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By Renfrey Clarke MOSCOW — Late in October the huge tractor plant in the city of Vladimir, 250 kilometres east of the Russian capital, laid off almost 30% of its workers in a last-ditch effort to avoid bankruptcy. For the Russian government and ideologues of capitalist "reform", these developments have proved a considerable embarrassment. One of the first large Russian enterprises to be reorganised as a joint stock company, the Vladimir Tractor Plant during the first half of this year was often cited as an example of a firm that had overcome the problems surrounding privatisation, and had returned to growth. Sales were rising and wages were being paid on time under a new, Harvard-trained general director. The crisis at the Vladimir plant is a particular blow for the government because the firm's threatened collapse is the direct, predictable result of a key element of the government's "stabilisation" policies: the enforcement of the so-called "rouble corridor". By setting a high, fixed exchange rate for the rouble in a period of continuing inflation, this policy is driving Russian firms out of export markets. Meanwhile, imported goods are flooding the Russian market, benefiting from a heavy Russian government subsidy. From about the beginning of May, soon after receiving the first tranche of a large IMF loan, the Moscow authorities began selling large quantities of foreign currency in order to force up the price of the rouble. On July 5, the government announced that until October the Russian currency unit would be kept in a "corridor" between 4300 and 4900 to the dollar. This "corridor" has since been prolonged, and for many weeks now the rouble has been effectively fixed in a narrow band at about 4500 to the dollar. An economy in which the national currency is rock-hard against the dollar — what could be more stable than that? The trouble is that for virtually everything except the dollar, prices in Russia have not ceased to rise. If the rouble price of the dollar is currently about the same as it was in early March, the general level of prices has risen in the intervening months by about 50%. Average incomes in Russia this year have not kept pace with inflation — far from it. But even relatively poor Russians can now afford to buy far more dollars — and hence, more imported products — than they could six months ago. Imports have accordingly boomed. Now consider the position of Russian firms producing for the local market. Burdened with heavy taxes, and forced to try to find customers among an increasingly impoverished population, such firms were doing well early this year if they were managing to stay in the black. Then came the stable rouble, and floods of imported goods bought with ever-more-affordable dollars. Pro-government commentators point out that the cheap imports are deterring Russian producers from arbitrarily raising their prices, and that inflation is therefore being dampened. Trying to cope with huge cuts in their competitiveness, Russian manufacturers do not seem to appreciate the humour. In Moscow shops these days, Russian-produced goods have almost become rarities. Of course, Russian consumers are not the whole of the potential market; producers have the option of exporting. The Vladimir Tractor Plant was one firm that decided years ago that it would have to sell its wares abroad if it were to survive. By early this year, close to half of the old-fashioned but sturdy and cheap Vladimir tractors were being sold outside Russia. Then came the stable rouble, and with inflation, the dollars which Russian exporters earned for their products were able to buy dramatically fewer of the Russian inputs needed for production. The Vladimir tractor-builders, like other Russian exporters of manufactured goods, were forced to consider whether to raise their prices. The response from potential customers was not encouraging. As Izvestiya lamented on October 25, "It is useless to explain to Western consumers that in the land of the strengthening rouble the buying power of universally respected currencies is falling catastrophically, and that with the proceeds from the sale in America of one tractor, it is now possible to build only half of a new one". True, the total value of Russian exports this year has not declined, but has increased markedly. This reflects a process that was already under way in the final months of 1994. As sales within Russia fell alarmingly last year, producers began scrambling to make sales abroad. Firms marketing such traditional exports as oil, gas, metals, fertilisers and basic industrial chemicals generally found customers. The "stable rouble" has cut deeply into the profitability of these traditional exports, but profits were often high to begin with, and the government has helped by reducing export duties. The flood of Russian raw materials and semi-processed goods onto world markets has drawn threats of sanctions against "dumping". And in the case of the Russian chemical industry, the strongest rise in exports has been for the products of environmentally hazardous processes — the processes that Western governments would rather not have on their own soil. Meanwhile, exports of cars and other machinery have fallen, as the main attraction of the Russian offerings — their cheapness — has ceased to apply. Exporters of machinery and equipment have not been helped by cuts in export duties, since these exports were not subject to duties in the first place. With the expanse of unsold tractors outside their windows spreading rapidly, the managers of the Vladimir Tractor Plant recently convinced the administration of Vladimir Province — where the plant is one of the underpinnings of the local economy — to grant a loan of 100 billion roubles (about US$22 million). Using this money, the plant managers planned to put a new, modern tractor into production. However, the loan would not appear immediately, and tooling-up for the new model would take time. Meanwhile, the plant managers announced, production would be cut by two-thirds, and 3000 workers would lose their jobs. At last report, the Vladimir city authorities were protesting bitterly, and calling on the province administration to reconsider its decision to lend money to the plant. For supporters of the Russian government, it has been no small challenge to explain how the loss of jobs, tax revenues and export income from the crash of output at enterprises such as the Vladimir Tractor Plant represents progress toward stability. One brave attempt has come from Richard Layard, a London School of Economics professor who has been an influential adviser to the Russian regime. On October 24 the Moscow newspaper Finansovye Izvestiya quoted Layard as arguing that because Russia has an exceptionally large resource base, it "does not have to be competitive in the field of manufacturing industry". Concretely, Layard urged that the "rouble corridor" be extended until March. It was not necessary for him to add that after four more months with inflation levels of at least 5% a month, scarcely a single manufacturing enterprise in Russia would remain profitable. There we have it: Russia should kill off its manufacturing base, and join the rest of the Third World in competing to press raw materials on the industrially advanced countries, at comparative prices that have declined steadily over the decades. The scenario is certainly an attractive one for first-world capital. But to purveyors of advice like this, Russians might well reply: thanks for nothing.