WHO TO CALL IN THE SOVIET UNION NOW Throw out your old Rolodex. A whole new crowd has emerged to shape this sick ex-superpower's economic future. Here are 25 people you ought to know -- or know about.
(FORTUNE Magazine) – Once again, the Soviet Union is threatening Europe, not with arms this time but with the specter of a potentially devastating economic implosion. In the nightmare scenario, Europeans could spend hundreds of billions of dollars and the rest of the decade coping with waves of immigrants and civil war on their eastern border. The dream, however, is that communism's collapse will eventually liberate the peoples of the U.S.S.R. to realize their potential and forge a vast new market for Western goods and investments. Can you do business amid such uncertainty? Not easily. At the macroeconomic level and in the short run, even the good news is bad. For example, Boris Yeltsin's recent pledge, after several months of dithering, to free prices before year's end is just what most Western economists recommend. But it will temporarily push inflation to new heights. At the microeconomic level, the mushrooming private sector breeds in an atmosphere of darkness and corruption. As the police state dissolves, bribery is coming back; foreigners, who carry highly desired hard currency, are frequently seen as prime targets to shake down. And with most property still controlled by the state, private Soviet businessmen must often buy supplies -- and sometimes protection -- from criminal networks. Says Yuri Agapov, president of a new private commercial bank: ''Much of business here is associated with crime. This is the reality.'' Weighing against these difficult circumstances is the prospect, which most Western executives in Moscow still buy, that a country with 285 million well- educated people and immense supplies of gold, oil, and other natural resources cannot forever remain a basket case. Says Peter Fischer, vice president of the U.S.-U.S.S.R. Trade and Economic Council: ''Something good is going to happen here, and anyone willing to bet a certain amount of money on that possibility needs to be here now.'' If you're considering placing that bet, start by recognizing that today's Soviet Union requires a whole new approach. Gone is the army of gray party functionaries whose power and duties were telegraphed by their titles. Courting this crowd may have taken a lot of time and vodka, but if you got to the right people in Moscow, eventually you could strike a deal. No longer. Since the collapse of the August coup attempt, the entire Soviet state structure, including the once ubiquitous KGB, has disappeared. Political power now is dispersed among the 12 remaining republics, though Russia and the government led by Boris Yeltsin remain paramount. How to respond? AEG, the German electronics giant, has begun setting up offices in four provincial cities: Riga, Kiev, Alma-Ata and Kemerovo. New economic institutions are also springing up. Among the most significant are the commodities exchanges, private trading networks that supplant supply lines broken when the central ministries crumbled. These organizations more closely resemble gigantic garage sales than their computerized cousins in Chicago or London. In the past two years 15,000 exchanges have sprung up across the country in nearly every major city. The largest, the Russian exchange, rents the ground floor of the Moscow Post Office, an apt site since the building housed the old city stock exchange before the 1917 revolution. The exchange's 3,600 brokers trade everything from condoms to sheet metal. The Tyumen exchange in Siberia sells oil to brokers for $18.50 a barrel, though foreign buyers need an export license to take it out of the country. The Russian exchange is even offering seats to foreign companies (price: ten million rubles or, if you've got hard currency, $143,000). Commercial banking is also taking root. Some 3,000 banks have been formed since January 1990. Most are small, and only a handful have been capitalized by individual entrepreneurs. Ministries or state factories wanting to put their money to use have financed many of them. Some new banks, like Menatep, a Moscow bank holding company, are rumored to have links to the treasury of the now outlawed Communist Party. All are seeking Western capital. Says Vyacheslav Khokhlov, vice president of one of the most reputable, Tokobank: ''There are good partners here. But you have to look closely to find them.'' Most important, seven years of perestroika has given birth to a new set of entrepreneurs, moneymen, managers, and officials who are eager to embrace a freer market. The younger ones never even bothered with the Communist Party and its shibboleths. Among those over 40, many followed the path of Mikhail Gorbachev. They remained faithful to the party up until the past year or so, but were open to new thinking and challenged it to change. A few are lifelong hacks who had the political equivalent of deathbed conversions when the party died. Most Westerners have heard of only a few of these individuals. On these pages are 25 of the most important. Many of them you may want to do business with; a few you will want to avoid. But all of them you need to know about, because they are the people shaping the Soviet Union that will emerge -- for better or worse -- in the next decade.
ENTREPENEURS How resourceful are they? ''If there's no civil war,'' promises a Moscow restaurant owner, ''we'll find a way to stay open.''
Eye surgeon Svyatoslav Fyodorov, 64, inventor of a radical laser treatment for myopia, is probably Russia's best-known entrepreneur and one of the first to benefit personally from perestroika. Five thousand hard-currency-paying foreigners visit his clinic in the Moscow suburbs each year. Profits from that enterprise have allowed Fyodorov to indulge his passion for Arabian horses and to branch out into new businesses -- among them, a casino and hotel, partly financed by French and German investors, and a cruise ship outfitted as a hospital, which trolls the Persian Gulf and Red Sea serving mostly Arab patients. But the doctor-turned-capitalist isn't the only Soviet success story. In 1984 Andrei Fyodorov, 48 (and no relation), quit as headwaiter at the state- run Solnechnyi restaurant in Moscow. Two years later, when Mikhail Gorbachev passed a law permitting cooperatives -- in effect, small private businesses -- Fyodorov took the plunge. Today both the man and the pricey restaurant he founded, Kropotkinskaya 36, are Moscow institutions. An outspoken advocate of privatization, Fyodorov remains wary of another conservative backlash. Rather than expand at home, he has in the past 18 months opened new restaurants in Milan, Italy, and Glen Cove, Long Island. ''Here, officials could still take my profits from me at any moment,'' he says. ''Abroad, you have private property.'' Still, in August Fyodorov placed another bet on his country's future. He leased 160,000 square feet of warehouse space north of Moscow, which he plans to use to supply the new mom and pop grocery shops that should proliferate once state stores wither away. Says he: ''Foreign investors should look to individuals like me. If there's no civil war, we'll find a way to stay open.'' Rock rolls in Russia, and the U.S.S.R.'s answer to the late California music promoter Bill Graham is Stas Namin, 40. From his office in the center of Moscow's Gorky Park, this ponytailed former lead guitarist manages a range of entertainers: rock bands, athletes, an ice-skating troop, and the 85-member Moscow symphony orchestra. Born into one of Moscow's most powerful families -- his grandfather, Anastas Mikoyan, served on Stalin's Politburo and survived into the Brezhnev era -- little Stas rebelled early on. His band, The Flowers, was one of the top Soviet acts in the 1960s. Namin remains an iconoclast: He dreams, he says, of taking Lenin's mummified corpse on tour: ''All these years he's just been lying there. Let him make some money for us before we bury him.'' Slava Zaitsev, 53, won't tell how many dresses he has made for Raisa Gorbachev (''style fits her,'' he says). He has developed a reputation as one of the world's hottest fashion designers literally on the back of the Soviet first lady. Zaitsev hasn't parlayed that fame into a personal fortune -- yet. As a state employee, he earns only the maximum monthly salary of 1,000 rubles, though his position brings with it a host of perks. But Zaitsev hopes that the bureaucratic red tape preventing him from forming a joint venture with foreign partners can be overcome soon. Mikhail Bocharov, 50, got his start as a manager by running a hard-labor chain gang in Estonia, where he organized prisoners to -- get this -- break rocks. This lean chain-smoker went on to become one of Russia's top factory executives. In 1988 he founded Butek, a holding company created to assist state factories trying to go private. A former adviser to Boris Yeltsin, Bocharov walked out of the Communist Party more than a year ago, when Yeltsin quit. After the August coup he quit his government job as well, complaining that Yeltsin was ignoring his urgings to act decisively to free prices and sell off state companies. His latest project is Rusbaltwest, a ten-company consortium that he formed to put soon-to-be-abandoned military property in the Baltics to commercial use. Says Bocharov: ''We must decide what we are going to do with our armaments industry. If these factories close, 33 million people will be unemployed.''
MONEY MEN They run the thousands of banks and trading houses launched since 1989, and range from ex-bureaucrats to college dropouts.
The Western-style financiers emerging in the Soviet Union defy easy stereotypes. Yuri Agapov, 33, wanted to be a heavy-metal rock star until he met Mikhail Gorbachev in 1987 at a Communist Youth League Congress. Gorbachev told Agapov -- a graduate student doing what was then considered ideologically suspect research on Western financial institutions -- that the nation needed financiers. Agapov took his advice. Two years ago, backed by some small state factories in Moscow that wanted to go private, he set up Credobank. Agapov must have learned at least a little about Western finance in school; he deals mostly with companies that have access to foreign currencies. Says he: ''The possibility of another coup remains. Our hard-currency reserves are the only guarantee we can give our customers.'' Recently, Visa and EuroCard granted Credobank licenses to issue hard currency credit cards, making it the first up-by-its-own-bootstraps Soviet bank to go into plastic. Rafis Kadirov, 34, who established Vostok Bank, is a physician. Based in Ufa, an industrial city in the Bashkiria region west of the Ural Mountains, Vostok is one of the few provincial banks that have managed to thrive. A longtime Gorbachev admirer, Kadirov raised his initial capital from seven Ufa cooperatives. Victor Yakunin, 44, founder of two-year-old Tokobank, is a former director of Promstroibank, one of the huge gray crowd of Soviet state banks. He obtained his startup money from a handful of state ministries seeking better returns on their spare capital. Tokobank now has nine affiliates, more than 200 employees, and nearly 2.6 billion rubles worth of loans on its books. Yakunin figures that kind of scale may persuade a foreigner to buy a piece of his bank. The head of Incombank, the biggest of the new private banks, still holds his state job. Vladimir Groshev, 51, is chairman of the board of Moscow's Plekhanov Economics Institute. Like most such institutions, this prestigious 84-year-old body was underwritten by successive communist regimes but under Gorbachev became a hotbed of radical thinking. Founded in late 1989, Incombank has 18 affiliates and capital of 500 million rubles. Its biggest problem: finding competent personnel. To help solve it, Groshev has organized a school to train managers. Says he: ''You can't have trade without people. They're the most important thing.'' Among the go-go financiers who have launched the Soviet Union's new commodities exchanges, mild-mannered Konstantin Borovoi, 43, stands out -- as an exception. The former mathematics professor is head of the giant Russian exchange, but Muscovites suspect the true powers are mysterious figures within the military-industrial complex. With the state ministries in disarray, the reasoning goes, these still powerful men now need an alternative way to supply their factories. By contrast, college dropout German Sterligov, 24, is clearly a self-made man. Ten months ago he persuaded Artem Tarasov, owner of one of Moscow's biggest cooperatives, to help finance a new sales network. Sterligov named it Alisa, after his Georgian sheep dog. Through this network, builders in places like Kiev can get wood or bricks from Alisa affiliates in, say, Tyumen 700 miles away. Sterligov's company gets a commission on each supply deal it arranges, plus a fat 4.5 million ruble one-time fee from anyone joining the network. ) Though Sterligov still drives a compact Lada, he recently founded Moscow's Millionaire's Club to ''defend the interests of the rich.'' To avoid reprisals from envious neighbors or angry rivals, he regularly switches apartments. His advice to Westerners: ''You can make a fortune here. But you shouldn't invest through the state structure. If you haven't understood that, then you've understood nothing.'' When former physics professor Valeri Neverov, 40, and seven of his fellow scientists at Tyumen Polytechnical University decided to start a business 15 months ago, he knew the perfect name for their company -- Germes (Russian for Hermes). The wing-footed god, Neverov explains, ''was the founder of knowledge and the guardian of commerce,'' an apt eponym for a consortium of 12 factories located in five cities that trades oil, timber, and other Siberian commodities.
Germes's biggest coup has been to form a partnership with a major state- owned pipeline company. In exchange for a share of equity, the government outfit guaranteed Germes access to its key pipelines stretching from Tyumen to Moscow and Kaliningrad. Neverov now hopes to increase sales to foreigners. At $18.50 a barrel, the current market price for his oil is nearly 17% less than the spot market price in the West. Even former Soviet soldiers are becoming capitalists. Vladimir Krasnobayev, 43, resigned his commission as an army officerfour years ago. Apparently financed by the military and its industrial allies, he launched Stil, a company that manufactures everything from fashionable women's clothing to steel moldings. A resident of Kaliningrad, Krasnobayev has just been elected president of the city's newly formed commodities exchange by its 440 members. Says he: ''We have everything we need in Kaliningrad to be a second Hong Kong.''
INDUSTRIALISTS They're shifting factories from tankmaking to tractor building -- and desperately seeking Western advice and capital.
You could say Vladimir Koblov, 65, got his job in the coup. A lifelong apparatchik, he is deputy chairman of the State-Military Industrial Commission, one of the most critical posts in the Soviet Union. With his former boss sidelined pending an investigation into possible complicity in the hard-line plot to remove Gorbachev, Koblov is in charge of finding foreign investors willing to help shift roughly 625 military factories to civilian production. Koblov, who rose through the ranks of the commission's vast and * powerful bureaucracy, has been working closely with Batterymarch, the U.S. money management firm. Batterymarch has promised to raise $250 million of Western capital if it can identify suitable long-term investments within the once top-secret defense sector. Says Koblov: ''Our biggest problem is a lack of startup capital. We have the know-how; we just don't have the currency.'' Pyotr Semenenko, 45, and Georgi Khizha, 53, exemplify the kind of Soviet managers that firms like Batterymarch are seeking. A tough-talking Ukrainian, Semenenko worked his way up from the assembly line. He heads the massive Kirov Works, which occupies 741 acres just west of St. Petersburg. The plant once made the T-80 tank, one of the world's best. When the Soviet government stopped ordering them in 1989, Semenenko switched to producing badly needed agricultural equipment, such as bulldozers and tractors. Still, he dreams of becoming a luxury car maker: ''We can make anything in this factory. Tell us what you want, and we'll make it for you.'' As director of Svetlana, another St. Petersburg defense enterprise, Khizha successfully pushed the floundering conglomerate into consumer electronics. In August, Mayor Anatoli Sobchak invited the soft-spoken technocrat to head the St. Petersburg Economic Development Committee, thus forging a remarkable alliance between defense factory leaders (whose plants account for nearly 80% of St. Petersburg's industry) and the city's new reform-minded political leaders. In his new job, Khizha is displaying a flair for civic salesmanship: ''I am convinced that even with all the problems, we have a great future.'' No factory is more closely linked with the wrong-headed gigantism of Soviet industry's past than the Kama River Truck Plant, or Kamaz for short. With 11 factories linked by a 150-mile-long assembly line, Kamaz churns out more than 120,000 heavy trucks and 250,000 diesel engines. Question is, will anyone besides Soviets want to buy them? Kamaz director Nikolai Bekh, 45, hopes the answer is yes. In June 1990 he refashioned Kamaz into a semi-private company by issuing stock. Its 176,000 workers received nearly a quarter of the 47 million shares. Since then, profits have doubled. Foreigners have gotten more interested too. Last month, Cummins Engine Co. of Columbus, Indiana, agreed to invest $500,000 in a small joint venture to make diesel engines with Kamaz. Says Bekh: ''When companies get their freedom, they will have more incentives to work well. Only then will ) the country get something back in return.'' As general director of AvtoVAZ, an auto plant built 22 years ago by Fiat of Italy, Vladimir Kadannikov, 50, helped implement the economic reforms of Gorbachev's early years. These modest changes produced modest improvements. AvtoVAZ now exports 40% of its production, mostly to Third World countries. To make further progress, Kadannikov, who started on the plant's assembly line, is working with Bear Sterns to find a foreign partner. With good reason. Two decades later the boxy Ladas that AvtoVAZ makes still look like 1960s-era Fiats.
POLICY MAKERS Some govern islands, some cities, and others republics. Most are struggling to plant free markets in rocky socialist soil.
Former Muscovite Valentin Fyodorov, 52, went east to seek his fortune. And in the Soviet Union, that's eight time zones. In 1985 the economics professor published a paper proposing the creation of a free-trade zone on Sakhalin Island, which stretches for 600 miles along the Russian Republic's Pacific Coast. This, Fyodorov argued, would promote local entrepreneurship and foster ties with Japan and other Asian neighbors. Residents of the island were so taken with the idea that they persuaded Fyodorov to move and elected him their representative to the Soviet parliament. In April 1990, he was elected governor. For a guy who wants to be friends with the Japanese, Fyodorov is going about it in a funny way. He opposes Japan's claims to the nearby Kurile Islands, which the Soviets seized at the end of World War II. ''The Kuriles are ours,'' he says. ''And they will remain ours.'' Still, in response to his drive to open markets, Soviet and foreign entrepreneurs are flooding the island with food and consumer goods that are hard to find elsewhere in the U.S.S.R. Women are as rare in the upper echelons of the new Soviet Union as they were in the old. A notable exception is Yelena Kotova, 35. The former professor of Third World development studies is in charge of privatizing Moscow's 16,000 small businesses and 2,000 large enterprises. With supply lines chaotic and private property still widely resented, persuading local investors to take a risk isn't always easy. Since her first auction in June, only two of six deals made have gone through. Foreigners will be allowed to participate in a special auction in December. Kotova says Britain's Margaret Thatcher is one of her role models: ''I am a tough person. But these are cruel times.'' St. Petersburg mayor Anatoli Sobchak, 54, hopes to turn Russia's second- largest city into a free-trade zone by lowering taxes and opening its borders to visa-free travel. Only one thing might stop him: The peripatetic former head of the law department at Leningrad University seems destined for higher office. The son of a railway worker, the Siberian-born Sobchak first rose to national prominence as a member of the Soviet parliament. His eloquent, intellectual orations made him a fixture on the evening news. He burnished his reputation by staunchly resisting the August coup. Sobchak is arguably the Soviet Union's third most powerful politician, behind Yeltsin and Gorbachev. Says he: ''We won't make it without the help of foreign businessmen. Come to St. Petersburg, and we will create the best possible conditions for you.'' A less certain future awaits Vytold Fokin, 59, Prime Minister of the Ukraine, the second most important Soviet republic after Russia. A former coal miner from the Donbass region, Fokin reached his current post by rising through a series of Communist Party jobs. Though he now advocates free-market reforms, he is engaged in a delicate balancing act. Ukrainian radicals insist that the 50-million-citizen republic become a fully independent state; Fokin, not surprisingly given his background, tends to side with conservatives who argue that the Ukraine must preserve its economic ties with Russia and the other republics. A referendum on independence set for December 1 will likely determine Fokin's fate. After Russia and the Ukraine, no Soviet republic matters more than mineral- rich Kazakhstan. That makes its first elected president, Nursultan Nazarbayev, 50, a former steelworker, a man to reckon with. Elected in April 1990, the charismatic Nazarbayev, who left the party only in September, has been reborn as a stalwart nationalist. His blend of market-oriented economic policies and authoritarian rule is based in part on the model of South Korea. Says Nazarbayev: ''It is high time that the economy be freed from ideological shackles and allowed to live by its own rules.'' Currently, Chevron is negotiating with Nazarbayev for exclusive rights to exploit Kazakhstan's vast Tenghiz oil field. Estimated recoverable reserves: 7.5 billion barrels. The son of a schoolteacher and a military officer, economist Grigori Yavlinsky, 39, has the daunting task of reuniting the economies of the increasingly fractious republics. A graduate of Moscow's Plekhanov Institute and a staunch free-marketer, Yavlinsky insists that the republics must at least agree on a central banking system and a complex exchange rate scheme that would link their independent currencies. But even this limited union has so far proved too much for many republican leaders. Says Yavlinsky: ''Any hope we have for political stabilization must be based, first of all, on economic stabilization.'' Or is it the other way around? Finally, if you ever wonder how bad things could get if the Soviet economy fails to revive, peer into the face of Vladimir Zhirinovsky, 45. Last year Zhirinovsky, a lawyer, founded a nationalist political party called, in Orwellian fashion, the ''Liberal Democrats.'' His modest proposal for fixing the economy? Reconquer Eastern Europe. ''I shall threaten with arms, even nuclear arms,'' he vows. If that fails, ''I shall send one and a half million troops into the former East Germany. Then there will be an abundance of goods.'' Zhirinovsky, who boasts of having never been a Communist Party member, received seven million votes in last summer's Russian presidential elections. His platform called for martial law and lower vodka prices. Bitter about persistent comparisons with Hitler, he recently lashed out at his critics: ''Adolf was an illiterate corporal, whereas I have graduated from two higher educational establishments and have the command of four languages.'' How comforting.