Light Industry and Consumer Goods

«Light industry» includes production of clothing, shoes, textiles, appliances, and other retail items. It was never a strong part of the Soviet economy. For example, although some clothing and footwear had to be produced, much of it was of abysmal quality. To get a pair of decent shoes, one had to shop at one of the hard-currency (Beriozka) stores, or beg a friend who went on a rare trip abroad to buy a pair. The Hungarian economist Janos Kornai developed a theory of socialism as a “shortage economy,” explaining that in a socialist state shortages result not merely from “planning errors,” as is commonly assumed; they primarily occur because enterprises exist to deliver goods, but not to make a profit. In otherwords, they can afford to lose money indefinitely without facing bankruptcy. All things being equal, Soviet managers had more incentives to produce heavy equipment, cement, or steel than to make consumer goods, because the Soviet Union reward system was heavily skewed towardthe former rather than the latter. Thus less than a third of the total Soviet industrial output was in the consumer products sector.

Not only was light industry performing poorly before the breakup of the U.S.S.R.; it was also the one hardest hit by the recession resulting from the reforms of the 1990s. Some examples tell the story plainly: Russia produced only 11% of the shoes, 17% of the underwear, and 40% of the cotton fabric in 2002 that it produced in 1990. The sector's output in general fell a whopping 80%—an unprecedented decline, much more severe than that in the heavy industry. It is interesting to note that whereas the United States and other developed Western economies ceased production of their own shoes and clothing at the same time and shifted it overseas to Asia and Latin America in order to keep prices low for consumers, the production stopped or was greatly curtailed in the FSU when privatizing schemes failed. The eventual result was the same, however: Virtually all shoes and most clothes for sale in Russia today come from China and other Asian economies.

With respect to consumer electronics and other appliances, some common products (e.g., dryers or toaster ovens) were not made in the U.S.S.R. at all. Others (e.g., washing machines or tape recorders) were produced in small quantities and were of inferior quality. A handful of noncompeting factories would produce refrigerators, stoves, TV sets, and so on. They were not interested in marketing their products to consumers or in improving quality and design. When Japanese, Korean, European, and U.S. brands began to flood Russia in the early 1990s, domestic production of appliances declined to a fraction of its former volume. Refrigerator production, for example, declined from 3.8 million units in 1990 to merely 1.3 million in 2000; camera production decreased from 1.9 million to 100,000; and so on. Imported goods have filled the shelves across Russia since the mid-1990s. Some new domestic production is beginning to occur, however. The products are not replications of the obsolete Soviet models, but contemporary products made to a large extent with foreign investment and technologies, and they have the potential to compete with foreign-made products. At the same time, Russian labor rates are higher than in most of Asia, and there is a lack of qualified workers in some regions of the country, making domestic production problematic.

Compared to the heavy industry, most of the light industry was located outside Russia during the Soviet era. For example, Latvia and Belarus assembled a lot of electronic products. With the devolution of the Soviet Union, the old factories in the other republics needed Russian parts, but these were no longer available because of the bankruptcies of many enterprises, the lack of credit, the collapsed banking system, and hyperinflation. In turn, Russian stores could not obtain finished goods from the other republics, because the newly independent states had lost their connection to Mother Russia. Within less than 10 years, a majority of the old Soviet factories in light industry either closed altogether or had to reinvent themselves with new sources of capital under new ownership. Although no one may regret the collapse of factories making obsolete models of TVs or washing machines, the decline in fabric manufacturing is very unfortunate. Soviet textiles were very durable and of high quality, and their loss is deplorable. Also, entire textile-manufacturing regions (e.g., Ivanovo) have lost numerous jobs and are financially depressed.

On the bright side, certain branches of light industry in Russia and other former Soviet Union (FSU) states today are genuinely booming. Here are some examples:

• Food processing (e.g., frozen dinners sold at supermarkets).
• Beer brewing.
• Cosmetics manufacturing.
• Book publishing.
• Manufacturing of construction materials (plywood, sheetrock, siding, etc.) and home improvement products (toilets, sinks, furniture, etc.).

Note that many of these sectors were greatly underdeveloped in the Soviet Union. In this chapter, I focus on three representative industries: two growing ones (food processing and book publishing) and a struggling one (textile, shoe, and clothing manufacturing). Each illustrates typical challenges and opportunities in light industry of the post-Soviet period.

Food Processing

If you have seen the movie Everything Is Illuminated, you may recall the hilarious scene in which an unfriendly Ukrainian waitress brings out a lone potato on a plate to a vegetarian American tourist, who is played by Elijah Wood. The potato comes presumably baked and peeled, but without any dressing, gravy, salad, or side dish. Although this scene is admittedly exaggerated, it is based on real-life experiences with the restaurant industry in the FSU: The Soviet restaurant food was notoriously bad, and the staffers were unfriendly. The majority of Soviet citizens never ate out, except in their workplace cafeterias. All families cooked their own meals at home. Virtually no processed food was used; everything had to be made from scratch. Although much processed food is not healthy, in consumer societies it is heavily marketed as the sensible choice for busy people. Workers today have little time to cook, and recent innovations have made factory production of precooked food plentiful and cheap. The Soviet Union relied on some of its trade partners in Eastern Europe (Hungary, Poland, Bulgaria) for many canned and frozen food items, especially vegetables. It also produced certain types of processed food itself, mainly for the military. The most useful was tushenka canned meat—usually beef stew with plenty of fat and of dubious quality—which sustained many generations of Soviet geologists and students in summer camps. Although it was made mostly for the army (meat was a rare treat in a Soviet soldier's ration), much tushenka was sold on the black market. Sguschenka (sweet condensed milk) was another staple that was sometimes available. So, as far as processed and prepared food went, there were few choices. On the other hand, fresh bread of decent quality was almost always available everywhere, and so were many basic vegetables and grains. Therefore, at least three generations of Soviet women grew up with expectations of much cooking as part of their normal family life. Because nearly all of them also worked full-time, cooking was the most demanding of the household chores that Soviet women had to do, while men watched hockey on TV or read Pravda. When new business opportunities arose during the 1990s, one of the gaping holes in the economy begging to be filled was in the processed and ready-to-serve food industry.

Both Russian and foreign companies rushed in to fill the need. Among the foreigners came the transnational giants Nestl? and Kraft Foods, with full lines and dozens of brands of processed food products. Within a short time, both companies opened production facilities in Russia. Kraft Foods opened a coffee-packaging facility near St. Petersburg in 2000 to capitalize on the developing instant-coffee market, and it purchased a stake in the Russky Shokolad factory in the city of Pokrov to become the second largest chocolate maker in Russia. Nestl? purchased the famous Soviet ice cream factory in Zhukovsky near Moscow; it also made aggressive investments in baby food, coffee, candy, dry milk, and pet food production in the Vologda, Perm, Kostroma, Kuban, and Kaluga areas of European Russia, as well as in Barnaul in Central Siberia. Mars, Inc. brought in truckloads of Snickers, M&Ms, Skittles, and other candy products, and within a short period started manufacturing them in Russia. The French dairy giant Danone came in with offers of fresh yogurt, an undermarketed milk product during the Soviet period. Russians generally prefer kefir (which is a similar milk product, but fermented by a different culture) to yogurt. Danone quickly learned this and started making excellent kefir and farmers' cheese to suit Russian tastes.

McDonald's opened its first restaurant in Moscow in 1990. It enjoyed a runaway success, with the initial queues at the door exceeding those to Lenin's tomb. The company quickly learned, however, that in order to make decent fries it had to grow potatoes itself to its exact specifications, because no local suppliers of frozen fries could be found. As a form of geographic adaptation to local tastes, many foreign companies experimented with flavors unfamiliar to North Americans; for instance, the black currant milkshake was my personal favorite at the first Moscow McDonald's for a while. Similarly, Skittles made in Russia contain beet sugar instead of corn syrup, and thus have a distinctly “European” taste, slightly different from that familiar to North American consumers.

Russian companies have slowly begun to respond to the challenge posed by outsiders. One of the early successes was the creation of the Wimm–Bill–Dann (WBD) Corporation in 1992—a major juice, milk, and baby food producer controlling about one-third of the Russian domestic market. Despite its vaguely European name (based on a cartoon character resembling a mouse with oversized ears), WBD is a distinctly domestic company owned by Russian capitalists. Today it has a presence in many parts of Russia, as well as in Georgia, Ukraine, and some Central Asian states, with 37 production plants. Many of its products' commercials bear direct references to the quality and naturalness supposedly common among Russian products. Cute brand names like Happy Milkman or Little House in the Village cause people to become nostalgic and buy more of the WBD products. However, the taste and quality of these products are indeed just as good as, or better than, those of WBD's Western competitors. This strategy of capitalizing on nostalgia for the Soviet past has been adopted by many other Russian manufacturers. For example, packaged Indian tea from the Moscow Tea Factory proudly bears the same elephant logo as its Soviet predecessors, and has the slogan on the package “That very tea, with the elephant” to distinguish itself from its numerous domestic and foreign competitors.

Food processing has to be widely dispersed to be efficient, because transporting fresh, heavy, or frozen items over long distances is costly. Perishable items, like milk, must be consumed locally. The introduction of Western-style sterilized milk (e.g., Parmalat) did not meet with much success among Russians, who stubbornly prefer more natural-tasting alternatives. Some food processing must be done close to where the raw materials are harvested; for example, sugar or butter must be processed rapidly to avoid spoilage. Others must be produced close to the consumers—bread or pastry, which must be fresh, or bottled juices and beer, which are too heavy to ship far.

Speaking of beer, one of the biggest surprises of the 1990s was its emergence as the new national drink instead of vodka. Although vodka consumption remains high (Russia consumes half of all vodka produced in the world), beer now accounts for more alcohol consumed than vodka does within Russia. An average Russian in 2003 consumed 9.1 liters of pure alcohol, as compared to 15.4 liters in Luxembourg, 14.8 liters in France, and 8.3 liters in the United States. Although Russia still trailed 18 other developed countries in a 2005 rating by RosBusinessConsulting and the Organization for Economic Cooperation and Development, per capita consumption of alcohol in Russia was up about 65% since 1990. Most of this was due to an increase in beer, not hard liquor consumption. In fact, the Russian beer market is the third largest in the world, behind only the Chinese and the U.S. markets. Beer was not particularly popular or widely produced in the U.S.S.R.; the typical beer was soapy, sweet stuff of rather disagreeable quality. With privatization, unprecedented opportunities came for foreign and domestic investment in this arguably safer alternative to hard liquor, and beer production soared. Of particular note are early investments in obsolete breweries in the Urals by the Khadka family (the Sun Corporation from India), and more recent investments by Dutch, German, and other European beer makers in breweries in Moscow and especially St. Petersburg, the beer capital of Russia. The Danish giant Carlsberg controls production of Baltika beer (the top brand in Russia and the second biggest brand in Europe by volume sold), as well as of Arsenalnoe, Yarpivo, Nevskoe, and a few other brands. Several dozen beer brands are now available in the FSU, not including distinctly local microbrews. Also, beer commercials are easily one of the two most common types seen on TV, along with obnoxious cell phone advertisements.

Food processing in the other FSU republics has basically followed the Russian trends. The Baltics had the most advanced food-processing industry before the fall of the Soviet Union, but are now struggling because of the intense competition for food products within the European Union (EU). Ukraine and Belarus, and to a lesser extent Kazakhstan, Georgia, and Armenia, have sufficient domestic expertise with producing most common food items, as well as beverages. In all republics, the foreign presence is strongly felt (e.g., Coca-Cola, Pepsico, Nestl?, Unilever, and Kraft Foods), but many Russian companies are making their presence known as well. WBD, for example, routinely prints its food labels in the Russian, Ukrainian, and Kazakh languages, and has distribution networks in most of the 12 Commonwealth of Independent States (CIS) republics.

Textiles, Shoes, and Clothes

Soviet production of textiles focused on natural fabrics from domestic sources (flax and later cotton, hemp, wool, and silk), although some synthetics were also made. The textile industry was based primarily in the Ivanovo region northeast of Moscow, along the Volga River. This was the traditional area of flax production, although by the late Soviet period by far the most common fabric was made of imported cotton from Uzbekistan. Silk (Naro-Fominsk, Tver) and wool (Moscow) had to be produced mainly from imported raw materials as well. Wool, for example, would come from Kazakhstan, Tajikistan, Azerbaijan, and the Russian Caucasus, where sheep were extensively raised. The U.S.S.R. would even buy wool in Australia, New Zealand, and Uruguay. Wool fabrics were used in civilian clothing, army uniforms, blankets, and some industrial processes. Although Russian fabrics were relatively expensive to make, they were very durable. Socks, underwear, dresses, pants, and shirts were primarily produced in a few large factories in Moscow and nearby cities (e.g., Smolensk, Orel). Today the Central federal district accounts for 84% of all fabric and 47% of all shoe production in Russia. The St. Petersburg area, the Urals, and parts of Siberia also have many factories making fabrics for local consumption.

This sector suffered the greatest decline of any industry during the reform period. The volume of fabrics produced in 2005 was only 33% of the 1990 level, production of socks was at 32%, and production of shoes was at a mere 12%! Why did this happen? There were many reasons. First, as noted earlier, the Soviet state viewed light industry (especially clothing and shoe production) as a necessity, but not a priority. Therefore, few investments were made in it, and by the time of perestroika the industry was already in deep chronic crisis. Second, most of the raw materials for this industry (about 90%) came from agriculture—a sector that itself entered a period of deep crisis. Third, imports of cheap materials from the other FSU republics were interrupted. A fourth big factor was heavy competition from cheap Asian imports, which flooded Russian markets in the early 1990s. Yet another factor was the relative expenditure involved in converting old equipment for modern production lines in this business, in which profit margins are low. For the oligarchs, it made much more sense to invest in lucrative petroleum and metals immediately available for exports, not in clothing or shoes for the poor domestic market. When the state ended most of its subsidies, the industry was left alone to struggle with the economic hard times. The recent modest increases in production in this sector have not made much of a difference: Russia imports most fabric, clothing, and shoes it needs. Russia still produces only 0.3% of all shoes in the world, despite the slight increase in production. This situation, by the way, is not very different from that in the United States, which was pushed to abandon domestic production of most textiles and especially finished clothing and shoes in the 1990s by the globalization pressures from Mexico, China, Brazil, and other developing countries.

Some traditional domestic textile products made in Russia are highly regarded: Woolen scarves and shawls from Pavlovo Posad and Orenburg, and linen towels from Smolensk and Ivanovo, are considered superior to foreign alternatives. Special editions of these may have embroidery patterns designed by well-known artists and may retail for hundreds of dollars apiece. A quick walk through downtown Moscow, however, reveals hundreds of boutiques selling mainly overpriced Western goods: high-end shoes, leather jackets, business suits, dresses, and lingerie by the leading European, Asian, and North American designers and manufacturers. Given the very steep prices, it is astonishing to see so many stores with so many products actually in stock. Someone is obviously buying at least a few of these items. The majority of Muscovites, however, do not shop at these boutiques; they crowd the outdoor markets on the city periphery. One of the biggest of those is in Izmailovo, east of downtown, where Vietnamese and Chinese goods are peddled by Uzbek and Azerbaijani vendors in an enclosed area the size of 20 Red Squares (about 0.66 km2). This is where the ultimate bargains can be found.

Book Publishing

Although it is not a commonly discussed area of light industry, book publishing, of course, is an industry dependent on raw materials (paper, glue, paint, energy), machinery (computers and printing presses), and high-tech services (computer layout and design, editing, marketing). This is one of the few sectors of the Russian economy today that is positively booming. Its remarkable rise coincided with the beginning of perestroika and merits a separate discussion.

The Soviet Union printed a lot of books; in 1988 the Russian Federation alone printed 1.8 billion volumes. Lenin's collected works alone were produced in millions of copies per year, for both domestic and international consumption. Works by the classic Russian authors (Pushkin, Tolstoy, Dostoevsky, Chekhov) were continuously in print. Some privileged Soviet writers saw their books printed in hundreds of thousands of copies. Children's books were also printed, both small and large. A typical press run of a single Soviet-era book would be an astonishing 100,000 copies—a figure that only a handful of bestsellers approach in the West. However, the selection of titles was limited. Many genres were not published at all, and the works of some authors (e.g., ?migr?s and dissidents such as Nekrasov, Solzhenitsyn, Aksenov, and Voinovich) were explicitly banned. Other great writers whose works were unconventional, satirical, or critical of the Soviet Union (e.g., Bulgakov, Platonov, Fadeev) would have only occasional books in print. The Bible was printed just a handful of times in the entire 70 years of Soviet rule, and then just a few thousand copies to be used by the clergy only. Romance novels, mysteries, thrillers, and other “light reading” were virtually absent. However the U.S.S.R. published a good deal of specialized scientific literature and a surprising number of some Western classics, especially by 19th-century authors (e.g., Dumas, Verne, Dickens). The total number of titles published per year approached 70,000. For comparison, the entire English-speaking publishing world (the United States, the United Kingdom, Canada, Australia, New Zealand) produced about 375,000 titles in 2004.

Overall, the Soviet population was very literate. Children memorized many poems in school, and most adults read quite a lot of serious literature, which in the absence of much TV was a common pastime. However, the bookstores were often scantily stocked, and finding good books could require much skill and haggling on the black market (book selling was not officially allowed in the streets, but this was done in a few areas where the authorities would turn a blind eye to the proceedings).

Gorbachev's glasnost allowed the production of many underrepresented genres to soar (listed here in no particular order):

• Contemporary Russian prose, including some excellent new authors.
• Contemporary foreign fiction.
• Romance novels, science fiction, fantasy, and thrillers.
• Large-format art volumes.
• Encyclopedias of various sorts.
• Adult magazines and fiction.
• Travel books.
• How-to books for home, car, and pet owners.
• Textbooks, including many translations from Western sources, as well as original works.

Figure 19.4 depicts the relative numbers of books published in some of the categories above. The list could go on. What is significant to note is how quickly this happened. In perhaps 5 years, the Russian street kiosks and bookstores went from almost empty shelves to thousands of high-quality, glossy, colorful, exciting, and engaging books, most printed domestically. Hundreds of publishing houses were set up quickly. Some (Eksmo, AST, and Drofa) grew to be giants with millions of copies sold per year. Others struggled and went out of business, shifted from serious literature to printing calendars, or found a narrow professional niche.

A particularly Russian phenomenon of recent times is the emergence of “pseudotranslations.” Publishers found out that, for example, a romance novel of 200 pages written by a certain Alice Smith and set in colonial India would sell many more copies than the same novel written by Nikolai Panov and set in the late 1970s suburbs of Petrozavodsk. So Panov (who might be a Moscow State University student with a major in philology) would publish the Indian novel under the pen name of Alice Smith, supposedly as a translation, and would make a few hundred dollars on the spot. The publisher would eventually pocket a large profit. Within the fiction segment, the top category now is domestic detective stories (about 15% of all titles), followed by foreign and “pseudotranslation” romance novels (7%). Serious novels and poetry are also popular. Overall, over 100,000 book titles were produced in Russia in 2004, although only 700 had press runs over 100,000 copies (Levina, 2005).

There was one big bottleneck in the Russian book-publishing business: While publishers proliferated beyond all initial expectations, the same printers were still operating in the same old Soviet factories. Typically found in the more forested parts of the Central district (Tver, Mozhaysk, Yaroslavl), these printing monsters could print hundreds of thousands of copies per day, but only on cheap paper with inks of low quality. Books requiring color separations, high-quality bindings, or glossy paper had to be manufactured somewhere abroad—in Finland, Germany, Italy, or Singapore, countries specializing in high-end printing. In the early post-Soviet years, the Russian printers were also not equipped to deal with hundreds of individual customers and their individual projects; the resulting confusion added to the time and the cost. Gradually, however, the old printers found new investors, purchased better equipment, and reinvented themselves. Some smaller printing facilities offering more diversified services sprang up in other parts of the country. Russia's vast forest resources, relatively cheap labor, and huge customer base make it an ideal location for printing books. However, the cost of printing has been escalating quite a bit ahead of inflation, at 18–20% per year. By 2010 it is expected that the average book price in Russia will be equal to the average European price of 10 euros, while the average income even in big cities will still only be about one-third of the European level.

Moreover, although the publishing industry is booming as never before, the amount of serious reading in Russia has undoubtedly decreased (as it has in the rest of the world). Magazines, Sudoku, cable TV, MP3 players, and the Internet have all distracted Russian readers. Nevertheless, Russia remains a reading nation: It was in 25th place out of 81 countries in a United Nations Educational, Scientific, and Cultural Organization survey of the number of library books available per capita, ahead of the United Kingdom, Germany, or France. It is the 20th most literate country in the world out of 200 (99.4% literacy rate). Reading is the second most popular leisure activity for the Russians (14% do it, as opposed to 28% watching TV, in first place). However, about one-third of all Russians now claim that they never read—something unheard of in Soviet times.

One of the most successful Internet projects of the post-Soviet period is the Moshkov Library at www.lib.ru—a massive online library created, curiously, by a graduate of the very prestigious mathematics department of Moscow Sate University. The Website has over 5 gigabytes of text, including virtually all classical authors, many contemporary authors (foreign and domestic), and a wide variety of nonfiction (on tourism, computers, foreign travel, chess, etc.)—all available for free. Some titles that are available here may be copyrighted elsewhere, but there is as yet little perception in Russia today that publishing them online may be illegal. A large section of the online library contains thousands of self-published novels, ranging from very good to abysmally poor. Here is the ultimate freedom for the reading masses!

The FSU republics and the Russian diaspora across the world are two additional markets for Russian book publishers. Most major online bookstores (such as amazon.com) offer hundreds of Russian titles, and there are Russian retail bookstores all over the world in the biggest cities. Most Kazakhs, Ukrainians, and Georgians can still read Russian well, and many do so for business and pleasure. In these ways, publishing in the Russian language continues to sustain the global reach of Russian culture.

In summary, some sectors of light industry are in deep decline in Russia and throughout the FSU (e.g., clothing and textiles), while others are booming (e.g., publishing and food processing). Clearly, there has been a shift toward manufacturing consumer products that are locally in demand. Some of the new products are of high quality and reduce the need for more imports. At the same time, chronic underinvestment in traditional light industry has resulted in an employment slump in some regions. Overall, the light industry sector does not come close to rivaling the more established energy, metals, and heavy manufacturing sectors in Russia or the other FSU nations.

Review Questions

1. What food products were not commonly available to Soviet consumers? Where were the greatest opportunities after the fall of Communism?
2. What are the main geographic factors that determine where textile industry may locate?
3. Why did the Ivanovo area become the leading producer of fabrics in Russia?
4. Why is Russia a good place for publishing books?

Exercises

1. Compare a leading food producer in Russia (e.g., WBD) with a similar producer in the United States. What are the commonalities in where and how they do business? What are the differences? Can you find any products from the Russian producer in your local food store(s)? Why or why not?
2. If you were asked for advice about starting a new publishing business in Russia, what would you suggest should be the focus? Where in Russia would you locate your business?