8.

Entrepreneurship and the Transition to a Market Economy

The debates and programs that emerged during 1990 regarding the future course of the Soviet economy and political system marked a watershed for the future of private enterprise in the USSR. In this, the Gorbachev leadership was pushed by RSFSR President Boris Yeltsin and the force of events, most notably the continuing decline of the economy.

The resort to private enterprise from 1986 on had been prompted by severe economic problems, and the survival of the cooperative movement was due at least in part to the failure of the economy to recover. By 1990, the state of the economy was even worse than it had been five years earlier, and this provided the impetus not only to continue with private enterprise, but to take an even bolder step in this direction. After a series of advances and retreats, of bold and radical economic reforms followed by fearful retrenchments, the regime finally took on the challenge of transforming the economy into a market system. The implications of this (and of the political transformations that were under way) for entrepreneurship are the themes of this chapter.

THE STATE OF THE ECONOMY IN 1990

The year 1990 was a time of near-crisis in the Soviet economy. In the first four months of the year, national income actually declined by 1.7 percent while at the same time inflationary pressures mounted in the economy as cash income rose by 13.4 percent, on top of a 23 percent increase in per-sonal income during the preceding two years. Official figures published in 1990 put the inflation rate for 1989 at 7.5 percent, although an economist who reworked these data calculated that the actual rate of inflation was at least 16.5 percent.¹ Official figures for urban food markets in 264 cities showed that prices increased an average of 20 percent for a market basket of seventeen basic food items from May 1989 to May 1990.² Food prices rose rapidly because the shelves in state stores remained empty and the hunt for food became a daily ritual of disappointment. Shortages of virtually all goods were widespread. By the spring of 1990, of 1,100 commodity groups, only 5 percent were not in short supply.³

The foreign exchange situation of the country deteriorated as the Soviet Union was forced to import about three billion rubles worth of grain and foodstuffs. The outflow of hard currency made it difficult for the Soviet Union, usually considered a good risk in international markets, to pay its debts to foreigners. The country fell behind in its payments to the West and momentarily damaged the confidence of outsiders in the country’s capacity to meet its obligations.⁴ There was a stagnation in the nation’s exports precisely at the time when its foreign bills were increasing. Whereas the rest of the world increased its exports of machinery and equipment from 1986 to 1989 by 50 percent, Soviet exports of these goods increased by only 11 percent. One foreign trade official at the Council of Ministers said in regard to this differential: “The main thing is that we have nothing to trade. . . . The list of products we can sell becomes smaller each year. The proportion of products that are able to compete is decreasing even more rapidly.”⁵

Political instability, including a series of major ethnic conflicts, contributed substantially to the economic difficulties experienced by the country. In the first part of 1990, compared with the same period in 1989, industrial output fell by 8 percent in Georgia, 9 percent in Armenia, and 18 percent in Azerbaijan. This situation was compounded by the growing resolve in some areas of the country not to send output to other areas, as a measure of both political self-assertion and economic self-protection. In February 1990, the Kirgiz Council of Ministers imposed a ban on a wide range of consumer goods being sent to other parts of the Soviet Union.⁶

Budget deficit problems continued to plague the economy and added to the inflationary pressure caused by a lack of control of wages. Annual deficits steadily increased during the Gorbachev era; in 1986 the annual deficit was 48 billion rubles, rising steadily to 92 billion rubles for 1989.⁷ The deficit issue loomed even larger because of the enormous commitment made by the government to expand social programs. It was officially announced that the Soviet government would need 117 billion rubles during the next five years to pay for social programs that had been legislated. At the same time, the Supreme Soviet had allocated only 13.4 billion rubles for 1990 to meet these obligations.⁸ At this rate it would have taken the country ten years to collect the revenue to meet five years of expenditures. This did not include costs that would have to be incurred to assist the military returning from Eastern Europe, including providing housing, although housing was very scarce, as were jobs. There were no allowances in the budget for these costs.

PLANS FOR MARKETIZATION

Growing realization of the depth of the crisis in the Soviet economy led to the decision in 1990 to push ahead toward a market economy. This came after a long debate on marketization and a series of commitments and postponements on taking concrete steps toward the institution of a market. Although the leadership recognized that the economic crisis required the introduction of a market economy (at least in some form), the political and social consequences of taking this step were frightening. Given the large number of people living at or below the official poverty line, plus the expected increase in unemployment, and the expected continuation of ethnic conflict, the inflation and economic uncertainty that such a move would bring raised fears of social disorder and possible political disaster. There was even talk of civil war.

In May 1990, the government proposed a package of economic reforms, including marketization and price increases. Specifically, the program offered by Prime Minister Ryzhkov called for a tripling of bread prices by July 1, 1990, the doubling of other food prices in January 1991, and a five-year transition to a market economy. There was opposition to the Ryzhkov program from several quarters including the leadership in Russia, Belorussia, and the Ukraine, as well as key forces in the Soviet parliament.⁹ Moreover, public opposition was extremely high. A proposal to hold a national referendum on approving the program was dropped when it became obvious that such a vote would fail badly. The absence of a broad social consensus was acknowledged publicly in an interview given by Abalkin in July 1990. In contrast to Poland, he said, where “80 to 90 percent of the population support the program proposed by the government,” the Soviet government “has to go on with its reforms without such a large support.”¹⁰

The sense of crisis that gripped many in the country existed alongside an optimism among some officials who recognized that decentralization and democratization meant that greater scope was provided for local initiative. A bold proposal was offered by Valentin Fedorov, the newly elected chairman of the executive committee of Sakhalin Island. Noting that a planned market economy was as absurd as a planned economy, he outlined a program to make Sakhalin “a territory of free enterprise,” where land would be sold and private enterprise encouraged. He went on to say:

We will create joint stock companies. We will open a stock market. . . . We will give cooperatives privileges and lure them from the mainland. Let them use us as a Liberian flag. They will be registered with us, pay taxes, and they can operate where they want. They press them on the mainland; we will not. On the contrary, we have already recommended to the ispolkoms [executive committees] to lower the tax rates for cooperatives, including trade and purchasing cooperatives.¹¹

Although there was hostility toward cooperatives on the island, Fedorov argued that people should actually thank the sellers of expensive fruits and vegetables—“Otherwise your children will grow up and only see pictures of watermelons.”¹²

Fedorov’s goal of institutionalizing a stock market was a recognition that privatization of the economy was not possible without such a move. Indeed, the USSR had already begun to move in this direction with the issuance of shares by both state enterprises and collectives. As of January 1, 1990, shares valued at 532 million rubles had already been issued.¹³ Strictly speaking, these were not shares in the capitalist sense of the word since dividends were fixed and not dependent on profits, and shareholders had no rights regarding the policies of the organization in which they owned shares. The government moved to create a more genuine stock market in June 1990 when it ratified the statute on joint stock corporations and securities. The new law allowed people to own shares in companies in which they did not work.¹⁴ A few days prior to the passage of the legislation, a “stock exchange” opened in Minsk, the first such institution in over sixty years.¹⁵

Marketization was seen as necessary for both internal and external reasons. Domestically, it was argued that without a free market for resources, the nation’s economic decline could not be halted. Moreover, the decentralization of decision-making, which gave local authorities broad rights to make economic and political policies, could work only if there were such a market. The attempt by cities under their new non-communist administrations to solve their local problems required them to have the freedom to use market forces in place of the complex controls exerted by central and regional minis-tries.¹⁶ Furthermore, the Soviet Union has great ambitions to be integrated into the world economy, particularly in its relations with its European neighbors. As Izvestiia put it:

If we do not go over to a full-blown market, including private enterprise, we will not only fail to emerge from our very profound economic and social crisis but we will be unable to enter the “common European home” that is under construction. The absence of a market economy as an essential element of European integration cannot be compensated for by any diplomatic efforts.¹⁷

The lack of legal guarantees of the right to own productive property dogged the cooperative movement from the time of its birth. The uncertainty regarding the likelihood of private enterprise being allowed in the future, plus the continual risk of being charged with some economic crime or other, led many of the cooperatives to adopt short-range strategies. Understandably, they had a “take the money and run” attitude. Without unambiguous laws protecting private enterprise, there will continue to be this kind of behavior. In 1990, the government took only a half-hearted step toward rectifying this by passing a Law on Ownership which contained a definition of property that was extremely ambiguous. Its fundamental failure was the absence of a commitment to the term “private property.” On the other hand, the law contained a loophole which allowed for the ownership of the means of production in farming and in “individual and other enterprise.”¹⁸

Despite the Law on Ownership, the criminalization of a number of economic activities continued, in addition to which the law included an article on the impermissibility of exploitation. This was a trap into which all employers, either state or cooperative, could easily fall. As Izvestiia put it:

How can trading and purchasing cooperatives coexist with punishment under criminal law for commercial brokerage and how can there be any talk at all of a market while this norm exists? How can a draft law on entrepreneurship be prepared without lifting the ban on private enterprise activity, violation of which constitutes an extremely serious crime today? . . . The death penalty can still be enforced according to the articles on embezzlement, bribery, and speculation— which often means elementary trade.¹⁹

ECONOMIC TRANSITION AND THE PUBLIC MOOD

Notwithstanding the fits and starts of the Gorbachev leadership, there was little doubt that inevitably, major changes would come in the economy. As these impending changes loomed over the society, how did people feel about them? Public opinion polls taken in the Soviet Union showed that people felt deeply dissatisfied with the present state of the economy and of their lives. There was a recognition that change was inevitable, but people were fearful that change would bring them even greater hardship.

In a poll of Muscovites conducted at the end of 1989, only 4 percent of the respondents thought that the Soviet Union’s economic position had improved under perestroika, compared with 82 percent who thought it had worsened. Regarding their own position, 24 percent said they were better off, 33 percent said they were worse off, and 41 percent said that things had not changed for them. Attitudes toward the pace of change under perestroika showed overwhelming support for faster changes (71 percent), and almost no support for a return to the old system (5 percent). An insight into people’s ideas of private enterprise was provided by their responses to a number of key economic terms. Their reactions were as follows: “competition”—74 percent positive, 10 percent negative; “profit”—53 percent positive, 28 percent negative; “plan”—42 percent positive, 42 percent negative; “socialism”—61 percent positive, 17 percent negative; “communism”—37 percent positive, 30 percent negative; “capitalism”—34 percent positive, 38 percent negative. When asked whether individuals should be allowed to set up their own enterprises, 57 percent were in favor and 31 percent were against.²⁰

As one would expect, people’s opinions fluctuated widely with real changes in the economic situation. For example, in the spring of 1990, 67 percent of those surveyed were upset about “economic disorders in production,” compared to only 9 percent a year earlier. And whereas polls in January 1990 showed 65 percent of respondents in favor of the market economy, only 43 percent were in favor at the end of May as the economic situation worsened. The negative consequences that people expected as a result of the move to a market system included price rises (52 percent), an increase in shortages (43 percent), unemployment (40 percent), and a decline in the standard of living (33 percent). Twenty-seven percent believed that the sole beneficiaries of a new economy would be “dodgers, schemers, and the underground rich.” Forty-eight percent said that they were personally unprepared for the transition to a market economy.²¹

In a May 1990 survey in Leningrad, half of those polled thought that the transition to a market would worsen the economic situation, at least in the short term, before things would improve. About two in five people expected a sharp decline in their real incomes for a long time, and about one in five thought that they personally would lose their jobs.²²

What did those who were not part of the cooperative movement think about private enterprise and the possibility of working in a cooperative in 1990? A survey of 801 people was conducted in Moscow between April 28 and May 2, 1990, regarding, among other things, their attitudes toward private enterprise. They were asked where they would prefer to work if given a choice. Thirty-five percent wanted to continue working with a state enterprise, 33 percent wanted to work in a joint venture with a foreign firm, and another 33 percent wanted to be involved in the private sector. In this last group, 13 percent wanted to work in “private enterprise,” another 13 percent wanted “my own business,” and only 7 percent wanted to work in a cooperative.²³ This supports the argument that it was not necessarily private enterprise that people opposed, but rather the cooperative form which had so many negative features in the public’s mind. Indeed, 57 percent in a Moscow survey said that the country needed private ownership of enterprises, and even more (79 percent) favored private ownership of land.²⁴

For many people, the issue was not just whether a new economic mechanism would solve the nation’s difficulties, but also the question of who would benefit most. In the spring 1990 Moscow poll just referred to, only 16 percent thought that a market would improve the position of workers, 18 percent thought that the intelligentsia would be better off, but the majority (53 percent) thought that cooperatives would benefit from the move to a new economic system. When asked whether everyone would have a chance to become rich, only one-third said “yes.”²⁵

Perhaps the most treasured element of the social contract between successive Soviet leaderships and the people was the presumed right to a job. Unemployment was not supposed to be a part of the life of any Soviet citizen. Indeed, one could be charged with “parasitism” for not holding a job. If anything distinguished the Soviet Union from the capitalist world it was the right (and indeed obligation) to work. Perestroika had changed all that even by the end of 1990, before anything even faintly resembling a market economy had been installed. In three years, economic reform was probably responsible for 3 million people losing their jobs in industry, only 20 percent of whom were offered suitable alternative employment.²⁶ Although there were no precise statistics on the size of the unemployed population comparable to those produced in the West, the best estimates were that the unemployment rate was 4 percent in the USSR, or about six million persons unemployed, half of whom were believed to reside in Central Asia and the Caucasus. In Uzbekistan, where attempts were made to measure unemployment, it was estimated that unemployment was more than double the national rate.²⁷ The level of unemployment was conceded to be a factor in the ethnic unrest in Central Asia.

There was great anxiety within the general population about the possibility of mass unemployment arising as a result of the introduction of the market system. In one survey of Muscovites, 26 percent thought they themselves would become unemployed after marketization of the economy.²⁸

For many Soviet citizens, the idea of a market was not just an economic concept, it was a social one as well. While the fear of inflation and unemploy-ment is an understandable economic concern, people were just as worried about the social consequences of a market (such as an increasing division between rich and poor, increasing crime, or social disorder). It was this view of the world which inhibited the population’s ability to separate short-run from long-run consequences. Soviet citizens had a short-run time horizon. There was a lack of understanding that such phenomena as speculation and high prices came not because there was too much private enterprise, but because the old economy had proven itself incapable of producing high levels of output. There was a widespread recognition among reformers that the absence of more cooperatives and thus the attendant lack of competition was what caused high prices and persisting shortages.²⁹ But what people wanted was a cornucopia of goods and services immediately at low and fixed prices. In the spring of 1990, two-thirds of those interviewed in a public opinion survey wanted the transition to be “steady and painless.” While it was rational for people not to want to suffer, the size of this response suggested an unwillingness to tolerate, or a lack of understanding of, what was required in order to make the transition to a market system. This was compounded by the apparent lack of confidence in the government’s ability to halt the decline in the standard of living.³⁰

POLITICAL TRANSFORMATION

By 1990, the fate of cooperatives no longer lay entirely in the hands of either the CPSU or the central government. The creation of non-communist parties and the development of conflicting tendencies and splinter groups within the Communist Party itself meant that there were many political groupings with differing views on economic reform in general, and on the role of the cooperative movement in particular. For example, a group calling itself Democratic Russia, which was founded in January 1990 and supported the radical Yeltsin wing of the party, included in its socio-economic program movement to a market economy and the private ownership of land, while at the same time supporting a broad social safety net.³¹ Even Carri Kasparov, world chess champion, set about forming a party of “radical democrats” dedicated to the introduction of a market economy.³²

The holding of relatively free elections in 1988 and the other elections that followed not only provided the opportunity for competing economic platforms to develop, but also enabled new parties to gain access to power at the local, regional, and republic levels. The elections in the spring of 1990 gave control of the soviets of major cities such as Moscow, Leningrad, and Kiev to radical reformers committed to the development of the alternative economy. The election of Boris Yeltsin as president of the Russian Republic put economic reform at the top of the agenda of the largest and most important republic, with half of the country’s population. Moreover, the cooperative movement was itself trying to influence this process through both running candidates and participating in the emerging parties and the writing of their platforms.

Countervailing forces were also developing among the new political parties. A splinter group within the CPSU calling itself the Marxist Platform, and favoring a return to classical Marxism, set itself in opposition to private property. One of the leaders of this movement declared that private property “must be destroyed not by means of decrees—that is completely senseless. We must be capable of organizing a more effective economy through economic methods.”³³ The group also wanted the elimination of hired la-bor.³⁴ There were other Marxist parties such as the Marxist Workers’ Party- Party of the Dictatorship of the Proletariat (MWP-PDP). Among other things, its members believed that the free market would lead to the impoverishment of the working class, pensioners, and the needy. They also feared the growth of unemployment, inflation, and the division of the nation into rich and poor.³⁵

By the summer of 1990, with the economic situation bordering on crisis as exemplified by the shortages of bread in Moscow and other places, the population seemed prepared to accept concrete proposals to move to a market economy. The fact that the charismatic Yeltsin strongly supported market initiatives and had persuaded Gorbachev to join forces with him, made such a move permissible. The dramatic decline in the economy made it clear that drastic measures were necessary, and given the lack of confidence that the government and the state sector could turn things around, there was no alternative to marketization. At the same time, the population was fearful of a market economy, including a decline in incomes, loss of jobs, inflation, and a massive redistribution of income that would favor people in the private sector.

The need for marketization to rescue the economy, and the public fears of the consequences of such a move, created a dilemma for reform leaders at the national level. The Ryzhkov programs were marked by timidity, and Gorbachev himself frequently retreated from bold programs which he had personally advocated. A hallmark of proposals coming from the center was an insistence that social and economic safety nets had to be put in place before radical steps were taken. Clearly, the fear of disorder was a major motive for this. Also, government programs generally retained a larger role for the state sector than did alternative proposals.

Alternative proposals were more radical with respect to timing (advocating greater speed) and willingness to take risks (not waiting until safety nets were in place).³⁶ The debate, then, was not over whether to marketize or not, but rather how fast to do it. The official programs, and Yeltsin’s 500-day plan and the Shatalin plan, accepted the need for the growth of a stratum of entrepreneurs, and for expanding the range of entrepreneurial activities.

In the fall of 1990, then, there was open competition between programs for marketization and privatization of the Soviet economy, bringing to a close the first stage of the reintroduction of private enterprise in the USSR. Given the agreement on the general direction to be taken, even if the issues of how and when were in dispute, it was clear that a new stage was emerging. The consequences of this for the cooperative movement were important, since moving toward a market economy would change the environment within which cooperatives would develop and operate. With a substantially changed set of legal, political, and economic conditions, there was no reason why cooperatives should remain the dominant form of private enterprise. Indeed, predictions were that once a decisive move toward a market economy was taken, many cooperatives would transform themselves into something else. In the estimation of a prominent official of the USSR Union of Amalgamated Cooperatives, such a move would probably cause half of the cooperatives to reregister as purely private businesses, with an additional one-third being changed to joint stock businesses. Thus, only one in six might remain as cooperatives. If this were to occur, then the cooperative movement would have had a relatively short life-span, but its importance historically would have been enormous. The energy, initiative, and perseverance of the nation’s first true entrepreneurs in sixty years enabled the Soviet Union to embark on the road to a new economy. The low esteem in which these people came to be held, whether justified or not, should not obscure their achievements. Nor should we lose sight of the fact that in other societies the early days of capitalist entrepreneurship were also marked by dubious unethical and often criminal activities. The emergence of robber barons is not restricted to one society. The lesson of history, though, is that this is a stage that gives way to a more legally based and acceptable system. As a Soviet journalist put it in the fall of 1990, “The descendants of gold-diggers, adventurers and brawlers are today’s Harvard graduates, computer magnates, and ideologists of social and ecological movements. One can only hope that as time is moving faster at the end of the 20th century, our ‘capitalist sharks’ will not take a hundred years to turn into postindustrial entrepreneurs.”³⁷

Their Bolshevik forefathers having constructed a planned economy that stopped growing, it fell to the Soviet leadership under Gorbachev to design the transition from state socialism to some variant of capitalism. There was no blueprint for such a transition; no models to demonstrate how one builds a market economy or creates private enterprise from the ashes of a planned economy. Soviet planners, ironically enough, were left with the daunting task of planning themselves out of existence and replacing their institutions and themselves with a market economy. The same task faced the newly reformed governments of Eastern Europe, but Soviet conditions and history made the transition in the USSR much more difficult. First, the Soviet system had been in place for a much longer time than the centralized economies of Eastern Europe, and it rested on a tsarist tradition of state economic control and a lack of a strong entrepreneurial tradition. The institutions were firmly embedded in the structure of the society, giving rise to both cultural values that supported them and social strata that had a personal interest in their preservation. This made the resistance to economic change greater in the USSR than proved to be the case in Eastern Europe (or, for that matter, China).

This circumstance created the second set of conditions, namely the continued dominance of the economy by the state sector even after perestroika began. The practical consequences of this were the locking up of almost 90 percent of the nation’s resources within the planned sector of the economy, thereby setting rigid limits on the extent to which a private sector could develop. This led to the third condition, the development of a hybridized form of private enterprise in which the state sector and the private sector worked together to create organizations that were neither fully private nor fully state-owned. The fourth conditioning element was cultural. There was a strong residue of popular and official mistrust of private enterprise, particularly in its commercial form. This was a result of the ideological underpin-nings of Soviet society, reinforced by seventy years of propaganda, the absence of opportunities to experience a mature private sector, and the fact that a great deal of the private enterprise that Soviet citizens had experienced existed in the illegal, underground economy and was tainted with corruption and criminality. Thus, the entrepreneurial spirit, as represented by the cooperatives, was treated with suspicion rather than admiration.

Furthermore, the failure of perestroika, and the persistence of the planned economy, made private enterprise and state enterprise natural competitors for existing resources. There was an asymmetry in Soviet economic institutions: the incentive systems which motivated private entrepreneurs and state managers were not the same, and the avenues available to obtain resources for production were not the same. Until new structures were developed, and the new institutions were given legal force, limits to the development of private enterprise would remain. So, too, would the system create an incentive toward a continued channeling of cooperatives' efforts toward short-run profits at the expense of long-term growth. This, in turn, could only reinforce the views so deeply held by many people in the Soviet Union that private entrepreneurs were a socially destructive force.

It seems so obvious, yet it bears stating at the end of this book that one of the major hindrances to the effective development and operation of the market in the Soviet Union was that both the population and those who were orchestrating the transition had almost no experience with legal markets.³⁸Prime Minister Ryzhkov himself went so far as to say that Soviet views on private property and market relations were based on nineteenth century notions.³⁹ As a result, what might be termed a “market culture” was virtually absent from Soviet society. A market culture has two major aspects. One is an understanding of the principles of exchange on a market and a willingness to accept the outcomes as reflections of underlying, impersonal forces instead of perpetually imposing moral judgments on the forces at work. The second aspect of a market culture is a system of business ethics, a professionalism in one’s dealings with others that resists the use of extortion, bribery, and intimidation. It is not that the developed market economies are free of these negative phenomena; but in the Soviet Union there are no standards of business propriety, whereas in the West there are standards against which an individual or organization can be judged and held accountable. Moreover, shady behavior is absolutely endemic to the Soviet economy, within both the state and private sectors. As a piece by Soviet economists put it: “Many of our countrymen firmly associate the market economy and competition with fraud, financial speculation, consumer deception, and with squeezing the sweat out of the exploited working people. The population’s attitude toward the market is reflected in the folk saying: ‛ you want to sell anything, you have to cheat.’”⁴⁰

The way in which cooperatives developed, and which contributed to the distorted ways in which many of them operated, was also affected by the ab-sence of a managerial culture on which the new businessmen could draw. Although a large percentage of the new entrepreneurs were people who had been managers in the state sector, they had received no formal business education. Soviet managers had been recruited mainly from the ranks of engineers and technicians for their technical (and political) talent rather than for their managerial skills. While many managers received some education in “management institutes,” the courses were more economic than organizational in content, and courses such as human relations management or organizational behavior were not routinely offered. It has only been in recent years that attention has been given to the “human factor” in enterprises, and even now the study of complex organizations is poorly developed. Thus, new entrepreneurs opened their businesses with at best a rudimentary knowledge of accounting, finance, and organization, and with virtually no knowledge of marketing, pricing, product development, or business ethics. The absence of these elements of managerial culture led many cooperatives into business activities that were often ineffectual, and frequently unethical. The increasingly disorganized environment in which they operated did nothing to encourage the development of such a culture, although it is to the credit of many of these entrepreneurs that they actively sought a business education. The large number of “business schools” that sprang up from 1988 on attracted many cooperators to their courses, but the quality of instruction was generally rather poor. The lack of a managerial culture and a tradition of entrepreneurship greatly influenced the first stage in the development of private enterprise in the USSR, and this influence was unlikely to diminish quickly.

The population’s view on social justice, or more strictly speaking distributive justice, is likely to be an important factor in the transition of any society from a planned to a market economy. As events in Poland and other East European countries have shown, the transition to a market economy is inevi-tably painful and very costly for a substantial part of the population. In addition to the purely economic and material deprivations that people face, there are the moral issues of increasing social inequality as some rise and others fall. We cannot be sure of the willingness of a nation to tolerate this, for individuals to continue to put effort into an endeavor that actually makes their situation worse while that of their neighbor improves. The challenge is an especially difficult one in the early stages of transition, when the results of a developing market are meager for the majority of the population, but considerable for relatively few. The period during which cooperators emerged and grew, 1987-1990, was just such a time. The decision of the Gorbachev leadership in September 1990 to allow private enterprise considerably greater leeway marked the end of this period. It showed that the cooperative movement was in fact but the first stage in the Soviet Union’s move from a planned to a market-oriented economy.

What then were the lessons of entrepreneurship in this first four-year stage of radical reform? The main lesson was that there was a great deal of eager-ness on the part of many individuals to move into private economic activity, as evidenced by the dramatic growth of the cooperative movement. But the process was constrained by the restrictions imposed by the bureaucracy at all levels who were protecting their own interests in some cases, and ideological convictions in other cases. Thus, there was an inherent tension, an incompatibility between entrepreneurs on the one hand, and the state and the party on the other, that never softened during this period. There was also a tension in the competition for scarce resources. The pressures on resource availability led cooperatives to engage in substantial criminality, including bribery and theft, and also swelled public anger toward cooperatives because they charged high prices for scarce goods. As a consequence, cooperatives never gained widespread public acceptance.

In general, there were two overlapping forces that operated simultaneously. First, there was the effort to reshape the economic landscape by introducing private enterprise through the cooperative movement. By itself, that would have been enough to place a strain on the society. But this new development also took place at the very same time that the economy was collapsing. While the cooperatives were not to blame for the collapse, as a highly visible new kind of entity it was easy to make them scapegoats. In large part, this helps explain why the cooperative movement became so highly politicized, although this consequence was not intended, either by the political leaders whose reforms created the economic institution or by the early entrepreneurs.

The four years chronicled in this book were thus filled with both great promise and great stresses for the cooperative movement and for entrepre-neurship in the USSR. In view of the nature of Soviet history, it would have been a Herculean and dangerous task to move to a market system as directly and quickly as did the societies of Eastern Europe. Not only would such a move have created even greater economic dislocation than actually occurred, but it is doubtful that the pool of potential Soviet entrepreneurs would have been large enough to sustain the process. Given these conditions, an intermediary stage was required, and it is in this sense that the brief, albeit wrenching experiment with cooperatives was highly functional. A cadre of entrepreneurs was given the opportunity to test the waters and to learn by doing, while consumers were allowed to get used to the operation of private enterprise before the full effects of a market economy were felt. The fact that the unpopular and beleaguered entrepreneurs survived and even prospered in spite of repeated predictions of their imminent demise showed that, given time to learn, Soviet society was capable of generating and sustaining an entrepreneurial stratum. This will prove to be an important element for subsequent stages of entrepreneurship in the USSR, and hence for the fu-ture of the Soviet economy and nation.