention to back foreign investments, Mr. Sturua said.
Even so, it may be a tough sell, especially in California.
"It is unique but it also sort of shows you that they recognize that 
there is a high level of uncertainty out there," said Jack Kyser, chief 
economist for the Economic Development Corp. of Los Angeles County.
This is all well and good that they would insure you against business 
dealings in Moscow, " elaborated Mr. Kyser, "but it doesn't get to the 
broader issue of instability in the current Russian regime." 
Mr. Riordan said that guarantees by the local Moscow administration 
would most likely cast a positive light on the risk assesment of 
political risk insurance policies, but that they wouldn't reduce the 
need for that insurance.
"There's a limit to what guarantees municipalities can provide," Mr. 
Riordan warned. "There are capacity issues."
Moscow is one of the most expensive and difficult cities in the world in 
which to do business. Real estate prices are among the world's highest, 
corruption is rife and often dangerous, and along with bureaucratic 
hassles add additional costs and headaches for foreign businesses. 

*********