The Problems of Perestroika
Nove, Alec
This essay examines three broad questions: First, what part—and how much—of the Soviet economy is in need of reform; second, what kind of reforms have been proposed; and third, are the projected...
...It is hoped that the radical measures adopted in agriculture (such as family leases, transfers of land into private hands, and so on) prove to have a quick and decisive effect on food supplies, but as of now this seems unlikely...
...Worse still, because of the official commitment to speeding up the growth rates, the economic ministries impose targets in rubles, tons, and so on, since that is how growth is measured, rather than by orienting management to satisfy user demands...
...The new cooperatives, as envisioned by the Law on Cooperatives passed in 1988 and the speeches by Gorbachev and Premier Nikolai Ryzhkov, are different creatures altogether...
...A new law allows families to lease land and livestock...
...The exceptions will be top-priority "state orders," which will be compulsory, but these too are to generate profit for the enterprise...
...A new pricing system is to be introduced in 1991...
...Is this socialism...
...The decision to invest in energy in remote areas was rational, but enormously expensive...
...and third, the gaps and ambiguities in the reform model itself...
...Both are integral parts of the state planning system and both have been subject to detailed orders from above...
...Numerous articles and letters by managers point out that the "law" in no way protects them from arbitrary interference from ministries, which continue to impose obligatory plans upon them...
...However, if machinery, equipment, or building materials are in short supply and "rationed," the resources will not be available, and investment will suffer...
...Clearly, a major reason why progress in implementing the reforms has been so disappointingly slow is that many people oppose and resent them...
...The Past: Tinkering with the System Before turning to the proposed reform program, let us take a look at past attempts to cure some of the enduring ills of the Soviet economic system...
...In addition, I shall examine previous attempts to restructure the Soviet economic system and also—especially in the light of past experience— the problems and difficulties the reformers must contend with...
...And so, a period of training is mandatory...
...In an economy beset by shortages, anything that does not figure in the central production or allocation plan is deemed to be low priority and therefore liable to suffer from nondelivery of some of the needed inputs...
...Still, the restrictions are onerous and a serious obstacle (rooted both in ideology and vested interests) to the rational development of the Soviet economy...
...The authors' solution seems eminently sensible...
...Would it not be better—and more in tandem with the reform model—to vest this power in management, leaving it free to negotiate with customers all over the USSR—and also, for that matter, with foreign firms...
...All told, then, the economy on the eve of Gorbachev's assumption of power was full of the most alarming defects and shortcomings...
...Another vexing question is that of the powers of republics and local soviets...
...The concept of "market socialism" was still taboo but gradually the words "socialist market" crept into the published literature...
...Prices are to reflect not just costs but also use-value...
...There is a collapse of confidence in the ruble, since it is increasingly difficult to buy what one wants...
...And in view of the widespread passivity and indifference, the problem was not only economic...
...The dislike is not confined to bureaucrats...
...Massive apathy, indifference, theft and disrespect for honest labor together with aggressive envy toward those who earn more—even by honest methods—have led to the virtual physical degradation of a significant part of the people as a result of alcoholism and idleness...
...For reasons set out above, the system had proved incapable of meeting these needs...
...Economic malfunctions exacerbate the already dangerous tensions between nationalities...
...As of this writing, almost one million FALL • 1989 • 467 people are already organized in such cooperatives...
...There are fewer grounds for optimism, and some observers (in and out of the Soviet Union) express alarm as to possible outcomes...
...As the economy continued to grow, as the tasks set by the planners became ever more numerous and complex, the losses and inefficiencies multiplied, eventually overwhelming the planning and control apparatus...
...Though hundreds of details and legislative acts are still to be worked out, one thing seems clear: the reform "package" is intended to remedy those "systemic" deficiencies set out in the earlier part of this essay and not merely patch up the old and discredited model...
...The Central Committee's industrial department, for instance, on the chemical industry, has been abolished, some of its staff transferred to the appropriate industry...
...Fourth, a major modification in the conduct of foreign trade is under way...
...Even without them, the Soviet debt to the West has doubled between 1986 and 1989...
...But clearly the effort to achieve and maintain parity with the much richer United States has been very costly, with scarce skills and equipment having been diverted into these unproductive channels...
...Instead of centralized and coordinated control, the system yielded gradually to what became known as "departmentalism" and "localism...
...As stagnation set in, reform-minded economists tried to advocate more radical ideas...
...There are hundreds of thousands of enterprises in industry, agriculture, construction, transport, and distribution...
...The completion of investments is often delayed by an excessive and simultaneously pursued number of projects: as many as "three hundred and fifty thousand production investment projects" are already in hand, says Gaider...
...This was to measure the net value the given product should have...
...At first, Gorbachev moved cautiously, leading some observers to conclude that he was proposing essentially yet another set of measures designed to "perfect" an unperfectible system...
...As a percentage of GNP, this is over three times the U.S...
...Perhaps the most acute dilemma embedded in this process is that of plan versus market: In what form can the two be effectively combined...
...Popov makes another crucial point: The supreme despot is gone...
...I do not think so...
...It is necessary to make thousands of millions of decisions in the area of supply alone...
...There is also a dearth of information about future costs and needs that in no economy can be conveyed by current prices, however reformed: To invest in the future, one must be able to estimate future prices and costs, and to have access to information about the investment plans of one's potential competitors and/or suppliers of complementary inputs...
...2, 1989 and in numerous articles by Leonid Abalkin, the influential director of the Institute of Economics...
...Those involved in the process know what they did the year before and assume (usually correctly) that they will draw supplies from the same sources and will be asked to produce more or less the same things, probably a little more this time around...
...Why should things have suddenly gotten better...
...There are several explanations...
...The Soviets do now pay much more attention to ecology: For the past few years, both the press and high Soviet officials have been painting a shocking picture of ecological blight and of its effect on the health of millions of people...
...To wait for the end of the shortages before abolishing the system, he said, would mean waiting forever...
...Thus, Stalin did succeed—at a hideous cost—in industrializing the country and in creating a military-industrial complex...
...In this instance Estonia is blazing a trail, with encouragement of family farming on long or even indefinite leases...
...Then there is the problem of risk: Who is to bear it, who is either to be rewarded in the event of success or penalized in the event of failure...
...The same is true for bank managers with little or no experience in assessing the soundness or otherwise of investment projects...
...deficit...
...Some reforms are yet to be enacted, some have been implemented but only partially...
...Moreover, though Gorbachev tended in his speeches to align himself with the most radical critics, his actual measures, such as the Law on State Enterprises, show signs of compromise and are seen by the radicals as half-hearted and contradictory...
...The planning apparatus was forced to splinter, many of its parts working at cross purposes...
...Lenin held the same view...
...Restrictions imposed in early 1989 on cooperatives reflect not only bureaucratic prejudice but also popular resentment...
...Yet whatever the eventual "mix" between planning and market, the direction in which the reformers are groping is clear, and so is their basic aim—namely, to create a more democratic socialist society in which there is a sizeable cooperative and private sector and in which the bulk of state enterprises produce for the market under a management democratically elected and responsible to its electors...
...None of these variants is ideal—they all represent a drain on the supply of valuta (foreign currency), while some economists object to "quick fixes" because they perpetuate the country's dependence on the West and fail to address FALL • 1989 • 473 systemic defects...
...We have adopted one or two laws, taken decisions, approved various documents...
...Under the reforms, managers would have to learn the arts of competitive marketing, to which they are not accustomed and for which they were never trained...
...There is now much more money chasing the same (or almost the same) volume of goods...
...True, for many years the program remained a consummation devoutly to be wished...
...However, while greater freedom of expression gave several reforming economists an opportunity to advocate new ideas, the centralized planning system remained impervious to authentically radical change...
...The "reform package" is open to other criticisms, too...
...The problem of food and consumer goods is a case in point...
...Here are its basic ingredients: First, the vast majority of enterprises are to be free to determine the bulk of their output and their product mix in negotiation with their customers or trading intermediaries...
...Popov and Shmelev go on to discuss the importance of rational and flexible prices and the dangers of monopolistic abuses if price controls were eliminated...
...But is there time for it...
...The answer," they write, "is trivially simple...
...But such privileges are out of the public eye, and what's more important, they go with rank—that is to say, they are a reward for "public service...
...The three concepts proclaimed by the new leadership—glasnost, perestroika, and demokratizatsiia—were emblematic of the profound changes that were to be introduced in all areas of Soviet life...
...A city party secretary, for example, would be at the same time the chairman of that city's soviet...
...Persistent, long-term efforts to defy the objective laws of economic life and to suppress the age-long natural incentives to work This article will appear in a volume edited by Abraham Brumberg, Chronicle of a Revolution: Perestroika and Glasnost to be published by Pantheon Books, Spring 1990...
...Its actual magnitude is not known, since the official statistics conceal it...
...These, then, are the long-term and fundamen464 • DISSENT tal reasons for a change of the system...
...Shortages, they assert, coexist with overproduction of what is not needed...
...They emerge from different parts of the planning hierarchy...
...Cuts in expenditures have been accompanied by the conversion of parts of the defense industries to products for civilian needs...
...In fact, it was under his reign that corruption spread into the party and state regime, to a degree unparalleled in the history of the USSR...
...ordinary citizens are unhappy too...
...Second, plans are not made on a blank sheet of paper...
...and third, are the projected reforms viable and will they work when (and if) they are implemented...
...Some people in the West, still mired in their anticommunist obsessions, take the view that the West should do everything to ensure the failure of the Gorbachev reforms, on the ground that a more efficient USSR would be a more dangerous USSR...
...And at the Nineteenth Party Conference exactly two years later, Fiodor Morgun, chairman of the recently formed USSR State Committee for Environmental Protection, said that some fifty million Soviet citizens live in 102 cities where the pollution level exceeds permissible norms by ten times or more...
...The essential point is that taken together, human attitudes—particularly those of officials who are expected to implement the reforms—present serious obstacles to them...
...The millions of bureaucrats employed by the central planning agencies still continued to determine everything from the number of nails to distribution of women's shoes, but more often than not the results bore little relation to the plans...
...As Gorbachev confirmed in his speech to the Nineteenth Party Conference in July 1988, the budget is in deficit and credit discipline is poor.* One cannot rely on the price mechanism if the monetary system is in disorder...
...By now, numerous ecological groups have been formed, with ever more people participating in them...
...hence the value they set on the privileges...
...In a revealing interview, the economist Abel Abeganyan, one of Gorbachev's closest advisers, cited a "high Soviet official" who had visited Hungary and found, to his horror, that in Hungary anyone can get anything in the shops...
...However, as Popov emphasizes, even those early successes were seriously marred by losses and inefficiencies, caused by the stifling of initiative and overcentralization...
...The new goals are clearly a response to popular demand, voiced with increased stridency in the press and—as the electoral campaign in early 1989 illustrated—at public gatherings...
...In fact, however, many party functionaries are to play the role of government officials, thus combining the two roles...
...Unfortunately, the situation—political as well as economic—is deteriorating as these lines are written...
...There are to be no more plans imposed in rubles, tons, meters, and so on...
...Much less potentially disruptive is the power of republics to experiment freely with reforms, notably in agriculture...
...Projects and Agendas Let me, then, turn to the reform program as it has emerged from legislation (some of it still on the drawing board), resolutions, and from speeches by Soviet leaders...
...There was virtually no connection between domestic and foreign-trade prices, and the difference, positive or negative, resulted in a profit for or a subsidy from the state budget...
...Some of them had been diagnosed in the 1950s...
...In fact, this last suggestion has already been adopted...
...However, antipollution measures add to costs and reduce profits, and so conflict with the aim of improving the financial results of enterprises...
...Some economists, such as Nikolai Shmelev, have advocated large loans to buy consumer goods from the West...
...The reform decree of 1965 also reconstituted the economic ministries, which Khrushchev had abolished in 1957...
...In fact—as will be seen below—there is as of this writing no consensus as to many important elements of the reform process...
...It will not be helped by the decisions of the Central Committee plenum held in March 1989, which envisaged the granting of leases by state and collective farms and not (as the reformers proposed) by the local authorities...
...But how can this be done swiftly in view of the horrendous shortages, excess demand, and material imbalances...
...Thus the economist A. Rakitsky in Voprosy ekonomiki (No...
...indeed we now have temporary regress...
...In the Baltic republics there still survives an authentic peasant spirit that could take advantage of these new opportunities, but progress is slow...
...Thus far, the record is a mixed one...
...Egalitarianism is yet another principle that the antireformers can rely on for their defense...
...They are all too often inconsistent with each other, as for instance when supplies do not match the output plan...
...And then they offer their own solution: planning and price controls limited "to a few hundred of the most important products, that is, those which under favorable circumstances can be counted in physical units at the present level of knowledge and techniques for processing data...
...The reformers are also faced with purely practical difficulties...
...Even today no one would have the theoretical effrontery to claim that Lenin was the founder of the theory of commodity production under socialism...
...Inflation is recognized as a growing problem...
...In an article written jointly by two reformist economists, Gavril Popov and Nikolai Shmelev, the authors ask how it happens that a rigid centralized system, based on an indissoluble link between production and supply-of-inputs plans, generates a chronic supply deficit...
...But all of them were little more than variations on a centralizing theme, and did nothing to alter the planning mechanism...
...In other words, most Soviet enterprises still receive orders from above as to what to produce and for whom...
...This has now been admitted by Soviet officials and it is likely that we shall soon get the real figures...
...Fedorenko's is more than a quip: It rests on a massive literature available to anyone within and outside of the USSR...
...Have we in fact started operating all the levers and factors [of reform...
...And with guaranteed sales come sloth, incompetence, and almost total lack of initiative...
...second, the sheer practical difficulties of implementing the desired changes...
...10, 1988), rejects the Brezhnev view that the Soviet Union had "real [mature] socialism" and continues: "We live under a barracks-like deformation of socialism, our society is not yet socialist...
...7, 1988: Marx and Engels held that socialism and commodity production were not only contradictory but also incompatible...
...There was a clear need for decisive measures to increase efficiency and accelerate the diffusion of technology, eliminate waste, and bring about higher labor productivity and a closer adjustment of output to the needs of the economy and of the consumer...
...In point of fact, a USSR concentrating its efforts on setting its own house in order, on forging closer economic and cultural relations with the West, and on cooperating rather than engaging in protracted conflict with Western powers, as Gorbachev is patently trying to do, will be a country infinitely more pleasant to live in—and with...
...Until now, construction enterprises had been working to plans expressed in rubles spent, and their wage bills are still calculated as a percentage of this, so that cheaper construction actually penalized both management and labor...
...We now have an economy that is out of balance and plagued with shortages, an economy which rejects scientific and technical progress, which is unplanned and—if we want to be totally honest —unplannable...
...If and when implemented, they would not merely "perfect" the old system, but overhaul it...
...But ideology can...
...For example, in most countries public transport does not "pay," but this is not a reason for closing subways...
...By the same token, the emphasis on efficiency and financial discipline, which may result in the closing of many enterprises and in redeployment of labor from overmanned to undermanned industrial sectors has frightened millions of workers...
...It is printed here with the permission of the editor and the publishers—with many thanks...
...Gorbachev's speeches, therefore, as well as the measures proposed by his closest advisers, did not come exactly "out of the blue...
...Others have put it in even starker terms...
...Some Soviet critics have also pointed out the misleading nature of the output statistics: For instance, the USSR produces eight times more combine-harvesters than does the United States but a large proportion of these harvesters are always out of action for lack of spare parts and proper maintenance...
...Another idea that has been floated is to buy machinery in the West in order to expand the production of consumers' goods...
...Be that as it may, Gorbachev and his allies are alert to these problems, and seeking solutions to them...
...Plans in rubles of turnover encourage the use of expensive inputs and discourage the production of cheaper models...
...What about the short-term causes of the "pre-crisis" (or "crisis") situation...
...Space does not permit an analysis of the causes of the agricultural imbroglio, but suffice it to say that its burden on the rest of the economy contributed to the overstrain and slowdown of the entire economic system...
...Is this really unexpected...
...Less satisfactory is the legal position of private enterprises...
...According to Gorbachev, party functionaries are not to meddle in the managerial decision-making process...
...However, the ministers have been strongly defending their investment projects...
...Since the publication of Shmelev's article even more serious indictments have appeared in the Soviet press...
...Should Gorbachev fail—and failure is by no means to be ruled out—the outcome would be a misfortune, perhaps even a calamity, for everyone concerned...
...It would be an oversimplification to regard all bureaucrats as opponents of reforms...
...This essay has outlined the numerous problems, difficulties, obstacles, and inconsistencies in the reform process now taking place in the USSR...
...Again, these questions—though continually discussed in the Soviet press—remain unanswered and unresolved...
...But it is naive to hope that real life can be changed by decrees and regulations (Moscow News, June 26, 1988...
...These ministries were now made responsible for the performance of "their" enterprises and, despite references in the decree to managerial autonomy and to a reduction in the number of compulsory plan indicators, planorders from above continued to rule the system...
...Terror is no more...
...They quite rightly call attention to the dangers inherent in the pure "free-market" solutions, especially in longterm decisions that affect structural change, ecology, and the quality of life in general...
...To quote the economist and director of the Institute of Economics of the USSR Academy of Science, Leonid Abalkin: If we were to speak of real economic successes, of the indicators of development, of the situation in the market and the shops, then, unfortunately, very little has been achieved...
...This reform has been postponed to avoid trouble...
...In the more radical versions of the reform (still under discussion), most prices are to be negotiable between supplier and customer, with supply and demand playing a major role...
...Slow Pace and Dogged Resistance On the whole, the projected reforms can certainly be characterized as radical...
...The current five-year plan runs through 1990 and remains in force...
...Tatiana Zaslayskaia is right to remind us, as she did in a paper presented in Vienna in 1987, that much depends both on the effect of the proposed changes on the career prospects and functions of given officials, and indeed also on the confidence in their abilities to work under new conditions...
...Gorbachev admitted as much in his speech to the Nineteenth Party Conference in June 1988, and others have been saying much the same thing—if not more...
...Wages are to be more closely tied to the financial performance of the enterprise and to productivity...
...In road transport, plans in ton-kilometers reward those who succeed in transporting the heaviest goods for the longest distances...
...Gorbachev turned for help to a number of prominent "reformminded" economists, but even today it cannot be said that a wholly coherent package has been presented, much less adopted...
...Gorbachev has promised a separate house or apartment for every family by the year 2000, and housing as well as schools and the seriously neglected hospitals are receiving higher priority today...
...However, there is every reason for the West to extend a welcome to the reform process, to help as much as it can to speed it along—and every reason not to obstruct it...
...References to strikes now occasionally appear in the Soviet press...
...But it must be stressed that it is only one of the various proposals now being discussed, and that it is difficult to predict exactly how this crucial problem will be settled...
...But it is also true that inflationary pressure and worsening shortages make the transition even more difficult, if not impossible...
...There are powerful reasons, then, for the inability to implement the whole reform package at once...
...The success criteria and bonuses for management and workforce are to depend decisively on profits...
...This applied first and foremost to armaments, but also to electrical energy, where the product is homogeneous and thus readily "plannable...
...There have even been reports of local officials destroying private greenhouses for early vegetables...
...Their salaries, now published, are not high...
...Since the Soviet reforms—and even more so those already adopted in Hungary and China—point in the opposite direction, the sayings of Marx and Engels can always be cited against them...
...To be sure, there were some attempts not only to "perfect" but to change certain features of the system...
...In any case, there was no discernible blueprint...
...Indeed, some writers have even questioned the wisdom of the Founding Fathers...
...Thus far, the dilemma remains unresolved...
...The distinguished economist Nikolai Shmelev put it bluntly in Novy mir (6, 1987): It is essential to realize that the cause of our difficulties is not only or solely due to the heavy burden of military expenditures and to the highly expensive global responsibilities assumed by our country...
...Party and state functionaries have a special reason for resisting the reforms—namely, because they regard them as a challenge to their power and privileges and, in many cases, a threat to their jobs...
...To this must be added a complex network of unofficial relations among the parts of the economy, some of which are corrupt, and others of which take the form of mutual aid...
...474 • DISSENT...
...Second—and this flows from the first principle—management is to be free to choose its own suppliers and the administered "rationing" of material inputs is to be phased out...
...In agriculture, the new plans call for many of the large state and collective farms to become federations of small cooperative units, with cooperative service agencies operating as subcontractors to farms...
...Whether his ideas underwent a change when he realized the full measure of the crisis, or whether he found it politic to unveil his reform program gradually, waiting for the moment when he was strong enough to implement it, we do not know...
...The outcome depends first and foremost on internal factors...
...its major features were left intact...
...What are to be the relations between the ministry of the chemical industry and the chemical-industry enterprises and between those enterprises and the local soviet...
...However, gradualness also creates contradictions, with two "logics" existing at one and the same time...
...Each system, they say, is bound to have both advantages and disadvantages...
...the official exclaimed...
...Yet all these praiseworthy moves have raised new issues...
...The system itself would have to be changed...
...The practice of allocating the means of production from the top is yet to be replaced by trade and free choice of supplier, though moves by stages in that direction are announced...
...Whatever the magnitude of opposition within the ranks of the apparatchiki, it is the party leadership that is pressing forward, conscious as it is of the fact that economic failure translates into political failure as well...
...There are restrictions on full-time private activities of persons of working age and (unlike China, Hungary and Poland, and even East Germany) no one is allowed to employ anyone outside of the narrowly defined family...
...Anatomy of a (Pre...
...Within such a system, the needs of the customer had little or no influence on what was being produced...
...Because next year's plan must be ready by next year, and not in 29,999 years, it is inevitably neither balanced, checked, nor disaggregated...
...Far from moving toward a market-based equilibrium, what we now have is a rapid spread of consumer rationing (meat, milk, sugar, soap, and many other items are no longer freely on sale in many parts of the country), and delays in completing investment projects are longer than ever...
...They are projected as voluntary, genuine, free from official tutelage and control, and engaged in a wide variety of activities in competition with each other and with state enterprises, as in small-scale manufacture, services, trade, construction, even banking...
...This may seem contradictory, because privileges for officials are scarcely what Marx and Lenin meant by equality...
...Important measures affecting the labor force are also in preparation...
...One is a 468 • DISSENT visceral dislike of the inequalities that flow from payment by results, from the freedom to set up cooperatives and to charge higher prices...
...Each element of the reform depends on the others...
...In turn, the constant worry about supplies caused not only the overapplication for materials, but also large-scale hoarding...
...Aside from the problem of ensuring the availability of needed machinery and equipment, the decentralization of investment decisions raises the need for a capital market, or of some other ways of enabling enterprises with financial reserves to invest in other enterprises...
...Gorbachev has sought support "from below" for his measures, but the going has not been easy...
...Was the theory of Marx, Engels and Lenin, then, incorrect...
...In the meantime, the older generation of doctrinaire economists was passing from the scene, and with it the dogged resistance to innovation...
...It must be stressed that it would be unreasonable to expect any rapid improvement either in productivity or living standards...
...There are, to repeat, three basic reasons for it: First, opposition, much (but not all) of it due to vested interests and privileges...
...According to many writers, the country's economy is not merely in a state of a "pre-crisis" but of a full-fledged "crisis...
...In fact, Nemchinov, Novozhilov, and Kantorovich shared the Lenin prize in FALL • 1989 • 465 1964, and the 1965 reform measures reflected some of Liberman's ideas—this, even though Khrushchev had already fallen...
...The system had come into being under Stalin and its overriding purpose was to mobilize all material and human resources for the political priorities set by the state...
...Over the past few years, shortages in this critical area, always a problem in the Soviet Union, have become acute, so much so that they have come to threaten (as Soviet writers openly admit) the very legitimacy of perestroika...
...Enterprises are to stand on their own financial feet and will no longer be able to get subsidies and soft credits...
...plans, enterprises are to have more resources for investment...
...The budget deficit and "soft" credits are part of the cause, and so is a slackening of control over wages...
...The gradual exhaustion of readily accessible raw materials and fuels, necessitating larger investments in remote areas, especially in Siberia, has been one more factor contributing to the relentless decline of the economy...
...Clearly all this cannot be swiftly overcome—it will take years, perhaps several generations [to bring it about...
...Crisis That the Soviet economy is in a deplorable state has now been fully acknowledged by Soviet economists and Soviet political leaders...
...Thus enterprise autonomy requires a radical reform of prices and the abandonment of allocation of materials and the stress on plan fulfillment...
...Many advocate the dropping of expensive investment projects, allowing a shift in Soviet imports from machinery to consumer goods...
...Other economists have said much the same thing...
...Market-based inequalities, however, such as those arising from the sale of early vegetables, are seen as part and parcel of the capitalist mentality, the sordid chase after "profit," and thus a violation of the "socialist" ethos...
...Yet another difficulty is the habits and relationships formed during the long reign of the "Administrative System...
...Not being tied to a specific supplier by the plan means, and is intended to mean, competition between suppliers, with effective customer pressure to improve quality...
...Yet there is, at least on paper, a way out: A cooperative can be set up with a minimum of three persons, and it may also employ outsiders (provided it pays them at the official rate...
...Aside from the questionable logic of this new arrangement—how do you reconcile the fusion of two roles with the stated principle of "separation of powers"?—it also raises some vexing problems of a practical nature...
...Now, with a much larger segment of investment to be decentralized and to be financed partly out of retained profits and partly out of bank credits, their functions will be markedly different...
...But will they...
...Yet might such a step not prove disruptive of inter-republican and inter-regional links...
...Already in June 1986, so many speakers at the Writers' Congress concentrated on this issue that the meeting came to be known as the "Ecological Congress...
...Another decree, published in 1987, provides for joint ventures with foreign, especially capitalist, companies, and in its latest version allows foreign capital to play a dominant role...
...Our society is so organized that the means of production are owned not by a society but by a caste which governs in the name of society...
...It may be objected that this picture is too negative or one-sided...
...Now economic ministries and large enterprises are allowed to deal directly with foreign countries and are allowed to keep a proportion of the foreign currency they earn...
...By the same token, it is unreasonable—in fact, unconscionable—not to welcome the changes now going on in the Soviet Union...
...To take two examples: Few Soviet citizens had been concerned about repair facilities for consumer durables until these became widely available, as they are now...
...Even these few examples should suffice to illustrate why the new Soviet leadership has embarked on a process of change...
...One cannot foresee everything," especially indirect requirements, as for instance of wire for electric motors required for oil pumps that pump oil required by the petrochemical industry, which makes dyestuffs that are needed for the cloth that in turn are needed for the clothing industry...
...From available fragments, it finally became possible to reconstruct a reform program not unlike that which saw the light under Gorbachev...
...In fact, plan-indicators increased in number and the role of profit, stressed in the 1965 decree, was downgraded in 1979...
...So far, key elements of the proposed changes have not been put into effect...
...The old breed of faithful servants degenerated and corruption spread...
...Their unpublished memoranda were leaked to the West, for which they were strongly reprimanded...
...Under conditions of chronic shortage, it is all too easy to make high profits that cause cooperatives and private activities to be seen as "speculation...
...There has been much criticism in the Soviet press of the fact that overcentralization has meant that the vast bulk of the republics' output is FALL • 1989 • 471 allocated by and from Moscow, and that local soviets are powerless, inasmuch as they dispose neither of their own financial source nor of any control over material resources...
...Surely the disastrous effects of loosening centrifugal forces in Yugoslavia should serve as an object lesson for Soviet planners...
...The Soviet press has been full of complaints that a multitude of obsolete and often contradictory regulations stand in the way of genuine enterprise autonomy and innovation...
...Thus the Izvestia columnist Alexandr Bovin: It is clear to everyone that if the country is not supplied in the next few years with foodstuffs, people with clothing, shoes, furniture, electric appliances and so on, if at least some kind of order is not brought into the services industry, if millions, tens of millions are not delivered from the exhausting senselessness of queues and of systematic humiliation by anyone dispensing such "services," all faith in perestroika will evaporate . . . (Moscow News, No...
...The fundamental cause of the malaise lies in the very nature of the centralized commandeconomy model, which Gavril Popov, recently appointed editor in chief of the monthly Voprosy ekonomiki (Problems of Economics) called, in a seminal article in Nauka i Zhizn (Science and Life, 4, 1987), "The Administrative System...
...Neither the quantity nor the quality of the goods (especially in the consumer sector) conformed to market demands and to the growing aspirations of the Soviet public...
...Of course, blatant self-interest, however tenacious, can hardly be used as an argument against reform...
...The 472 • DISSENT remaining output should not be planned at all, either directively or indicatively...
...The chronic shortages are now openly discussed in the press and on television, and Gorbachev himself has blamed them on the present allocation system...
...This is not to say that the appeal to ideology is necessarily sophistry, even though in the Soviet Union ideological principles have been adapted time and again to suit the political needs of the time...
...have led to results directly opposite to those we had anticipated...
...The same, incidentally, is true for Hungary...
...The farms are much more likely to retain control over what happens in what they still regard as "their" land...
...With the revived slogan of "all power to the soviets" and the new constitutional provision for local tax revenues, local soviets have been encouraged to set up their own small-scale enterprises, alongside those controlled by all-union and/or republican ministries...
...The answers to 462 • DISSENT this question must be divided into two parts: those relating to the long-term evolution of the Soviet economic system and those arising from specific malfunctions, some of fairly recent origin...
...The trade unions are to play a more active protective role...
...Perhaps the emphasis on financial discipline, a balanced budget, and payment of wages strictly in relation to performance will eliminate excess demand for both consumer and producer goods and facilitate the introduction of new prices, together with much greater freedom to vary or fix prices by negotiations...
...To reach this goal, the reformers had to agree from the very outset that what has existed in the USSR heretofore was a "deformation" of socialism— indeed, as many authors have openly stated, no socialism at all...
...Under the protective wing of V. Nemchinov, an economist in good standing with the party leadership, the reformist economist Yevsei Liberman published several critical articles, and during this period, too, Viktor Novozhilov and Leonid Kantorovich were allowed to publish ideas on optimal planning involving mathematical methods, which had been proscribed hitherto...
...The press has cited many instances of election of management—and also concern in cases where the "winner" tolerated slack discipline...
...Measures to reform Stalinist agricultural policies were adopted as early as September 1953, and industrial planning was the subject of a decree in 1955...
...It is understandable that Lithuania, for example, resents the fact that 85 percent of its industrial output is controlled by Moscow...
...Another related to agriculture: Especially in the 1970s, huge investments and subsidies had been poured into the countryside, with very little effect...
...Most economists reject the Shmelev proposals...
...To the latter must also be added financial imbalances...
...There is a lack of belief in the officially announced objectives and purposes, in the very possibility of a more rational organization of social and economic life...
...Groping Toward the Future It should be clear, then, that the Soviet leadership is indeed trying to introduce radical reforms in the economy, and equally it should be clear that progress has been slow and uneven...
...And many Soviet citizens had learned to accept the appalling lack of decent housing until the mid-1950s, when Khrushchev began to turn his attention to this problem...
...The assumption that the central authorities knew what was best for society proved a sham...
...Some republics—in the first place the Baltic republics—have demanded "republican khozraschet" (cost-accounting), that is, control by each republic of enterprises within its borders...
...As one Soviet economist told me: "Unfortunately, there are millions of people in our country who prefer not to have any early vegetables rather than see their neighbor make money by growing them...
...In 1967, the price "reform" still left prices based almost exclusively on cost-plus (though the "plus" now included a capital charge), and neither in theory nor in practice did they incorporate supply-and-demand conditions or value-in-use...
...For example, an attempt was made to introduce "normed value-added" as an indicator alongside gross value of output...
...the period of the lease, at first only up to five years, has now been raised to fifty years...
...One of them is the tenet that "socialism" and the market are incompatible and that production for sale is gradually to be replaced by conscious planning...
...The reason why this situation has deteriorated is not a decline in supply but a rapid rise in incomes...
...The traditional centralized system embodied a complex linked network of production and allocation plans...
...Yet another is to expand rapidly joint ventures with Western firms and open up the internal market to them...
...Brezhnev and his colleagues duly acknowledged that the economy was not functioning well and even introduced some reforms...
...Under the old system, their functions were mainly to channel funds in accordance with instructions from above and to check on the enterprises' use or misuse of funds...
...No wonder many of them seek out state orders, so that they may continue to work within the familiar procedures...
...For instance, to be effective, the reforms require a new set of prices and the abandonment of administered material allocation...
...Perennial shortages, declining growth, staggering waste, imbalances, stagnation, and corruption have brought it—in the words of Gorbachev himself—into "a precrisis situation...
...They will thus replace the monopolist (and inefficient) state-run organizations responsible, among other things, for repairs, supplies, "chemicalization," drainage, and the like...
...After all, none of the problems aired in the Soviet press and in speeches of the leaders is exactly new...
...For instance, what precisely are to be the functions of the party apparat on the one hand and of the economic ministry on the other...
...The emphasis is clearly on the role of the market...
...It is, in effect, not a plan in any meaningful sense of the term...
...Indeed, the situation has deteriorated, as can be seen in the alarm expressed by E. Gaidar in his analysis of the economic year 1988 in Kommunist, No...
...Soviet leaders now freely admit what has long been known—namely, that collective farms (kolkhozy) and the cooperative trading network are cooperatives in name only...
...Since the priorities were few in number, since they were all in effect determined by the supreme despot, and since, furthermore, they relied (in Popov's words) on a "sub-system of fear" (that is, terror) and on devoted agents to carry out the policies, the system produced results, at least in the short run...
...To combat widespread apathy there are new steps to secure workers' participation in decision making, and management at various levels is to be elected by the work force...
...Other questions too are legitimate, and urgent: Should workers suffer wage cuts if an enterprise proves unprofitable, especially if they had no voice in making the original investment decision...
...The planners' traditional "material balance" approach tends to underestimate the indirect requirements of the indirect requirements...
...It failed...
...This growth for growth's sake, says Shmelev in another article, make no sense...
...For example, a manager who has succeeded in hoarding excess stocks of metal sheets might arrange to barter them, in exchange for caustic soda or wooden logs or whatever he happens to need, outside of the formal allocation network...
...Clearly, commented Aganbegyan, for this as well as for many other officials, "socialism" is equated with privileged access to goods and services...
...To ensure its fulfillment and to ensure the production of items that are not profitable in the old prices, the compulsory "state orders" (goszakazy), which were to have been confined to only a few super-priority items, are still applied to the bulk of industrial production...
...Moreover, the power of the authorities to issue instructions ("planorders") to hundreds of thousands of enterprise managements throughout the country no longer worked...
...The practical problems of transition, the process of learning to work in new ways, are some causes of what is now seen as an acute crisis...
...But why now...
...Plans in tons penalize economy of metals and reward heavy products...
...The basic criticism to be leveled against this system is that it has come into contradiction with the requirements of a modern industrial economy and with a society with rising living standards and even more so with rising expectations...
...The policy has been largely a failure not only because it led to the virtual disappearance of sugar from stores (bought out for the purpose of making samogon—moonshine), but also because it has proved impossible to cover the gap by a sufficient supply of other goods, and because the loss of revenue from vodka only enhanced the budget deficit...
...On top of this, the fall in oil prices has adversely affected the balance of payments and led to a reduction in imports of consumer goods and in budget revenue from foreign trade...
...One of my own first articles on this subject, in 1958, was filled with examples, culled from the Soviet press, of waste and distortions due to plans expressed in gross value rubles and tons, and other such practices...
...Another area is that of investment...
...Yet another factor is the arms burden...
...The problem of the magnitude of the new tasks may be illustrated by a quip made some time ago by Academician Nikolai Fedorenko to the effect that a fully balanced, fully checked and detailed plan for the year ahead would be ready, with the help of computers, in roughly thirty thousand years' time...
...Housing construction accelerated in the 1960s but slowed under Brezhnev...
...Nor did the policies pursued by the Brezhnev regime bring any succor...
...It has also called attention to the formidable opposition to this process from various strata of society...
...The reform now contains an explicit provision for bankruptcy, but available evidence suggests that it is very seldom applied because of the pressure to maintain full employment...
...At first his emphasis seemed to be on accelerating growth (uskorenie) and tighter discipline in planning of and in the future...
...Also under discussion is the creation of "enterprise zones," possibly in some of the Baltic republics, which are in the process of claiming a high degree of economic autonomy...
...The plans must also relate to labor, wages, costs, profits, investments, and economy of materials...
...Hopes were raised when Andropov succeeded the ailing Brezhnev, in 1982, but they were dashed when he was succeeded by the colorless Chernenko...
...How can the party's role in making all key appointments (the nomenklatura system) be reconciled with free elections of managers (also stipulated in the reforms...
...This has several aspects...
...Some beliefs are genuinely held...
...Even if each of these defects can be illustrated by literally dozens of quotations from Soviet sources, a critic might say, the economy still continued to grow, the wheels kept turning...
...Does this mean that failure is inevitable...
...Only a "radical reform" could turn the situation around...
...One of them is what FALL • 1989 • 469 might be called the inevitability and impossibility of gradualness...
...No wonder radical reform does not sit well with such people...
...Many had been plainly visible even prior to World War II, and had in fact been subject to criticism before...
...For instance, it pays little attention to externalities—that is, to situations in which microprofitability may be a misleading guide to efficiency...
...What follows is 466 • DISSENT less a description of the actual situation than one of what the reformers hope will take place when the measures, spelled out below, are implemented...
...Some managers welcome new responsibilities, other fear and shun them...
...Similarly, she points out, younger and more skilled workers are likely to see advantages and opportunities in the proposed changes, whereas the older and less skilled are apt to resent them...
...This "planning from the achieved level," as it has come to be called, is now being criticized for its manifest flaws, but it helps to explain why the wheels did turn...
...Furthermore, under those conditions techniFALL • 1989 • 463 cal progress is in effect discouraged, partly because there is no reward for risk-taking and partly because the material means and investment financing are tightly controlled from above, thus allowing for no initiative from below...
...For instance, the long overdue efforts to bring prices into line with supply and demand, thus eliminating the onerous and wasteful practice of state subsidies, has met with massive resistance, even though Gorbachev promised to compensate for the proposed price increases with commensurate wage hikes...
...In fact, it proved necessary to mobilize additional millions of workers, students, and soldiers to help with the harvesting...
...Advances in technology require increasingly complex and variegated solutions...
...Thus the economist A. Sergeyev, in Voprosy ekonomiki No...
...One reason for imbalance between supply and demand for consumer goods has been the revenue loss from the reduction in the supply of vodka since 1986...
...It also applied to oil and gas production and to the construction of a network of pipelines: In each of these fields, the Soviet system had scored impressive achievements...
...But is the answer to give that power to Vilnius...
...In addition, republican powers have also been enhanced...
...As of now, however, these measures have not been put into effect...
...Where lies the boundary between them...
...A further important measure concerns cooperatives...
...They had a long prehistory, albeit one marked far more by failure than by success...
...However, the Baikal-Amur railroad project is now seen as wasteful...
...For that matter, would this not still be the case even if the decision is taken by a manager elected by workers...
...Managers have not had to bother about finding customers, because they were designated by their superiors in the planning hierarchy...
...Indeed, the Khrushchev era (1956-1964) saw a number of bold attempts to tackle the afflictions of the "Administrative System...
...1, p. 3, 1989...
...One was demographic: the extremely slow rise in the numbers of the working population meant that growth now depended almost wholly on increases in labor productivity...
...Finally, with fulfillment of the plan having been made the primary criterion for success, managers, anxious above all else to have their plans fulfilled, have regularly understated their production possibilities in order to keep some capacity in reserve for contingencies...
...There was to be no more talk about "perfecting the existing system...
...This view stands logic on its head...
...Glasnost has opened the door to spirited discussions not only about the excessive number of parasitic bureaucrats, but also about their privileges: their special shops in which goods unavailable to ordinary citizens are sold at modest prices, their own hospitals, country villas, and transport...
...Above all, they are aware, as Gorbachev himself has put it, that "there is no other way" except reform...
...Another problem concerns the new role of the Communist party and its full-time officials, 470 • DISSENT as well as of the economic ministries...
...All three were interlinked, each one important by itself and each essential to the other...
...as Zaslayskaia has said, it had been no one's task to draft one...
...All this requires the elimination of shortage (excess demand...
...Third, a major price reform is plainly essential, so that what is needed is indeed profitable...
...Continued stagnation would threaten the security of the regime, internally and externally...
...At the Siberian headquarters of the Academy of Sciences in Novosibirsk, Abel Aganbegyan and Tatiana Zaslayskaia, who subsequently became leading exponents of perestroika, proposed a variety of strategies...
...In my view, it is logical...
...Planning worked in those sectors to which the state gave priority and whose needs could be easily quantified...
...Soviet management was cut off from foreign markets and had neither the opportunity nor the knowledge, nor yet the material interest, to produce for export...
...Every reformer, including Gorbachev, is painfully aware of these problems and of the urgent need for resolute measures...
...In this and other cases it would make economic sense to produce less, but what with the relevant ministry chasing growth targets, production stays high, regardless of need and quality...
...In fact, this is how the radical reformers see the way forward...
...This was one reason for the poor performance of Soviet manufacturers in world markets (the bulk of Soviet exports to the West still consists of fuel and raw materials...
...To cite one example, according to the reform * The Minister of Finance has finally admitted that the budget has been in deficit for years, and that no less than one hundred billion rubles of expenditure in 1989 is to be covered by advances from the State Bank...
...And so the measures failed to make any significant impact...
...Until 1987, virtually all trade was channeled through the Ministry of Foreign Trade and its specialized corporations...
...There are millions of product variants...
...Similarly, despite official policy statements, including those by Gorbachev, that officials must stop interfering with the management of state and collective farms, the old practices endure...
...Pollution is an external diseconomy (it is usually profitable to pollute, it costs more money to clean up...
...However, the latter were always described as "the further perfecting" of the existing system (though it's hard to see how anything "perfect" can be made even "more perfect...
Vol. 36 • September 1989 • No. 4
