Actually existing privatization: an interview with Yurii Marenich - Russia - Interview

Monthly Review, March, 1992 by David Mandel

Yurii Marenich, a Ph.D. in economics, is a section director at the Central Institute of Mathematics and Economics of the Academy of Sciences of the (former) USSR. He was elected to the October District Soviet of People's Deputies in Moscow in March 1990, and is a member of the soviet's praesidium and chairman of its Economic Commission. This interview was conducted in Moscow on October 27, 1991 and has been translated from Russian by David Mandel.

D.M. Dramatic events occurred last weekend at your district soviet: deputies barricaded themselves inside against the police. What exactly happened?

Yu.M. Last July, Moscow's mayor, Gavriil Popov, a prominent member of the liberal movement, decided to dissolve the executive committees of all the city's district soviets. Without executive committees, the soviets are, of course, powerless to carry out decisions. The August putsch delayed action, but last week Popov ordered the city's takeover of our executive committee's building. It just so happens that the soviet is also housed there, and Popov offered us nothing else. So we physically had to defend the district soviet's property.

D.M. What is behind the campaign against the only recently elected soviets that is being conducted by the liberal politicians, or "democrats," as they call themselves, including Yeltsin, Popov, and Sobchak, mayor of St. Petersburg? Ilya Zaslavskii, former chairman of your soviet, who is close to Popov, stated not long ago that the slogan "All Power to the Soviets" was progressive in the spring of 1990 but has since become reactionary.

Yu.M. They needed the soviets to take power from the Communists. They ran their electoral campaigns under the slogan: "Having won power, we will demonopolize property and manage the economy through the market." But once they got the power to manage the public's property, they found themselves facing a tremendous temptation to grab this property for themselves. This was made easy by the possibility of combining jobs in government institutions with posts in private private firms dealing with the government.

Briefly, those in charge of supervising privatization simply transferred the district's property to companies they themselves head. They now hold tremendous centralized power, though no longer as government office-holders, but as private owners of most of the district's real estate. So they don't need the elected soviets. On the contrary, the soviets have become downright inconvenient.

D.M. Can you explain more concretely what they did?

Yu.M. All the members of the soviet's executive committee set up private companies that they themselves headed. One firm took over the soviet's information services; another, its legal services; a third took over all the real estate, its sale and leasing rights on the territory of the district. They proceeded to lease buildings and land to other companies or used them as contributions to joint enterprises. In return, they generally take 40 percent of the profits of these enterprises. Since all new companies need premises, they have no choice but to accept the conditions set by this monopolistic firm, called UKOSO, and to pay it 40 percent of their profits. What you have here, in fact, is the old command-administrative system, but with the difference that now the monopoly is private, not a state monopoly.

D.M. Are you saying that UKOSO transferred to itself, free of charge, this huge chunk of real estate in the very center of Moscow? I find that difficult to conceive.

Yu.M. It's quite simple. Since the 1930s, we've had a system of transferring property without payment. But it was all state property, and the transfer was from one state agency or enterprise to another. All the parties were acting in the name of a single owner, the state. Now, however, we also have private owners. But they used the same procedure to transfer real estate from the district soviet, a state body, to a private company, UKOSO, as if they didn't understand that this is something entirely different.

D.M. But that's outright theft.

Yu.M. The strange thing is that, strictly speaking, you can't call it theft, since no criminal act occurred. In practice, we have no law forbidding such conflict of interest.

Here's just one documented example. A three-story building in Moscow's center with 1150 square meters of space, whose formal value is set at 52,000 rubles (though a new economy car on the black market sells at 150,000 rubles), is "written off," as if it were of no value or use to the district, and is transferred to UKOSO for free. On the very same day, UKOSO sells it for 6.7 million rubles 311,000 "hard-currency rubles."

D.M. So the district received no income at all from this privatization of its property?

Yu.M. That's why the conflict arose. Privatization is obviously a process whereby property is transferred from the state to private hands. But the state must be compensated for its loss of property rights. Yet, not one kopeck entered the district's coffers. Not only is the people's property being given away free of charge, but it is being appropriated by the very individuals entrusted to manage their property. I cannot say there aren't any exceptions to this pattern; I am talking about what I have personally seen and is documented.