WASHINGTON. — This week's Group of Seven meeting in London offers the industrialized democracies both a profound challenge and an historic opportunity. A creative Western response to the economic turmoil in the Soviet Union could facilitate a peaceful transition in that country from a state-controlled to a market economy and from a one-party dictatorship to a multi-party democracy. An imaginative and daring approach by the West could even pave the way for a generation of peace.
With its economy in a free fall and its centralized political system under siege, the Soviet Union has reached the end of its communist road. If current trends in the U.S.S.R. are not reversed, the consequences not simply for the Soviets but for the entire world could be profound -- and profoundly troubling. One cannot rule out the possibility of a right-wing coup turning reformist elements out of the Kremlin, a significant increase in international tensions and even a Soviet civil war -- the first
intra-national conflict ever to convulse a nuclear-armed state.
Given the enormity of the stakes, it would be inadvisable for the West simply to stand aside, watching passively from the sidelines, while a great country disintegrates into chaos and anarchy.
The United States, therefore, should be prepared to take the lead in putting together a major package of Western assistance -- but only under certain precisely defined and clearly stated economic and political conditions. Specifically, in order for the Soviet Union to receive Western aid, we must insist that Moscow:
* Enact a comprehensive economic reform that would by definition, include the privatization and de-monopolization of industry and agriculture, the establishment of a convertible currency and the use of market mechanisms as the means of determiing prices.
* Establish a multi-party parliamentary democracy and elect a new government which, by virtue of its popular mandate, will have the credibility to enact what will necessarily be very painful reforms.
* Cut back its defense spending to a level commensurate with the emerging strategic realities of the post-cold war era and begin the process of converting its military-industrial complex into consumer-oriented industries.
* Terminate its subsidies to Soviet satrapies in Cuba, Vietnam and Afghanistan.
* Institutionalize a new relationship between the center and the constituent components of the U.S.S.R. compatible with the aspirations of the people of the individual republics -- even if this entails the restoration of statehood for Latvia, Lithuania and Estonia and outright secession from the Soviet Union by those republics like Georgia and Moldavia, which were incorporated into the Soviet Union by force of arms rather than by their own free will.
If the Soviet Union were to adopt a program of radical economic and political reform along these lines, it would be very much in the interests of the West to assist this process by providing the necessary capital for the establishment of a currency stabilization fund, the importation of essential goods and
services and the conversion of military plants to consumer factories.
For the West to provide substantial amounts of aid without fundamental reform would be economically imprudent and politically impossible. But for the Soviets to move ahead with fundamental reforms without a commitment of substantial amounts of aid from the West would certainly be economically excruciating and could be politically undoable.
Rather than waiting for the Soviet leadership to implement a full program of reform, before we even begin to consider whether and what kind of aid to provide, we should work with the other industrial democracies, as well as te World Bank and the International Monetary Fund, to develop a package of investment opportunities, trade benefits, standby credit guarantees and direct forms of development and humanitarian assistance, which would be made available to the Soviet Union only after the Soviet leadership commits itself to, and begins to implement, the necessary political and economic reforms.
By indicating a willingness to make the necessary resources available, we would give the Soviets the incentive and confidence to move forward. But by making the assistance available only as the necessary reforms are carried out, we would avoid the risks associated with a ''blank check'' policy in which our aid was given not in conjuction with, but in anticipation of, reform.
It may be that the Soviets will not be prepared to embrace the concept of a ''grand bargain,'' in which they move forward on reform while the West moves ahead on assistance. Even at this late date, it remains to be seen whether Mr. Gorbachev is truly prepared to cross the Rubicon of real political and economic reform.