Gorbachev edict lets market set wholesale prices

October 05, 1990|By Scott Shane | Scott Shane,Moscow Bureau of The Sun

MOSCOW PHC YRB — MOSCOW -- Using his new powers for the first time to move toward a market economy, Soviet President Mikhail S. Gorbachev ordered yesterday that wholesale prices for many goods next year be negotiated between buyer and seller rather than set by the state.

The presidential decree, unveiled on the evening television news, suggested that Mr. Gorbachev has decided to implement economic change unilaterally without waiting for an indecisive parliament to approve an economic plan.

"There are certain key issues today on which we as a country and as an economy cannot wait until a program is completely worked out," said Soviet Finance Minister Valentin S. Pavlov, discussing the decree in a televised interview. "One of those key issues is prices."

Enterprises have been stymied in their attempts to negotiate contracts for 1991 because they don't know what prices to charge, Mr. Pavlov said. The pricing bureaucracy, in turn, has been waiting for the U.S.S.R. Supreme Soviet to choose between two plans for the transition to a market economy, but the parliamentarians so far have been unable to agree.

Last week, a few days after receiving special powers to implement economic reform or preserve law and order, Mr. Gorbachev decreed existing economic ties between enterprises frozen until the end of next year.

Mr. Pavlov acknowledged the contradictory nature of the decrees: "I would say from one point of view it's a policy of stabilization. But from another point of view it's in practice a transition to market." The minister described the decree as a compromise.

Even before the latest decree, enterprises have increasingly been given greater freedom to negotiate wholesale prices over the past two years. But most prices are still set by bureaucrats guided by social considerations or past practice rather than supply and demand.

Mr. Pavlov gave the example of children's clothing, for which fixed state prices have been kept artificially low to ensure that it is affordable for all. The predictable result: factories find it unprofitable to make children's clothing, and it is in permanently short supply.

"If the price is negotiated, then the problem of unprofitability of production disappears automatically, and you can predict in advance that the enterprise will begin to produce children's goods," he said.

Trying to forestall the possibility of a run on already skimpy pTC supplies in stores, Mr. Pavlov insisted that the decree would not affect retail prices. He said the state would continue to pay the subsidies necessary to keep retail prices frozen for the time being.

Three potential problems arise in connection with Mr. Gorbachev's latest decree:

* By allowing wholesale prices to rise while holding retail prices stable, the government may be forced to pay enormous subsidies. Yet by its own account, it is nearly broke and can pay higher costs only by printing money and thus further undermining the ruble.

* Like last week's decree freezing existing economic relationships, yesterday's decree gives new power to the bureaucracy run by Prime Minister Nikolai I. Ryzhkov. Yet the ministries have smothered past attempts at reform in red tape, and the public standing of Mr. Ryzhkov's government is at an all-time low.

* Like the rest of Mr. Gorbachev's decrees, this one may be in danger of being ignored by the 15 Soviet republics, which have asserted either their sovereignty or full independence. Mr. Gorbachev has repeatedly acknowledged republican sovereignty in his speeches, but his decrees tend to ignore it.

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