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Capitalist Spirit Sweeps Russia's Silicon Valley

Electronics: In lean-and-mean Zelenograd, secret weapons engineering is out and consumerism is in.


ZELENOGRAD, Russia — This once-secret military research center was born of Cold War tensions, but the post-Soviet scientists who aim to convert it into Russia's Silicon Valley say it will be anything but a chip off the old bloc.

Weapons engineering is out. Consumerism is in. And with demand among up-and-coming Russians for high-end computers, video games and household gadgets described in terms such as "limitless" and "explosive," market analysts and money people are bullish on Zelenograd's prospects.

The electronics engineering firms of Zelenograd, or "Green Town," have already outpaced most industrial enclaves in the former Soviet Union in weaning themselves from government orders and streamlining work forces to levels that can be supported by actual sales.

Indeed, the lean-and-mean capitalist spirit has swept this once-coddled scientific community with a vengeance. Heat has been turned down at many of the cavernous enterprises, unprofitable cafeterias and kindergartens have been closed, and layoffs have cut staffing at the most successful plants to a fraction of their Soviet-era levels.

While the steelmaking and machine-building centers of Russia's vast Rust Belt between the Volga River and the Ural Mountains are floundering, Zelenograd's redundant specialists are getting with the program.

"A lot of the engineers and technical workers have opened private businesses here, so we have less of a problem with unemployment than most areas where there have been huge layoffs," said Ludmilla Sovdogarova, a literature professor now working as a manager at Mikron Corp., a chip-manufacturing company.

"It used to be a joke that you could build a missile system in our town but you couldn't get your TV repaired. Now there are dozens of places where you can get anything fixed."

This Silicon Valley, about an hour north of Moscow, remains a sad shadow of its American cousin, with its shabby brick apartment blocks, crooked concrete-slab fences and institutes built of gray cinder blocks and cloudy windows. Wages for the 200,000 residents average about $400 per month--four times the Russia-wide average, though still a pittance by U.S. standards.

But Zelenograd's commercial center has come to life since the days when workers had plenty of money but nothing to buy. Grocery stores stock as wide an array of Russian and imported foods as those in central Moscow, and the kiosks manned by private traders hawking everything from beach towels to watches flank the main streets like booths at a county fair.

"I was eligible to retire three years ago, but I couldn't afford to live only on my pension," said 58-year-old Nina Chekina, who was laid off from a local factory when it closed its kindergarten last year and now sells satin undershorts she sews at home. "But I don't want to become idle anyway, especially now that life is more interesting. We used to have more security, but it was also very boring."

A defense industry town until the 1991 collapse of the Soviet Union, Zelenograd now produces consumer-oriented electronics for both the domestic and export markets. Mikron, according to deputy director Yevgeny S. Gornev, makes 250 million silicon chips a year.

"But we need to reorient our production to the Russian market," said Gornev, whose firm currently exports 80% of its production. "The problem is that at present, Russian consumers don't have the money to spend on microelectronics. But the desire is there, and with time living conditions will improve to allow them to buy more. It is our responsibility to create demand in Russia."

At the nearby Kvant plant, 210 workers--a tenth of the staff a decade ago--turn out 10,000 personal computers per month under a component-assembly contract with IBM. General director Sergei B. Kabayev said output is just a drop in the bucket for a market that is both emerging and voracious.

In Moscow alone, 15,000 computers are purchased every month, said Kabayev, who predicts continued growth when and if investment in the provinces revitalizes other industries.

Russia remains gripped in a cash crisis brought on by the government's drive to hold down inflation and compounded by excessive spending during last summer's presidential campaign as well as shortfalls in tax collection and a plunge in earnings from privatization.

President Boris N. Yeltsin's shaky health and the prospect of another distracting election have continued to dampen foreign enthusiasm for investing in Russia. Most locals who have done well in post-Communist Russia have shipped their wealth abroad rather than reinvest in an uncertain future--bleeding away the capital needed to restructure.

But if some of the estimated $50 billion in "flight capital" can be lured back, or if Western investors can learn to live with the political risks, market analysts say this microelectronics haven could become a trailblazer in satisfying the starving Russian consumer.

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