Shock treatment might backfire

GEORGIE ANNE GEYER

December 26, 1991|By Georgie Anne Geyer

Washington -- IT IS the end of the old year, and in a Soviet Union at the time of its sunset it is the end of the old order. The two should somehow blend together at this joyful time of the year, offering us the hope of beginning piled upon new beginning.

Yet, there is a growing suspicion -- almost a certainty -- that those beginnings for the Commonwealth of Independent States, nee the Soviet Union, already are stillborn. In short, the much-touted economic "shock treatment" for the Soviet Union is not working -- and almost surely will not.

This is far more serious than saying that the new commonwealth has hard and precipitous times ahead. This is to say that the entire principle upon which reform was to work was and is wrong, and further that it might now well backfire against the very democratic and free-market reforms the West so desires.

Even the New York Times headlined on the eve of the pre-Christmas conference in Alma-Ata, which brought the new union to birth, that "The Future Is Now, With Russia Unready." More and more, the Times' comprehensive article said, "a growing number of critics argue that everything has come in reverse order, that opening the door to Western investment and institutions should have come only at the end of a long preparation."

I have long been one of those anonymous critics.

Since Mikhail Gorbachev began his opening of the Soviet Union in 1985-86, an inchoate group of avid American free-market economists -- some of them from Harvard, some from the Treasury -- have advised many East European governments, on multiple levels, that they must transform their economy by an overnight "shock treatment" policy. They eschew the idea of patiently building a capitalist economy from the inside out and the bottom up.

This much-ballyhooed shock treatment will not work. Here is the problem that Russian president Boris Yeltsin and his new men of the post-communist world face. If you suddenly release all the prices in a genuinely capitalist system, which already has its entrepreneurs, prices and a good distribution system, then the system will react to the incentives. But, in the commonwealth, there is no system to react, so the only assurance is that more chaos will ensue.

What's more, the imperfection of the marketing system, which is magnified in the Soviet republics, then perpetuates and even creates an atmosphere conducive for terrible new abuses. Indeed, it clears the way for the old Communist Party apparatchiks and the racketeers who control virtually all of the free rubles in the new states to gain a monopoly over whatever productive forces are left and whatever new ones can be created.

In short, the most likely scenario at the moment is that you no longer have the old system working (although it was grossly inefficient and unproductive), and you don't have the new system either.

Indeed, reformer Yeltsin set the country adrift when earlier this fall he foolishly and imprudently abolished with a single sweep all of the ministries having to do with commerce, industry and production. In doing so, he utterly disregarded and tossed aside one of the cardinal lessons of developing a country and particularly of transforming one type of economy to another: Do not dismantle any entity that has been giving some service to the people until you have another ready to take over its functions!

Many of the discordant attempts to reform will be traced to the impassioned, ill-thought-out advice of many of the Western economists, particularly those from Harvard (led by Jeffrey Sachs) and those fanatic free-marketeers left over from the Reagan administration and now in the Department of the Treasury. Their idea -- just let the market go free and create a new market through a spontaneous combustion of destroying the old -- may well turn out to be just the thing that will serve in the not-too-distant future to discredit capitalism and democracy in Russia.

Finally, then, the danger is that the peoples of the new commonwealth will soon be convinced that it is the free market and that it is democracy that are at fault -- and they will turn against both, probably to some new populist military dictator.

Meanwhile, example after example of the dangerous new mood is becoming apparent. The respected mayor of Moscow, Gavriil K. Popov, one of Mikhail Gorbachev's original believers in perestroika, threatened to resign over just these questions. Not only were goods and gifts from the United States being stolen by the hungry masses, but the police were joining the robbers, presaging the breakdown of law and order that everyone fears. Stories suddenly came out about how the people now look back fondly at the long-discredited "era of stagnation" of Leonid Brezhnev in the 1960s.

Many of us have argued all along that there was not really much the West, and the United States in particular, could do to help the Soviet Union change. Now the one message the West has given, through its modish but analytically limited economists, may be the most counterproductive one we could have given.

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