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Steve Mariotti

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Teaching Capitalism in the Last Days of the USSR, Part Two

Posted: 05/18/11 09:31 AM ET

This is the second installment in a two-part series. Read part one here.

Day Four

Two burley KGB guards, Andrei and Mikhail, marched into the classroom. "Vladlen Barsonav. Vladlen Barsonav -- out!" The 15-year-old almost fell out of his seat with fear. This was Soviet repression in action. They hauled him outside. Running after them into the hall, I asked frantically, "What's wrong?" "He broke the currency laws," Andrei snapped back at me. "What currency laws?" I demanded. "We found dollars in his room." They had arrested him for the 50 dollars I gave him the day before, as a reward for winning the class sales contest.

I yelled, "Let him go, I gave him that money!" They hesitated for a second, but continued to march him away. Now screaming at the top of my lungs, I demanded: "Let him go! Get Mr. Yeltsin on the phone immediately!" I stood with my hands on my hips shaking, prepared to go all the way. Everyone froze. Andrei turned and looked at me in stunned disbelief: "What?"

"Yeltsin is a friend of mine. If you do not let that child go, you will join the people in Siberia!" A large group of people gathered around the entrance to the building. "Get Mr. Yeltsin on the phone," I said, calmer now, but totally bluffing. I sensed I had more power then I first realized.

Leonid came down from his office: "What is going on here?" Andrei said something in Russian and Leonid translated for me: "He said, student has dollars; we arrest him, That is the law, Steve, he explained." I could barely speak. I said, "Yeltsin and Gorbachev brought me over here to teach capitalism! I gave the boy 50 dollars as a reward for excellence in a lesson. It's part of the curriculum. Please get Mr. Yeltsin on the phone." I felt I had won by the tension in the air. "No need," said Leonid. He motioned to Andrei to let the boy go. Vladlen ran back downstairs. I thanked everyone and went back to the class. I shiver to think what might have happened to Vladlen without my intervention.

There were no other incidents. The KGB translators and I got to be good friends. At night I would drink Russian wine with them and they would drink vodka.

Day Five

On Saturday, Leonid knocked on my door. "Steve," he said, "we will be going into Moscow this afternoon, to the Kremlin, for a Komsomol meeting and dinner." "What is Komsomol?" I asked. "It is the All-Union Leninist Communist League of Youth," he answered. The string of abstract words sounded like something out of Orwell's 1984. "You are going to be one of the speakers tonight, for our top 200 leaders under 40." This was totally unexpected, but I knew what I would say. My opportunity had come.

I spent all day preparing for this gala dinner. My clothes were dirty, but Leonid had my suit dry-cleaned and found me a new white shirt. It did not quite fit, but I felt better. At 5 o'clock a black sedan arrived. Leonid, another KGB executive, and Wilson Harrell, who taught the adult program joined us. We arrived at the Kremlin complex. Many other black sedans were also pulling up, with smartly dressed young men emerging and passing through security.

In the very large banquet room, it dawned on me about this great opportunity to speak to the crème de la crème of the young Communist leadership. As usual, everybody was drinking. I drank a little vodka and immediately felt sick.

My dinner-table companions (including a man that didn't drink, named Vladimir, talked about their lives and the Komsomol, which was founded in 1918. It was the "youth wing" of the Communist Party with over 30 million members. "Youth" meant people under 40 years of age.

The dinner, in light of the 500 Day Program, turned out actually to be a meeting of Komsomol's leaders to discuss their role in the coming privatization of the economy. Many worried about the new order of things. What would they do if their positions were eliminated? In what turned out to be an accurate prediction of things to come, a young man named Viktor said: "Don't worry. We will keep our jobs in the government and get to own the private assets as well!" The others laughed and the conversation turned to which assets they would individually want. I knew about the evils of state capitalism and shuddered at the thought of things to come.

Vladimir was a young, handsome man from the KGB. He had just come back from being stationed in East Germany, now on the verge of unification with its West German counterpart. We conversed at length. He did not drink at all, because of a bad experience with alcohol in school. He seemed to be almost exactly my height-5' 5". We agreed that being short was an advantage-people underestimated your abilities. He flirted with the waitresses and they flirted back. I sensed that Vladimir could play hardball when he wanted to. I wondered what kind of "owner and entrepreneur" he would make, if his whole career had been spent in the murky and authoritarian ways of the KGB.

While the other guests drank endless rounds of toasts, Vladimir and I remained sober. We actually counted 15 toasts of vodka after the appetizer course and before the entrée. The conversation at the table at first seemed strained, but opened up as the alcohol flowed. Mr. Shatalin sat down briefly next to me and introduced himself. The other young communists-soon-to-be-capitalists bantered in a friendly, familiar way.

One young man from Moscow, known to be fast-tracked by the Politburo, said to me: "Mr. Mariotti, what is capitalism like?" "It is a way to allocate resources to benefit the general public and consumers." I pointed out that people's living standards went up because of the increased efficiencies. "It allowed individuals to use their unique knowledge because of the decentralization of decision making." I continued, getting excited, "Everyone has the opportunity to start a business and keep the profit that comes from meeting the needs of others through trade. There are over 22 million small businesses in America-they create most of the new jobs and apply for most of the patents!

The young man and others at the table listened intently. I went on about freedom of speech and of the press and the other good things that came with free market trade. I then asked: "Why the 500 Day Program? Why are you going through this great non-violent revolution?"

A young man named Nikolai answered: "We have been reading Ayn Rand." For the next hour, I addressed their questions about Rand's books, particularly Atlas Shrugged. A fan of her work, I had followed her career at college. My hosts were not aware that Rand was from St. Petersburg and had immigrated to the United States when she was 21. They were further surprised to learn she was Jewish, born Alisa Rosenbaum. Senior Kremlin leaders-including Yeltsin, Shatalin, and Grigory Yavlinsky (another designer of the 500 Days)-had all been influenced by her writing.

They peppered me with technical questions: "How do you register a business in the U.S., Mr. Mariotti?" and "How do you protect the name of your business?" "What are the best types of businesses?" "What is a franchise?" "How can you know who to sell to?" I answered to the best of my ability.

Although these young leaders of tomorrow's Russia were smart and charming, I noticed an undertone that was ominous. There was a tendency among them to explain how government power might be leveraged to take over private assets. In short, there might be no separation of the market from the statist world they had created.

As almost everyone got drunker, the evening became more unpleasant. I worried about how I would get back to the training center safely. Then the speeches began. The first went on for 20 minutes, the second longer than that. Then, after midnight, I heard my name introduced as the next speaker by Wilson Harrell. He called me the greatest high school business/entrepreneurship teacher in the world. I felt euphoric, and then the applause washed away all my tiredness and negative feelings.

The podium had been set for a taller man. I took the mic and walked toward the audience and began to speak. Someone yelled out: "Steve, for heaven's sake, stand up!" I went to an empty chair and stood on it. Everyone applauded.

"Comrades," I began, and paused, waiting for the laughter to die down, "this wonderful land, with so many assets and the most beautiful women in the world . . ." Again everyone applauded. I had bonded with the audience, and continued with confidence: "This great country has made some terrible errors. Marx and Lenin were wrong."

The room went dead. I realized I had gone too far, that it was a broken play that could go either way-disaster or success. I swallowed hard. You could hear the wooden floors creak. I paused again, trying to give the impression that it was planned, but desperate to escape. Both Nasir and Wilson probably wondered how they would get out of going to Siberia with me.

Finally, recovering my composure, I said: "Although Lenin was a great revolutionary, and Marx identified many evils in society-he was right to raise the issues of workers' rights and quality of life for the poor-now we have a different path to take that will benefit all of us." My confidence grew. "You must prepare your citizens for democracy and freedom and teach them the power of markets and universal ownership. That's what I do in the USA-teach low-income youth to start their own businesses to meet the needs of others. This is the ultimate revolution that both Vladimir Lenin and Carl Marx envisioned. Aside from political freedom, we need to teach this to all young people. Everyone should be taught how to price a product to meet a market need and make a profit. Everyone needs to be taught the basic principles of supply and demand, so they can understand prices and the information they convey." I concluded: "Power to the workers through ownership!"

The scene was unreal. I thought I had really blown it, and felt sick when I saw the look of absolute terror on the faces of Nasir and Wilson. Then my friend Leonid, head of the KGB training center, stood up and started to applaud. In a moment, everyone was standing and applauding. I felt the glorious rush of receiving a standing ovation. The rest of the night passed like a dream. I had taken a terrible risk and it worked.

At 2 in the morning the party began to wind down. Fearful of getting in a car with a driver too drunk to drive, I requested a sober KGB agent to take me to the center. Several of the Americans were also drunk, and I promised I would not leave them. It was like a Dante's Inferno of alcoholism. I asked the KGB fellow, Vladimir, if he would drive me and the other Americans back to the training center. He said that it would be no problem.

I sat in the front seat, next to this remarkable KGB man, and we continued our conversation. We had in common that our fathers were engineers, and bonded around the fact that we both wore boots with high heels to conceal our shortness. He drove with confidence but safely. Late as it was, we spoke about economics, and discussed the valuation of assets. The hardest thing for him to understand-as with my class-was that value in a market was subjective. It was not based on the cost of goods, but rather on opportunity cost-the next best alternative.

When we arrived at the training center, he helped me get my two friends to their rooms, and then we said goodbye. I asked for his card but he did not have one. Tired, I did not ask his last name.

But I believe I saw this impressive man again, at the World Economic Forum in Davos in 2009, where I was attending a panel on youth entrepreneurship. He was surrounded by a large security detail as he came into the heavily guarded passageway to address the conference. In his speech, I noticed the same faulty concepts as those I had heard in the car driving back to the training center 18 years before, that assets should be valued by "objective" data, not by the market, that value is objective and not subjective.

My experiences in the USSR in 1990 touched on a moment in history when communism had been overcome by the free market. While my efforts there as an educational catalyst may initially have only influenced a few, since that time free-market concepts have made sweeping changes in Russia, as well as China.

My trip to the Soviet Union has been one of the great highlights of my life and ironically I was hosted by the KGB which I hated. It triggered a vision in my mind that entrepreneurial education, delivered through my organization, the Network for Teaching Entrepreneurship (NFTE), could become a worldwide movement. Using the lessons of my trip to the USSR, I went to China in 2004 and, with the help of a Chinese entrepreneur, co-founded Bright China/NFTE, headquartered in Beijing. The program has been replicated throughout China and this year over 25,000 students will graduate from the program. We expanded elsewhere in the world, as well. NFTE is at present in 11 countries, with about 350,000 graduates annually. However, I feel that no achievement has been more significant that introducing the principles of the market economy to the children of the Soviet Union and Communist China.