(FORTUNE Magazine) – MEET the Soviet Lee Iacocca. Fifteen months ago Artem Tarasov, a self- proclaimed ''ruble millionaire,'' seemed headed for bankruptcy -- or worse. The Ministry of Finance had confiscated the assets of his electronics business. He had been publicly denounced as a ''speculator'' by Mikhail Gorbachev (yes, that Gorbachev). But Tarasov, 40, refused to quit. After a long legal battle the former chief engineer for the city of Moscow convinced a court he had not violated the government's draconian restrictions on quasi-private companies. His latest venture, which operates a retail drugstore and imports electronic components, was launched before his case came to trial and has just rung up some $10 million in hard-currency sales in its first year. In March, Tarasov was elected to the Russian Republic's new parliament, where he is now a respected and vocal advocate of radical reform. An end to the Soviet Union's downward economic spiral is nowhere in sight. The ruble grows weaker by the day. Shortages of meat, vegetables, grain, and most consumer goods are the worst in memory. With ethnic and nationalist tensions rising and the party's grip weakening, the likelihood that the country will disintegrate into autarky and political chaos has never been greater. Amid that darkening gloom, the stubborn rise of men like Tarasov offers Westerners who want to do business in the Soviet Union reason to hope that some kind of recovery might yet take place. The Communist Party increasingly seems beyond redemption. The conservatives, who dominated this month's 28th Party Congress, are openly fed up with what their leader, Politburo member Yegor Ligachev, decries as ''the blind radicalism'' of the past five years. Even if Gorbachev persuades them to stick with his program, the price will be more of the kind of cautious half-measures that until now have proved so ineffectual. Many radicals, including some of Gorbachev's advisers, believe he may soon have to choose between abandoning the economic restructuring known as perestroika or quitting as party chief. By contrast, the country's small but growing class of entrepreneurs displays just the sort of ''bottom up'' initiative and drive that Gorbachev keeps saying he's looking for. Today this new breed of Soviet manager can be seen at some 200,000 widely varied cooperatives, roughly 4,500 ''leased'' factories or worker collectives, and dozens of new ''independent'' state companies, all created in the past three years. Ignore those strange-sounding labels. The definitions are blurry anyway, and they exist mainly to placate the Marxist faithful who insist on calling a spade a socialist shovel. Two things unite the managers who run these enterprises: their lack of faith in what Gorbachev has called ''a regulated market economy'' and their ardent desire to escape the iron grip of the state by winning the right to own private companies. Most of these would-be capitalists already operate like their Western counterparts. Says Andrei Fyodorov, 47, who runs a first-class Moscow restaurant called Kropotkinskaya 36: ''Some 80% of our so-called cooperatives are pure private businesses. A handful of clever people organize them and hire anywhere from 20 to 1,000 workers. These people pay their workers well, but they don't ask the workers how they should divide the profits. They're owners. I'm an owner.'' But the lack of a clear legal right to own property or hire workers stunts growth. These entrepreneurs know they could be shut down at any time by the apparatchiks who administer the rules and control most supplies. To survive, most must depend on either political patronage or bribes. Complains Fyodorov: ''The party denounces the shadow economy, but who has held everything in their hands for the past 70 years? They have. If I need some chairs, even ashtrays, can I buy them in a shop? No. To get anything, I must go to some bureaucrat and give him money. Only if we open the market and put everything up for sale -- land, buildings, ashtrays -- will the shadow economy cease to exist.'' THE MOST PROMINENT member of this outspoken new crowd is Mikhail Bocharov, 49. As boss of a brick and lumber plant on the outskirts of Moscow, this lean, chain-smoking engineer was one of the first to persuade the government to ''lease'' a factory to its workers. (Each worker had to put up a small amount of cash, and the rest of the operating capital was lent by the government.) He invested in new technology and launched innovative projects. Among these was a controversial retail outlet that sold surplus bricks and boards to individuals to build private houses and dachas. Sales jumped 50% from 1987 to 1989, and the plant went from requiring an annual state subsidy of 150,000 rubles to earning a small profit. A member of the Supreme Soviet, the national legislature, Bocharov also won election last spring to the new parliament of the Russian Republic. In June he ran for Prime Minister, the republic's No. 2 job, and was narrowly defeated. His platform included such modest proposals as privatizing most state enterprises and establishing a real market economy in just 500 days. Says Bocharov: ''Our government's latest attempt to reform the law on property still contains language banning 'the exploitation of man by man.' What we should ban is that phrase. Allowing private ownership is the only way to motivate people to work. It must be the No. 1 issue in any serious reform.'' In January, Bocharov badgered the government into letting him form a holding company called Butek. Any enterprise willing to reorganize into a worker collective and buy its assets from the state can join Butek and become, in effect, a private company. The managers can make any deals they like with foreign or domestic partners and no longer have to take orders from their former masters in the Moscow ministries. Recalls Victor Makarov, director of a construction materials company: ''Until Bocharov became a member of the Supreme Soviet, none of the bureaucrats were willing to let us go.'' As soon as it becomes politically possible, Bocharov expects these companies to shed their collective skins and issue Western-style shares of stock. No Soviet entrepreneur has made more of his partial liberation from the state than eye surgeon Svyatoslav Fyodorov, 62. Since he leased his clinic from the Ministry of Health two years ago, the number of patients who undergo his pioneering surgical treatment for myopia has soared from 49,000 a year to more than 270,000. His 169 doctors work in assembly-line fashion in 12 different clinics. That spectacular expansion, which includes acquisition of two factories that make lenses and surgical instruments and two farms that guarantee fresh produce for his staff and patients, has been financed by Fyodorov's enviable ability to attract foreigners -- almost 4,000 last year -- who pay in real money rather than rubles. - To keep those valuable customers coming, Fyodorov invested some $64 million in a floating hospital that cruises the Persian Gulf trolling for nearsighted sheikhs. By Christmas he hopes to open a five-star hotel and clinic near his suburban Moscow headquarters, which he will own jointly with French construction giant Bouygues, Credit Lyonnais, and the Soviet Foreign Trade Bank. Fyodorov is also looking for ways to expand beyond medicine. In 1991 he hopes to start Moscow's first cellular phone network in a joint venture with New York-based Millicom and to open a restaurant and casino in the Hippodrome -- a spectacular but run-down race track in central Moscow. As soon as the government passes ''a law on property that is normal,'' Fyodorov aims to buy his clinic, which is now nominally a collective even though he runs the show, and list its shares on foreign stock exchanges. He has visions of building skyscrapers in Moscow as well as a $150 million ''recreational village'' (complete with villas and golf course) on his farm outside the capital. An avid collector of electronic gadgets and fine horses, Fyodorov makes no apologies for either his ambition or his expensive tastes. Says he: ''Yes, I want a good life, a good car, a dacha. But no one can say I'm in business just for personal gain. I've created an enterprise that has vastly improved the health of the Russian people.'' In addition, he points out, the workers in his clinic earn four to five times what their colleagues do in state institutions. ''The notion that all Russian workers are stupid or lazy is nonsense,'' says Fyodorov. ''But what can you expect if the government takes away property and forces them to live like domestic animals?'' CONVENTIONAL WISDOM says the advocates of private property and free markets face long odds. First, Communist Party apparatchiks retain dominion over 95% of the economy, and they have strong links to the KGB and the Red Army. This crowd of roughly 18 million time-servers isn't about to hand over power without a fight, even if Gorbachev were prepared to fire them all tomorrow, which he isn't. Second, scratch the average comrade in the streets and you quickly discover that the fury he feels over the party bosses' privileges is rivaled only by his envy of Russia's new private rich. Along with more soap and clean towels, closing cooperatives was one of the main demands of the Siberian miners, whose wildcat strike rattled the government last summer. Insists Alexei Sergeyev, a professor at Moscow's Higher Trade Union School and a leading defender of Marxist orthodoxy: ''Allowing private property might improve life for 2% of the country, but the masses would live at an even lower level. That would provoke a powerful and probably very bloody social explosion.''

REFORMERS COUNTER that the people will tolerate some increase in income inequality as long as a rising economic tide lifts all boats. Says Bocharov: ''Our obsession with ideology has brought us the empty shelves in our shops. We must be more pragmatic. Today it is clear that many Western nations are much closer to building the 'socialism with a human face' that we in the Soviet Union are always talking about.'' Argues Artem Tarasov: ''At this stage the only course that will guarantee blood in the streets is if we do nothing soon to improve the miserable lot of this country's consumers.'' So far, the radicals have been winning this debate where it counts -- at the ballot box. In last spring's municipal elections, supporters of free markets and multiparty democracy took control of most major cities, including Moscow and Leningrad. In Russia, the biggest and richest of the 15 republics, Boris Yeltsin's narrow victory in the presidential race sent a similar signal. Many reformers see Yeltsin as an ambiguous figure because his brand of populist reform attracts both Moscow intellectuals and the sort of social Luddites who burn private pig farms. But in this case his opponent, a Marxist bureaucrat famous mainly for shutting down cooperatives, was clearly the greater evil. Since his election, Yeltsin and his team have moved quickly to forge links with the Moscow and Leningrad radicals as well as the free-marketers in charge of the breakaway Baltic republics. He has also said he will no longer wait for Gorbachev to cobble together a nationwide market reform package. In a recent interview Prime Minister Ivan Silayev, the man who defeated Bocharov, told the Moscow News: ''Consumer goods and services in Russia must be privatized immediately. Our task is to set the scene for individual entrepreneurs.'' Far from lamenting the disintegration of the Soviet empire -- Moldavia and Uzbekistan recently joined the Baltic republics in declaring independence, and Georgia may soon follow -- most of Russia's entrepreneurs welcome it. Says Tarasov: ''How else will we break our centralized system of control? The current government doesn't really want to loosen its economic grip. Its latest reform merely assumed the name of the market as a cover to raise prices.'' In place of Gorbachev's top-down approach to the market, they're hoping decentralization and the ballot box will shift power at the local level from the party to the new democratic authorities. Says Tarasov: ''Maybe cities like Moscow and Leningrad, as well as the Baltics, can become our Hong Kongs. Their success might then persuade other regions of the country, which are more conservative, to move in their direction.'' That vision, if it comes about, would profoundly change the way Western companies do business in the Soviet Union. An already confused environment -- ''like the gold rush without the gold,'' quips one U.S. executive in Moscow -- would get even more confusing as the number of power centers increases. Eventually that should be offset by a rise in opportunities, such as freedom to decide what businesses to pursue. In the past, Moscow's ministries tended to favor huge projects that only multinational behemoths could afford to join. With all the new enterprises making thousands of deals, there will be plenty of room for small to medium- size Western companies. There will also be market niches that big companies will pass up. Says Richard Dean, a Moscow-based partner with the Coudert Brothers law firm: ''We're going to see a lot more small deals.'' FOR NOW the Soviet Union remains poised precariously between two worlds. The old one is clearly dying, but does the new have the power to be born? Though Tarasov won permission from the Foreign Trade Bank to open a new hard-currency drugstore in the capital, he worries about advertising it too aggressively for fear some hostile higher power will notice and close it down. In Leningrad, Communist Party stalwarts and the newly elected reformers are battling over control of office space, newspapers, and television stations. As this guerrilla war intensifies, more and more managers are simply taking a deep breath and striking out on their own. Sergei Listov, whose farm equipment maker Grydluch has just become the latest member of Butek, is betting that entrepreneur Bocharov can ensure that ''we no longer need to obey the government machine.'' Listov liberated the assets of his state company by forming a cooperative and using his authority to sell to it the equipment and property it needs. He adds, ''The battle is still ahead of us. We needed the ministry's permission to do this. We simply lied to them.'' Despite the current thunder from hard-liners in the party, Russia's reformers and entrepreneurs remain optimistic -- as their astonishing candor shows -- that history's tide is running their way. Says Svyatoslav Fyodorov, the eye doctor-entrepreneur: ''The conservatives simply don't offer an alternative. Sticks and guns can't improve our economy, only nice brains and free souls. Ultimately if we don't develop a market, we'll be kaput.''