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Tatars turn

The former Soviet republic is receiving western advice on improving competitiveness.

It might ironic that a group of American management consultants is advising a former Soviet republic about the virtues of central economic planing.

But for the past year the Monitor group has been doing just that, helping the government of Tatarstan to develop the market economy and devise a long-term plan to improve the competitiveness of local industries.

Management consultants are used re-engineering corporations but this case - to paraphrase Stalin - they were more in the business of "re-engineering human souls". Monitor's chief conclusion was that the most critical challenge facing Tatarstan was more political than economic.

A mutually-beneficial consensus must be forged between government officials, whose Soviet-era instincts are to regulate everything that moves, and the new emerging class of private entrepreneurs, who suspect the state of being a dead, rather than a helping, hand.

The old system of central economic planning - masterminded by Moscow ministries - has collapsed, Resulting in massive declines in industrial outputs. The new forms of capitalism which have since emerged are proving unpredictable. often uncontrollable.

Moscow's liberal ideologues, who shaped Russia's economic agenda in 1992, were hostile to the idea of developing a new industrial policy even to support strategic enterprises and regulate the nascent markets. They feared it would allow bureaucrats to "re-politicise" the economy through the back door and stifle entrepreneurial spirits.

But Mintimer Shaimiev, Tatarstan's president who has won a large degree of economic autonomy from Moscow enshrined in a power-sharing agreement signed two years ago, opposed the "shock therapy'' school of reform.

He sought to soften the policy using local tax revenues to maintain support for state industry and subsidize food and utility prices. That has helped preserve social cohesion absent in much of Russia.

"We had a huge number of people working in large monopolistic enterprises in Tatarstan. You cannot turn them all into individual entrepreneurs and adapt to market conditions overnight. It takes time," he says, in an interview.

While being chided for his reactionary "communist" practices by Moscow, Shaimiev hired Monitor to advise his government how tit could best shape the gradual development of the republic's market economy.

The Cambridge, Massachusetts-based Monitor, which has drawn heavily on the competitiveness theories developed by Michael Porter of the Harvard Business School, set about the task with relish.

"In most cases we are normally tweaking the existing market economy but in this case we were helping create a new system from the ground ,"says Mark Fuller, Monitor's chairman. It was immediately obvious that Tatarstan boast more natural advantages than most Russian regions. Tatarstan is one of the richest oil-producing areas in the former Soviet Union. Its annual output of more than 25 m tones is expected to last for another 30 years.

The republic was also a center of high-technology arms production, turning out the Blackjack and Backfire bombers, and home to the giant Kamaz truck plant. That spawned many manufactures plants as well as a large number of technical institutes producing graduates with exceptional skills.

But Monitor perceived that Tatarstan was in danger of becoming an "advanced backward economy" which, despite its educated workforce and technological base, was dependent on crude oil to provide 90 per cent of its international exports.

The region's abundance of natural resources could be as much of a curse as a cure for the economy. Reliance on oil could crowd out investments in other sectors as many Middle Easter countries have discovered to their cost.

Monitor argued the region's standard of living would only rise if it could increase the export of sophisticated goods. To this end, it is fleshing out proposals with the Tatar government to develop "clusters" of industries, adding more value to oil products within the republic and building on its automotive industry infrastructure. Such advice would be familiar to students of Porter's thinking. But, perhaps more significantly in Tatarstan's case, was that the project stimulated fresh thinking among the 100 top decision-makers in the republic about how they could unleash their people's creative powers.

Alexander Tarkayev, chairman of the local Chamber of Commerce and Industry who worked closely on the project, says: "Monitor has been very important in changing our ideas about competition. A year ago I thought Tatarstan's competitors were France and Germany.

"I now realize that our real competitors are neighboring regions such as Yekaterinbugr and Nizhny Novgorod."

Monitor argued Tatarstan must aim to distinguish itself from neighboring regions to attract increased international and domestic investment by developing a supportive business environment.

The government is already committed to investing $50 m in a state-of-the-art wireless telecommunication network and is supporting reconstruction of Kazan Airport to encourage more international flights.

The Tatar government is actively courting foreign investors by introducing tax holidays and is opening trade offices in several foreign cities including Paris, Washington DC, and Adelaide and promoting the region's attractions on CD-Rom presentations.

It is also aiming to stimulate capitalistic change from the bottom up rather than imposing it from the top down. To this end, it has lit a bonfire of bureaucratic regulations to ease the formation of small businesses and is even encouraging students to work on projects to improve competitiveness.

But Soviet-era instincts rum deep in the local population. The Monitor project met resistance from some Tatar leaders who caviled at its $200 a month.

Monitor's consultants say they learned much from the project. The most significant insight was that economic reform can only succed if oridinary people participate on a mass scale.

"The Tatarstan government wants to make as many people as successful as possible so that there is support behind the reforms," says Bruce Allyn, a Monitor consultant. "The most important thing is to change things so that they have legitimacy."
By JOHN THORNHILL
"Financial Times", March 8,1996