Soviet Union Inching Down the Capitalist Road

By James O. Jackson/Moscow

Roll over, Karl Marx. Wake up, Friedrich Engels. Nearly 150 years after The Communist Manifesto and 70 years after the Russian Revolution, free enterprise is coming back to the Soviet Union. Businesses ranging from mom-and-pop shoe repair to interior decoration are being legalized under a new "individual labor" law that takes effect this Friday -- which happens, ironically, to be the international socialist holiday May Day. The measure makes it possible for the first time since Lenin's New Economic Policy (NEP) of the 1920s for individuals to make money legally according to a decidedly un-Marxist principle: from each according to his hard work and ingenuity, to each according to the free market.

"I'll make more money than my husband, even after paying taxes," gushed a 27-year-old housewife named Masha, who sells sweaters at a produce market on the outskirts of Moscow. "I used to knit sweaters occasionally for friends, but now I sell them for 50 rubles (($75)) each. I can't make enough of them." She, like thousands of other early-bird entrepreneurs, took part in a five- month trial period.

The new law, one of Party Leader Mikhail Gorbachev's reforms, legalizes businesses in 29 fields, including plumbing, carpentry, dressmaking, auto repair, tutoring and toymaking. Specifically excluded are such obviously dangerous activities as making drugs and weapons. Also prohibited is the politically risky business of publishing. Workers cannot be hired for these private enterprises, thus the staffs are limited to family members.

Soviet leaders have not suddenly discovered the magic of the marketplace. They are interested rather in bringing the country's flourishing underground economy under some control. Soviet economists estimate that 40% of all household services are performed illegally by moonlighters working nalevo, literally, on the left. The catch for the soon-to-be-legitimate business people is that the state will tax them. Entrepreneurs will pay a progressive income tax that starts at 13% for incomes of less than 250 rubles ($375) a month and rises above 50% for incomes of more than 500 rubles ($750). Since a hardworking plumber can easily earn twice that in his spare time, many people are likely to be tempted by the quintessential capitalist sin: tax cheating.

Communist officials assented to the reforms at least partly because they realize that some private enterprises are inevitable. "Until recently it was generally held that the collectivized public sector was capable of satisfying all the population's demands and that individual enterprise . . . would gradually die out," wrote Economist Ivor Raig in last fall's issue of the journal Sotsiologicheskie Issledovania (Sociological Research). Now, he suggested, officials acknowledge that "individual enterprise satisfies to a considerable extent the population's demands in many goods and services."

Many Soviet moonlighters, though, have no intention of telling the state about their private businesses. Said one man who runs an interior decorating operation out of his apartment: "This law is for old ladies who knit socks, not for people doing real jobs. We don't plan to register." Complained an elderly woman who sells crocheted lampshades: "The inspectors will be poking around all the time. It will be a nightmare." Some entrepreneurs suffer an even worse nightmare. "Look at all the people who got rich during NEP," said a young artisan who makes and sells earrings. "A few years later they were | exiled to Siberia. You never know what's going to happen here."

Many Soviets are already scoffing at the law. They complain about a requirement that individual entrepreneurs must still hold down full-time state jobs unless they are housewives, invalids or retired. And if they are retired, they will lose their pensions when they register. Able-bodied people of working age who try to live exclusively on private income can be jailed for one year for the crime of "parasitism."

Despite such difficulties, some enterprising Soviets are building sizable illegal businesses with the law's unintended help. During the trial period, a 32-year-old lawyer named Sasha expanded his modest, one-man costume-jewelry business. Since selling in public is no longer illegal, he arranged for three friends to go to work for him. They took over sales, while Sasha commissioned two part-time jewelers to manufacture the product. That amounted to the illegal hiring of workers, but the profits kept everybody happy.

The enterprise has been an overnight hit. The makers of the jewelry receive two rubles ($3), and the sellers get 1.50 rubles ($2.25) for each item that sells for five rubles ($7.50). That leaves 1.50 rubles for Sasha as the "organizer." (Marx called Sasha's profit the "surplus value" and considered it to be the essence of capitalist exploitation.) Sasha says that in an average month he earns about 800 rubles ($1,200), far more than his 150- ruble ($225) monthly salary as a lawyer. "I am a biznesmen," he says with a grin, using a word Russian has borrowed from English.

Conservative local officials, however, are having trouble adjusting to the changes. The law is fuzzy on procedures and powers for local bureaucrats, who are finding ways to block the reform. In Moscow, for example, a commission has been appointed to judge the artistic and moral merit of handicrafts proposed for sale. A young Moscow mother of two who paints churches on wooden eggs was turned down because her wares were "of a religious nature." A jeweler's products were rejected because the work, although it sells briskly, was deemed "ugly."

The new Soviet entrepreneurs are discovering that free enterprise does not guarantee success. An elderly Moscow woman who had a 50-ruble ($75) monthly pension decided to sell hand-embroidered nightgowns, and duly registered with the authorities. But none of her nightgowns sold when she took them to the market, despite days spent standing in the cold. Nevertheless, authorities canceled her meager monthly pension.