Economic reform in Russia
Medvedev, Zhores
Ukraine recently stopped supplying food to the Krasnoyarsk region of Siberia. Krasnoyarsk Atomgrad, which has an underground store for radioactive waste, responded by refusing to take spent...
...if food prices rose sharply, food would flow into the towns...
...The democratic and nationalist groups that won the elections to the republican Supreme Soviets and to the councils of several large towns (particularly Moscow and Leningrad) in 1990 do not have the political infrastructure to impose their influence in the provinces...
...The exploitation of Siberian oil and gas reserves made this possible...
...A market economy can only arise in Russia, and in the other members of the CIS, as a complement to the state economy...
...For example, the prices—in rubles and in dollars—of more than two million industrial components that cross the new state boundaries will have to be determined...
...From 1929 to 1931 the collectivization of agriculture allowed the government to confiscate food forcibly and use it for rapid industrial development...
...In theory, free prices mean that goods and food products move to the place where the producer receives the highest price and the greatest profit...
...But the directive system of distribution cannot be reintroduced because the political structures that supported it simply do not exist...
...Paradoxically, however, the direct cause of the economy's collapse was the democratization of local government and the removal of the Communist party of the Soviet Union (CPSU) from the economic infrastructure...
...The interests of the center always prevailed over local interests...
...This will reduce the gas supplied to the European part of the CIS...
...Collectivization made it possible for certain regions to specialize...
...Instead, it resulted from the confrontation between republican political and nationalist groups and the center...
...Krasnoyarsk Atomgrad, which has an underground store for radioactive waste, responded by refusing to take spent nuclear fuel from Ukraine...
...The Central Committee of the CPSU controlled appointments to all important party and political posts in the republics and regions...
...The peculiarity of the 1991 revolution lies in the fact that it was not a clash between the ruling party and the opposition in the central union government...
...In the last twenty years the population grew by fifty million people while food production SPRING • 1992 • 147 remained more or less static, averaging about 170 tons of grain per annum, the 1969 level...
...Increasing imports was impossible because the output of oil had fallen sharply...
...The CIS is held together only by its interdependent economy, which cannot be managed without a totalitarian administrative elite...
...The democratic parties were strong in Moscow and Leningrad, but extremely weak in the provinces...
...Yerevan has electricity for only a few hours a day...
...They did not reckon with the fact that in its seventy years of monopoly power, the CPSU had acquired administrative and economic functions that ensured the fulfillment of all state programs...
...A modern capitalist market economy is much more complex than a centralized socialist state system and the transition to the market is less likely to be a leap than a prolonged, painful process...
...The division of Aeroflot and the many other shared structures and services that all fifteen republics will continue to need lies LONDON: FEBRUARY 1992 ahead...
...The Food Crisis The unique feature of the USSR is not its industrial system (much of which was based on Western models) but the collective and state farm system of agricultural production...
...Having disintegrated into fifteen republics, the country is continuing to break into economically independent regions along ethnic and administrative boundaries...
...New Tallin port, newly completed to serve the whole USSR, wants payment in dollars for unloading goods in transit to the Commonwealth of Independent States (CIS...
...Lithuania is demanding part of the oil that is pumped through the country...
...Independent or not, the fifteen former Soviet republics need a single currency...
...In Russia, Ukraine, and Belarus, millions of people who worked in military industries will be unemployed...
...The directed system of distribution collapsed and, with it, food supplies to Moscow, St...
...Boris Yeltsin has ordered the modernization of the old port of St...
...Turkmenia plans to sell its natural gas to Iran and Pakistan for hard currency...
...It was easy to displace the party from politics, but replacing it in the sphere of economics proved much more difficult...
...To judge by the experience of the first month of free prices, however, the experiment has not produced the desired results...
...The failed coup in August 1991 was an attempt at the first remedy...
...Leningrad, Sverdlovsk, Gorky, other military-industrial centers, secret nuclear and missile towns, science towns like Dubna, Obninsk, Akademgorodok, and so on, enjoyed similar privileges, as did the capital of each republic...
...So far, the only things that have changed in Russia are prices...
...In 1933 and 1934 millions of peasants died of starvation in the rural areas of Ukraine and south Russia while Moscow, Leningrad, Kharkov, and Kiev were towns of plenty...
...In some cases production has actually fallen...
...If the government gives in to pressure and raises salaries, another twist will have been given to the inflationary spiral...
...The second and third ways of coping with the crisis were begun on January 2, 1992, when prices for all goods and services were "liberalized" —dramatically sharpening the economic conflicts between republics...
...In the agricultural sphere, this led to a situation where the main obligation of all local leaders was to ensure the supply of food to the state rather than to the local population...
...SPRING • 1992 • 149 It will take several years (perhaps until 2000) to attain the balance between industrial and agricultural production that is essential for the economy...
...This, in essence, is what the CPSU was for many years...
...With monopoly control of the production and distribution of food, collective and state farms were obliged to supply a predetermined amount of food to the state at fixed prices...
...But allotting the merchant fleet is no less controversial...
...Dividing it by port of registration will not work: republics like Belarus and Kazakhstan have no ports, but they want their share of merchant shipping...
...After all, London, Paris, and New York have abundant supplies not because of government directives but because of the market...
...The exchange of goods among regions has fallen...
...In a situation where the monthly income of a worker is equal to five kilos of sausage, strikes are inevitable...
...Local bosses became dependent upon their own voters and not upon 148 • DISSENT republican or Moscow authorities...
...It cannot be created by destroying all the useful structures of the state system...
...The government no longer had hard currency or gold reserves to pay for increased imports, and inflation had reduced state procurement...
...People who lived in areas that produced the main national riches often had a much lower standard of living than those who lived in the capitals and military-industrial centers...
...Producers charge the highest possible prices to maximize their profits, but they are not increasing production...
...By the autumn of 1991, instead of the one hundred million tons required, the state only had twenty-eight million tons of grain to distribute...
...With the center losing its power over the provinces, the system of priority supply to special towns collapsed...
...By 1992 it was nearly two hundred million...
...Instead of rising two or threefold (the amount that would have replaced the subsidies), many prices have risen ten, fifteen, twenty times, making almost everyone in the country poor...
...The problem is that the governments that have taken these measures are virtually powerless...
...The transition from a centralized to a market economy is proving enormously complex...
...But the gravest crisis at present is the breakdown of the centralized food distribution system...
...The urban population has grown tenfold since 1913, while the production of grain only doubled...
...The industrial development of the Urals and Siberia, Central Asian cotton production, Georgian and Moldavian fruit farming, and the concentration of high technology in the Baltic republics would have been impossible without state monopoly of food procurement and distribution...
...This made sound economic sense, given uniform prices...
...The transition from socialism to capitalism, which began on January 2, seems to be leading in the same direction...
...By the end of 1990 consumer and food products had already begun to be used closer to where they were produced...
...Moscow or Leningrad were always supplied with goods even if they were in short supply in the towns and regions that produced them...
...They could no longer be removed by party or ministerial directive from Moscow, and they ceased to act as local regents for the center...
...However, centralized control also limited agricultural growth...
...Russian collective and state farms would, it was thought, take goods to the towns if the prices were high enough...
...The opposite might happen in 1992 unless there is massive food aid from Western Europe and the United States...
...No one republic can exist without the others, since their economies are hopelessly interdependent...
...The first was to return to totalitarianism, forcibly confiscating food from the collective and state farms...
...Democracy and Centralized Food Distribution There was a serious food crisis in 1991, aggravated by a poor harvest...
...Dividing up union property is particularly difficult...
...What is taking place is not the creation of a market infrastructure independent of state power but the formation of a Russian command-administrative system that will, inevitably, strengthen the power of the government...
...Azerbaijan is blockading the railway line to Armenia and interrupting Armenia's gas supply...
...They must be moved from previously privileged towns to other regions, and some of them must move to the agricultural sector...
...Clearly, this situation could not last...
...Petersburg, and many Ural and Siberian towns...
...The Soviet totalitarian system directed the macroand micro-economy as well as politics, ideology, education, the press, and other elements of the superstructure...
...So far the reform has demonstrated little about market distribution and a great deal about the instability of the ruble...
...There is an energy crisis in Latvia and Estonia because their oil supplies have been drastically cut...
...As the economic crisis deepens, so economic conflict among the former Soviet republics proliferate...
...There were three possible ways of dealing with this situation...
...Ukraine, Belarus, and the Baltic republics will introduce their own currencies to protect their consumers, nudging Russia toward a radical monetary reform...
...The political forces that have come to power in the various republics differ from one another and do not share the same goals...
...After Khrushchev, however, the Soviet leadership supported industrial growth and urban expansion by importing huge amounts of food...
...In the final analysis it must include agrarian reform and demographic movement...
...The third way was foreign aid...
...The centralized system of elevators for storing grain, transport, food processing, urban storage, and so on, cannot be reformed yet...
...The Economic Reform of 1992 Having destroyed the center and vanquished the CPSU, Yeltsin and the "Democratic Russia" bloc concluded that a market system could replace the previous system of distribution if prices were radically reformed...
...Parceling out the railway and deciding on transit charges for goods being shifted across republics is even more complicated...
...Although there is danger of hunger in those towns, there is sufficient food in Russia as a whole, and in the CIS...
...None of the leaders of "Democratic Russia" could have guessed that their victory over the CPSU would turn into a catastrophe for the consumer towns...
...New credits were negotiated, which increased the external debt from twenty-five to eighty-four billion dollars...
...Each autumn all organs of power from the central government to the most junior local official had to concentrate on the procurement of food: the urban population had increased far more rapidly than food production...
...The ruble has depreciated several times in relation to goods...
...Without the strict centralism of the CPSU, they could not establish local structures to ensure that President Yeltsin's decrees or the laws of the Supreme Soviet of the Russian Federation were implemented locally...
...Much publicity has been given to the conflict over the Black Sea fleet and the army...
...Any leader of any republic (whether or not "elected") could be removed by a decision of the Politburo...
...But the world price of oil fell from forty to ten dollars a barrel in 1986, and Soviet petrodollars could no longer support food imports...
...Factory, mine, enterprise, institute directors, chairmen of regional and town executive committees, and so on, were always party members, their appointments confirmed in Moscow...
...At present there is no alternative to centralized state procurement and retail sales of food...
...The Russian "shock" has turned out to be far more severe than the Polish version, since it has not, so far, been followed by the reappearance of goods...
...Thus the reform has reduced the value of labor in relation to the price of food, removing the workers' incentive to improve labor's quality and productivity...
...Oil and natural gas were sold on the world market to subsidize the purchase of food...
...State and collective farmers did not want to sell their produce for depreciating rubles...
...In 1972, 1975, 1981, and 1991 the production of grain fell below this level...
...The transition from capitalism to socialism in Russia led to the destruction of the national economy...
...Dairy products produced in Kaluga, for example, or meat products from Tula were no longer sent to Moscow or Leningrad...
...Demand always exceeded the volume of food supplied to the towns...
...Shock therapy" has been a shock without any therapy...
...Mikhail Gorbachev had to use hard currency and gold reserves and other resources to fund the imports...
...The producers remain monopolists, and there is no competition for their goods...
...Local interests began to take precedence, at least as far as the distribution of consumer and food products was concerned...
...Petersburg so that goods from Europe can be unloaded there...
...The removal of the party's monopoly of political power and the introduction of local democratic elections radically changed the relationship between the center and the provinces...
...The flow of goods would be regulated by money rather than by directives...
...The second was to remove all subsidies and abolish stable prices...
...The food produced in a three hundred km radius around Moscow was sent to Moscow, for example, and not to the closest town...
...Depending upon demand, they went first to the shops of Kaluga or Tula...
...It also supervised all important administrative and economic appointments...
...In 1927 the urban population of the USSR was thirty-two million people...
Vol. 39 • April 1992 • No. 2
