TIME: Almanac 1993/TIME Almanac 1993.iso/time/041089/04108900.023

Text File | 1992-09-23 | 7.9 KB | 151 lines

                ╞                                                              BUSINESS, Page 74

Turning Up The Power


To revitalize its moribund industry, Moscow aims to free some
plants from meddlesome central planners and encourage enterprise

By John Greenwald


    The giant factory in the heart of Leningrad looks more like
a Rust Belt relic than a showplace of new industrial ideas. The
Elektrosila power-equipment plant is an aging labyrinth of
concrete buildings and connecting tunnels. Nearly half its
creaky machine tools and other equipment was built in the 1960s.
Yet this factory is the Soviet Union's largest producer of
turbine generators for hydroelectric plants and nuclear power
stations. Moreover, Elektrosila stands at the forefront of
Mikhail Gorbachev's campaign to rejuvenate Soviet industry by
freeing factories from the total, stifling control of government
bureaucracies.

    Because the Committee for State Planning controls only 30%
of Elektrosila's production, the factory's managers have
extraordinary freedom to plan, manufacture and sell the rest of
the plant's output as they see fit (total annual production
value: 162 million rubles, or $260 million at the official
Soviet conversion rate). Elektrosila has boosted its foreign
sales from less than 15% of its production a few years ago to
about one-fourth of its current output. "We are now the masters
of our own castle," says Valentina Murinas, 50, the factory's
chief economist. Elektrosila's new spirit of enterprise extends
to its rank-and-file workers, who now receive pay raises based
on the plant's profitability. Next year they may be able to buy
shares in an employee stock-ownership plan.

    Elektrosila is an exception among Soviet factories, which
lag at least a generation behind their Western counterparts in
efficiency and quality. The typical Soviet plant's labor
productivity is a paltry one-third the average level of
factories in non-Communist industrial countries. At the same
time, Soviet plants use two to three times as much energy and
raw materials as Western factories consume for the same amount
of output. Since most Soviet plants answer only to bureaucrats
instead of consumers, finished merchandise is often shoddy or
simply the wrong type of product to meet demand.

    Most Western experts, along with rueful Soviets, blame the
country's industrial ministries for stifling initiative and
innovation. "I used to have to go to the ministry with the
smallest change in our work," says Boris Fomin, director of the
Elektrosila plant. "They issued hundreds of instructions, which
usually contradicted one another. There was no strategic
guidance." While Gorbachev's industrial reform required
enterprises to wean themselves from government subsidies by
January 1989, the majority of Soviet factories still rely on
Moscow for merchandise orders, supplies and financial support.

    The industrial ministries, forced to fulfill their
five-year plans, have been slow to relinquish their power.
Employees at the giant Uralmash machine works in the town of
Sverdlovsk won a victory last year when they successfully
protested a state plan on grounds that it called for more heavy
machinery than customers needed. But after the workers made
their point, Moscow bureaucrats simply sent the orders to a more
compliant factory. Said a fed-up manager of another plant at
last June's Communist Party Conference: "It's hopeless to fight
paperwork. You have to kill off the authors."

    A primary obstacle for managers trying to balance their
books is their inability to set prices. By dictating everything
from salaries to the price of finished goods, Moscow planners
rob factories of any incentive to hold down costs or make a
profit. For example, the prices of labor and raw materials are
kept so artificially low that factory managers live in a
financial fantasy land. "Right now factory managers don't know
when they're doing a good job. They can say they're profitable
even though they're selling tractors for $2,000 when they should
be selling them for $5,000," says Judy Shelton, a research
fellow at the Hoover Institution in California and author of a
new book titled The Coming Soviet Crash. But Moscow is cautious
about letting plants determine prices for fear that the move
would spark a burst of inflation and consumer outrage.

    For the industrial ministries, the most difficult aspect of
restructuring will be to close down unprofitable factories.
Although the law now allows bankruptcies, very few have taken
place because bureaucrats are loath to reduce their domain and
fearful of the unrest that would be caused by throwing employees
out of work. Moscow prefers instead to merge unsuccessful
enterprises into stronger ones.

    To become anywhere near competitive in a global market,
Soviet factories desperately need high-technology plants and
equipment. The government recognizes this, but has gone about
fixing the problem in its old-fashioned way of calling all the
shots from Moscow. For example, the government has ordered far
more computers than factories can produce without sacrificing
strict quality standards, instead of allowing the plants to set
their own targets. Western economists think Moscow should give
individual managers more discretion to experiment with new
technologies and independent research. Says Philip Hanson, a
Soviet-economics specialist at Britain's University of
Birmingham: "The fundamental role of the market in weeding out
unsuccessful technological processes and forcing firms to
innovate is something that a lot of Soviet officials don't
really grasp."

    Most Western economists think the Soviet restructuring will
take as much as a decade to start showing results, since the
shift in approach really amounts to a second industrial
revolution. The old ways of doing business will be just as hard
to replace as the rusting machinery. "It is not that they aren't
going to make some progress, but it's much more difficult than
starting out with a clean slate," says John Hardt, a Soviet
specialist at the Congressional Research Service.

    Such worries have not slowed the managers at the
Elektrosila plant. They have teamed up with ten other factories
and six research centers in Leningrad to form a consortium to
explore new manufacturing methods. They plan to sell their
equipment in package deals so that customers can sign up for an
entire power plant with a single stroke of the pen. Elektrosila
hopes for a substantial boost in exports to raise the foreign
currency the plant needs to buy up-to-date Western machinery.
At the moment the factory has only 7 million rubles ($11.2
million) in hard currency, and "one good machine tool costs
about 2 million rubles," says economist Murinas.

    Elektrosila's newfound independence has brought some
unexpected problems. "There's more risk now," says Fomin, the
plant director. "Before, all my mistakes were leveled out by the
ministry. They were covered up. Now we must rely on our own
skills and resources." Simply arranging financing or figuring
out whom to call for operating permits can become a major
headache. "We have great difficulty getting supplies," says
Alexander Kozlov, 42, the factory's chief planner. "Everyone is
in the process of change. Some old connections are broken, and
new ones have not yet been established."

    Yet if the men and women of Elektrosila are a bit awed by
their new freedom, they are too enthusiastic to be daunted.
Fomin, a stocky man whose black wavy hair makes him look a
decade younger than his 62 years, has turned down repeated
offers of ministry jobs in Moscow. "I'm in love with what I'm
doing now. Besides, I do more good here. So far, I have had no
bad flukes, so I sleep pretty well. But there are a lot of
general managers in the Soviet Union who don't sleep well at all
these days." As any capitalist would tell them, a little
restlessness is good for business.