In the Soviet Union,no there there

Robert Kuttner

September 04, 1991|By Robert Kuttner

A MARXIST, Antonio Gramsci, put it best. "The crisis consists precisely in the fact that the old is dying and and the new cannot be born," he wrote from his prison cell in the 1920s.

"In this interregnum a great variety of morbid symptoms appears." Gramsci, as it happened, was referring to the anticipated collapse of capitalism. But his oft-quoted epigram describes the utter stalemate of Soviet communism.

History has never seen a gridlock of politics and economics quite like this one. Before the August coup and its aftermath, the Western powers were inching toward some kind of "Grand Bargain." The Soviets would finally agree to embrace a market economy; the West, in careful stages, would pump in money to ease the transition.

Even prior to the failed coup, there were deep divisions among the major Western nations about what reforms had to occur, and in what sequence, before any money flowed. Several European nations were willing to let the Soviets join the World Bank and begin receiving loans; the U.S. administration was not.

But the apparent disintegration of the Soviet Union compounds an already intractable problem and moots the debate. For the time being, there's no there there.

As the post-communist experience to date in Eastern Europe suggests, the reconstruction of a market economy is an exercise in careful sequencing and deft politics, even under far more propitious conditions than those facing the Soviet Union.

To begin with, the government must be willing to achieve currency reform. That means roughly balancing its budget and allowing local currency to be freely exchanged for dollars and deutsche marks. Only in this fashion can its own citizens begin to trust their currency and can foreigners begin to invest.

After budget and currency reform are accomplished, the government must begin the painful process of withdrawing subsidies from uncompetitive enterprises, weeding out viable ones from failing ones and allowing rigged prices to revert to true prices reflecting supply and demand. With an embryonic market economy functioning, private entrepreneurs can gradually emerge.

Once the post-communist governments of Eastern Europe committed themselves to this process, the World Bank and the European Community stepped in with financial aid.

But Poland, Hungary and Czechoslovakia began with three immense advantages. First, the old communist elite was shoved out of the way fairly quickly, removing obstacles to necessarily painful economic reforms. In the Soviet Union, communist factory managers, purchasing agents and state planners are still in place.

Second, Poland and Czechoslovakia and to a lesser extent Hungary have genuinely popular governments, with the prestige to administer unpleasant economic medicine. In the Soviet Union, Gorbachev had to tack between hard-liners and reformers precisely because he lacks popular support. The long-suffering Soviet people have little appetite for further hardship.

And third (though Czechs and Slovaks have their political differences), Eastern Europe, with the exception of Yugoslavia, does not have the centrifugal pressures of the Soviet Union. Even with all of these relative advantages, their economies are far from recovery.

But in the Soviet Union, there is an excruciating series of chicken-and-egg dilemmas. What happens to money-losing enterprises after the subsidies cease? How do ordinary people collect pay and put bread on the table? The process of budget and currency reform has not yet gotten to step one.

Will the ruble continue to be the currency for the former Soviet empire, or will the various republics print their own money and have their own budgets? This may be fairly easy for the Baltic states, not so easy for the Ukraine, Kazhakstan and Byelorussia, which have no history as independent countries or economies.

Economic reform itself must be carefully staged. But it cannot occur until basic political issues are settled. Even if the Western nations agreed on a Grand Bargain allowing aid to flow in increasing sums as a series of benchmark reforms were achieved, now there is no central authority with whom to negotiate such a bargain.

And in the meantime, the Soviet economy continues to collapse. A market economy does not exist, but people no longer heed the commands of a command economy whose authority has evaporated.

This situation is unprecedented. After World War II, economic reforms could proceed in the defeated Axis powers because it was at least clear who was the government. And in other cases where decaying empires broke up politically, such as the Ottoman and Austro-Hungarian empires after World War I, an economy was at least functioning.

But in the present crisis, political gridlock and economic gridlock are intertwined. The Western debate about whether to offer aid to the Soviets, to say nothing of when, and how, and how much, remains on hold until we know whether Soviets exist -- or only Ukrainians, Kazakhs, Russians, Lithuanians and Armenians.

Generations of Marxists viewed Antonio Gramsci as something of a prophet. He was more prophetic than they knew.

Robert Kuttner writes on economic matters.

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