Russia Trip 1991

When writing about Russia one hardly knows where to begin. There are so many contradictory trends and the country is so diverse, that I came away less certain of my opinions the more I saw and observed. Russia has many resources including a well educated people but they have so far to go to catch up with the industrialized World and I wonder if they will work hard enough to enable them to manufacture the products necessary to trade with the World. They have placed so much emphasis in their military that other phases of the economy are 30 to 50 years behind.

I was invited to lecture in Gorky, now renamed Nizhny Novgorod, and Vladimir on banking and small business. The trip was sponsored by a group associated with the foreign language schools in both cities and organized by Donn Ziebell in the United States. He is a consultant working in Eastern Europe and Russia. Several of my friends have participated in this program so I volunteered.

The opportunity to visit and talk with Russians in their offices, homes, and restaurants was a lure that more than offset the preparation time for the lectures and the time required to deliver them. In Nizhny Novgorod I spoke for four hours in the afternoon and in Vladimir five hours each day for three days. I was privileged to visit with businessmen, school children, government officials, university students, and others. What I hoped would occur was abundantly exceeded!

I arrived in Moscow in the dark and in the winter it is always dark (daylight is from 8:30 a.m. to 3:30 p.m.). I was struck with the dim lights and somber appearance of everything including the people. My hosts meeting me first removed all baggage tags because they mark a foreigner. Theft is a big problem and I was pleased I didn’t have to walk the streets of Moscow or Nizhny Novgorod alone. Four years ago when I visited Moscow and St. Petersburg, theft was not a problem and I felt perfectly safe walking by myself.

The trip to NN by overnight train was uneventful and I enjoyed the tea they served in the evening and morning. My two companions from NN and I occupied a four bed compartment with one berth used for luggage.

The Russia Hotel, the finest in NN, was my home for the next week and it was satisfactory. The water was hot and the bedding was clean. 1910 plumbing fixtures in the bathroom represented a real culture shock, but this is Russia! I found most of Russia dirty. The shortage of cleaning equipment, rags, soaps, paper, etc. probably creates this situation. The cleaning people in the buildings have a bucket of dirty water, a dirty rag and just wipe up the snow tracks. A one year old building housing an engineering firm looked 10 years old. The people and their flats were clean but building, streets, buses, etc., all looked unclean.

Before we boarded the train in Moscow, we saw a play “The Last Days of the Czar”. A story of how the Bolsheviks killed the Czar and his family. It was excellent, the acting superb, well staged, and partially a political play that could not have been presented three years ago since it is critical of the Bolsheviks.

The lectures the first week were in a building formerly owned by the Communist Party to train young communists and now being used for management training and foreign trade development. Thirty-five people attended the seminar. Since most of the audience were bankers we discussed banking in the U.S. and Russia most of the time. The lectures were from 1 p.m. to 5 p.m. Monday through Friday. The audience was very attentive, asked many questions about banking, all phases of American life, and particularly about taxes. I faced a large picture of Lenin all during my talks. If he had heard some of the things I said, I would have been shot!

Banks in the USSR are mainly for businesses and individuals use them for savings only. This is a cash society and they have no checking accounts. Businesses wishing to pay a supplier take the invoice to the bank and obtain a bank check (we call it a Cashiers’ Check). No loans are made to individuals, no credit cards, no money machines, no computers. Except for the State Bank of Russia, the banks are newly organized. The bankers are new and the customers are inexperienced businessmen. This is a situation made for disaster. Banks now have some hard currency (dollars or marks). I visited four banks and one showed me their U.S. currency. It was under triple lock and the stack of bills was only one half inch thick although it did contain some $100 bills. They test each bill for genuineness with a little machine that I never knew existed.

In addition to the lectures in NN and Vladimir, I talked with a number of groups including business, the city administration of a suburb of NN, two stock exchange groups (more about them later), the top regional government administrator around NN and Vladimir, two churches, a group of high school students, met with university students, and visited four banks. It was an enlightening experience to have exposure to so many varied groups.

The new market economy development is filled with young people 25 to 40 years old. Whether business people or city officials, they seem to be trying to make changes, but their inexperience is so great. For example, the official responsible for industrial development and foreign investment in Vladimir (he had been on the job two months) showed me a letter from a well-known foreign construction company agreeing to build a Holiday Inn type hotel in Vladimir. It was subject to four or five guarantees and “when if”. He had no idea what this entailed or the implications. It was also subject to the Russian Import and Export Bank guarantee. That bank has just announced they will be unable to make principal payments on their debt.

One group hoped to attract American tourists, so I was driven 15 miles to a “resort” they were constructing. By Russian standards, it would have been able to attract some business, but they don't understand the quality and quantity of American resorts, even roughing-it ones, and the intense competition existing for the tourist dollar. Except for Dr. K., no one had been to the USA and only a few to East Germany and that was with the Soviet Army.

Life in the Russian apartment is very close. I was invited to four flats as a guest. The Russians are very generous and warm in their hospitality. The flats are very small and every inch is used effectively and efficiently. The living rooms are multi-purpose and used for living, eating, and sleeping. For example, Dr. K’s flat has a bedroom for their 17 year old daughter, a small kitchen, and a room used for living, eating and sleeping by Dr. K. and his wife. At night the sofa became a bed. In other flats, the in-laws are also living in the apartments. It’s all based on the number of people and square meters of space. I don’t know the exact rate. The toilet is in a small closet and the wash basin and tub in another. Russians are fond of hanging Oriental type rugs on the walls. I think the reason is to deaden sound and provide decoration. When asked about it, they said everyone has them. They make extensive use of large display and storage units that we would call “breakfronts”. Every flat and office contains these units.

Since Dr. K. has a daughter living at home, I asked him how she entertained boyfriends in that atmosphere. He said Russian young people are not expected to entertain at home. They go to plays, movies, or take walks. With no cars and long, cold winter nights it may be difficult, but romance will find a way. Of course, the summers are delightfully long.

A few comments regarding the food situation. There are lines at the stores for almost all kinds of food items. Milk, bread, meat and a few other items are rationed, but not generally available. I observed some lines for these items but at other times people seemed to be able to obtain bread and milk without standing in excessively long lines.

Russia Trip 1993

I found people had adequate food. Moscow is having problems, but through keeping local food supplies local, summertime gardens, and just plain stocking up they agree they will survive the winter. However, prices are shockingly high when compared to their income. Sausage, a staple, sells for 50 rubles per kilo (2.2 lbs.) or 22 rubles per pound in the free market. The monthly pay averages 300 rubles. The stores are not only out of food products, but clothing and other items as well. There are long lines for boots, when available. However, the longest lines I saw were for cigarettes and vodka. With inflation exceptionally high, everyone buys everything they can. One saying goes, “A ruble saved is a ruble lost”.

Most of my meals were in the hotel and I enjoyed the food in both the hotel and homes. The suppers I enjoyed in the homes were enjoyable and the food was plentiful and well-prepared. I was a guest and felt a little embarrassed that they would use their precious food.

A little about the menus and what Russians eat. Breakfast is very European. Small quantities of sausage and cheese along with the great Russian dark bread was served at every meal. The dark bread is a closely grained whole wheat type. Other items such as a hard boiled egg, pancake type cake, etc. may also be served. Noontime is their big meal and it begins with an appetizer or salad consisting of small pieces of sausage or other meat, and a vegetable such as beets or cabbage. We had soup with every meal and it was tasty, good, and great. I told everyone the reason I returned to Russia was to enjoy their soups! The main course contained a meat or a croquet filled with milk curds (like cottage cheese) and meat, cooked cabbage and potatoes. Small, uncooked cranberries were used as garnish, like we use parsley, at every meal. Only they ate the berries which were good but very sour. Dessert was ice-cream (like our ice milk) or cookies and cheese. Sugar is very short so cookies were prepared without sugar and only once was I served cake.

Supper consisted of a salad course again and then cooked cabbage, potatoes, and a little meat. Cabbage and potatoes are plentiful in the area so they were served at every meal.

The industrial city of Gorky is now called by its old but new name Nizhny Novgorod. Gorky was an author and writer espousing the Communist doctrine, so the name of the city was changed as was Leningrad, Stalingrad, etc. It is located 200 miles East of Moscow on the Volga River, and was a closed city to foreigners until 1989 (I was the first American banker to visit it) because they have four factories each employing 100,000 people producing cars, trucks (formerly tanks), airplanes (military fighters), and nuclear submarines. The population is two million and is heavily industrialized with a good base of skilled workers. The city has eleven colleges and universities, an engineering college with 10,000 students and many cultural events including a ballet, opera, symphony orchestra, and a children’s puppet theatre. Apparently government and individual support for these activities continue in spite of economic difficulties. We saw an excellent ballet presentation of Romeo and Juliet. With very few cars, transportation is by buses and trolley cars. People get on and off without paying any fares. When asked about not collecting fares, they say they purchase monthly passes. I bet! I had heard previously that people don’t pay the 15 kopeks fare. But in a Socialistic state, who cares.

We were discussing living without a car and one man said he takes Bus № 11. When asked what that meant, he said your two legs form the number 11. He walks. In the United States, we have similar expressions.

Vladimir, a city of 350,000 was the second place I visited and lectured. They manufacture small tractors, chemicals, cloths, and have a large underground missile plant. Vladimir was founded in 1109 and has a rich historical heritage. It is part of the so called Golden Circle of historical sites and a number of tourists pass through. In fact, in my last visit we stopped for lunch in Vladimir on our way to Suzdal.

Religion is beginning to come alive in Russia. The Communists have written freedom of religion in their Constitution, but made it as difficult as possible. In Nizhny Novgorod they allowed one Roman Catholic, one Mosque, one Synagogue, one Baptist (protestant) church, and one Russian Orthodox church. All the other Orthodox churches were closed and they permitted a church one half mile outside the city to remain open. There was no bus transportation so the only way to approach it was to walk. Then they watched and discriminated against all who attended. Now it is changed and churches are reopening as they are being repaired. People are eager to accept Bibles and seemingly want to learn about Jesus

The Attitude of the Russian people toward their government reflects the opinion of most people toward their governments. Solve my problem! They are most concerned about the lack of items to purchase and inflation. There is little food, but apparently people won’t starve – at least the ones I talked with didn’t think they would. They have faced this kind of problem before and survived. They are most upset about inflation. Prices have risen excessively the last year and are expected to go higher. For a country where everything, including prices, has been so controlled, this is devastating. Building material costs are up ten times. Autos cost from 15,000 rubles to 300,000 rubles. There are very few non-food items also. No suits, very few boots, little selection of women’s and children’s clothing. When I inquired as to why this occurred and yet they seemed to have clothing, they stated everything was bartered. One man worked at an automobile factory and he and his two friends wore exactly the same suits. Apparently there was a trade of automobiles for so many suits and the worker took care of his friends.

Several comments regarding the government. “This group (the Democrats – Yelstin) is no better than the other bunch.” “I think we will have a military government in two months.” The saying goes, “A ruble saved is a ruble lost”.

In my opinion, these people have suffered so much and will continue to suffer and find a way to live. After 70 years of Communism they have learned to work within the system. This is a society of “who you know”. My host, Dr. K. is able to accomplish much because he has contacts in a great number of places – government, universities, business, etc. For example, we were able to get tickets to a sold-out puppet theater because a friend of his knows the director. He had a contact to get me an interview with the Governor of the Gorky district.

They are delighted to see the Communist Party be outlawed – but aren’t so sure they won’t make a comeback. Their buildings are now being used for other purposes. I lectured in former Communist Party buildings and Lenin’s picture is still on the walls of the offices and auditorium where I spoke. They are concerned most of the Communists may be underground, but not too much is said – this is still Russia!

The KGB is out of business. However, the buildings are still there, people are working and the records are intact, so they remain concerned. Gorky, formerly a closed city to foreigners, was where Sakharov and other dissidents were kept under 24 hour guard. The KGB has two big five-story high buildings. In Vladimir, the KGB took over a convent and has three large three-story buildings in a city of 350,000. The prison in this city was where Powers, the U.S. U-2 pilot was kept, and Solzhenitsyn was kept for a while before being sent to Siberia. Also, there is an underground missile factory outside of town. They are concerned about the re-emergence of the KGB also.

The construction and maintenance of buildings is terrible. This was probably the largest contrast between Russia and the USA. Repainted windows had paint drops on the windows and painting’s of walls and ceilings were very messy. Buildings only two years old required repairs. I saw tiles coming loose on step landings, bathrooms, concrete needing to be patched in one or two year old buildings. Construction of many apartments and buildings consist of concrete slabs for floors, walls, and ceilings. People were surprised that we used bricks, steel, etc. Plumbing leaks and other household problems are common. Every apartment occupant must become a fix-it man. The joke about delivery in 10 years seemed more real in Russia. Only apartments are being built and no houses have been built for 50 years. This size of the city seemed to determine the height of the apartment building: Moscow – 20 floors; NN – 10 floors; and Vladimir – 5-8 floors. Note: outside the hotel in London where I stayed overnight prior to coming home, an addition was being built and it was a pleasure to observe the bricks were straight and square!

There are so many items we take for granted that are not available in Russia. I’ll list a few: no coffee, no scotch tape, no paper to buy, no telephone directories (if you don’t know the number, there is no way to obtain it), no glue, no ties, no chewing gum, no toilet paper (at least the way we know it), mail takes two weeks between cities, etc.

The government has problems shifting to a market economy for a number of reasons but largely related to past practices. The Communists believed in big factories and centralized control from Moscow. In NN an automobile factory employs 125,000 people and three other factories employ 100,000 each. They make all parts for the cars and don’t use outside suppliers for parts. Another factory makes all the automobile windshields for the entire Soviet Union!

Russia Trip 1997

Manufacturing operations have been shifted to so-called private companies where the managers are responsible for making a profit and can run the company as they see fit, or so they say. However, the stock is owned by the government. In one factory I visited, a shipyard making floating cranes, the manager is looking for new products they can bring to market. He seemed competent, aggressive, etc. I think he will be successful. Obtaining supplies is difficult, so the managers spend much of their time securing barter deals. This takes away from managing, expanding product lines, and developing new markets. Also in autos, trucks, and most plants they can sell everything they make, so the incentive for efficiency doesn’t exist as yet.

There are very few small manufacturers employing 15 to 20 people. The supplier network so familiar in the U.S. doesn’t exist-so equipment, factory space, and personnel isn’t available for a small manufacturer to begin operations. If a man wanted to manufacture knives, saws, etc., he couldn’t find a place to start his business and he or no one else has the money to build a small building.

I was surprised there wasn’t more “cottage” industry, where workers take supplies home and return the completed items to the owner. These are usually handicraft items which could be sold. Supplies may be so undependable that it isn’t practical or it may be just the Russian mind set. Entrepreneurism hasn’t been their way of life for generations so there are not large numbers of people wanting to work to earn additional money.

There is a group of businessmen engaged in trade and bartering. The Russian word means “go between”. They arrange barter deals, etc. As you might expect there are many “fast buck” people among them. In NN, there are two “stock exchanges”. They don’t trade stocks of corporations, but sell and trade all kinds of items. Manufactured goods, clothing, grains, etc. In the USA that person would be trading at the CME or Board of Trade.

As I observed four years ago, the Russian people are not a cheerful people. On the streets, in the stores, when trying to find your way, being served in restaurants they are cold and uncaring. They could not work in our stores and McDonald’s in Moscow must have conducted an extensive training program. Apparently this is the result of 70 years of state ownership.

However, when you are invited into homes or know the people, they are friendly, warm and hospitable. They love to give gifts and everywhere I went I received and was expected to give a gift. I was somewhat prepared, but was not able to respond to the degree I would have liked. Fortunately, I had taken with me a number of small items that were in short supply, so these were gratefully received.

Although it is wrong to draw behavioral conclusions in such a short visit, but I did learn a few characteristics that I’m sure have plagued our diplomats. Americans are very direct and will state their desires and wishes, Russians seem to ask for one thing and add another and then another. I encountered several examples where this was the case. At times I received different answers to the same question. This may have been a problem of translation or simply wanting to please.

I came home with the hope that the problems will be resolved in a peaceful manner, and I pray to that end. The Russian people have suffered so much in their 1500 year history. They lived under a feudal system for six hundred years, then under the Romanovs for 300 years. The wealth was concentrated in the hands of the aristocracy and the Czars were either despots or like Peter spent millions trying to emulate Western Europe. Then came the Communists. At no time have they enjoyed the fruits and benefits of freedom. Now they have freedom, at least partially so, and I hope they have the will to keep it.

Americanism Is Moving in

Americanism is fast making its mark on Russia. I don’t believe this is by design, but the very force of United States ideas, economic system, advertising, and communication make it inevitable. Even three years ago, Pepsi still had their monopoly, the two television stations showed few movies and they were largely from India. Mars candy bars created a sensation when they started advertising on Moscow and local stations. Now three years later, there are seven TV stations in Nizhny Novgorod showing a terrible and degrading violence-filled movies, Gillette is advertising on the buses, Coca-Cola has successfully challenged Pepsi’s dominance, McDonald’s is opening three restaurants, and New York Pizza is being advertised and described as “you’ll love N.Y. Pizza”.

One disturbing billboard announced “Smoking our cigarettes is meeting with America”. As the United States is fast moving as a largely non-smoking society, it is strange to see an advertisement tying America and cigarettes.

To add an exclamation point about this change, I attended a theater offering a stage production of “Hello Dolly”. The Russian audience seemed to understand the setting in New York City in the 1910’s and enjoyed the dialogue in the Russian language. The lead was no Carol Channing, but the performance was excellent, the dancing suburb, and the cast enjoyed being part of a modern musical. In my past visits to Russia – Moscow and Nizhny Novgorod, the plays, opera, and of course, ballet, were all of Russian origin.

Into a Market Economy

The young Russians, forty and under, are leading and profiting from the change. They sense the opportunity and are willing to work hard to make it happen for them. A young auto mechanic is setting up a repair garage, a well-groomed man with contacts in the local and regional government has set up an organization to facilitate American businesses getting started in Nizhny Novgorod. Young women are becoming skilled in English to enhance their position and employability. Of course, hundreds are engaged in importing merchandise from China, Indonesia, and other countries and selling the goods at a substantial profit. Some of these operations are becoming quite large and young men are still going to China and bringing back all they can carry.

Most of the people are just eking out a living. Factory workers are working but not being paid. This development has three different scenarios. With factories now privatized, managers, seeking to develop new sources of income, are using the money coming from the sale of their manufactured products to develop new businesses. This assumes there is no fraud – a big assumption! Thus workers are not being paid for their efforts. This process can only go on for so long.

In a second case, the workers are being paid in products of the factory. In furniture factory, workers may receive three chairs and then the worker is expected to sell the chairs and keep the money. In Nizhny Novgorod a factory produces women’s bras. On the street corners, one sees women selling large quantity of bras. A strange way to do business. The third is a promise to pay in the future. Since employees have no other place to go, many accept this alternative. People employed in schools, libraries, museums, are not paid adequate money to live on and are forced to find other means of income, such as, selling items on the street, products from one’s own home and finding additional income where they work. In libraries and museums, the vastly underpaid employees sell candy, post cards, small handicraft items. Where there are duplicate items, such as books, pictures, these are also sold and the employees will keep the proceeds.

How do people survive in this atmosphere? By buying little they live and eat on a merger basis. Farmers are now bringing their produce to the city and market areas have been established where people can purchase potatoes, vegetables, fruit (in season) at reduced prices. This functions much like the Saturday farmers’ markets in the United States. Transportation costs are minimal because only the rich have cars, and bus transportation is frequent and economical. There really in no entertainment, such as movies, sporting events, etc. Opera, ballet and orchestras are subsidized and excellent, but these performances benefit very few. Thus, people stay at home, eat much potatoes, borscht, lefty vegetables, and enjoy a frequent bottle of vodka which is still very cheap.

Remember, Russia began this process with no real private property, bankruptcy laws, no taxation, or any idea of how to function in a society where money is paramount. Being sufficiently aggressive to make a living is required. All these things were provided, not adequately, but a very complacent populace endured the hardships.

Now seven years later, people own their flats (given to them), new laws are gradually being enacted, and people are forced to find new and additional sources of income, usually other than the normal pay channels. Taxes are assessed and although Russians, just as Americans seek ways to avoid paying taxes. A new system is gradually emerging.

Talking with the tax collectors, one senses their frustration, but they also recognize the system is only five years old and slowly a new tax system will emerge. Previously, the central government owned all manufacturing, trade, and institutions and prices were established in Moscow. The government received its income from the difference between the cost of manufacturing and the sales price and to the general populace this was a painless process. Of course, the “profits” went to Moscow and not into new equipment and modern techniques. The government supported itself, but the economic machine fell far behind the manufacturing efficiency of the Western World.

Privatization of business, largely completed, is making itself felt in many ways. The telephone company is now charging based on usage as in the United States. Previously, a telephone was installed, if you had the right connections, at no charge and no usage assessment.

Russian railroads are now charging a market rate for passenger service. In the past, the subsidized cost of travel from Nizhny Novgorod to Moscow was less than five dollars. Now the cost is over sixty dollars.

Housing changes are equally as interesting. Everyone was supplied a flat. There are no single family houses in Nizhny Novgorod or Moscow. All were given the privilege of taking over ownership of their present flat and begin paying a nominal amount for utilities and other services. If a person chooses to sell his flat, he may keep the proceeds, but obviously must find a new place to live. Market forces are evident because flats in the desirable, well-located section of Nizhny Novgorod are priced much higher than those in outlying and less desirable districts.

With foreign businesses and other representatives coming into the area and being able to pay for larger, desirably located flats, the Russian can sell his flat for an attractive price, and move to cheaper housing in another part of town. He keeps the difference, usually in U.S. Dollar $100 bills!