All Commentary
Monday, June 1, 1992

The Commonwealth of Independent States: Land of Opportunity

Peter J. Hill is a Senior Associate of the Political Economy Research Center in Bozeman, Montana, and Professor of Economics at Wheaton College, Wheaton, Illinois. He recently served as an economic adviser to the Bulgarian government.

Conditions are dire in the Commonwealth of Independent States (CIS), the confederation of former Soviet republics. The economy is paralyzed. Agricultural products rot in the fields, while store shelves are empty. Workers make shoddy goods for which there is no market, and even if there were a market, the products couldn’t be delivered because there is almost no distribution system.

But the bleak landscape of the CIS economy can be viewed through another set of glasses. Every one of the problems we hear about is also an opportunity, a chance in a lifetime for someone.

Today, for example, the inland waterways are dotted with rusting hulls of sunken ships. The state agency in charge of shipping found it too troublesome to remove ships that ran aground.

But to a man I will call Sergei, a former high official with this agency, they represent an opportunity for profit. He has obtained rights to these ships on sections of two rivers in Russia, the Volga and Oka, and is starting to find a market for the scrap metal he is removing.

Similarly, to a former student I will call Vladimir, the absence of consumer goods in state stores represents a chance for profit. Vladimir has dropped out of school, constructed three kiosks, and placed them on the streets of Gorky (now called by its original name, Nizhny-Novgorod), where he sells children’s clothes, shoes, and whatever other consumer goods he can get his hands on. A recent visitor even found chewing gum from India for sale.

Such entrepreneurs are still few in number, and the lack of private rights in the Commonwealth of Independent States creates serious obstacles for even these. I have used pseudonyms for them because their legal status is hazy. It is not clear that they have the right to purchase the goods they are selling. Since most property still belongs, at least nominally, to the state, does the person they are buying from have clear title to those resources? Until these issues are resolved, many opportunities will go unmet.

If CIS citizens are to respond to the myriad opportunities around them, some conditions are critical. Private ownership and freedom of contract must be allowed. Without these conditions, individuals who perceive better ways to do things and better uses for existing resources will be unable to gain control of property or enter into profitable agreements with others. Entrepreneurs must also have the assurance that their property rights will be protected from predatory activity by other citizens and from state expropriation. Confiscatory taxation must not remove most of the profits. A stable and convertible currency would facilitate exchange.

But one should not be too pessimistic.

Suppose a factory in Ukraine depends on a part manufactured 1,000 miles away in Uzbekistan; deliveries are sporadic and quality is low. This provides an opportunity for a Ukrainian entrepreneur who learns the specifications for the parts and opens a small operation nearby. He—or she—can earn profits by becoming a reliable supplier.

Is wheat disintegrating in the fields of Belarus while there is a shortage of bread in Moscow? If so, anyone with a truck can profit by delivering grain to a miller near Moscow.

Does a factory in Georgia produce little of value? A competing, more efficient factory can hire away its workers by offering greater wages.

With even minimal progress toward the introduction of property rights, the people’s mood could shift dramatically. Perhaps only a small fraction of the CIS population will be optimistic entrepreneurs at first, but others will observe and learn. Many who try to capture the new opportunities will fail, but some will succeed, and their success will encourage others. The people who seem to Westerners to be apathetic wards of the state may soon be ablaze with energy and zeal. Opportunity knocks!

  • Peter J. Hill is George F. Bennett Professor of Economics at Wheaton College (Illinois) and a Senior Associate of the Political Economy Research Center (PERC) in Bozeman, Montana.