Beating the System: Soviet Entrepreneurs Work on the Wild Side
AUGUST 01, 1991 by SHEILA MELVIN
Sheila Melvin is a free-lance writer based in Washington, D.C.
Boris Yeltsin, president of the Russian Republic, discussed the problem of entrepreneurship in the Soviet Union in a recent televised interview with Barbara Walters. “Entrepreneurs,” he said, “are few and far between in this country, but we have adopted laws on entrepreneurship.” He went on to disclose that the Soviet government intends to send 50 managers to the United States, Great Britain, and Japan to be “trained” in entrepreneurial skills. The specially selected trainees are “people of 30 to 35 years of age, talented people, with university diplomas. They don’t know what business is, what entrepreneurship is, what a market is, but they are prepared to learn.”
Entrepreneurs in the U.S.S.R. aren’t so few and far between as Mr. Yeltsin believes. Quite the contrary, Mr. Yeltsin’s own republic is teeming with people who know exactly “what business is, what entrepreneurship is, what a market is.” As I discovered last autumn, from the U.S.S.R.’s borders with Mongolia to the streets outside the Kremlin, Soviet entrepreneurs are carving niches for themselves in the wreckage of their nation’s economy.
Young, English-speaking, risk-taking, persuasive, amiable, and tireless, these entrepreneurs possess all the skills necessary to be successful. But because they live in a nation in which free enterprise is called “speculation” and the simplest of capitalistic ventures is illegal, they must channel their abilities into the black market, the only viable market the Soviet Union has, and bear the label “black marketeer.”
The Trans-Siberian Bazaar
“Soviet Army watches—you buy?” inquired the young Russian who appeared at the door of my compartment on the Trans-Siberian Express as it passed through Siberia on its weekly run from Beijing to Moscow. Invited in, he sat down, pulled out his watches, and began his sales pitch. After selling three army watches (all with Yuri Gagarin watch bands), one Soviet-American Friendship, and two Russian Independence timepieces, he moved on to the next compartment $40 dollars richer.
The young man was just the first in a stream of entrepreneurs who tramped from car to car over the next three days with the persistence and cheer of “Avon ladies.” Women with wicker baskets slung over their arms did a brisk business in vodka, despite the fact that it is officially banned on all trains. Money changers exchanged rubles for dollars at three to four times the official tourist rate. Caviar vendors sold tins of beluga for $8. Smiling teenagers sold Lenin badges for a dollar apiece.
Outnumbering entrepreneurs with things to sell were those with empty canvas bags and pocketfuls of rubles who walked the train looking for things to buy. While the vendors concentrated on the smattering of Western tourists aboard the train, the buyers saved their energies for the Chinese passengers, who had come forearmed with the knowledge that the Soviet Union was a seller’s market. And when the Chinese and the Soviets, citizens of the two biggest Communist countries on earth, got down to business, the result was a capitalist flee-for-all.
Selling everything from sorghum liquor to candy to clothing, the Chinese raked in rubles and racked up profits. An elderly scientist on his way to a conference in Berlin literally sold the shoes off his feet. A young teacher sold cartons of instant noodle soup and chewing gum at a 1,000 percent profit. Business was transacted openly, and whenever there was a lull, the Chinese passengers compared profits. “How much have you earned so far?” a famous pianist on her way to perform in Budapest asked me over breakfast. When I confessed to earning nothing, she laughed and said that she had made nearly 150 rubles. (The Chinese didn’t always have the last laugh. One Beijing economist sold a jacket at what he thought was a great profit only to discover, too late, that he had been paid in Yugoslavian dinars, rather than rubles.)
On-train entrepreneur, particularly those who purchased goods, faced stiff competition at station stops when scores of ordinary Soviet citizens with rubles to spend, but nothing in their cities to buy, came to meet the Trans-Siberian. Capitalists not by profession, but out of desperation, these people thronged around Chinese and Western passengers alike, waving rubles and echoing the sad refrain, “Cigarettes? American dollars? Vodka?”
At Sverdlovsk, the heart of the U.S.S.R.’s military-industrial complex, our train was held up for 20 minutes while hundreds of passengers from a Soviet train crawled underneath it to get to the platform. Reaching the platform, they flocked to the windows of the Trans-Siberian, pleading with all of us on board to sell our clothes, our jewelry, our food. Spotting a good business opportunity, several of the Chinese leaned out the windows and began auctioning off their food and liquor supplies. A Western woman, misinterpreting the situation, threw a box of cookies to the crowd and then indicated that she didn’t want money. The Russian woman who caught the box thrust it back angrily; she wasn’t asking for charity, only for the opportunity to spend her rubles. (Ironically, it was the hostile reception given Mikhail Gorbachev on a visit to Sverdlovsk last year that convinced him an immediate, Polish-style conversion to a market economy would be untenable in the U.S.S.R.)
Somewhere in the Ural Mountains, the food service staff, the only Soviet workers on the Chinese-owned train, locked up the dining car and began to moonlight. “I am interested in buying shirts,” the waiter told me. “Not new, but in good condition. I also have caviar for sale.” The waitress sold army watches and, at one stop, the Russian cooks jumped off the train clutching empty potato sacks, ran into the platform shop and bought out its entire stock of matches for resale in Moscow, where there was said to be a shortage.
Looking on, the Chinese conductor in my car smiled ruefully. He didn’t engage in this type of business, he told me, but it wasn’t easy to avoid. At one stop, a Soviet conductor from another train had asked to buy his flashlight. When he declined to sell it, the Soviet conductor had tried to convince him to sell his socks.
I got off the train at Moscow’s Yaroslavsky Station, along with a dozen other Westerners, to find a young, red-haired Russian wearing Levi’s and a leather jacket waiting for me, as it were. Taking a drag on his Marlboro, he addressed us, “Hey guys—my name’s Ivan. I’ve gotta place for you to stay. Wanna hear about it?”
I most definitely did. Like the others, I didn’t speak a word of Russian, I had no place to stay and, since the visa dipped into my passport was for transit only, I wasn’t supposed to do anything in Moscow except change trains, which meant that no hotel would accept me.
Ivan made his offer in a fluent hodgepodge of British and American slang. “O.K.—it’s your own flat in downtown Moscow just three Metro stops from Red Square. You’ll each have a bed, there’s a shower, a 1oo [toilet], and a kitchen, and I’ll help you get tickets outta here. Ten U.S. dollars each.” Sensing our collective hesitation, he added, “I think this is the best deal you’re gonna get. This country’s [expletive] socialist, you know.”
Not even the wheeling and dealing aboard the Trans-Siberian had prepared me for this welcome to the capital of the Soviet Union. Joining the others, I bargained Ivan down to $7 a night and then followed him, on foot, to the flat.
The apartment Ivan led us to was a three-room flat in a government-subsidized compound inhabited by diplomats from socialist countries. Cuban children played in the dingy entrance, and the smell of Oriental cooking wafted through the trash-cluttered stairwell. Ivan had arranged to rent the fiat from a Vietnamese diplomat home on leave; it was just one of five downtown apartments he used to accommodate foreign visitors.
Andrei and Konstantin, Ivan’s business partners and friends, were waiting to greet us and to offer any assistance we might need. With Ivan, they made it a point to emphasize that they weren’t just renting us an apartment—they were providing us with a service from which all concerned would benefit. Those who wished to leave for Europe at once would be taken to Intourist, the monopolistic Soviet travel agency, that afternoon; for those who wished to stay, there would be assistance in getting visa extensions, opportunities to see the ballet and the circus, shopping trips, and guided tours of Moscow. I decided to stay.
Just prior to embarking on a tour of Ivan’s Moscow, I took in the sights at Red Square, including Lenin’s Mausoleum and the deserted Lenin Museum, with some Europeans from the train. At the museum, the guide, an ardent and vocal Communist, led us past the remnants of Lenin’s life, pausing longest at a copy of his work, Imperialism: The Highest Stage of Capitalism.
“Excellent book,” he said, pointing at the copy in the glass case. “Have you read it?”
None of us had.
“No? Really? None of you?” he asked with genuine surprise. “You really ought to read it—it will give you great insight into why capitalism is bound to failure and socialism certain to succeed.”
My jaw dropped visibly as images of my first 24 hours in Moscow collided with the guide’s words: the college students in Alexander Park covertly selling hand-painted “I Am a K.G.B. Agent” tee shirts in exchange for hard currency; the policeman who tried to fine me five dollars, rather than rubles, when he caught me jaywalking to get to Pizza Hut; the dissidents living in cardboard boxes outside the Hotel Rossiya who had given up their homes and jobs in order to embarrass the Kremlin into addressing their grievances; the speculators who lingered outside the Army Department Store offering to sell Westerners a complete Red Army officer’s uniform, including leather dress boots and vintage gas mask, in exchange for dollars or Levi’s; the endless rows of empty shelves in GUM, the U.S.S.R.’s largest department store, and the equally endless lines of consumers queued up to buy soap, which had been unavailable for weeks; the clerk at GUM who had required me to show my passport in order to buy a cheap wool scarf because goods were so scarce in the Soviet capital that only Muscovites and foreigners were allowed to purchase many items.
“Capitalism bound to failure,” I repeated. “What about now? There is nothing on the shelves of your stores, and your government and your people are struggling to adopt capitalist methods as fast as possible.”
“Now? Now? Now we must not be dogmatic. Strict dogmatism is a great evil.”
The first stop on Ivan’s tour was “the dirtiest bar in Moscow.” Called “The Dungeon,” the bar was located in the basement of a building several blocks from the Hotel Metropole. At 3:00 on a rainy Tuesday afternoon, more than 50 people were waiting to get inside. Appearing from nowhere, Konstantin and Andrei walked to the front of the line and bribed the bouncer. A moment later, we were all ushered inside.
Aptly named, “The Dungeon” was dim and dank. Beneath a vaulted ceiling, painted with flowers, the working class, mostly male clientele stood at high tables drinking beer, eating caviar and chicken, and smoking incessantly. Ivan, Konstantin, and Andrei bought plates of food for everyone and, as with anything that could be purchased with rubles, paid for it out of their own pockets; to them, the ruble was so worthless it was almost a form of play money. Having arranged for us to share a table with an inebriated man who looked like a professional wrestler, Ivan gathered up empty beer mugs, washed them in the men’s room, and led us to the self-serve beer machines that lined one wall. Forty kopecks bought a mug of the scarce commodity.
Sipping the warm, flat beer, I stared at a legless man passed out under the next table. Ivan explained that the man was a veteran of the Afghan War, and then proceeded to tell the story of how his own best friend was killed at the age of 18 while driving a truck over a mountain pass in Afghanistan. “Afghanistan was our Vietnam,” he concluded with tears in his eyes. “It was [expletive] pointless.” We left “The Dungeon” when two drunk men began pounding an even drunker man’s head into the beer machines.
Ivan’s next point of interest was a record store where albums cost the ruble equivalent of 11 cents and compact discs cost a dollar. Cassette tapes weren’t sold in the store and could only be purchased on the black market from speculators. Like most of his peers, Ivan, a heavy-metal fan, owned a cassette player.
On the Arbat, Moscow’s beautiful shopping esplanade, we saw artists who sold cartoons depicting perestroika as a toilet floating out to sea and speakers who drew large crowds by openly decrying Gorbachev. Craft vendors peddled post-glasnost versions of Matryoshka dolls in which the biggest doll was painted to look like Gorbachev. Inside the Gorbachev doll were Brezhnev, Khrushchev, Stalin, Lenin, and, finally, a tiny doll representing “the Communist idea.” But, because it is illegal to show disrespect for the President, the vendors kept the outer doll depicting Gorbachev hidden away, bringing it out only when approached by potential customers.
Our tour was to conclude with a traditional Russian banquet at the Hotel Rossiya. After we had met up with the 10 other Westerners who were his guests, Ivan made several phone calls to his connections in the Rossiya, the world’s biggest hotel, and then led us around to the back of the building. There an employee with a bunch of keys was waiting to escort us through the locked doors, meandering corridors, and dark staircases that led into a medieval-style banquet hall.
Entering the hall, we sat down at a groaning board lit by candles in pewter holders and laden with caviar, smoked salmon, cold meats, champagne, vodka, and Pepsi. Every time a plate or a bottle was emptied, it was whisked away and replaced. Gypsy dancers whirled across the floor strumming guitars and singing folk songs. Even paying guests at the Rossiya have been known to have trouble getting a meal—Ivan’s connections, and five dollars each, had purchased us a feast fit for a czar.
Beating the System
Ivan, Konstantin, and Andrei were at first reluctant to explain how they built and maintained their highly profitable, extremely visible, but completely illegal business. But over the course of the week, they let me in on some of their secrets.
The founder of the business was a fourth Mend, Andrew, already semi-retired, who had hit on the idea of meeting travelers from China at the train station and inviting them to stay in his dorm room for a few dollars. As demand for rooms increased, so did competition, and by the time Ivan got involved, more than a dozen other Muscovites were meeting the trains from China and offering travelers places to stay. “But,” Ivan explained, “we were the best. The foreigners all began to stay with us because they heard of us from their friends, and now we are the only ones in this business.”
Once assured of a steady customer base, Ivan and his partners began to expand the services they offered and to raise the price they charged each traveler. As with capitalist ventures anywhere, the continued success of the business depended on its founders’ competence and ambition, ability to make and keep good business connections, and willingness to take risks; the fact that Ivan, Konstantin, and Andrei were running a capitalist enterprise in a Communist country only magnified the importance of each of these qualities.
Ivan, Konstantin, and Andrei whose ages ranged between 19 and 24, had the competence and the confidence of people much older. Each had his specialty—Andrei specialized in visa extensions, Konstantin in getting tickets, and Ivan in gaining entrance to restaurants—but was also quite capable of handling any aspect of the business, should the need arise. Their ambitions were simple and strong: to supply themselves, their parents, and their siblings with everyday necessities and luxuries such as food, clothing, make-up, and music, and to save enough money to travel together to West Germany for a working vacation.
Support of their business undertakings wasn’t always forthcoming at home. Ivan’s mother, an economist, knew what he did for a living and tacitly approved, but he didn’t dare tell his father. Konstantin’s parents were “traditional” and feared that he would get into serious trouble. His mother often cried and yelled, Konstantin confessed, and he didn’t like to go home. Andrei didn’t tell his parents about his role in the business so “they wouldn’t worry too much”; they thought he spent all his spare time studying.
Connections are the cornerstone of the ordinary Soviet consumer’s life and the foundation of a Soviet entrepreneur’s business. The apartments used by Ivan and his partners came from low-level socialist diplomats, old friends, and university students. Eight-dollar tickets for us to see the sold-out Kirov Ballet performance at the Bolshoi Theater on half an hour’s notice came from scalper friends outside the theater. Five bunches of Chiquita bananas which we came home to one night—an unheard-of luxury in Moscow—were courtesy of Cuban diplomat Mends. Ten-dollar train tickets from Moscow to London, paid for in rubles, were obtained by slipping a pair of Chinese pantyhose and some rice wine to a Mend of Ivan’s mother who worked at Intourist. Cases of champagne and cognac were purchased from speculators. Entry to restaurants whose doors were locked to the general public was gained by knowing the secret knock and having the right Mafia Mends. (Ivan swore that organized crime—what he called the Russian Mafia—controlled almost every restaurant in Moscow.) McDonald’s hamburgers were bought not by standing in the five-hour line, but by placing a take-out order in advance with friends who worked there.
Waiting at a bus stop one day, Andrei unintentionally demonstrated how spinning an extensive web of connections had become second nature to him when a woman vending fruit asked for help putting up her umbrella. The umbrella, which covered her entire stand, was heavy and in need of oiling, and it took Andrei several minutes to get it up. When he had finished, the woman thanked him peremptorily and Andrei returned to the bus stop and lit a cigarette. Seeing the cigarette (Muscovites are limited by rationing to five packs of cigarettes per month), the woman called out to him again, asking first for a cigarette and then for a light, both of which he gave her. Laughing, I asked Andrei if he didn’t consider the woman’s behavior to be somewhat rude. He shrugged and replied, “Good connection. She will remember me and she will sell me fruit someday when there is nothing in the stores to buy.”
All entrepreneurs run risks, but by taking in foreigners without permission and dealing in dollars, both illegal activities, Ivan, Andrei, and Konstantin ran particularly great ones. Exactly how great became evident one night when they took a newly arrived group of Europeans to the banquet at the Hotel Rossiya. Dinner over, they exited through the main lobby where they were confronted by police who insisted on searching them. All three balked, the police roughed them up, and they were taken away. The next day, they all had blackeyes and swollen faces. The police had found over $200 on them and kept it all. When I asked why they had been treated thus, Ivan responded, “Because we took foreigners to a restaurant.” Andrei’s explanation was, “Because the police knew we were working and that we have more money than they do.”
Even the Weather Is Worse
Ivan, Andrei, and Konstantin picked their way expertly around the rubble of the Soviet economy and prospered in the process. But each bitterly resented the economic shambles to which Russia had been reduced.
Ivan blamed the Communist system in general and Gorbachev in particular for the destruction of the economy. No string of expletives was long enough to express his disdain for the Soviet leader. It rained every day I was in Moscow, and when I asked Ivan if the weather was always so bad, he replied, “Only for the past five years,” a direct reference to Gorbachev’s term in office.
Andrei offered a more sophisticated explanation of the U.S.S.R.’s economic woes, but he, too, blamed Gorbachev. “Five years ago there were goods on the shelves,” he said. “Even if they were expensive, they were there. Now there are no goods, there isn’t even enough bread! Gorbachev has done nothing.” Andrei believed that the root of the problem lay in profiteering. “The problem,” he explained with controlled rage in his voice, “is officials. Not high officials, but middle officials, all around the country. They control where the bread, the products, will go, and they keep them and don’t let the people buy them. They keep them until the people are ready to jump up and riot and then they release them, but for more money which they put in their pockets. It is all the fault of the officials. So we must go to speculators—everything we must buy from speculators. Or else we stand in line—always stand in line.”
The happiest I saw Ivan was one afternoon when he returned from a shop with a set of table tennis paddles. “Look!” he exclaimed, “Ping-Pong paddles! They’re from Vietnam—the best you can buy—and I didn’t even get them from a speculator. I got them in a regular store, on a shelf!”
Their Own Backyard
Mr. Yeltsin is aware that the salvaging of the Soviet economy is going to require people who “know what business is, what entrepreneurship is, what a market is.” But if he would look in his own backyard and see the self-made entrepreneurs already operating in it, he might realize that entrepreneurship isn’t so alien to Soviet sod as he thinks it is. And if he would like to meet three home-grown Russian entrepreneurs, I’d be more than happy to put him in touch with Ivan, Konstantin, and Andrei.