Gorbachev hangs on while the economy goes sour

Anders Aslund

April 24, 1991|By Anders Aslund

THE COLLAPSE of the Soviet economy is well under way.

This year has started with drastic declines of virtually all production.

Even the government expects a slump in national income of 15 percent to 20 percent, and it could get worse.

This crisis is a natural consequence of the disastrous economic policies of the Gorbachev administration.

The only good news is that such a steep decline cannot last long. Something dramatic AndersAslundmust happen.

The experience of Eastern Europe suggests that democratization is a necessary condition for true change in the system. Polls indicate the Soviet public agrees, but the democrats lack organization and clout. By contrast, the communist establishment -- the army, KGB, party and enterprise directors -- remains organized and wants to stay in power.

The center of power seems to revolve around the directors of big industry. They are formidable: Their main organization, the Scientific-Industrial Union, represents enterprises responsible for 65 percent of Soviet manufacturing.

While the directors advocate a market economy and business links with the West, all of which may sound progressive, a crucial belief in democracy is missing -- and they understand nothing of nationalist problems.

The directors' battle cry is "51 percent of the shares to the managers!" These men are technocrats without ideological hang-ups, possibly prepared for necessary compromises. They are not brutes. But their choice of role models illustrates how poorly they understand world economic and political realities.

They cite South Korea, Taiwan, Spain under Franco and Chile under Pinochet. Their flawed assumption is that these countries went through a gradual transition to a market economy. In fact, the market and private ownership were already prevalent.

Their course is more cautious than the short-lived radical plan named for the economist Stanislav Shatalin.

Where Shatalin proposed a 500-day plunge into a market economy, the plan of the Scientific-Industrial Union is more gradual, centralized and oriented to big business.

These technocrats are waiting in the wings.

Mikhail S. Gorbachev's current aides, like Prime Minister Valentin Pavlov, have shown such a dismal understanding of economics that it is hard to imagine they will be able to hold power for long.

This year alone the government has raised the deficit from 80 billion rubles to 248 billion, or to 20 percent of GNP, allocating 150 billion rubles to new social programs and 110 billion rubles to new subsidies.

This is pure populism forced on a government that lacks legitimacy but resists democratization.

The union treasury received only a third of planned revenues in the first quarter.

On April 2, retail prices were finally raised by 90 percent, to improve market balance.

But the government undercut this move by promising citizens compensation for 85 percent of the price increases (though it eventually gave 70 percent).

Incredibly, Pavlov has simultaneously deregulated wages. Currently, wage demands range from 100 percent to 600 percent increases, and this is only the beginning.

Inflationary expectations are extraordinary, and hyperinflation seems inevitable. Few goods have appeared in the shops, since suppliers await further price increases. Commodities that re-emerge often cost 10 times more.

Russians are flabbergasted and are increasingly taking to the streets.

The valiant faces of striking workers in Byelorussia -- the Soviet Prussia -- suggest how deep the crisis is.

Well-positioned to lead the technocrats' takeover of the dismal economic policy is Arkady Volsky, 58, a longtime official of the Central Committee who was an economic adviser to Yuri Andropov, the late Soviet leader.

Right now he is keeping his head down, because he realizes the current leaders are likely to fall soon. Then he is prepared to take over, presumably as prime minister.

He has built up a strong apparatus with several well-known reform economists, including some from the Shatalin group such as Nikolai Petrakov.

His group's strength is an inauspicious development.

Instead, the Soviet Union should look to Poland in the early 1980s to understand what a communist "middle of the road" policy would mean.

Gen. Wojciech Jaruzelski's authoritarian stabilization did lead to a certain economic recovery. But a market economy arose only after democratization, because state directors continued to follow political rather than economic criteria.

Anders Aslund, director of the Stockholm Institute of Soviet and East European Economics, is author of "Gorbachev's Struggle for Economic Reform."

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