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Date:         Fri, 4 Sep 1992 12:38:14 -0400
From:         George Frajkor <gfrajkor@CCS.CARLETON.CA>
Subject:      RussBiz

  The following is extracted from the E-Europe Busines list.
It concerns business the the Soviet Union.  Does it apply to our
areas?
 -------------------------------------------------------------------\


     Frm: Eric Fenster <efenster@igc.apc.org>

------
 I have an acquaintance in St. Petersburg whom I admire greatly. He is
knowledgeable but completely unpretentious, and his curiosity about even
the smallest things often reveals much about the East-West differences.

 We were discussing travel, and I had just explained how a plane
reservation in the USA can be made with a simple phone call.

 Fine, was the response, but with the enormous volume of phone use in your
country the lines must get crossed quite often. When that happens, mightn't
the person who answers pretend to be the airline company, so that at the
end of the conversation you think you have a reservation, but it is only a
trick?  How can you be sure?

 My friend is well-versed in high technology, but I left aside his
assumption that the phones in the USA behaved at the level of those in
Russia. Nor did I confront the second assumption, that there would be such
a significant effort to deceive on the part of people reached as the result
of a wrong number.
 Look, I said, there's one peculiar difference between phone behavior in
the West and in Russia, and it takes care of your worries.  The Western
business will answer by identifying itself--not with a mumbled, indifferent
and off-putting, "yeah."

 This incident reminded me of several days I spent once watching the
secretary of a responsible official in Moscow do nothing all day but read
novels and pivot on her elbow in response to the occasional phone call for
which the entire conversation was a dull, "Da."  "Nyet."  ["Da" = Hello.
"Nyet" = He's not in.]  Hang up.
----
 One member of our group became friendly with a street T-shirt seller and
was invited to his home, where he learned the basics of the trade.
According to this vendor, all the sellers were obliged to buy from the same
supplier at a fixed price.  He had one acquaintance who did not--and had
his legs broken as a lesson.  They also discussed the amounts of payoffs to
the police and the inconvenience of having to pay several times when a
seller's day straddled over more than one policeman's shift.

 On other occasions, we were matter-of-factly told the rates for
"protection" of street kiosks, and newspapers seemed quite up on these
costs and the bribery of policemen.

 The economists who use ideal supply and demand and price formation curves
to theorize on how the Russian market will develop should temper their
advice until criminal monopolies, protection rackets, broken legs and other
deviations have been factored into their equations.
----

 A response (Tom Richardson) to an earlier Note commented on the basic fact
of economics that price=cost only in a state of perfect competition;
otherwise, the value people place on goods dictates the accepted price.
Thus I was wrong to qualify the pricefixers as crooks.

1) Methods are being applied in Russia which are normally used to CORRECT
problems in already-functioning market economies (and they are quite
controversial even in that context). There is no evidence that the same
theories and assumptions will make a market economy from the unprecedented
starting point of the xUSSR. There is no market to regulate or correct.

2) Deviations from perfect competition only partially explain what is
happening here. Price-fixing seems to be integral to the "market," and not
just any price-fixing: price-cutters risk violent consequences. It is one
thing to draw graphs about how market behavior will change; it's another to
risk having your teeth kicked in by obeying one of those graphs.

3) The value people place on goods may determine the price they are willing
to pay when discretionary purchases are concerned. Other factors come into
play when the goods are vital, like the food one needs to survive. The
value of survival is extremely high, but there's a diference between
willingness to pay and ability to pay. The choices people have become
undernourishment, malnourishment, time wasted in food-gathering, stealing
and rioting. None of these alternatives take us to loftier points on
economists' curves.  The evidence that Russian enterprises stubbornly
refuse to lower prices even when nobody buys their output is also
indicative of the failure of "normal" market behavior.
----------------------------------------------------------------------
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