(FORTUNE Magazine) – THE HUMAN SPIRIT knows few bounds, and no place proves that right now more than Russia. Western investment keeps rising, almost in step with the growing chaos. Foreign managers and advisers have had to dodge sniper fire on their way to work. Many have round-the-clock bodyguards. At least 16 were murdered in crime-related violence in Moscow last year. Along with the danger, all have had to cope with doing business in a country without commercial law or property guarantees. Why put up with all that? Some investors and entrepreneurs are already getting rich, and all expect to make money eventually. But that's not all. Talk to any of the estimated 80,000 foreigners living in Moscow, and after a ritual bout of complaining, they might admit that what they do is . . . er, well . . . fun! Mark Mroczkowski, 40, an accountant from Tampa, had grown tired of staring at ledgers and tax returns, so he set off for Moscow in search of his fortune -- and some adventure. Now he runs Miller beer's distributorship in Russia and spends weekends taking aerobatic flying lessons from Red Army aces in former Soviet trainers. (To raise hard currency, the government also allows strangers to fly its hottest planes. For $15,000, you can wring out a MiG-29 for up to 90 minutes.) Says Mroczkowski: ''Working here is maddening, irritating, and enlightening -- all at the same time. I cannot convey to you the joy of wallowing in the abnormal every day.'' Robert Carlson, 64, a former Pratt & Whitney CEO now retired, loves it too. As part of a U.S. grant to help transfer business skills, Carlson -- who first came to Russia on a Khrushchev-era trade mission -- now lives in a cramped hotel room in Nizhnii Novgorod, a provincial city on the Volga River. He spends his days helping factory directors devise restructuring plans. He also scouts out business opportunities for Western investors. Since January 1992 about $1.6 billion in foreign capital has been invested in Russia, according to Planecon, a Washington research organization that monitors Russian economic developments. That's less than the foreign investment in Poland or Vietnam in the same period. Considering the downside, though, it's a big number. This is the third straight year that Russia's $820 billion economy will shrink by more than 10%. Crime is up 26%. Inflation is galloping at an annual rate of 900%. More than 42 million people -- at least a quarter of the population -- live below the official poverty line. If oil production keeps dropping, the country with the world's eighth-largest reserves could become a net energy importer as soon as 1995. Property laws remain tangled and confused. Taxes on foreigners and foreign businesses are going up faster than you can say ''rip-off.'' Now members of an overtly fascist party headed by Vladimir Zhirinovsky -- one that vows to take the Baltic states back into Russia and resume aggressive weapons sales to Saddam Hussein and other erstwhile allies -- have won a large number of seats in the new Parliament. DESPITE the problems, Westerners remain captivated by Russia's sheer size -- 150 million citizens starved for consumer goods. Though President Boris Yeltsin's economic policies have sometimes been confusing and contradictory, in the past 18 months he and First Deputy Prime Minister Yegor Gaidar have opened Russia's borders to international commerce. This once isolated country is now awash in foreign goods and services. Russia's uncompetitive former state enterprises are suffering, but Western companies are making record profits. Honeywell exceeded its 1993 sales targets by March. Hewlett-Packard had a 400% increase in sales in Russia last year. Motorola is selling cellular phones, Reebok is shoeing the growing middle class, and Estee Lauder is setting up cosmetics salesrooms as far afield as Tomsk, Krasnoyarsk, and Tyumen in Siberia. The key to all this success has been the limited convertibility of the ruble. In the much-criticized strategy known as shock therapy, Yeltsin and Gaidar freed prices on domestic goods and set up a biweekly currency auction in Moscow where Western businesses could exchange rubles for dollars at floating rates. The ruble promptly fell from 47 to the dollar to more than 1,200. Even so, the move gave the ruble a purchasing power it had not had since before the 1917 revolution. UNFORTUNATELY, trade became largely one-way -- goods flowing into the country. In a competitive setting, Russian factories turned out to be virtually incapable of making products that could be sold in their own country, let alone abroad. Robert Carlson, the former Pratt & Whitney executive, describes Russia as an ''11-time-zone company in Chapter 11,'' with little to offer in the way of industrial companies for Westerners to acquire or invest in. Still, says Carlson, the country is brimming with talent and technology that can be picked up at bargain prices and used to start new businesses. ''The real jewels are in the research bureaus,'' he says, ''in the vast pools of knowledge. You can quantify the risk in the most pessimistic way, and calculate the rewards in the most pessimistic way, and you still come up with a risk-reward ratio that is fantastic.'' Following that kind of thinking, Philip Morris, RJR Nabisco, Coca-Cola, Pratt & Whitney, Bristol-Myers Squibb, Gillette, IBM, Ingersoll-Rand, ABB Asea Brown Boveri, and Sharp have all found ways to manufacture in Russia, usually by forming joint ventures and reequipping plants with Western equipment. Others, including Procter & Gamble, Caterpillar, and Swedish farm equipment maker Alfa-Laval, are negotiating deals. One of the biggest investors is Otis, the elevator division of United Technologies in Hartford (which also owns Carlson's old company, Pratt & Whitney). With three joint ventures, Otis is becoming a major presence in Russia and other former Soviet republics. Says UT President George David: ''We don't expect to make any money before the next century, but patience is the key.'' The big, high-profile raw-materials deals have been a disappointment, mainly because the government can't keep its hands off. A surprise $4.80-a-barrel oil tax levied in January 1992 has done the most damage. Enacted after the terms of many deals had been agreed upon, it has turned some good ventures into losers. Global Natural Resources, a Houston oil company, has had to revise terms of three of its four Tatarstan-based developments. Anglo-Suisse and Phibro, the Western partners in White Nights, a joint venture in Siberia, have also had to renegotiate. STILL, Westerners can't resist the promise of Russia's vast petroleum and mineral wealth. Global Natural Resources will increase its Russian investment next year to $20 million despite the difficulties. Los Angeles-based Occidental Petroleum recently discovered a 6,400-barrel-a-day gusher on a lease in Timan Pechora in Siberia. Texaco and Conoco are negotiating for leases in nearby fields, and a consortium of five global companies, including Marathon, Mitsui, and McDermott, hopes to get final government approval to develop an enormous gas field near Sakhalin Island, north of Japan, now that Mitsubishi and Shell have been added to the group at the Russian government's suggestion. Boeing is pursuing a deal to mine titanium in Verkhnyaya Salda, a small Siberian town. Dow Chemical is interested in bidding too. Hyundai, the South Korean industrial giant, acquired timber rights in Russia's far east after a high-ranking official visited the region and was impressed by the seemingly endless forests. ONE AREA in which Russians are highly competitive is computer programming. Because Cold War laws in the U.S. banned high-tech sales to the Soviet Union, Russian programmers had to get a lot of mileage out of the few computers they had. They developed a talent for writing elegant, remarkably complex programs that use relatively small amounts of computing power. Says Michael Friend, country manager for Boeing: ''They can do things on a PC that we would use a mainframe for.'' Stepan Pachikov, 43, is a good example. The gnomelike programmer-turned- entre preneur wrote the code that reads cursive handwriting for Apple's Newton, the handheld note-taking computer. Working out of a rented office on the 19th floor of Moscow's Central Mathematical Institute, Pachikov and a team of 120 programmers are now developing a program called Alter-ego that allows users to travel in time. You can, for instance, take a stroll along a street in 16th-century Florence, or even flit around Florence from a different perspective -- say, that of a butterfly. AT&T has expressed an interest in the software. Motorola and Sun Microsystems are also putting Russian scientists to work on research problems. There also is big opportunity in small, unlikely businesses. Walter Ragonese, 37, had never been to Russia, but as a petroleum engineer in Houston he had heard plenty of stories about the boom-town atmosphere. He quit his job and with $35,000 in savings moved to Moscow to start a company called Eurospan, which screens and hires personnel for the Moscow offices of Western companies. These days Ragonese says he has plenty of clients: ''We don't have to advertise anymore.'' Cate Allen, 50, was already in Moscow as office manager of Abbott Laboratories when she got her idea two years ago for a new business. ''I looked at the street sweepers brushing up the snow, and I realized that they were warmer than I was.'' That weekend she bought a street sweeper's jacket at a local market for 30 rubles -- about 75 cents at the then existing exchange rate. She took it home, sewed flowers on it, and sold it to a friend for $40 -- a 5,300% markup. She won't disclose her profits, but her Moscow Street Sweepers Jackets Co. already employs 150 seamstresses, and her friends estimate the business brings in more than $1 million a year. She exports most of them to France and the U.S. There is a downside. Allen has been held up at gunpoint four times and now has an armed bodyguard. But, she says, ''where else in the world can you start a business like this with no capital?'' Adds Joseph Seifert, 32, a Wisconsin man who is manufacturing low-cost cosmetics in Moscow: ''The successful entrepreneurs of the future are being made here today.'' All these deals are perched perilously on Boris Yeltsin's ability to maintain stability in Russia's highly flammable political environment. He must now press ahead with reform while isolating the increasingly powerful far right. The problem may lie less in fascist threats than in the economic ones, especially inflation. Not only is the current 900% annual rate eating heavily into citizens' spending power, but it is also corrupting the nation's fledgling banking system and preventing the development of a prosperous middle class. Taming inflation, of course, will not be painless. Yeltsin will have to cut off soft loans -- now totaling 5.5 trillion rubles -- that his central bank is making to Russia's money-losing former state enterprises, which could number as many as 40,000. If he does stop the loans, many of the enterprises will go bankrupt, aggravating unemployment and social unrest. Few places illustrate this better than Yekaterinburg, Russia's fifth-largest city, with a population of 1.4 million. Tucked behind the Ural Mountains 1,552 miles from Moscow, the former czarist-era railway junction was once the pride of the country's massive military-industria l complex. It produced generations of managers capable of fulfilling orders from military officials in record time.

Unfortunately, these managers turned out to be inept at adapting to a market economy. Uralmash, a lumbering industrial giant on Machine Builder Street, makes the point. Once a mighty producer of heavy industrial equipment, whose directors often served in the Politburo, the factory is mostly idle. Uralmash is negotiating with Caterpillar to produce oil drilling equipment but has struck no deal yet. In the past five years the work force has dropped from 86,000 to 16,000, and most who remain haven't been paid in weeks. Harried executives scurry up and down the empty hallways in winter coats and fur hats because Uralmash has turned down the heat to save money. Several blocks away a different picture emerges. On the top floor of a nondescript four-story building in the Yekaterinburg suburbs, young Russians dash in and out of offices, tapping urgent orders into computers and pausing only to chat briefly with a foreign journalist. This is Microtest, an 18- month-old startup that has grown out of the shady area of Russia's black market into a $5-million-a-year computer company. Programmer Yuri Igoshin, 35, who founded the group, got the idea of purchasing computers in Europe, adding his own networking software, and selling the units to factories, ministries, and banks.

Alas, people like Igoshin remain an exception. With a shortage of long-term capital, there are few new businesses in Yekaterinburg or anywhere else. Instead of going into business, the nation's youth seem more interested in quick-profit import deals -- buying goods in Western Europe and selling them in Russia. Or worse. At the Polar Bear cafe in Yekaterinburg, four young men in Adidas warmup suits eat lunch while pistols protrude from their back pockets. Lev Kuchevsky, 40, a former English teacher who is working for the International Executive Service Corps, one of three international agencies helping to recast the city's economy, casts a weary glance at them as he downs a bowl of greasy chicken soup. ''Joining an armed band has become more prestigious than going to university,'' he shrugs. ''Last week they shot a guy in front of the governor's office -- in broad daylight.'' Other Russians have begun dreaming of a return to the old days -- hence the surprisingly strong showing of neofascists in last December's elections. Among ultranationalist Zhirinovsky's promises was an extremely popular call to put an immediate end to the largely unsuccessful attempts to retool Russia's military factories to produce civilian goods. Instead, he would start making arms again, which would put a lot of Russians back to work. BUSINESS can -- and should -- play a role in Russia's economic transformation. Russians need Western business skills. And they need Western investment. If the West gives up now, fascism threatens to become a self- fulfilling prophesy. More than anything, Russians need proof that the West has not forgotten them and that democracy does not go hand in hand with economic collapse. But Russians must prove that they are worthy of the investment they so badly need -- and this may not be easy. In 1990 dissident Alexander Solzhenitsyn warned presciently that the future of the world would be determined largely by Russia's ability to avoid being destroyed in the rubble left from communism's collapse. The question now is whether Russia will be able to attract the investment it needs in time to create a healthy, prosperous society on Europe's eastern flank, or whether the rubble will prove so deep that it buries everyone.