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. Last Updated: 07/27/2016

Nizhny Novgorod: A City Privatizes

NIZHNY NOVGOROD, Russia -- Stalin vowed to build socialism in one country. The city of Nizhny Novgorod has set out to build capitalism in one region. It began with the shops and the small businesses, and at the end of this month it begins phase two, when the city's trucking system will be auctioned off.


Once known as Gorky and still Russia's third largest city, Nizhny Novgorod was set up as a model for Russia's economic reforms, aiming to privatize in the smallest units possible. They began by securing shops, light industry, beauty parlors, tailors and the service secfor in the hands of private citizens.


But the hard part is just beginning.


The city is one of the largest industrial centers in the country. Nearly 75 percent of the region's 600 enterprises produce heavy military machinery -- MiG jets, submarines, radar equipment. The factories themselves are behemoths like the GAZ autoworks that employs 120, 000 workers to produce Volga cars.


On Oct. 31, the city will start a series of auctions of state trucks. They aim to privatize the entire regional trucking industry, the largest player in the distribution chain that links small-scale entrepreneurs with large-scale producers and suppliers.


In April the International Finance Corporation, an affiliate of the World Bank Group, and Nizhny Novgorod officials launched Russia's first auctions of state property, and by September they pronounced the project a "striking success" that should be repeated throughout Russia.


With private stores and small businesses getting on their feet, it has become necessary to break the state monopoly on trucking to support them.


International Finance Corporation staff found that most trucking enterprises did not use up to 30 percent of their vehicles. Consequently, they were made to give up 20 percent of their trucks that will be auctioned off beginning next week.


The drivers and private citizens will be able use their 10, 000-ruble privatization vouchers to bid for the trucks in the upcoming auctions.


"We don't care who buys them, or how much they sell for", said Gretchen Wilson, the head of the International Finance Corporation's Nizhny Novgorod office, "We just want to get the trucks out there and in use".


Predictably, the transfer of property from state hands has not occurred without resistance. Truckers fear that their jobs and trucks will be sold out from under them. But Wilson hopes that resistance to privatization among workers will dissipate as rapidly as they did during last spring's first store auctions.


According to a September report of the International Finance Corporation, 75 percent of employees were rehired after the small firms were privatized.


The crux of the privatization plan for Nizhny Novgorod's trucking industry, however, will not occur on the auction block but behind the scenes.


The first stage of the sell-off to directors, employees and the public is important to disentangle enterprises from the Transport Ministry and involves no real change, Wilson said. Only later will truckers be forced to sink or swim in the market.