Travelers on the Varshavskoe Highway in Moscow encountered an unusual sight late last July: A crowd of people waving homemade placards and portraits of a little-known bespectacled figure were shouting obscure slogans, chanting something incomprehensible, and arguing with the militia. This was not

an opposition demonstration but a gathering of shareholders of the high-flying Russian company MMM. The company's chief, Sergey Mavrodi, accused of tax evasion and complaining of being "persecuted" by government bureaucrats, had announced that MMM would cut the price at which it redeemed its shares from 105,000 rubles to 1,000. Then it had stopped repurchasing shares altogether.

Observers of the protest in the street might have assumed that thousands of shareholders ruined by the company were trying to sack its offices. But what was happening on the Varshavskoe Highway was the exact opposite. Shareholders were swearing their loyalty to Mavrodi while demanding that the government compensate them for their losses and free MMM from liability for taxes.

To say Mavrodi was "evading taxes" is not quite accurate. Like other Russian entrepreneurs, he simply divided his takings with the government from time to time, handing over as much as he thought necessary. But now there were rumors that the managers of MMM and tax officials had been unable to agree on the bribes to be paid.

In any event, the MMM uproar was clearly linked to the crisis of the Russian government budget. Having privatized all the former state enterprises that were actually turning a profit, and finding no way to collect taxes from the impoverished population, the government was trying to force entrepreneurs to pay at least part of what they owed.

Mavrodi took this as a personal affront, but he also seized on it as a wonderful opportunity to rid himself of all obligations to his shareholders.

The shareholders remained true to Mavrodi no matter what he did to them, but for the government it was a no-win situation: If Mavrodi were to prevail, no entrepreneur would feel obliged to pay taxes, and the government would be compelled to compensate shareholders in any company for any fall in share prices. So the government refused to bail out MMM shareholders, and Mavrodi was arrested for massive concealment of taxable income.

When it arbitrarily cut the repurchase price of its shares, MMM not only wiped out the savings of hundreds of thousands of its investors, but it destabilized all of Russia's young but flourishing securities markets. Many companies, including banks, were playing the game MMM had introduced. The airwaves were full of advertisements for firms offering to redeem their own shares, bonds, and bills of exchange, or inviting people to invest money at unheard-of rates of interest. Offers of returns of 400 or even 1,000 per cent per year were common, even after the inflation rate had dropped to 8 or 10 per cent a month. Meanwhile, finance companies were promising fantastic returns--as much as 80 per cent a year--on dollar deposits.

Everyone understood that the interest rates were inflated, that money was being made out of thin air, and that sooner or later the prices of shares would fall. The companies were operating on the pyramid principle, the old Ponzi scam, under which high returns were paid to existing investors out of funds contributed by new ones. Almost all the firms claimed to have elaborate investment schemes, but speculating with their own and other people's securities was their only profitable activity. Millions of small shareholders who understood nothing about the laws of the market hoped that if the boom did not last forever, it would at least continue for as long as they had need of it.

In 1992 and 1993, against a background of catastrophic decline in the Russian economy, hundreds of new firms arose and flourished. These were not only speculative operations involved in redistributing property. The transition to capitalism and to the Western model of consumption inevitably created new opportunities. Stock exchanges and banks sprouted, housing construction boomed, and so did service industries and advertising. It seemed that only yesterday virtually no expensive foreign cars had been sold in Moscow, but now there were showrooms full, as well as servie and repair shops. Restaurants, casinos, and travel agencies opened. Along with the new services came new jobs, and the people working in them received relatively good wages.

But the prosperity of the "new sectors" was shaky. The enterprises involved were extremely inefficient, incapable of serving as a locomotive that would drag the economy out of depression. By early this year, the new markets became saturated and their situation began to deteriorate in response to the general decline in output.

A crisis of over-accumulation of capital arose in the "new sector." There were no prospects for growth. There was nothing to export, and nothing to attract foreign capital. The service sphere was characterized not only by low quality but also by unbelievably high prices. According to Western researchers, Moscow in 1994 was the third most expensive city in the world.

Small-business people and ordinary employees of the new firms could not allow themselves the same luxuries as the genuinely rich "new Russians," but they did have some money to spare. Just as in America at the end of the 1920s, small investors streamed into the markets. Bookstore shelves were piled high with teach-yourself manuals bearing such titles as Capitalism Made Simple and How to Succeed in Business. The authors and publishers of such books were not, in fact, trying to teach people anything; their task was simply to instill in ordinary Russians the illusion that while lacking contacts, capital, and specialized knowledge, they could nevertheless prosper under capitalism.

By this year, however, such propaganda no longer worked. Small-business people were having a hard time making ends meet, and farmers were being ruined. Confidence in the authorities was falling fast. The "people in the crowd" of Boris Yeltsin followers were disappointed and disoriented, and were starting to doubt the honesty of politicians. But the hopes of fabulous enrichment remained, and just in time, the next myth appeared on the scene.

The authors of the self-instruction manuals had set out to convince their readers, "You can do this!" The managers of MMM, by contrast, told their clinents: "You needn't lift a finger!" The most important thing was to have faith in the leader: "We've made money for you, and we'll go on making money for you."

MMM's advertising campaign was conducted with talent and flair. The soapopera-style commercials were not just company promootion; they propagandized particular values and principles, and they proved quite convincing in a country where honest toilers were barely making ends meet while idlers and criminals drove about in expensive cars. MMM promised its investors khalyava--unearned well-being, a bourgeois way of life without Western efficiency or the Protestant work ethic, consumption not connected in any way with labor.

In a sense, MMM took on the role of the "caring state," a role the government had rejected. This was the secret of the phenomenal personal popularity of MMM's head, Mavrodi, whom thousands of shareholders saw as their "leader and defender," a sort of capitalist reincarnation of the propaganda image of Stalin. At the same time, MMM's propaganda liberated the company's followers totally from a belief in work. The "cult of labor" was consciously and consistently undermined.

The first people in the "new economy" to take to speculating in shares were the middle class, but millions of impoverished Russians were quickly drawn in. They gambled out of desair, trying to accumulate money not for a trip abroad, but for an extra pair of shoes. In the end, people began selling or mortgaging their apartments, divesting themselves of their last property in the hope of obtaining mythical winnings.

Cast into poverty, such people were unable to resist the system that had consigned them to misery, or even to recognize where their interests lay. The collapse of the old system of production and social welfare had left them without the means to survive, but the boom in the securities markets gave them hope. To gamble meant to imitate the "new Russians."

The result was not long in coming. The collapse of the scheme initiated by Sergei Mavrodi placed the future of his competitors in doubt. Although the airwaves were still full of Mavrodi's advertisements even after his arrest, the boom was replaced by crisis.

The "people in the crowd" no longer believed in politics, but they still believed in freeloading. For the first time in their lives, the shareholders began organizing themselves--not to defend their rights, but to rescue Mavrodi, their "benefactor."

Mavrodi succeeded in duplicating the Yeltsin effect. He became the latest person to win the selfless, senseless, and unrequited love of the "people in the crowd." But he was no longer able to save himself, the "new Russians," or the "policies of reform." MMM's crisis grew more acute. The investors' last (and, it should be said, most absurd) illusions were dissipated. They not only lost their last savings; their hopes of becoming a "middle class" were shattered forever.

The crisis on the stock exchanges also placed on the verge of catastrophe many small and medium-sized entrepreneurs who were still in business, and who had tried to increase their circulating capital by speculating in shares. It was as though the system had set itself the goal of acquainting Russians in the shortest time possible with all the delights of capitalist crisis: inflation, unemployment, unbridled crime, falling production, political instability, parliamentary cretinism, electoral farce, and military coups. All that had been lacking was a financial crash. Now that had happened as well.

A new and unfamiliar figure is now coming onto the scene, a figure Marx once dubbed "the petty bourgeois who has taken the bit between his teeth." This individual is markedly different from the naive, good-hearted former Soviet citizen who, with the help of the necessary propaganda, could be manipulated at will.

The discussions in 1992 and 1993 about a possible "Russian revolt" were absolute rubbish. People who had been brought up under Soviet conditions were incapable of such things. An "unthinking and pitiless revolt" is always a revolt of impoverished and enraged petty proprietors. The crowds in Los Angeles had systematically destroyed everything around them, but the defenders of the White House in Moscow in October 1993 had scarcely committed a single attack on property. The shareholders of MMM were different. Before spending even two days on the Varshavskoe Highway, they had already begun overturning cars.

In such situations, the petty bourgeois becomes extremely aggressive, excitable, capricious, and susceptible to left- or right-wing radicalism. It is difficult to predict how such people will conduct themselves, but it is clear that they will inevitably become radicalized in one manner or another. The problem lies in knowing which form of radical ideology these masses will embrace. Unless the Left succeeds in attracting them, they are likely to turn to fascism.

The talk of "Weimar Russia" and of a fascist threat in our country was foolish in 1992 and 1993, when there were no masses of ruined petty proprietors. But it is just such people who support right-wing populism and fascism. Movements of a fascist type can now find their mass base in Russia.