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  • Print publication year: 1999
  • Online publication date: September 2009

2 - Creating owners: insider privatization and its consequences

Summary

January 1993:

While traveling in West Siberia, I was invited by a friend to attend a company stockholders' meeting. The company was the Tiumen′ Shipbuilding Factory, formerly a closed defense plant. Defense orders had vanished and it was on the verge of bankruptcy. Its workforce of 5,000 had melted down to 2,500. They had not been paid in six months.

The Tiumen′ plant had privatized quickly in 1992, somehow hoping for a miracle. Two groups began jostling for control. One was said to represent the “insider” nomenklatura. Its rival was a group of outsiders (although no less nomenklatura) who had gotten their start in Tiumen′ by trading oil on the first private commodities exchanges. Both groups canvassed the plants' workers one by one, buying up their shares. By the time of the stockholders' meeting, workers and managers began to fear they had sold off control in their own company.

As people assembled in the plant's auditorium it was 30 below outside, but inside the mood was steamy. In the audience, several hundred agitated workers faced a bare stage, on which sat the representatives of the two rival investors. At first the scene seemed straight out of a Soviet movie. Workers shouted at the men on the stage. “Why haven't we been paid?” “When are we going to get back to work?” The audience began to shift and grumble.

Then one of the men on the stage stood up. He calmly announced that the two rival groups of investors had joined forces, and between them now controlled two-thirds of the company's stock. They intended to vote out the old management and take over.

The hall exploded into bedlam. But then another of the investors strode to the rostrum, and the audience grew quiet again. He was well known to everyone in the hall – he had been the plant's chief engineer before resigning to join the outsider group. “Ladies and gentlemen,” he began, pointedly avoiding the word, “comrades.” “How long has it been since this plant has gotten any orders? How many of you will still be here in another six months unless something is done? We ask for your confidence. You have nothing to lose.”

Those were the magic words. In a moment the workers' mood seemed to swing from revolt to resignation. Silently, they lined up to vote. When the ballots were counted, the new management had won by near-unanimity. The old managers were dismissed on the spot. In the space of a few hours, the Tiumen′ Shipbuilding Plant had gone from socialism to capitalism.

As we filed out into the freezing night air, I talked to a local newspaper correspondent, who had formerly been a secretary in the plant. “So now we're capitalist,” she said. “But will that really save the plant?”